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<SEC-DOCUMENT>0000950134-06-018885.txt : 20061010
<SEC-HEADER>0000950134-06-018885.hdr.sgml : 20061009
<ACCEPTANCE-DATETIME>20061010161325
ACCESSION NUMBER:		0000950134-06-018885
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20060625
FILED AS OF DATE:		20061010
DATE AS OF CHANGE:		20061010

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PIZZA INN INC /MO/
		CENTRAL INDEX KEY:			0000718332
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-GROCERIES & RELATED PRODUCTS [5140]
		IRS NUMBER:				470654575
		STATE OF INCORPORATION:			MO
		FISCAL YEAR END:			0626

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12919
		FILM NUMBER:		061137973

	BUSINESS ADDRESS:	
		STREET 1:		3551 PLANO PARKWAY
		CITY:			THE COLONY
		STATE:			TX
		ZIP:			75056
		BUSINESS PHONE:		469-384-5000

	MAIL ADDRESS:	
		STREET 1:		3551 PLANO PARKWAY
		CITY:			THE COLONY
		STATE:			TX
		ZIP:			75056

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PANTERAS CORP
		DATE OF NAME CHANGE:	19901126

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CONCEPT DEVELOPMENT INC
		DATE OF NAME CHANGE:	19870212
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d39929e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D. C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-K</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(Mark One)

</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Annual Report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended June&nbsp;25, 2006.</B>
</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Transition report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934<BR></B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number 0-12919</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>PIZZA INN, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Missouri</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>47-0654575</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification No.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>3551 Plano Parkway</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>The Colony, Texas</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>75056</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Registrant&#146;s telephone number, including area code: <B>(469)&nbsp;384-5000</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Securities registered pursuant to Section 12(b) of the Act:

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Title of class
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Name of each exchange on which registered</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>Common stock, par value $.01 each</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>NASDAQ Capital Market</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Securities registered pursuant to Section 12(g) of the Act: <B>None</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form 10-K
or any amendment to this Form 10-K. <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of &#147;accelerated filer&#148; and &#147;large accelerated
filer&#148; in Rule&nbsp;12b-2 of the Exchange Act. (Check one):
</DIV>
<DIV align="center" style="font-size: 10pt">Large accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated filer <FONT face="Wingdings">&#254;</FONT></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of
the Act). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;25, 2005, the last business day of the registrant&#146;s most recently completed
second fiscal quarter, the aggregate market value of the voting and non-voting common equity held
by non-affiliates was $16,947,844, computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business
day of the registrant&#146;s most recently completed second fiscal quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;20, 2006, there were 10,138,494 shares of the registrant&#146;s common stock
outstanding.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>DOCUMENTS INCORPORATED BY REFERENCE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions of the registrant&#146;s definitive proxy statement, to be filed pursuant to Section 14(a)
of the Securities Exchange Act in connection with the registrant&#146;s annual meeting of shareholders
scheduled for December&nbsp;13, 2006, have been incorporated by reference in Part&nbsp;III of this report.
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>









<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">










<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">ITEM 1. BUSINESS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">ITEM 1A. RISK FACTORS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">ITEM 1B. UNRESOLVED STAFF COMMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">ITEM 2. PROPERTIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">ITEM 3. LEGAL PROCEEDINGS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#007">PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">ITEM 5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY RELATED STOCKHOLDER MATTERS. AND ISSUER PURCHASE OF EQUITY SECURITIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009"> ITEM 6. SELECTED FINANCIAL DATA</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">ITEM 9</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">ITEM 9A</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">ITEM 9B. OTHER INFORMATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#016">PART III</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">ITEM 11. EXECUTIVE COMPENSATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#020">ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#021">ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#022">PART IV</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#023">ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#024">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv3w1.htm">Amended and Restated By-Laws</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv3w2.htm">Restated Articles of Incorporation</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv10w15.htm">Warehouse Lease Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv10w16.htm">Compromise and Settlement Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv23w1.htm">Consent of Independent Registered Public Accounting Firm</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv31w1.htm">Rule 13a-14(a) Certification of Principal Executive Officer</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv31w2.htm">Rule 13a-14(a) Certification of Principal Financial Officer</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv32w1.htm">Section 1350 Certification of Principal Executive Officer</A></TD></TR>
<TR><TD colspan="9"><A HREF="d39929exv32w2.htm">Section 1350 Certification of Principal Financial Officer</A></TD></TR>
</TABLE>
</CENTER>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>






<!-- link1 "PART I" -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<!-- link2 "ITEM 1. BUSINESS" -->
<DIV align="left"><A NAME="001"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>General</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pizza Inn, Inc. and its subsidiaries (collectively referred to as the &#147;Company&#148;, &#147;Pizza Inn&#148;
or in the first person notations of &#147;we&#148;, &#147;us&#148; and &#147;our&#148;) operate and franchise pizza buffet,
delivery/carry-out and express restaurants domestically and internationally under the trademark
&#147;Pizza Inn.&#148; Through our Norco Restaurant Services Company (&#147;Norco&#148;) division, and through
agreements with third party distributors, we provide or facilitate food, equipment and supply
distribution to our domestic and international system of restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;20, 2006, the Pizza Inn system consisted of 369 restaurants, including three
Company-owned restaurants, and 366 franchised restaurants. The domestic restaurants are comprised
of 175 buffet restaurants, 48 delivery/carry-out restaurants and 70 express restaurants. The
international franchised restaurants are comprised of 18 buffet restaurants, 48 delivery/carry-out
restaurants and 10 express restaurants. Domestic restaurants are located predominantly in the
southern half of the United States, with Texas, North Carolina, and Arkansas accounting for
approximately 35%, 14%, and 8%, respectively, of the total number of domestic restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our History</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pizza Inn has offered consumers affordable, quality pizza since 1958, when the first Pizza Inn
restaurant opened in Dallas, Texas. We awarded our first franchise in 1963 and opened our first
buffet restaurant in 1969. We began franchising the Pizza Inn brand internationally in the late
1970s. In 1993, our stock began trading on the NASDAQ Stock Market, and presently trades on the
NASDAQ Capital Market (formerly called the &#147;NASDAQ SmallCap Market&#148;) under the ticker symbol
&#147;PZZI.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Concepts</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer three concepts: buffet, delivery/carry-out and express. Each is designed to enhance
the smooth flow of food ordering, preparation and service, and we believe that the overall
configuration of each results in simplified operations, lower training and labor costs, increased
efficiency and improved consistency and quality of our food products. Our restaurants may be
configured to adapt to a variety of building shapes and sizes, offering the flexibility necessary
for our concepts to be operated at any number of otherwise suitable locations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our focused menu is designed to present an appealing variety of high quality pizza and side
items to our customers. Our basic buffet restaurant menu offers three main crusts (Original Thin
Crust, New York Pan and Italian), with standard toppings and special combinations of toppings.
Buffet restaurants also offer pasta, salad, sandwiches, appetizers, desserts and beverages,
including beer and wine in some locations, in an informal, family-oriented atmosphere. We
occasionally offer other items on a limited promotional basis. Delivery/carryout restaurants
usually offer the three main crusts and some combination of side items. We believe that our focus
on three main crust types creates a better brand identity among customers, improves operating
efficiency and maintains food quality and consistency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our buffet and delivery/carry-out concepts feature crusts that are hand-made from dough made
fresh in the restaurant each day. We do not use a centralized commissary for mass production of
dough and our dough is never frozen (with the exception of certain dough products used in the
express concept for pizza, discussed below). Pizza Inn pizzas are made from a proprietary
all-in-one flour mixture, real mozzarella cheese and a proprietary mix of classic pizza spices.
Domestically, all ingredients and toppings can be purchased from Norco, which makes deliveries to
each domestic restaurant in our system at least once per week. Beginning in November&nbsp;2006, two
authorized third party distributors, each of which has delivery responsibilities for different
geographical regions of our system, will provide certain of the warehousing and delivery services
that were previously provided by Norco. In international markets, the menu mix of toppings and
side items is occasionally adapted to local tastes.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Buffet Restaurants</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These restaurants offer dine-in, carryout and catering service and, in many cases, also offer
delivery service (&#147;Buffet Units&#148;). They are generally located in free standing buildings or
in-line locations in retail developments in close proximity to offices, shopping centers and
residential areas. The current standard Buffet Units are between 3,000 and 5,000 square feet in
size and seat 120 to 185 customers. The interior decor is designed to promote a casual, lively,
contemporary, family-style atmosphere.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The buffet is typically offered at prices from $4.29 to $5.99, and the average ticket price
per meal, including a drink, is approximately $6.38 per person for fiscal year 2006. These
averages are slightly higher in restaurants offering beer and wine.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have implemented a new store prototype design for our domestic Buffet Unit concept, which
we believe may increase retail sales and market share through a stronger market presence, greater
brand awareness and enhanced customer satisfaction. The new design includes significant exterior
and interior changes in signage, color schemes and work flow and dining area configuration,
including the addition of a back-fed buffet bar offering attractive and efficient presentation, a
greater variety of products and increased operating efficiency. The interior features vibrant
colors, graphic accents, contemporary furnishings and updated signage and logos. Some Buffet Units
feature game rooms that offer a range of electronic game entertainment for the entire family.
Interiors feature selected memorabilia capturing some of the milestones in our nearly 50&nbsp;years of
operation. Additionally, some units intend to offer guests the convenience of curbside service.
The new prototype has been introduced in new Company-owned Buffet Units, as well as in several new
franchised Buffet Units and remodeled existing franchised Buffet Units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Delivery/Carryout Restaurants</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These restaurants offer delivery and carryout service only and are typically located in
shopping centers or other in-line retail developments (&#147;Delco Units&#148;). These relatively small
restaurants, occupying approximately 1,000 square feet, are primarily production facilities and, in
most instances, do not offer seating. Because Delco Units do not typically offer dine-in areas,
they usually do not require expensive real estate leasehold or ownership costs and are relatively
less expensive to build and equip. The decor of the Delco Unit is designed to be bright and highly
visible and feature neon, lighted displays and awnings. We have attempted to locate Delco Units
strategically to facilitate timely delivery service and to provide easy access for carryout
service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Express Restaurants</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These restaurants serve our customers through a variety of non-traditional points of sale.
Express restaurants are typically located in a convenience store, food court, college campus,
airport terminal, athletic facility or other commercial facility (&#147;Express Units&#148;). They have
limited or no seating and solely offer quick carryout service of a limited menu of pizza and other
foods and beverages. An Express Unit typically occupies approximately 200 to 400 square feet and
is commonly operated by the same person who owns the commercial host facility or who is licensed at
one or more locations within the facility. We have developed a high-quality pre-prepared crust
that is topped and cooked on-site, allowing this concept to offer a lower initial investment and
reduced labor and operating costs while maintaining product quality and consistency. Like the
Delco Unit, Express Units are primarily production-oriented facilities and, therefore, do not
require all of the equipment, labor, real estate or square footage of the Buffet Unit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Site Selection</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider the restaurant site selection process critical to the restaurant&#146;s long-term
success and devote significant resources to the investigation and evaluation of potential sites.
The site selection process includes a review of trade area demographics and other competitive
factors. We also rely on the franchisee&#146;s knowledge of the trade area and market characteristics
when selecting a location for a franchised restaurant. A member of our development team will visit
each potential domestic Company-owned restaurant location. We try to locate franchised and
Company-owned restaurants in retail strip centers or freestanding buildings offering visibility,
curb appeal and accessibility.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Development and Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to continue our expansion domestically in markets where we believe there exists
significant long-term earnings growth potential, and where we believe that we can use our
competitive strengths to establish brand recognition and gain local market share. We believe our
franchise-oriented business model will allow us eventually to expand our franchised restaurant base
with limited capital expenditures and working capital requirements. While we plan to expand our
domestic restaurant base primarily through opening new franchised restaurants, we also will
continually evaluate our mix of Company-owned and franchised restaurants and may strategically
develop Company-owned restaurants, acquire franchised restaurants and re-franchise Company-owned
restaurants. We believe that our most promising development and system growth opportunities lie
with experienced, well-capitalized, multi-restaurant operators.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The specific rate at which we will be able to expand through franchise development is
determined in part by our success at selecting qualified franchisees, by identifying satisfactory
sites in appropriate markets and by our ability to continue training and monitoring our
franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Franchise Operations</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a franchising strategy that has two major components: continued development
within our existing market areas and new development in strategically targeted domestic
territories. We also intend to continue to seek appropriate international development
opportunities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Franchise and development agreements. </I>Our current forms of franchise agreements provide for:
(i)&nbsp;an initial franchise fee of $25,000 for a Buffet Unit, $7,500 for a Delco Unit and $5,000 for
an Express Unit, (ii)&nbsp;an initial franchise term of 20&nbsp;years for a Buffet Unit and ten years for a
Delco Unit or Express Unit, plus a renewal term of ten years for each concept, (iii)&nbsp;required
contributions equal to 1% of gross sales to the Pizza Inn Advertising Plan (&#147;PIAP&#148;) or to us, as
discussed below, (iv)&nbsp;royalties equal to 4% of gross sales for a Buffet Unit or Delco Unit, and 5%
of gross sales for an Express Unit, and (v)&nbsp;required advertising expenditures of at least 5% of
gross sales for a Buffet Unit or Delco Unit, and 2% for an Express Unit. In the past, we offered,
to certain experienced restaurant operators, area developer rights in new and existing domestic
markets. An area developer typically paid a negotiated fee to purchase the right to operate or
develop restaurants within a defined territory and typically agreed to multi-restaurant
development schedule and to assist us in local franchise service and quality control in exchange
for half of the franchise fees and royalties from all restaurants within the territory during the
term of the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the Pizza Inn concept was first franchised in 1963, industry franchising concepts and
development strategies have changed, and our present franchise relationships are evidenced by a
variety of contractual forms. Common to those forms are provisions that: (i)&nbsp;require the
franchisee to follow the Pizza Inn system of restaurant operation and management, (ii)&nbsp;require the
franchisee to pay a franchise fee and continuing royalties, and (iii)&nbsp;except for Express Units,
prohibit the development of one restaurant within a specified distance from another.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Training. </I>We offer numerous training programs for the benefit of franchisees and their
restaurant crew managers. The training programs, taught by experienced Company employees, focus on
food preparation, service, cost control, sanitation, safety, local store marketing, personnel
management and other aspects of restaurant operation. The training programs include group classes,
supervised work in Company-owned restaurants and special field seminars. Initial and certain
supplemental training programs are offered free of charge to franchisees, who pay their own travel
and lodging expenses. Restaurant managers train their staff through on-the-job training, utilizing
video and printed materials produced by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Standards. </I>We enforce a variety of standards over franchise operations to protect and enhance
our brand. All franchisees are required to operate their restaurants in compliance with written
policies, standards and specifications, which include matters such as menu items, ingredients,
materials, supplies, services, furnishings, decor and signs. Our efforts to maintain a consistent
level of operations may result from time to time in closing certain restaurants that are not
capable of achieving and maintaining a consistent level of quality operations. However, we believe
that aggressive enforcement of operating standards over the past twelve to eighteen months, which
has contributed to a higher than historical average rate of restaurant closings, has resulted in
overall improvements in operating standards among existing franchisees. We do not anticipate a
similar number of restaurants closings due to non-compliant operating standards in the future.
Each franchisee has full discretion to determine the prices to be charged to customers. We also
provide ongoing support to our franchisees, including marketing assistance and consultation to
franchisees experiencing financial or operational difficulties.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Company Operations</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of our long-term objectives is to continue to selectively expand the number of
Company-owned restaurants by identifying appropriate opportunities in our targeted markets. We
intend to concentrate our efforts in certain identified markets by opening a limited number of
restaurants at locations developed by us or by selectively identifying opportunities to acquire
restaurants operated by franchisees at negotiated prices. We believe that moving forward, our
domestic network of Company-owned restaurants will play an important strategic role in our
predominately franchised operating structure. In addition to generating revenues and earnings, we
expect to use domestic Company-owned restaurants as test sites for new products and promotions as
well as restaurant operational improvements and as a forum for training new managers and
franchisees. We also believe that as the number gradually increases, our Company-owned restaurants
may add to the economies of scale available for advertising, marketing and other costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate one Buffet Unit in the Dallas, Texas market and two Buffet Units in the
Houston, Texas market. The Company is currently considering alternatives to sell the two Buffet
Units in Houston, Texas to new or existing franchisees. From time to time, we also consider
opportunities to acquire select franchisee-owned restaurants in other markets. We do not currently
intend to operate any Delco Units or Express Units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to open Company-owned restaurants is affected by a number of factors, including,
the terms of available financing, our ability to locate suitable sites, negotiate acceptable lease
or purchase terms, secure appropriate local governmental permits and approvals and our capacity to
supervise construction and to recruit and train management personnel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>International Operations</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time we also offer master franchise rights to develop Pizza Inn restaurants in
certain foreign countries, with negotiated fees, development schedules and ongoing royalties. A
master licensee for a foreign country pays a negotiated fee to purchase the right to develop and
operate Pizza Inn restaurants within a defined territory, typically for a term of 20&nbsp;years, plus a
ten-year renewal option. The master licensee agrees to a multi-restaurant development schedule and
we train the master licensee to monitor and assist franchisees in their territory with local
service and quality control, with support from us. In return, the master licensee typically
retains half the franchise fees and half the royalties on all restaurants within the territory
during the term of the agreement. Master licensees may open restaurants that they own and operate,
or they may open sub-franchised restaurants owned and operated by third parties through agreements
with the master licensee, but subject to our approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We opened our first restaurant outside of the United States in the late 1970s, and, as of
September&nbsp;20, 2006, there were 76 restaurants operating internationally, with 45 of those
restaurants operated or sub-licensed by our franchisees in the United Arab Emirates and Saudi
Arabia. Our master licensee in Saudi Arabia has also developed several express restaurants at U.
S. military facilities in the Middle East.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to continue to develop select international markets is affected by a number of
factors, including our ability to locate experienced, well-capitalized developers who can commit to
an aggressive multi-restaurant development schedule and achieve maximum initial market penetration
with a minimum of direct control by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Food and Supply Distribution</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;28, 2006, we entered into distribution service agreements with two reputable and
experienced restaurant distribution companies. Under these agreements, we expect that The SYGMA
Network (&#147;SYGMA&#148;) and The International Jobbers Company (&#147;IJ&#148;) will begin making deliveries to all
restaurants on November&nbsp;1, 2006, with delivery territories and responsibilities for each determined
according to geographical region. Norco will retain product sourcing, purchasing, quality
assurance, research and development, franchisee order and billing services, and logistics support
functions. We will also continue to own a significant majority of the inventory warehoused and
delivered by SYGMA and IJ, and franchisees are expected to continue to purchase such products from
Norco. We believe this division of responsibilities for our purchasing, franchisee support and
distribution systems may result in lower operating costs, logistical efficiencies and increased
customer satisfaction. Norco is able to leverage the advantages of direct vendor negotiations and
volume purchasing of food, equipment and supplies for the franchisees&#146; benefit in the form of a
concentrated, one-truck delivery system, pricing efficiencies and product consistency. Norco
negotiates directly with major suppliers to obtain competitive prices. Operators are able to
purchase all products and ingredients from Norco and have them delivered by experienced and
efficient distributors.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to assure product quality and consistency, our franchisees are
required to purchase, from Norco, certain food products that are proprietary to the Pizza Inn
system, including our flour mixture and spice blend. In addition, almost all franchisees purchase
other supplies from Norco. Franchisees may also purchase non-proprietary products and supplies
from other suppliers who meet our requirements for quality and reliability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under its agreement with us, SYGMA has agreed to lease Norco&#146;s warehouse and distribution
facility in The Colony, Texas, from which it will provide distribution services to restaurants in
the western areas of the franchise system. We have entered into a one-month access agreement with
SYGMA whereby SYGMA may gain access to the facility as of October&nbsp;1, 2006 and begin performance
preparations. The initial term of the lease agreement begins on November&nbsp;1, 2006 and continues for
thirty-five months. IJ will service eastern restaurants from its distribution center in Tennessee.
Norco will continue to ship products and equipment to international franchisees. Non-proprietary
food and ingredients, equipment and other supplies distributed by SYGMA and IJ are generally
available from several qualified sources. With the exception of several proprietary food products,
such as cheese and dough flour, we are not dependent upon any one supplier or limited group of
suppliers. We contract with established food processors for the production of our proprietary
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not experienced any significant shortages of supplies or any delays in receiving our
food or beverage inventories, restaurant supplies or products, and do not anticipate any difficulty
in obtaining inventories or supplies in the foreseeable future. Prices charged to us by our
suppliers are subject to fluctuation, and we may from time to time attempt to pass increased costs
and savings on to our franchisees. We do not engage in commodity hedging.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Advertising</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By communicating a common brand message at the regional, local market and restaurant levels,
we believe we can create and reinforce a strong, consistent marketing message to consumers and
increase our market share. We offer or facilitate a number of ways for the brand image and message
to be promoted at the local and regional levels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PIAP is a Texas non-profit corporation that is responsible for creating and producing print
advertisements, television and radio commercials and in-store promotional materials, along with
related advertising services for use by its members. Each operator of a Buffet Unit or Delco Unit,
including us, is entitled to membership in PIAP. Nearly all of our existing franchise agreements
for Buffet Units and Delco Units require the franchisees to become members of PIAP. Members
contribute 1% of their gross sales to PIAP. PIAP is managed by a board of trustees comprised
solely of franchisee representatives who are elected by the members each year. We do not have any
ownership interest in PIAP. We provide certain administrative, marketing and other services to
PIAP and are paid by PIAP for such services. As of September&nbsp;20, 2006, the Company-owned Buffet
Units and substantially all of our franchisees were members of PIAP. Operators of Express Units do
not participate in PIAP; however, they contribute up to 1% of their gross sales directly to us to
help fund purchases of Express Unit marketing materials and similar expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Groups of franchisees in some of our market areas have formed local advertising cooperatives.
These cooperatives, which may be formed voluntarily or may be required by us under the franchise
agreements, establish contributions to be made by their members and direct the expenditure of these
contributions on local media advertising using materials developed by PIAP and/or us. Franchisees
are required to conduct independent marketing efforts in addition to their participation in PIAP
and local cooperatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide Company-owned and franchised restaurants with catalogs for the purchase of
marketing and promotional items and pre-approved print and radio marketing materials. We have also
developed an internet-based system, Pizza Inn <I>Inn</I>-tranet, by which all of our restaurants may
communicate with us and place orders for marketing and promotional products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Trademarks and Quality Control</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own various trademarks, including the name &#147;Pizza Inn,&#148; that are used in connection with
the restaurants and have been registered with the United States Patent and Trademark Office. The
duration of our trademarks is unlimited, subject to periodic renewal and continued use. In
addition, we have obtained trademark registrations in several foreign countries and have
periodically re-filed and applied for registration in others. We believe that we hold the
necessary rights for protection of the trademarks essential to our business.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Government Regulation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and our franchisees are subject to various federal, state and local laws affecting the
operation of our restaurants. Each restaurant is subject to licensing and regulation by a number
of governmental authorities, which include health, safety, sanitation, wage and hour, alcoholic
beverage, building and fire agencies in the state or municipality in which the restaurant is
located. Difficulties in obtaining, or the failure to obtain, required licenses or approvals could
delay or prevent the opening of a new restaurant or require the temporary or permanent closing of
existing restaurants in a particular area. Our distribution center, which as of November&nbsp;1, 2006
will be leased to and operated by SYGMA, is subject to regulation by state and local health and
fire codes. Trucks operated by Norco, SYGMA or IJ are subject to U.S. Department of Transportation
regulations. We are also subject to state and federal environmental regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to Federal Trade Commission (&#147;FTC&#148;) regulation and to various state laws
regulating the offer and sale of franchises. Several state laws also regulate the substantive
aspects of the franchisor-franchisee relationship. The FTC requires us to furnish to prospective
franchisees a franchise offering circular containing prescribed information. Substantive state
laws that regulate the franchisor-franchisee relationship presently exist in a number of states,
and bills have been introduced in Congress from time to time that would provide for further federal
regulation of the franchisor-franchisee relationship in certain respects. Some foreign countries
also have disclosure requirements and other laws regulating franchising and the
franchisor-franchisee relationship.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;20, 2006, we had approximately 159 employees, including 44 in our corporate
office, 64 at our Norco division and 18 full-time and 33 part-time employees at the Company-owned
restaurants. However, after November&nbsp;1, 2006, when SYGMA assumes distribution and operation
responsibilities at the Norco facility, we will no longer employ approximately 51 individuals at
that location. None of our employees are currently covered by collective bargaining agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Industry and Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The restaurant industry is intensely competitive with respect to price, service, location and
food quality, and there are many well-established competitors with substantially greater brand
recognition and financial and other resources than Pizza Inn. Competitors include a large number
of international, national and regional restaurant chains, as well as local restaurants and pizza
operators. Some of our competitors may be better established in the markets where our restaurants
are located or may be located. Within the pizza segment of the restaurant industry, we believe
that our primary competitors are national pizza chains and several regional chains, including
chains executing a &#147;take and bake&#148; concept. A change in the pricing or other market strategies of
one or more of our competitors could have an adverse impact on our sales and earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the sale of franchises, we compete with many franchisors of restaurants and
other business concepts. We believe that the principal competitive factors affecting the sale of
franchises are product quality and price, value, consumer acceptance, franchisor experience and
support and the quality of the relationship maintained between the franchisor and its franchisees.
In general, there is also active competition for management personnel and attractive commercial
real estate sites suitable for our restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Norco division and our third party distributors compete with both national and local
distributors of food, equipment and other restaurant suppliers. The distribution industry is very
competitive. We believe that the principal competitive factors in the distribution industry are
product quality, customer service and price. Norco or its designees are the sole authorized
suppliers of certain proprietary products that all Pizza Inn restaurants are required to use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Available Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We file reports, including reports on Form 10-Q and Form 10-K, with the Securities and
Exchange Commission (&#147;SEC&#148;). The public may read and copy any materials we file with the SEC at
the SEC&#146;s Public Reference Room at 100 F Street, N.E. Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC. The address of that
site is <u>http://www.sec.gov</u>.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We make available, free of charge on or through our Internet website
(<u>http://www.pizzainn.com</u>), our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. We will provide electronic or paper copies of our
filings free of charge upon written request to: Corporate Secretary, Pizza Inn, Inc., 3551 Plano
Parkway, The Colony, TX 75056.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our &#147;Code of Business Conduct and Ethics&#148; is also available on our website. We intend to
satisfy the disclosure requirements regarding amendments to, or waivers from, a provision of the
Code of Business Conduct and Ethics by posting such information on our Website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Forward-Looking Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Form 10-K contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the &#147;PSLRA&#148;), including information within Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations. The following cautionary
statements are being made pursuant to the provisions of the PSLRA and with the intention of
obtaining the benefits of the &#147;safe harbor&#148; provisions of the PSLRA. Although we believe that our
expectations are based upon reasonable assumptions, actual results may differ materially from those
in the forward-looking statements as a result of various factors, including, but not limited to,
the factors discussed in this Form 10-K under the heading &#147;Risk Factors.&#148;
</DIV>
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<DIV align="left"><A NAME="002"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the other information contained in this report, the following risks may affect
us. Among the risks are: (i)&nbsp;risks associated with our business, (ii)&nbsp;risks associated with our
common stock and (iii)&nbsp;risks associated with our industry. Our business, financial condition, cash
flows or results of operations could be materially and adversely affected by any of these risks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Risks Associated with Ongoing Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>As a result of losses in recent quarters, our financial condition has been materially weakened
and our liquidity has decreased.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred losses of $490,000, $601,000, $477,000, and $4,421,000 in the first, second,
third, and fourth quarters, respectively, of the fiscal year ended June&nbsp;25, 2006. As a result, our
financial condition has been materially weakened and our liquidity diminished, and we remain
vulnerable both to unexpected events (such as a sudden spike in block cheese prices or fuel prices)
and to general declines in our operating environment (such as that resulting from significantly
increased competition).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We are in default under our loan agreement, which has reduced available borrowing capacity
under our revolving credit line and resulted in diminished liquidity.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since September&nbsp;2005 we have been in default of our loan agreement with Wells Fargo Bank for
on-going violations of certain financial ratio covenants in the loan agreement. As a result, Wells
Fargo has reduced the availability of revolving credit loans under the loan agreement from
$6,000,000 to $2,250,000. The reduction in available borrowing capacity may diminish our cash flow
and liquidity positions and adversely affect our ability to (i)&nbsp;meet our new restaurant development
goals, and (ii)&nbsp;effectively address competitive challenges and adverse operating and economic
conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;14, 2006, we entered into a limited forbearance agreement, with Wells Fargo under
which Wells Fargo agreed to forbear until October&nbsp;1, 2006 from exercising its rights and remedies
as a result of our existing defaults under the revolving credit loan agreement, provided that the
aggregate principal amount of all such revolving credit loans does not exceed $2,250,000 at any one
time. Wells Fargo and we entered into the forbearance agreement to provide us with time to pursue
discussions with Wells Fargo regarding various possible options for refinancing our indebtedness
and liabilities to Wells Fargo under the revolving credit loan agreement. The limited forbearance
agreement has not been extended beyond October&nbsp;1, 2006.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our substantial indebtedness could materially adversely affect our business and limit our
ability to plan for or respond to changes in our business.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;20, 2006, our consolidated long-term indebtedness was $7.9&nbsp;million, the full
amount of which has been reclassified on our balance sheet as current debt since December&nbsp;25, 2005
as a result of our on-going loan default. Our indebtedness and the fact that a portion of our
reduced cash flow from operations must be used to make principal and interest payments on our
indebtedness could have important consequences to us. For example, they could:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make it more difficult for us to satisfy our obligations with respect to our loan agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increase our vulnerability to general adverse economic and industry conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the availability of our cash flow for other purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate, thereby placing us at a competitive disadvantage compared to
our competitors that may have less debt; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limit, by the financial and other restrictive covenants in our loan agreement, our
ability to borrow additional funds.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Payments we are required to make under a settlement agreement with our former president and
chief executive officer could result in diminished liquidity and cash flow positions.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, we entered into a settlement agreement with Ronald W. Parker, our
former president and chief executive officer, relating to the arbitration actions filed by the
Company and Mr.&nbsp;Parker in January&nbsp;2005. Under the settlement agreement, we are obligated to pay
Mr.&nbsp;Parker $2.8&nbsp;million through a structured payment schedule beginning on the date of the
settlement with the final payment of $2.05&nbsp;million to be paid within 180&nbsp;days of the date of the
settlement. All payments under the settlement agreement would automatically and immediately become
due and payable upon any sale lease-back transaction involving our corporate headquarters office
and distribution facilities. These payments will reduce the availability of our cash flow for
other purposes, limit our flexibility in planning for, or reacting to, changes in our business and
industry, and alter or postpone implementation of our growth strategy. We expect to be able to
fund the payments under the settlement agreement by utilizing available equity in our corporate
headquarters office and distribution facilities to refinance existing mortgage debt on that
property and/or engage in a sale lease-back transaction for that property. We may not be able to
realize sufficient value from our real estate assets or otherwise be able to fund the payments
under the settlement agreement. If we are not able to fund the payments under the settlement
agreement or obtain financing, or enter into a sale lease-back transaction, on terms reasonably
satisfactory to us, then our liquidity, financial condition, business, and results of operations
may be materially adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>If we do not prevail in litigation with a former beverage supplier, we could be liable for
significant monetary damages.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An adverse outcome in our litigation with PepsiCo, Inc. could result in a liability of
approximately $2.6&nbsp;million, which could materially adversely affect our liquidity, financial
position and results of operation. No accrual for any amount of potential liability for this
matter has been made as of June&nbsp;25, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We also face risks of litigation from customers, franchisees, employees and others in the
ordinary course of business, which diverts our financial and management resources. Any adverse
litigation or publicity may negatively impact our financial condition and results of operations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Claims of illness or injury relating to food quality or food handling are common in the food
service industry. In addition to decreasing our sales and profitability and diverting our
management resources, adverse publicity or a substantial judgment against us could negatively
impact our financial condition, results of operations and brand reputation, hindering our ability
to attract and retain franchisees and grow our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, we may be subject to employee, franchisee and other claims in the future based on,
among other things, discrimination, harassment, wrongful termination and wage, rest break and meal
break issues, including those relating to overtime compensation. If one or more of these claims
were to be successful or if there is a significant increase in the number of these claims, our
business, financial condition and operating results could be harmed.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>If we are not able to implement our growth strategy successfully, which includes opening new
domestic Buffet Units and reimaging existing restaurants, our ability to increase our revenues and
operating profits could be materially adversely affected.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant component of our growth strategy for developing new domestic franchised and
Company-owned restaurants is the implementation of our new prototype Buffet Unit concept. We and
our franchisees face many challenges in opening new restaurants, including, among other things,
selection and availability of suitable restaurant locations and suitable employees, increases in
food, paper, labor, utilities, fuel, employee benefits, insurance and similar costs, negotiation of
suitable lease or financing terms, constraints on permitting and construction of restaurants,
higher than anticipated construction costs, the hiring, training and retention of management and
other personnel and securing required domestic or foreign governmental permits and approvals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The opening of additional franchise restaurants also depends, in part, upon the availability
of prospective franchisees who meet our criteria. Our new concept development program may require
considerable management time as well as start-up expenses for franchisee recruitment and training
and market development before any significant revenues and earnings are generated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accordingly, we may not be able to meet planned growth targets, open restaurants in markets
now targeted for expansion or operate profitably in existing markets. In addition, even if we are
able to continue to open new restaurants, we may not be able to keep restaurants from closing at a
faster rate than we are able to open restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>An increase in the cost of cheese or other commodities, including fuel and labor, could
adversely affect our profitability and operating results.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An increase in our operating costs could adversely affect our profitability. Factors such as
inflation, increased food costs, increased labor and employee benefit costs and increased energy
costs may adversely affect our operating costs. Most of the factors affecting costs are beyond our
control and, in many cases, we may not be able to pass along these increased costs to our customers
or franchisees even if we attempted to do so. Most ingredients used in our pizza, particularly
cheese, are subject to significant price fluctuations as a result of seasonality, weather,
availability, demand and other factors. Sustained increases in fuel and utility costs could
adversely affect the profitability of our restaurant and distribution businesses. Labor costs are
largely a function of the minimum wage for a majority of our restaurant and distribution center
personnel and, generally, are a function of the availability of labor. Further government
initiatives, such as proposed minimum wage rate increases, could adversely affect us as well as the
restaurant industry in general.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Shortages or interruptions in the delivery of food products could adversely affect our
operating results.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, and our franchisees, are dependent on frequent deliveries of food products that meet our
specifications. Our Company-owned domestic restaurants purchase substantially all food and related
products from our distribution division, Norco. Domestic franchisees are only required to purchase
the flour mixture, spice blend and certain other items from Norco, and changes in purchasing
practices by domestic franchisees as a result of delivery disruptions or otherwise could adversely
affect the financial results of our distribution operation. Interruptions in the delivery of food
products caused by unanticipated demand, problems in production or distribution by Norco, our
suppliers, or our distribution service providers, inclement weather (including hurricanes and other
natural disasters) or other conditions could adversely affect the availability, quality and cost of
ingredients, which would adversely affect our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>If we are not able to continue purchasing our key pizza ingredients from our current suppliers
or find suitable replacement suppliers our financial results could be materially adversely
affected.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are dependent on a few suppliers for our key ingredients. Domestically, we rely upon sole
suppliers for our cheese, flour mixture and certain other key ingredients. Alternative sources for
these ingredients may not be available on a timely basis to supply these key ingredients or be
available on terms as favorable to us as under our current arrangements. Any disruptions in our
supply of key ingredients could adversely affect our operations.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We are subject to extensive government regulation, and any failure to comply with existing or
increased regulations could adversely affect our business and operating results.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to numerous federal, state, local and foreign laws and regulations, including
those relating to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the preparation and sale of food;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>building and zoning requirements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>minimum wage, citizenship, overtime and other labor requirements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>compliance with the Americans with Disabilities Act; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>working and safety conditions.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we fail to comply with existing or future laws and regulations, we may be subject to
governmental or judicial fines or sanctions. In addition, our capital expenditures could increase
due to remediation measures that may be required if we are found to be noncompliant with any of
these laws or regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also subject to a Federal Trade Commission rule and to various state and foreign laws
that govern the offer and sale of franchises. These laws regulate various aspects of the franchise
relationship, including terminations and the refusal to renew franchises. The failure to comply
with these laws and regulations in any jurisdiction or to obtain required government approvals
could result in a ban or temporary suspension on future franchise sales, fines or other penalties,
or require us to make offers of rescission or restitution, any of which could adversely affect our
business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our earnings and business growth strategy depends on the success of our franchisees, and we
may be harmed by actions taken by our franchisees that are outside of our control.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our earnings comes from royalties generated by our franchised
restaurants. Franchisees are independent operators whose employees are not our employees. We
provide limited training and support to franchisees, but the quality of franchised restaurant
operations may be diminished by any number of factors beyond our control. Consequently,
franchisees may not successfully operate restaurants in a manner consistent with our standards and
requirements, or may not hire and train qualified managers and other store personnel. If they do
not, our image and reputation may suffer, and revenues could decline. Our franchisees may take
actions that adversely affect the value of our intellectual property or reputation. Our domestic
and international franchisees may not operate their franchises successfully. If one or more of our
key franchisees were to become insolvent or otherwise were unable or unwilling to pay us our
royalties, our business and results of operations would be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Loss of key personnel or our inability to attract and retain new qualified personnel could
hurt our business and inhibit our ability to operate and grow successfully.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success will depend to a significant extent on our leadership team and other key
management personnel. We may not be able to retain our executive officers and key personnel or
attract additional qualified management. Our success also will depend on our ability to attract
and retain qualified personnel to oversee our restaurants, distribution operations and
international operations. The loss of these employees or any inability to recruit and retain
qualified personnel could have a material adverse effect on our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our current insurance coverage may not be adequate, our insurance premiums may increase and we
may not be able to obtain insurance at acceptable rates, or at all.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our insurance policies may not be adequate to protect us from liabilities that we incur in our
business. In addition, in the future our insurance premiums may increase and we may not be able to
obtain similar levels of insurance on reasonable terms, or at all. Any such inadequacy of, or
inability to obtain, insurance coverage could have a material adverse effect on our business,
financial condition and results of operations.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Company&#146;s management has concluded that the Company&#146;s disclosure controls and procedures
are not effective, and that a material weakness in financial reporting existed at June&nbsp;25, 2006 as
a result of recent turnover in its accounting staff and reassignment of responsibilities among
remaining staff, which may affect the Company&#146;s ability to accurately and timely complete and file
its financial statements. If the Company is not able to accurately and timely complete its
financial statements and file the reports required under Section&nbsp;13 or </B><B>15(d)</B><B> of the Exchange Act,
the Company could face SEC or NASDAQ inquiries, its stock price may decline, and/or its financial
condition could be materially adversely affected.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management has concluded that its disclosure controls and procedures were not
effective as of the end of the period covered by this report and that this ineffectiveness, which
created a material weakness, resulted primarily from recent, significant turnover in the Company&#146;s
accounting staff, including in the positions of chief financial officer and controller, and
reassignment of responsibilities among remaining accounting staff, during the fiscal year ended
June&nbsp;25, 2006. The Company believes that the accounting staff turnover and reassignment of
responsibilities, and the resulting ineffectiveness of the Company&#146;s disclosure controls and
procedures, may adversely affect the Company&#146;s ability to accurately and timely complete its
financial statements. If the Company is not able to accurately and timely complete its financial
statements and file the reports required under Section&nbsp;13 or 15(d) of the Exchange Act, the Company
could face SEC or NASDAQ inquiries, its stock price may decline, and/or its financial condition
could be materially adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Associated With Our Common Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Even though our common stock is currently traded on the Nasdaq Capital Market, it has less
liquidity than the stock of many other companies quoted on the NASDAQ Stock Market&#146;s Global Market
or on a national securities exchange.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading volume in our common stock on the Nasdaq Capital Market has been relatively low
when compared with larger companies listed on the Nasdaq Global Market or the other stock
exchanges. Shareholders, therefore, may experience difficulty selling a substantial number of
shares for the same price at which shareholders could sell a smaller number of shares. We cannot
predict the effect, if any, that future sales of our common stock in the market, or the
availability of shares of common stock for sale in the market, will have on the market price of our
common stock. Sales of substantial amounts of common stock in the market, or the potential for
large amounts of sales in the market, may cause the price of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;our common stock to decline
or impair our future ability to raise capital through sales of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The market price of our common stock may fluctuate in the future, and these fluctuations may
be unrelated to our performance.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General market price declines or overall market volatility in the future could adversely
affect the price of our common stock, and the current market price may not be indicative of future
market prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Associated With Our Industry</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>If we are not able to compete effectively, our business, sales and earnings could be
materially adversely affected.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The restaurant industry in general, as well as the pizza segment of the industry, is intensely
competitive, both internationally and domestically, with respect to price, service, location and
food quality. We compete against many regional and local businesses. There are many
well-established competitors with substantially greater brand awareness and financial and other
resources than we have. Some of these competitors may be better established in markets where
restaurants we operate or that are operated by our franchisees are, or may be, located. Experience
has shown that a change in the pricing or other marketing or promotional strategies, including new
product and concept developments, of one or more of our major competitors can have an adverse
impact on sales and earnings and our chainwide restaurant operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We could also experience increased competition from existing or new companies in the pizza
segment of the restaurant industry. If we are unable to compete, we could experience downward
pressure on prices, lower demand for our products, reduced margins, the inability to take advantage
of new business opportunities and the loss of market share, all of which would have a material
adverse effect on our operating results.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also compete on a broader scale with quick service, fast casual and other international,
national, regional and local restaurants. The overall food service market and the quick service
restaurant sector are intensely competitive with respect to food quality, price, service,
convenience and concept. We also compete within the food service market and the restaurant
industry for management and hourly employees, suitable real estate sites and qualified franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Norco is also subject to competition from outside suppliers. If other suppliers who meet our
qualification standards were to offer lower prices or better service to our franchisees for their
ingredients and supplies and, as a result, our franchisees chose not to purchase from Norco, our
financial condition, business and results of operations would be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Changes in consumer preferences and perceptions could decrease the demand for our products,
which would reduce sales and harm our business.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restaurant businesses are affected by changes in consumer tastes, national, regional and local
economic conditions, demographic trends, disposable purchasing power, traffic patterns and the
type, number and location of competing restaurants. For example, if prevailing health or dietary
preferences cause consumers to avoid pizza and other products we offer, or quick service restaurant
offerings generally, in favor of foods that are perceived as more healthy, our business and
operating results would be harmed.
</DIV>
<!-- link2 "ITEM 1B. UNRESOLVED STAFF COMMENTS" -->
<DIV align="left"><A NAME="003"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1B. UNRESOLVED STAFF COMMENTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>None</B>

</DIV>
<!-- link2 "ITEM 2. PROPERTIES" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. PROPERTIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owns a 38,000 square foot facility housing its corporate office and training
center and a 102,000 square foot warehouse and distribution facility. These buildings were
constructed on approximately 11 acres of land in The Colony, Texas in 2001. As of November&nbsp;1,
2006, the warehouse and distribution facility is expected to be under lease to SYGMA, which will
perform distribution services for the Company out of that location. Under the lease, which has a
35-month term, SYGMA pays a market rate of rent and is responsible for all operating and
maintenance costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company currently owns one Buffet Unit in the Dallas, Texas area. It is operated from a
leased location of approximately 4,100 square feet. Annual lease payments are approximately $22.00
per square foot. The lease has a five-year term with multiple renewal options. The Company also
operates two Buffet Units in the Houston, Texas market. One location has approximately 4,347
square feet and the other has approximately 2,760 square feet. Both are leased at annual rates of
approximately $13.00 and $18.00 per square foot, respectively. The Houston leases expire in 2015
and each has at least one renewal option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also owns property in Little Elm, Texas that was purchased in June&nbsp;2003 for
$127,000 from which the Company previously operated a Delco Unit. Finish out and improvements for
the Delco Unit totaled approximately $440,000. The Company is considering alternatives for the
Little Elm location, including possible sale or lease of the land and existing modular
delivery/carry-out building to a franchisee for operation as a Pizza Inn restaurant, or listing the
land with a broker for sale to a third party.
</DIV>
<!-- link2 "ITEM 3. LEGAL PROCEEDINGS" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. LEGAL PROCEEDINGS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is subject to claims and legal actions in the ordinary course of its business.
With the possible exception of the matters set forth below, the Company believes that all such
claims and actions currently pending against it are either adequately covered by insurance or would
not have a material adverse effect on the Company&#146;s annual results of operations, cash flows or
financial condition if decided in a manner that is unfavorable to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;5, 2004 the Company filed a lawsuit against the law firm Akin, Gump, Strauss, Hauer
&#038; Feld, (&#147;Akin Gump&#148;) and J. Kenneth Menges, one of the firm&#146;s partners. Akin Gump served as the
Company&#146;s principal outside lawyers from 1997 through May&nbsp;2004, when the Company terminated the
relationship. The petition alleges that during the course of representation of the Company, the
firm and Mr.&nbsp;Menges, as the partner in charge of the firm&#146;s services for the Company, breached
certain fiduciary responsibilities to the Company by giving advice and taking action to further the
personal interests of certain of the Company&#146;s executive officers to the detriment of the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company
and its shareholders. Specifically, the petition alleges that the firm and Mr.&nbsp;Menges assisted in
the creation and implementation of so-called &#147;golden parachute&#148; agreements, which, in the opinion
of the Company&#146;s current counsel, provided for potential severance payments to those executives in
amounts greatly disproportionate to the Company&#146;s ability to pay, and that, if paid, could expose
the Company to significant financial liability which could have a material adverse effect on the
Company&#146;s financial position. This matter is in its preliminary stages, and the Company is unable
to provide any meaningful analysis, projections or expectations at this time regarding the outcome
of this matter. However, the Company believes that its claims against Akin Gump and Mr.&nbsp;Menges are
well founded and intends to vigorously pursue all relief to which it may be entitled. Discovery is
ongoing but the court has ruled that it would not set a trial date until after completion of the
Parker arbitration hearing discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;11, 2004, the Board of Directors of the Company terminated the Executive
Compensation Agreement dated December&nbsp;16, 2002 between the Company and its then Chief Executive
Officer, Ronald W. Parker (&#147;Parker Agreement&#148;). Mr.&nbsp;Parker&#146;s employment was terminated following
ten days written notice to Mr.&nbsp;Parker of the Company&#146;s intent to discharge him for cause as a
result of violations of the Parker Agreement. Written notice of termination was communicated to
Mr.&nbsp;Parker on December&nbsp;13, 2004. The nature of the cause alleged was set forth in the notice of
intent to discharge and based upon Section&nbsp;2.01(c) of the Parker Agreement, which provides for
discharge for &#147;any intentional act of fraud against the Company, any of its subsidiaries or any of
their employees or properties, which is not cured, or with respect to which Executive is not
diligently pursuing a cure, within ten (10)&nbsp;business days of the Company giving notice to Executive
to do so.&#148; Mr.&nbsp;Parker was provided with an opportunity to cure as provided in the Parker Agreement
as well as the opportunity to be heard by the Board of Directors prior to the termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;12, 2005, the Company instituted an arbitration proceeding against Mr.&nbsp;Parker with
the American Arbitration Association in Dallas, Texas pursuant to the Parker Agreement seeking
declaratory relief that Mr.&nbsp;Parker was not entitled to severance payments or any other further
compensation from the Company. In addition, the Company was seeking compensatory damages,
consequential damages and disgorgement of compensation paid to Mr.&nbsp;Parker under the Parker
Agreement. On January&nbsp;31, 2005, Mr.&nbsp;Parker filed claims against the Company for alleged
defamation, alleged wrongful termination, and recovery of amounts allegedly due under the Parker
Agreement. Mr.&nbsp;Parker had originally sought in excess of $10.7&nbsp;million from the Company, including
approximately (i) $7.0&nbsp;million for severance payments plus accrued interest, (ii) $0.8&nbsp;million in
legal expenses, and (iii) $2.9&nbsp;million in other alleged damages.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, the parties entered into a compromise and settlement agreement (the
&#147;Settlement Agreement&#148;) relating to the arbitration actions filed by the Company and Mr.&nbsp;Parker
(collectively, the &#147;Parker Arbitration&#148;). Pursuant to the Settlement Agreement, each of the
Company and Mr.&nbsp;Parker (i)&nbsp;denied wrongdoing and liability, (ii)&nbsp;agreed to mutual releases of
liability, and (iii)&nbsp;agreed to dismiss all pending claims with prejudice. The Company also agreed
to pay Mr.&nbsp;Parker $2,800,000 through a structured payment schedule to resolve all claims asserted
by Mr.&nbsp;Parker in the Parker Arbitration. The total amount is to be paid within six months,
beginning with an initial payment of $100,000 on September&nbsp;25, 2006 (the &#147;Initial Payment Date&#148;).
Additional amounts are to be paid as follows: $200,000 payable 45&nbsp;days after the Initial Payment
Date; $150,000 payable 75&nbsp;days after the Initial Payment Date; and payments of $100,000 on each of
the 105<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, 135<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, and 165<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day after the Initial Payment Date.
The remaining amount of approximately $2,050,000 is to be paid within 180&nbsp;days of the Initial
Payment Date. All payments under the Settlement Agreement would automatically and immediately
become due upon any sale-leaseback transaction involving our corporate headquarters office and
distribution facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;22, 2005, the Company provided PepsiCo, Inc. (&#147;PepsiCo&#148;) written notice of PepsiCo&#146;s
breach of the beverage marketing agreement the parties had entered into in May&nbsp;1998 (the &#147;Beverage
Agreement&#148;). In the notice, the Company alleged that PepsiCo had not complied with the terms of
the Beverage Agreement by failing to (i)&nbsp;provide account and equipment service, (ii)&nbsp;maintain and
repair fountain dispensing equipment, (iii)&nbsp;make timely and accurate account payments, and by
providing to the Company beverage syrup containers that leaked in storage and in transit. The
notice provided PepsiCo 90&nbsp;days within which to cure the instances of default. On May&nbsp;18, 2005 the
parties entered into a &#147;standstill&#148; agreement under which the parties agreed to a 60-day extension
of the cure period to attempt to renegotiate the terms of the Beverage Agreement and for PepsiCo to
complete its cure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties were unable to renegotiate the Beverage Agreement, and the Company contends that
PepsiCo did not cure each of the instances of default set forth in the Company&#146;s April&nbsp;22, 2005
notice of default. On September&nbsp;15, 2005, the Company provided PepsiCo notice of termination of
the Beverage Agreement. On October&nbsp;11, 2005, PepsiCo served the Company with a petition in the
matter of <I>PepsiCo, Inc. v. Pizza Inn Inc., </I>filed in District Court in Collin County, Texas. In the
petition, PepsiCo alleges that the Company breached the Beverage Agreement by terminating it
without cause. PepsiCo seeks damages of approximately $2.6&nbsp;million, an amount
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PepsiCo believes
represents the value of gallons of beverage products that the Company is required to purchase under
the terms of the Beverage Agreement, plus return of any marketing support funds that PepsiCo
advanced to the Company but that the Company has not earned. The Company has filed a counterclaim
against PepsiCo for amounts earned by the Company under the Beverage Agreement but not yet paid by
PepsiCo, and for damage for business defamation and tortuous interference with contract based upon
statements and actions of the PepsiCo account representative servicing the Company&#146;s account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that it had good reason to terminate the Beverage Agreement and that it
terminated the Beverage Agreement in good faith and in compliance with its terms. The Company
further believes that under such circumstances it has no obligation to purchase additional
quantities of beverage products. Due to the preliminary nature of this matter and the general
uncertainty surrounding the outcome of any form of legal proceeding, it is not practicable for the
Company to provide any certain or meaningful analysis, projection or expectation at this time
regarding the outcome of this matter. Although the outcome of the legal proceeding cannot be
projected with certainty, the Company believes that PepsiCo&#146;s allegations are without merit. The
Company intends to vigorously defend against such allegations and to pursue all relief to which it
may be entitled. An adverse outcome to the proceeding could materially affect the Company&#146;s
financial position and results of operation. In the event the Company is unsuccessful, it could be
liable to PepsiCo for approximately $2.6&nbsp;million plus costs and fees. This matter is set for trial
beginning on May&nbsp;7, 2007. No accrual for such amounts has been made as of June&nbsp;25, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;19, 2006, the Company was served with notice of a lawsuit filed against it by
former franchisees who operated one restaurant in the Houston, Texas market in 2003. The former
franchisees allege generally that the Company intentionally and negligently misrepresented costs
associated with development and operation of the Company&#146;s franchise, and that as a result they
sustained business losses that ultimately led to the closing of the restaurant. They seek damages
of approximately $740,000, representing amounts the former franchisees claim to have lost in
connection with their development and operation of the restaurant. In addition, they seek
unspecified punitive damages, and recovery of attorneys&#146; fees and court costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the preliminary nature of this matter and the general uncertainty surrounding the
outcome of any form of legal proceeding, it is not practicable for the Company to provide any
certain or meaningful analysis, projection or expectation at this time regarding the outcome of
this matter. Although the outcome of the legal proceeding cannot be projected with certainty, the
Company believes that the plaintiff&#146;s allegations are without merit. The Company intends to
vigorously defend against such allegations and to pursue all relief to which it may be entitled.
An adverse outcome to the proceeding could materially affect the Company&#146;s financial position and
results of operation. In the event the Company is unsuccessful, it could be liable to the
plaintiffs for approximately $740,000 plus punitive damages, costs and fees. No accrual for such
amounts has been made as of June&nbsp;25, 2006.
</DIV>
<!-- link2 "ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" -->
<DIV align="left"><A NAME="006"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link1 "PART II" -->
<DIV align="left"><A NAME="007"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART II</B>
</DIV>

<!-- link2 "ITEM 5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY RELATED STOCKHOLDER MATTERS. AND ISSUER PURCHASE OF EQUITY SECURITIES" -->
<DIV align="left"><A NAME="008"></A></DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;20, 2006, there were approximately 2,016 stockholders of record of the
Company&#146;s common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s common stock is listed on the Capital Market (formerly called the &#147;NASDAQ
SmallCap Market&#148;) of the NASDAQ Stock Market, LLC (&#147;NASDAQ&#148;) exchange under the symbol &#147;PZZI&#148;. The
following table shows the highest and lowest daily closing price per share of the common stock
during each quarterly period within the two most recent fiscal years, as reported by NASDAQ. Such
prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or
commission.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Actual Trade</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Executed Price</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First Quarter Ended 9/25/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second Quarter Ended 12/25/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third Quarter Ended 3/26/2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.59</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth Quarter Ended 6/25/2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First Quarter Ended 9/26/2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second Quarter Ended 12/26/2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third Quarter Ended 3/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth Quarter Ended 6/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.30</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Company&#146;s bank loan agreement, the Company is currently limited in its ability
to pay dividends or make other distributions on its common stock and the Company believes that the
loan agreement is likely to limit the Company&#146;s ability to take such actions in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company did not pay any dividends on its common stock during the fiscal years ended June
25, 2006 and June&nbsp;26, 2005. Any determination to pay cash dividends in the future will be at the
discretion of the Company&#146;s Board of Directors and will be dependent upon the Company&#146;s results of
operations, financial condition, capital requirements, contractual restrictions and other factors
deemed relevant. Currently, there is no intention to pay any dividends on its common stock.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Equity Compensation Plan Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of equity compensation under all of the Company&#146;s equity compensation plans follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of Securities to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of Securities</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">be issued upon exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">exercise price of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">remaining available for</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Plan</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">of outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">future issuance under</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Category</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants, and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants, and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">equity compensation plans</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity Compensation
plans approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,433,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity Compensation
plans not approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,433,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additional information regarding equity compensation can be found in the notes to the
consolidated financial statements.
</DIV>

<!-- link2 " ITEM 6. SELECTED FINANCIAL DATA" -->
<DIV align="left"><A NAME="009"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. SELECTED FINANCIAL DATA.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table contains certain selected financial data for the Company for each of the
last five fiscal years through June&nbsp;25, 2006, and should be read in conjunction with the
consolidated financial statements and schedules in Item&nbsp;8 of this report.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000">Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 25,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 26,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 27,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 29,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2002</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><I>(In thousands, except per share amounts)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SELECTED INCOME STATEMENT DATA:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">55,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">59,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">65,388</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss) income before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,018</TD>
    <TD nowrap>)(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,723</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net (loss)&nbsp;income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,137</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic (loss)&nbsp;earnings per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted (loss)&nbsp;earnings per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SELECTED BALANCE SHEET DATA:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">24,318</TD>
    <TD nowrap>(1)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total debt and
capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,112</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Total assets in 2002 include a prior period adjustment of $296,000 to properly reflect
deferred income tax asset and liability balances.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>In fiscal year 2006 the Company adopted SFAS No.&nbsp;123(R) that requires compensation expense
for most equity-based awards be recognized over the requisite service period. Year ended June&nbsp;25,
2006 compensation expense was $341,000.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<!-- link2 "ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->
<DIV align="left"><A NAME="010"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following discussion should be read in conjunction with the consolidated financial
statements, accompanying notes and selected financial data appearing elsewhere in this Annual
Report on </I><I>Form 10-K</I><I> and may contain certain forward-looking statements that are based on current
management expectations. Generally, verbs in the future tense and the words &#147;believe,&#148; &#147;expect,&#148;
&#147;anticipate,&#148; &#147;estimate,&#148; &#147;intends,&#148; &#147;opinion,&#148; &#147;potential&#148; and similar expressions identify
forward-looking statements. Forward-looking statements in this report include, without limitation,
statements relating to the strategies underlying the Company&#146;s business objectives, its customers
and its franchisees, its liquidity and capital resources, the impact of its historical and
potential business strategies on the Company&#146;s business, financial condition, and operating results
and the expected effects of potentially adverse litigation outcomes. The Company&#146;s actual results
could differ materially from its expectations. Further information concerning the Company&#146;s
business, including additional risk factors and uncertainties that could cause actual results to
differ materially from the forward-looking statements contained in this Annual Report on </I><I>Form 10-K</I><I>,
are set forth above under Item&nbsp;1 and below under the heading &#147;Risk Factors.&#148; These risks and
uncertainties should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. The forward-looking statements contained herein speak
only as of the date of this Annual Report on </I><I>Form 10-K</I><I> and, except as may be required by applicable
law and regulation, the Company does not undertake, and specifically disclaims any obligation to,
publicly update or revise such statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Fiscal 2006 Compared to Fiscal 2005</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Overview</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a franchisor and food and supply distributor to a system of restaurants
operating under the trademark &#147;Pizza Inn.&#148; At June&nbsp;25, 2006, there were 375 Pizza Inn restaurants,
consisting of three Company-owned restaurants and 372 franchised restaurants. At June&nbsp;25, 2006,
the domestic restaurants were operated as: (i)&nbsp;182 Buffet Units; (ii)&nbsp;49 Delco Units; and (iii)&nbsp;70
Express Units. The 301 domestic restaurants were located in 18 states predominately situated in
the southern half of the United States. Additionally, the Company had 74 international
restaurants located in nine foreign countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted loss per common share was ($0.59) as compared to $0.02 of diluted income per share in
the prior year. Net loss was ($5,989,000) as compared to net income of $204,000 in the prior year,
on revenues of $50,608,000 in the current year and $55,269,000 in the prior year. Pre-tax loss was
($7,018,000) as compared to pre-tax income of $359,000 in the prior year. The increase in net loss
is partially the result of a $2.8&nbsp;million expense to accrue future payments to be made pursuant to
an agreement to settle litigation with the Company&#146;s former president and chief executive officer,
impairment of long-lived assets and write-off of capitalized software costs totaling $1,443,000,
and a 10% reduction in food and supply sales and a 7% reduction in franchise revenue. In addition,
pre-tax earnings were negatively impacted by stock compensation expense of $341,000 and an increase
in bad debt provision of $271,000. Those negative impacts to pre-tax earnings were partially
offset by a gain of $147,000 on the sale of land in Prosper, TX a reduction in compensation expense
of $24,000 due to a change in the estimate for the bonus accrual, and a reduction of state tax
expense of $71,000 due to a change in estimated state taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Results of operations for fiscal 2006 and 2005 both include fifty-two weeks.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that key performance indicators in evaluating financial results include
chain-wide retail sales and the number and type of operating restaurants. The following table
summarizes these key performance indicators.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 25,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 26,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Buffet Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">119,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">126,723</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Delco Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,842</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Express Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenues</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are primarily derived from sales of food, paper products and equipment and supplies
by Norco to franchisees, franchise royalties and franchise fees. Financial results are dependent
in large part upon the pricing and cost of these products and supplies to franchisees, and the
level of chainwide retail sales, which is driven by changes in same store sales and restaurant
count.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Food and Supply Sales</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Food and supply sales by Norco include food and paper products, equipment, marketing materials
and other distribution revenues. Food and supply sales decreased 10%, or $4,959,000, to
$44,202,000 from $49,161,000 compared to the comparable period last year. The decrease is
partially due to lower cheese prices, which negatively impacted revenues by approximately
$1,450,000. Cheese product sales were approximately $896,000 lower than the comparable period in
the prior year due to the lower retail sales. Additionally, a decline of 5.5% in overall chainwide
retail sales negatively impacted non-cheese sales by approximately $1,873,000. The sale of
restaurant-level marketing materials to franchisees decreased $304,000 primarily as a result of the
Company&#146;s decision to reduce the prices at which it sells such materials to franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Franchise Revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise revenue, which includes income from royalties and franchise fees, decreased 7% or
$363,000 compared to the comparable period last year primarily due to lower royalties for the
comparable period in the previous year as a result of lower retail sales. The following chart
summarizes the major components of franchise revenue (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 25,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic royalties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International royalties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">365</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic franchise fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International development fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,162</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Restaurant Sales</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restaurant sales, which consist of revenue generated by Company-owned restaurants,
increased 54%, or $512,000, compared to the comparable period of the prior year. The increase
is the result of opening three new Buffet Units, which replaced one Buffet Unit that was sold
to a franchisee and one Delco Unit that was closed. The following chart details the revenues
at Company-owned restaurants (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 25,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Unit &#151; sold February&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Unit &#151; closed April&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Restaurant sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">946</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost of Sales</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales decreased 6% or $2,855,000 compared to the comparable period in the prior
year. This decrease is the primarily the result of lower food and supply sales. Cost of
sales, as a percentage of food and supply sales and restaurant sales, increased to 96% from 93%
for the comparable period last year. This percentage increase is primarily due to higher fuel
and energy prices and $161,000 of pre-opening costs associated with the three new company-owned
Buffet Units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Franchise Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise expenses include selling, general and administrative expenses (primarily wages
and travel expenses) directly related to the sale and continuing service of franchises and
territories. These expenses increased 12% or $335,000 compared to the comparable period last
year. This increase is primarily the result of higher payroll and travel due to increased
headcount. These expenses were partially offset by lower product research, and outside
marketing expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General and Administrative Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, including the litigation settlement accrual and
impairment of long-lived assets and goodwill, which are broken out separately in the statement
of operations, increased 98% or $4,768,000 compared to the comparable period last year. The
following chart summarizes the primary variances in general and administrative expenses (in
thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 25,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation settlement accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,257</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment of long-lived assets and goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Board of director fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Write-off of on-line ordering system</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Company stores marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State franchise tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Primary variances in general
and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current year includes a $2,800,000 expense to accrue future payments to be made
pursuant to an agreement to settle litigation with the Company&#146;s former president and chief
executive officer. Both the current and prior year include legal expenses related to ongoing
and settled litigation and related matters. The Company anticipates a relatively high level of
legal expenses from ongoing litigation and related matters until all such matters previously
described are resolved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock compensation expense increased with the implementation of SFAS 123R on June&nbsp;27,
2005. SFAS 123R requires the Company to record compensation charges for share-based
transactions in the Consolidated Statement of Operations. See the &#147;New Pronouncements&#148; section
below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2006 the Company incurred an impairment of $152,000 to the
goodwill related to the Company-owned stores and an impairment of $1,166,000 to the equipment
and improvements related to the two Company-owned Buffet Units in the Houston, Texas market and
one Company-owned Delco Unit in Little Elm, Texas. The impairments were recognized due to the
underperformance of the Company-owned stores and the Company&#146;s determination that it is more
likely than not that the Company-owned restaurants in Houston, Texas and Little Elm, Texas will
be sold prior to the end of their useful lives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fourth quarter of 2006 the Company incurred a $125,000 expense related to the write-off
of capitalized software development costs associated with a proprietary on-line ordering system
that was under development for the Company by a third party and that had been intended to serve
as an ordering and communication platform for franchisees placing orders with Norco. The
system was never fully developed or implemented and the Company&#146;s decision to terminate the
development contract and suspend system implementation was primarily a factor of the Company&#146;s
decision to outsource certain distribution services to third party providers. In the fourth
quarter, the Company also accrued an expense of $20,000 to terminate a service agreement
related to the online-ordering system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in general and administrative expenses was partially offset by a reduction in
compensation expense of $24,000 due to a change in the estimate for the bonus accrual, and a
reduction of state tax expense of $71,000 due to a change in estimated state taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Expense</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased 33% or $197,000 for the period ended June&nbsp;25, 2006, compared to
the comparable period of the prior year due to higher interest rates and a higher balance under
the Revolving Credit Agreement (defined below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Provision for Bad Debt</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bad debt provision related to accounts receivable from franchisees increased by $271,000
to $301,000. The Company believes that most of the restaurant closings in fiscal year 2006 did
not have a material impact on collectibility of any outstanding receivables and royalties due
to us because the vast majority of these closed restaurants were lower volume restaurants whose
financial impact on its business as a whole was immaterial. The majority of the Company&#146;s bad
debt provision in 2006 is related to accounts receivable due from one
franchisee that closed two
restaurants in fiscal year 2006 and has closed his three remaining restaurants in fiscal year 2007.
For those restaurants that are anticipated to close or exhibiting signs of financial distress,
credit terms are typically restricted, weekly food orders are required to be paid for on
delivery and/or with certified funds and royalty and advertising fees are collected as add-ons
to the delivered price of weekly food orders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Provision for Income Tax</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes was a benefit of $1,029,000, a decrease of $1,184,000 compared
to the comparable period in the prior year due to lower income in the current year. The
benefit from the income tax provision was reduced by a valuation allowance of $1,448,000 for a
reserve against its deferred tax asset, which was recognized in the fourth quarter of 2006.
The effective tax rate was 15% compared to 43% in the previous year. The change in the
effective tax rate is primarily due to the effect of permanent differences on lower net income
in the current year as compared to the prior year and the valuation allowance in 2006. The
2006 loss will be carried back against prior taxes paid, which the Company believes will result
in a refund of a portion of prior taxes paid.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Restaurant Openings and Closings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During fiscal 2006 a total of 23 new franchise restaurants and one Company owned
restaurant opened, including 13 domestic and 11 international restaurants. Domestically, 35
restaurants were closed by franchisees or terminated by the Company, typically because of
unsatisfactory standards of operation or performance. In addition, one Company-owned Delco
Unit closed and 11 international restaurants were closed. The following chart summarizes
restaurant openings and closings for the periods ended June&nbsp;25, 2006 compared to the comparable
period in the prior year:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fiscal year ended June&nbsp;25, 2006
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Concept</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">End of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of Period</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Opened</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Closed</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Change</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">375</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fiscal year ended June&nbsp;26, 2005
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Concept</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">End of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of Period</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Opened</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Closed</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Change</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Fiscal 2005 Compared to Fiscal 2004</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Overview</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June&nbsp;26, 2005, there were 398 Pizza Inn restaurants, consisting of two Company-owned
restaurants and 396 franchised restaurants. At June&nbsp;26, 2005, the domestic restaurants were
operated as: (i)&nbsp;199 Buffet Units; (ii)&nbsp;52 Delco Units; and (iii)&nbsp;73 Express Units. The 324
domestic restaurants were located in 18 states predominately situated in the southern half of the
United States. Additionally, the Company had 74 international restaurants located in nine foreign
countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted earnings per share decreased 91% to $0.02 from $0.22 in the prior year. Net income
decreased 91% to $204,000 from $2,243,000 in the prior year, on revenues of $55,269,000 in the
current year and $59,988,000 in the prior year. Pre-tax income decreased 90% to $359,000 from
$3,648,000. The decrease in net income is the result of lower food and supply sales created by
lower restaurant sales combined with product cost inflation not passed on to the franchisees and
planned reductions in prices on products sold to franchisees. The retention in cost inflation and
the reduction in some pricing were designed to improve the store level economics and strengthen the
system. In addition, legal fees increased $1,454,000 over the prior year which reflects the
reversal of $567,000 in legal reserves relating to the settlement of a previously resolved legal
matter and for on going litigation and related matters.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that key performance indicators in evaluating financial results include
chainwide retail sales and the number and type of operating restaurants. The following table
summarizes these key performance indicators:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 26,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">June 27,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Buffet Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">126,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">129,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Delco Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,156</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chainwide retail sales Express Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Results of operations for fiscal 2005 and 2004 both include fifty-two weeks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenues</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are primarily derived from sales of food, paper products and equipment and supplies
by Norco to franchisees, franchise royalties and franchise fees. Financial results are dependent
in large part upon the pricing and cost of these products and supplies to franchisees, and the
level of chainwide retail sales, which is driven by changes in same store sales and restaurant
count.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Food and Supply Sales</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Food and supply sales by Norco include food and paper products, equipment, marketing materials
and other distribution revenues. Food and supply sales decreased 7%, or $3,911,000, to $49,161,000
from $53,072,000 compared to the comparable period last year. The decrease is partially due to
lower sales prices, reduced to improve the restaurant level economics, on certain key ingredients,
including dough products and tomato tidbits, which negatively impacted revenues by approximately
$997,000. Cheese product sales were approximately $799,000 lower than the comparable period in the
prior year due to the lower retail sales and were partially offset by higher overall cheese prices.
Also contributing to the revenue decrease for the year was lower equipment sales of approximately
$758,000 due to fewer restaurant openings. Additionally, a decline of 2.6% in overall chainwide
retail sales negatively impacted non-cheese, dough and tidbit sales by approximately $737,000.
The sale of restaurant-level marketing materials to franchisees decreased $624,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Franchise Revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise revenue, which includes income from royalties and franchise fees, decreased 4% or
$238,000 compared to the comparable period last year primarily due to higher international
royalties for the comparable period in the previous year as a result of the collection of
international royalties previously deemed uncollectible. Additionally, domestic franchise fees were
lower compared to the comparable period last year due to fewer restaurant openings. The following
chart summarizes the major components of franchise revenue (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 27,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic royalties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,557</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International royalties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Collection of international royalties previously
deemed uncollectible</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic franchise fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">278</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International development fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Restaurant Sales</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased
38% or $570,000 compared to the comparable period of the prior year. The decrease is the result
of the sale of one Buffet Unit, which was replaced by a smaller, lower sales volume Delco Unit, and
lower comparable sales at the other Company-owned Buffet Units. The following chart details the
revenues at the respective Company-owned restaurants (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 27,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">647</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Unit &#151; sold February&nbsp;2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">616</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delivery/carry-out unit &#151; opened January&nbsp;2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restaurant sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Costs and Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost of Sales</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales decreased 5% or $2,409,000 compared to the comparable period in the prior year.
This decrease is the result of lower chainwide retail sales and lower payroll costs as a result of
earlier staff reductions. Cost of sales, as a percentage of food and supply sales and restaurant
sales, increased to 93% from 90% for the comparable period last year. This percentage increase is
primarily due to higher product costs of approximately 3.3% offset partially by payroll savings of
$1,001,000 resulting from earlier staff reductions. Although the Company does not currently intend
to raise prices to compensate for the increases in product costs referenced, in part, because it
does not believe that it would be able to successfully do so as a result of the competitive
environment in which it operates, it may become necessary to increase prices in the future. The
Company experiences fluctuations in commodity prices (most notably, block cheese prices), increases
in transportation costs (particularly in the price of diesel fuel), fluctuations in interest rates
and net gains or losses in the number of restaurants open in any particular period, among other
things, all of which have impacted operating margins over the past year to some extent. Future
fluctuations in these factors are difficult for the Company to meaningfully predict with any
certainty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Franchise Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise expenses include selling, general and administrative expenses (primarily wages and
travel expenses) directly related to the sale and continuing service of franchises and Territories.
These expenses decreased 12% or $384,000 compared to the comparable period last year. This
decrease is primarily the result of lower payroll and related expenses resulting from earlier staff
reductions and are partially offset by higher product research expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General and Administrative Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses increased 31% or $1,127,000 compared to the comparable
period last year. The following chart summarizes the primary variances in general and
administrative expenses (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Fiscal Year Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 26,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June 27,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,122</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consulting fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proxy solicitation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Primary variances in general
and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,196</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legal fees in the prior year included the reversal of $567,000 in legal reserves relating
to the settlement of a previously resolved legal matter. In addition, the current year includes
legal expenses related to ongoing litigation and related matters described previously. The Company
anticipates incurring relatively high legal fees from the ongoing litigation and related matters
described previously until all such matters are resolved, although the Company believes that it is
unlikely that legal fees incurred in fiscal year 2007 will be higher than those incurred in fiscal
year 2006. The higher legal fees in the current year were partially offset by proxy solicitation
expenses in the prior year of $190,000 and lower payroll and related expenses from earlier staff
reductions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Expense</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense decreased 4% or $23,000 for the period ended June&nbsp;26, 2005, compared to the
comparable period of the prior year due to lower debt balances offset by higher interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Provision for Income Tax</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes decreased 89% or $1,250,000 compared to the comparable period in
the prior year due to lower income in the current year. The effective tax rate was 43% compared to
39% in the previous year. The change in the effective tax rate is primarily due to the effect of
permanent differences on lower net income in the current year as compared to the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Restaurant Openings and Closings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During fiscal 2005 a total of 29 new franchise restaurants opened, including 22 domestic and
seven international. Domestically, 36 restaurants were closed by franchisees or terminated by the
Company, typically because of unsatisfactory standards of operation or performance. No
international restaurants were closed. The Company does not believe that the closings in 2005 had
a material impact on collectibility of any outstanding receivables and royalties due to the Company
because (i)&nbsp;these amounts have been previously reserved for by us with respect to restaurants that
were closed during fiscal 2005 and (ii)&nbsp;these closed restaurants were lower volume restaurants
whose financial impact on its business as a whole was immaterial. For those restaurants that are
anticipated to close or exhibiting signs of financial distress, credit terms are typically
restricted, weekly food orders are required to be paid for on delivery and/or with certified funds
and royalty and advertising fees are collected as add-ons to the delivered price of weekly food
orders. The following chart summarizes restaurant openings and closings for the periods ended June
26, 2005 compared to the comparable period in the prior year:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Fiscal year ended June&nbsp;26, 2005
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Concept</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">End of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of Period</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Opened</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Closed</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Change</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Fiscal year ended June&nbsp;27, 2004
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Concept</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">End of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of Period</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Opened</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Closed</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Change</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Express Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from operating activities are generally the result of net income (loss)&nbsp;adjusted
for depreciation and amortization and changes in working capital. In fiscal 2006, the Company
generated cash flows of $1,235,000 from operating activities as compared to $1,088,000 in fiscal
2005 and $3,512,000 in fiscal 2004. Cash provided by operations was primarily used for capital
expenditures and to pay down debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from investing activities primarily reflect the Company&#146;s capital expenditure
strategy. In fiscal 2006, the Company used cash of $1,638,000 for investing activities as compared
to $753,000 in fiscal 2005. Cash flow used for investing activities during fiscal 2006 consisted
primarily of the capital expenditures relating to the opening of one new Company-owned Buffet Unit,
the Company&#146;s purchase, lease and remodeling of two existing Buffet Units, and purchases of
warehouse equipment. Offsetting these expenditures was $474,000 of proceeds from the sale of land
in Prosper, Texas and $115,000 from the sale of a Company-owned Buffet Unit in Dallas, Texas. In
the prior year, the Company used cash flow for investing activities of $753,000, primarily to
purchase land in Prosper, TX and for the enlargement of the warehouse parking lot.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from financing activities generally reflect changes in the Company&#146;s net repayments
of borrowings during the period, together with treasury stock purchases and exercise of stock
options. Net cash provided for financing activities was $414,000 in fiscal 2006 as compared to
cash used for financing activities of $779,000 in fiscal 2005. The Company increased its net bank
borrowings by $747,000 primarily due to increased capital expenditures incurred in the current
year. The Company used cash flow from operations to decrease its net bank borrowings and capital
lease obligations by $649,000 in the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that future operations will generate sufficient taxable income, along with
the reversal of temporary differences, to fully realize the deferred tax asset, net of a valuation
allowance of $1,564,000 primarily related to the Company&#146;s recent history of pre-tax losses and the
potential expiration of certain foreign tax credit carryforwards. Additionally, management
believes that taxable income based on the Company&#146;s existing franchise base should be more than
sufficient to enable the Company to realize its net deferred tax asset without reliance on material
non-routine income. The 2006 loss will be carried back against prior taxes paid, which the Company
believes will result in a refund of taxes paid in the prior two years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an agreement on August&nbsp;29, 2005, effective June&nbsp;26, 2005 (the
&#147;Revolving Credit Agreement&#148;), with Wells Fargo to provide a $6.0&nbsp;million revolving credit line
that will expire October&nbsp;1, 2007, replacing a $3.0&nbsp;million line that was due to expire December&nbsp;23,
2005. The amendment provides, among other terms, for modifications to certain financial covenants,
which would have resulted in an Event of Default had the Company not entered into the new Revolving
Credit Agreement. Interest is provided for at a rate equal to a range of Prime less an interest
rate margin of 0.75% to Prime plus an interest rate margin of 1.75% or, at the Company&#146;s option, at
the LIBOR rate plus an interest rate margin of 1.25% to 3.75%. The interest rate margin is based
on the Company&#146;s performance under certain financial ratio tests. An annual commitment fee is
payable on any unused portion of the Revolving Credit Agreement at a rate from 0.35% to 0.50% based
on the Company&#146;s performance under certain financial ratio tests. The interest rate realized in
2006 was higher than the rate structure described above due to the events of default described
below. As of June&nbsp;25, 2006 and June&nbsp;26, 2005, the variable interest rates were 9.75% and 6.5%,
using a Prime interest rate basis, respectively. Amounts outstanding under the Revolving Credit
Agreement as of June&nbsp;25, 2006 and June&nbsp;26, 2005 were $1,713,000 and $966,000, respectively.
Property, plant and equipment, inventory and accounts receivable have been pledged for the
Revolving Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an agreement effective December&nbsp;28, 2000, as amended (the &#147;Term Loan
Agreement&#148;), with Wells Fargo to provide up to $8.125&nbsp;million of financing for the construction of
the Company&#146;s new headquarters, training center and distribution facility. The construction loan
converted to a term loan effective January&nbsp;31, 2002 with the unpaid principal balance to mature on
December&nbsp;28, 2007. The Term Loan Agreement amortizes over a term of twenty years, with principal
payments of $34,000 due monthly. Interest on the Term Loan Agreement is also payable monthly.
Interest is provided for at a rate equal to a range of Prime less an interest rate margin of 0.75%
to Prime plus an interest rate margin of 1.75% or, at the Company&#146;s option, at the LIBOR rate plus
an interest rate margin of 1.25% to 3.75%. The interest rate margin is based on the Company&#146;s
performance under certain financial ratio tests. The Company, to fulfill the requirements of Wells
Fargo, fixed the interest rate on the Term Loan Agreement by utilizing an interest rate swap
agreement. The Term Loan Agreement had an outstanding balance of $6.3&nbsp;million at June&nbsp;25, 2006 and
$6.7&nbsp;million at June&nbsp;26, 2005. Property, plant and equipment, inventory and accounts receivable
have been pledged for the Term Loan Agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;18, 2005, the Company notified Wells Fargo that, as of September&nbsp;25, 2005 the
Company was in violation of certain financial ratio covenants in the Revolving Credit Agreement and
that, as a result, an event of default exists under the Loan Agreement. As a result of the
continuing event of default as of June&nbsp;25, 2006 all outstanding principal of the Company&#146;s
obligations under the Revolving Credit Agreement, and the Term Loan Agreement due to cross-default
provisions, were reclassified as a current liability on the Company&#146;s consolidated balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;28, 2005 Wells Fargo notified the Company that as a result of the default Wells
Fargo would continue to make Revolving Credit Loans (as defined in the Revolving Credit Agreement)
to the Company in accordance with the terms of the Revolving Credit Agreement, provided that the
aggregate principal amount of all such Revolving Credit Loans does not exceed $3,000,000 at any one
time. Additionally, Wells Fargo notified the Company that the LIBOR rate margin and the prime rate
margin have been adjusted, effective as of October&nbsp;1, 2005, according to the pricing rate grid set
forth in the Revolving Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;14, 2006, the Company and Wells Fargo entered into a Limited Forbearance Agreement
(the &#147;Forbearance Agreement&#148;), under which Wells Fargo agreed to forbear until October&nbsp;1, 2006 (the
&#147;Forbearance Period&#148;) from exercising its rights and remedies as a result of the Company&#146;s existing
defaults under the Revolving Credit Agreement, provided that the aggregate principal amount of all
such Revolving Credit Loans does not exceed $2,250,000 at any one time. Wells Fargo and the
Company entered into the Forbearance Agreement to provide the Company with time, during the
Forbearance Period, to pursue discussions with Wells Fargo regarding various possible options for
refinancing the Company&#146;s indebtedness and liabilities to Wells Fargo under the Revolving Credit
Agreement. The Company is currently in discussions with, and has recently received lending
proposals from, various lenders to amend or refinance the Revolving Credit Agreement and Term Loan
Agreement and believes that it will be able to execute such an agreement in the near future. While
no assurances can be provided that adequate financing will be available through an agreement with
Wells Fargo or any other lender, the Company believes a sale-leaseback transaction to monetize the
value in its corporate headquarters and distribution facility would provide the liquidity necessary
to meet currently known obligations as they come due. The majority of the Company&#146;s current debt
was incurred to fund the construction of the headquarters office and distribution facility, and the
Company believes that the market value of those real estate assets is in excess of its current
indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is currently engaged in litigation with its former beverage supplier, PepsiCo,
Inc., which filed suit against the Company for improper termination of the beverage marketing
agreement the parties had entered into in 1998. The Company maintains that it was justified in
terminating the agreement as a result of PepsiCo&#146;s failure to materially fulfill its obligations
under the agreement and has filed claims against PepsiCo for damages it has sustained by PepsiCo&#146;s
failure to perform. The matter is set for trial in May&nbsp;2007. Although the outcome of these legal
proceedings cannot be projected with certainty at this time, the Company believes that it properly
terminated the agreement and that its claims against PepsiCo are well founded. An adverse outcome
to the litigation could materially adversely affect the Company&#146;s financial position, results of
operations and liquidity. In the event the Company is unsuccessful in the litigation, it could be
liable to PepsiCo for approximately $2.6&nbsp;million under the beverage agreement plus costs and fees.
No accrual for any amount has been made as of June&nbsp;25, 2006 regarding the PepsiCo litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has filed a lawsuit against the law firm Akin, Gump, Strauss, Hauer and Feld, as
previously described. The Company anticipates incurring relatively high legal fees until this
lawsuit is resolved, although the Company believes it is unlikely that legal fees incurred in
fiscal year 2007 will be higher than those incurred in fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, the Company and Mr.&nbsp;Parker, our former President and Chief Executive
Officer, entered into a compromise and settlement agreement (the &#147;Settlement Agreement&#148;) relating
to the arbitration actions filed by the Company and Mr.&nbsp;Parker in January&nbsp;2005 (collectively, the
&#147;Parker Arbitration&#148;). Pursuant to the Settlement Agreement, each of the Company and Mr.&nbsp;Parker
(i)&nbsp;denied wrongdoing and liability, (ii)&nbsp;agreed to mutual releases of liability, and (iii)&nbsp;agreed
to dismiss all pending claims with prejudice. The Company also agreed to pay Mr.&nbsp;Parker $2,800,000
through a structured payment schedule to resolve all claims asserted by Mr.&nbsp;Parker in the Parker
Arbitration. The total amount is to be paid within six months, beginning with an initial payment
of $100,000 on September&nbsp;25, 2006 (the &#147;Initial Payment Date&#148;). Additional amounts are to be paid
as follows: $200,000 payable 45&nbsp;days after the Initial Payment Date; $150,000 payable 75&nbsp;days after
the Initial Payment Date; and payments of $100,000 on each of the 105<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>,
135<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, and 165<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day after the Initial Payment Date. The remaining amount of
approximately $2,050,000 is to be paid within 180&nbsp;days of the Initial Payment Date. All payments
under the Settlement Agreement would automatically and immediately become due upon any
sale-leaseback transaction involving our corporate headquarters office and distribution facility.
The Company expects to be able to fund the payments under the Settlement Agreement by utilizing
available equity in its corporate headquarters office and distribution facility to refinance
existing mortgage debt on that property and/or engage in a sale-leaseback
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">transaction for that property. The Company may not be able to realize sufficient value from its
real estate assets or otherwise be able to fund the payments under the Settlement Agreement. If
the Company is not able to fund the payments under the Settlement Agreement or obtain financing, or
enter into a sale-leaseback transaction, on terms reasonably satisfactory to the Company, then the
liquidity, financial condition, business, and results of operations of the Company may be
materially adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2005, the Company acquired the assets of two existing Buffet Units from Houston, Texas
area franchises and remodeled those restaurants with the objective of reopening and operating them
as Company-owned restaurants. These restaurants opened in December&nbsp;2005 and February&nbsp;2006. One
location has approximately 4,347 square feet and the other has approximately 2,760 square feet.
The locations are leased at rates of approximately $13.00 and $18.00 per square foot, respectively.
The leases expire in 2015 and each has at least one renewal option. The cost of acquiring and
remodeling these restaurants was approximately $1,152,000. The Company is considering options to
re-franchise these restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2005, the Company leased approximately 4,100 square feet of space in a retail
development in Dallas, Texas at a rate of approximately $22.00 per square foot for the operation of
a Buffet Unit. The restaurant opened in October&nbsp;2005. The lease has a five-year term with
multiple renewal options. The cost of finishing out the space, including equipment, was
approximately $678,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company also owns property in Little Elm, Texas that was purchased in June&nbsp;2003 for
approximately $127,000 at which the Company previously operated a Delco Unit. Finish out and
improvements for the Delco Unit totaled approximately $440,000 in February&nbsp;2004. The Company is
considering alternatives for the Little Elm location, including possible sale or lease of the land
and existing modular delivery/carry-out building to a franchisee for operation as a Pizza Inn
restaurant or a sale or lease to a third party through a real estate broker.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owned property in Prosper, Texas that was purchased with the intention of
constructing and operating a Buffet restaurant. The Company decided not to pursue development of
that location and sold the property to a third party in September&nbsp;2005 for $474,000, realizing a
gain of $147,000 on the sale. The Company sold a Company-owned Buffet Unit in Dallas, Texas in
March&nbsp;2006 for $115,000, realizing no material gain or loss on the sale.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Contractual Obligations and Commitments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following chart summarizes all of the Company&#146;s material obligations and commitments to
make future payments under contracts such as debt and lease agreements as of June&nbsp;25, 2006 (in
thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fiscal Year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fiscal Years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fiscal Years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">After Fiscal</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008 - 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010 - 2011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Year 2011</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bank debt (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation settlement (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employment Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total contractual cash obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes $804 of interest expense calculated at a 10% rate for the entire fiscal year 2007.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">2)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes $59 of interest expense calculated at a 5% rate on unpaid settlement amounts.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Transactions with Related Parties</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two directors of the Company are franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of the director franchisees, Bobby Clairday, currently operates a total of 10 restaurants
located in Arkansas. Purchases by this franchisee comprised 6.5%, 6.3%, and 6.0% of the Company&#146;s
total food and supply sales in the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004,
respectively. Royalties and license fees and area development sales from this franchisee comprised
3.5%, 3.4%, and 3.2% of the Company&#146;s total franchise revenues in the years ended June&nbsp;25, 2006,
June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. As of June&nbsp;25, 2006 and June&nbsp;26, 2005, his accounts
and note payable to the Company were $442,000 and $898,000, respectively. These restaurants pay
royalties to the Company and purchase a majority of their food and supplies from Norco.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The other director franchisee, Ramon Phillips, currently operates one restaurant in Oklahoma.
Purchases by this franchisee comprised 0.4%, 0.4%, and 0.5% of the Company&#146;s total food and supply
sales in the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. Royalties
from this franchisee comprised 0.4%, 0.5%, and 0.5% of the Company&#146;s total franchise revenues in
the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. As of June&nbsp;25, 2006
and June&nbsp;26, 2005, his accounts payable to the Company were $10,000 and $39,000, respectively.
This restaurant pays royalties to the Company and purchases a majority of its food and supplies
from Norco.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that the above transactions were at the same prices and on the same
payment terms available to non-related parties, with one exception. This exception relates to the
enforcement of the personal guarantee by Mr.&nbsp;Clairday of the debt of a franchisee of which he is
the President and sole shareholder. In addition to normal trade receivables, the Company claimed
that the franchisee, Advance Food Services, Inc., owed the Company approximately $339,000,
representing debt incurred by Advance Foods, Inc. for royalty and advertising fee payments and
Norco product deliveries during a period in 1996 and 1997 following Mr.&nbsp;Clairday&#146;s sale of that
company to unrelated third parties and prior to his reacquisition of the company in 1997 (&#147;Advance
Foods Debt&#148;). Mr.&nbsp;Clairday had guaranteed payment of approximately $236,000 of the Advance Foods
Debt (&#147;Guaranteed Amount&#148;). During fiscal 2005 the Company applied against the Guaranteed Amount
of the Advance Foods Debt approximately $7,250 in board fees due Mr.&nbsp;Clairday, and on June&nbsp;20, 2006
the Company and Mr.&nbsp;Clairday entered into a settlement agreement whereby Mr.&nbsp;Clairday paid the
Company the remaining balance of the Guaranteed Amount. In the fourth quarter of 2006 the Company
recognized a bad debt provision to related party accounts receivable of approximately $76,000,
representing the amount of the Advance Foods Debt either in dispute or not guaranteed by Mr.
Clairday. The full amount of the provision was written off as uncollectible at that time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;1999, the Company loaned $557,056 to then Chief Operating Officer Ronald W. Parker
in the form of a promissory note due in June&nbsp;2004 to acquire 200,000 shares of the Company&#146;s common
stock through the exercise of vested stock options previously granted to him in 1995 by the
Company. The note bore interest at the same floating interest rate the Company pays on its
revolving credit line with Wells Fargo and was collateralized by certain real property and existing
Company stock owned by Ronald W. Parker. The note was reflected as a reduction to shareholders&#146;
equity. As of June&nbsp;27, 2004, the note balance was paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2000, the Company also loaned $302,581 to Ronald W. Parker in the form of a promissory
note due in June&nbsp;2004, in conjunction with a cash payment of $260,000 from Mr.&nbsp;Parker, to acquire
200,000 shares of the Company&#146;s common stock through the exercise of vested stock options
previously granted in 1995 by the Company. The note bore interest at the same floating interest
rate the Company pays on its revolving credit line with Wells Fargo and was collateralized by
certain real property and existing Company stock owned by Ronald W. Parker. The note was reflected
as a reduction to shareholders&#146; equity. As of June&nbsp;27, 2004, the note balance was paid in full.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires the Company&#146;s management to make estimates and
assumptions that affect our reported amounts of assets, liabilities, revenues, expenses and related
disclosure of contingent liabilities. The Company bases its estimates on historical experience and
various other assumptions that it believes are reasonable under the circumstances. Estimates and
assumptions are reviewed periodically. Actual results could differ materially from estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes the following critical accounting policies require estimates about the
effect of matters that are inherently uncertain, are susceptible to change, and therefore require
subjective judgments. Changes in the estimates and judgments could significantly impact the
Company&#146;s results of operations and financial conditions in future periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable consist primarily of receivables generated from food and supply sales to
franchisees and franchise royalties. The Company records a provision for doubtful receivables to
allow for any amounts which may be unrecoverable and is based upon an analysis of the Company&#146;s
prior collection experience, general customer creditworthiness and the franchisee&#146;s ability to pay,
based upon the franchisee&#146;s sales, operating results and other general and local economic trends
and conditions that may affect the franchisee&#146;s ability to pay. Actual realization of amounts
receivable could differ materially from the Company&#146;s estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable primarily consist of notes from franchisees for trade receivables, franchise
fees and equipment purchases. These notes generally have terms ranging from one to five years and
interest rates of 6% to 12%. The Company records a provision for doubtful receivables to allow for
any amounts which may be unrecoverable and is based upon an analysis of the Company&#146;s prior
collection experience, general customer creditworthiness and a franchisee&#146;s ability to pay, based
upon the franchisee&#146;s sales, operating results and other general and local economic trends and
conditions that may affect the franchisee&#146;s ability to pay. Actual realization of amounts
receivable could differ materially from the Company&#146;s estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory, which consists primarily of food, paper products, supplies and equipment located at
the Company&#146;s distribution center, are stated according to the weighted average cost method. The
valuation of inventory requires us to estimate the amount of obsolete and excess inventory. The
determination of obsolete and excess inventory requires us to estimate the future demand for the
Company&#146;s products within specific time horizons, generally six months or less. If the Company&#146;s
demand forecast for specific products is greater than actual demand and the Company fails to reduce
purchasing accordingly, the Company could be required to write down additional inventory, which
would have a negative impact on the Company&#146;s gross margin.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Re-acquired development franchise rights are initially recorded at cost. When circumstances
warrant, the Company assesses the fair value of these assets based on estimated, undiscounted
future cash flows, to determine if impairment in the value has occurred and an adjustment is
necessary. If an adjustment is required, a discounted cash flow analysis would be performed and an
impairment loss would be recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax
assets that may not be realized based upon the Company&#146;s analysis of existing tax credits by
jurisdiction and expectations of the Company&#146;s ability to utilize these tax attributes through a
review of estimated future taxable income and establishment of tax strategies. These estimates
could be materially impacted by changes in future taxable income and the results of tax strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company assesses its exposures to loss contingencies including legal and income tax
matters based upon factors such as the current status of the cases and consultations with external
counsel and provides for an exposure by accruing an amount if it is judged to be probable and can
be reasonably estimated. If the actual loss from a contingency differs from management&#146;s estimate,
operating results could be impacted.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>New Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Financial Accounting Standards Board (the &#147;FASB&#148;) issued Statement of
Financial Accounting Standard (&#147;SFAS&#148;) No.&nbsp;123(R), &#147;Share-Based Payment,&#148; which revises SFAS No.
123, &#147;Accounting for Stock-Based Compensation&#148; (&#147;SFAS No.&nbsp;123&#148;), and supersedes Accounting
Principles Board Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148; (&#147;APB No.&nbsp;25&#148;) and
amends SFAS No.&nbsp;95 &#147;Statement of Cash Flows.&#148; SFAS No.&nbsp;123(R) requires companies to recognize in
their income statement the grant-date fair value of stock options and other equity-based
compensation issued to employees and directors. Pro forma disclosure is no longer an alternative.
The Company adopted SFAS No.&nbsp;123(R) on June&nbsp;27, 2005. This Statement requires that compensation
expense for most equity-based awards be recognized over the requisite service period, usually the
vesting period, while compensation expense for liability-based awards (those usually settled in
cash rather than stock) be re-measured to fair-value at each balance sheet date until the award is
settled.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company uses the Black-Scholes formula to estimate the value of stock-based compensation
granted to employees and directors and expect to continue to use this acceptable option valuation
model in the future. Because SFAS No.&nbsp;123(R) must be applied not only to new awards, but also to
previously granted awards that are not fully vested on the effective date, compensation cost for
the unvested portion of some previously granted options are recognized under SFAS No.&nbsp;123(R). SFAS
No.&nbsp;123(R) also requires the benefits of tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow, rather than as an operating cash flow as currently
required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company elected to utilize the modified prospective transition method for adopting SFAS
123(R). Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified
after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the
date of adoption, determined under the original provisions of SFAS 123, shall be recognized in net
earnings in the periods after the date of adoption. Based on the adoption of the modified
prospective method, the Company recorded a pre-tax stock-based compensation expense of
approximately $341,000 in fiscal year 2006. This amount represents previously issued awards vesting
in fiscal 2006 and 2006 fiscal year awards that were granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; an amendment of SFAS No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.&#148; This Statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that would otherwise be required to be
bifurcated from its host contract. The election to measure a hybrid financial instrument at fair
value, in its entirety, is irrevocable and all changes in fair value are to be recognized in
earnings. This Statement also clarifies and amends certain provisions of SFAS No.&nbsp;133 and SFAS No.
140. This Statement is effective for all financial instruments acquired, issued or subject to a
remeasurement event occurring in fiscal years beginning after September&nbsp;15, 2006. Early adoption is
permitted, provided the Company has not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. The adoption of this Statement is not
expected to have a material impact on the Company&#146;s financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes.&#148; This Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected
to be taken in income tax returns. This Interpretation is effective for fiscal years beginning
after December&nbsp;15, 2006. The cumulative effects, if any, of applying this Interpretation will be
recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The
Company is in the process of determining the impact of adopting this Interpretation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;13, 2006, the Securities and Exchange Commission (&#147;SEC&#148;) issued Staff Accounting
Bulletin No. (&#147;SAB 108&#148;), which provides interpretive guidance on how the effects of the carryover
or reversal of prior year misstatements should be considered in quantifying a current year
misstatement. The guidance is applicable for our fiscal 2007. The adoption of this statement is not
expected to have a material impact on the Company&#146;s financial position or results of operation.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link2 "ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." -->
<DIV align="left"><A NAME="011"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has market risk exposure arising from changes in interest rates. The Company&#146;s
earnings are affected by changes in short-term interest rates as a result of borrowings under its
credit facilities, which bear interest based on floating rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;25, 2006, the Company had approximately $8.0&nbsp;million of variable rate debt
obligations outstanding with a weighted average interest rate of 7.46% for the year ended June&nbsp;25,
2006. A hypothetical 10% change in the effective interest rate for these borrowings, assuming debt
levels at June&nbsp;25, 2006, would change interest expense by approximately $63,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an interest rate swap effective February&nbsp;27, 2001, as amended,
designated as a cash flow hedge, to manage interest rate risk relating to the financing of the
construction of the Company&#146;s new headquarters and to fulfill bank requirements. The swap
agreement has a notional principal amount of $8.125&nbsp;million with a fixed pay rate of 5.84%, which
began November&nbsp;1, 2001 and will end November&nbsp;19, 2007. The swap&#146;s notional amount amortizes over a
term of twenty years to parallel the terms of the term loan. Statement of Financial Accounting
Standards No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging Activities&#148; requires that for
cash flow hedges, which hedge the exposure to variable cash flow of a forecasted transaction, the
effective portion of the derivative&#146;s gain or loss be initially reported as a component of other
comprehensive income in the equity section of the balance sheet and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any ineffective portion of the
derivative&#146;s gain or loss is reported in earnings immediately. As of June&nbsp;25, 2006, there was no
hedge ineffectiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is exposed to market risks from changes in commodity prices. During the normal
course of business, the Company purchases cheese and certain other food products that are affected
by changes in commodity prices and, as a result, the Company is subject to volatility in its food
sales and cost of sales. Management actively monitors this exposure; however, the Company does not
enter into financial instruments to hedge commodity prices. The block price per pound of cheese
averaged $1.35 in fiscal 2006. The estimated change in sales from a hypothetical $0.20 decrease in
the average cheese block price per pound would have been approximately $1.2&nbsp;million in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not believe inflation has materially affected earnings during the past three
years. Substantial increases in costs, particularly commodities, labor, benefits, insurance,
utilities and fuel, could have a significant impact on the Company.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->32<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.</B>
</DIV>

<!-- link2 "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" -->
<DIV align="left"><A NAME="012"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Index to Financial Statements and Schedule:

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>PAGE NO.</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>FINANCIAL STATEMENTS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of Independent Registered Public Accounting Firm.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">34</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Operations for the years ended
June&nbsp;25, 2006, June&nbsp;26, 2005, and June&nbsp;27, 2004.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">35</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Comprehensive Income (Loss) for the years ended
June&nbsp;25, 2006, June&nbsp;26, 2005, and June&nbsp;27, 2004.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">35</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Balance Sheets at June&nbsp;25, 2006 and June&nbsp;25, 2005.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">36</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Shareholders&#146; Equity for the years
ended June&nbsp;25, 2006, June&nbsp;26, 2005, and June&nbsp;27, 2004.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">37</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Cash Flows for the years ended June&nbsp;25, 2006,
June&nbsp;26, 2005, and June&nbsp;27, 2004.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">38</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to Consolidated Financial Statements.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">40</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>FINANCIAL STATEMENT SCHEDULE</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schedule&nbsp;II  &#151;  Consolidated Valuation and Qualifying Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">58</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">All other schedules are omitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Report of Independent Registered Public Accounting Firm
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Board of Directors and Stockholders<BR>
Pizza Inn, Inc.<BR>
The Colony, Texas

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of Pizza Inn, Inc. as of June&nbsp;25, 2006
and June&nbsp;26, 2005 and the related consolidated statements of operations and comprehensive income
(loss), stockholders&#146; equity, and cash flows for each of the three years in the period ended June
25, 2006. We have also audited the schedule listed in the accompanying index for each of the three
years in the period ended December June&nbsp;25, 2006. These financial statements and schedule are the
responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are free of material
misstatement. The Company is not required to have, nor did we perform, an audit of its internal
controls over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pizza Inn, Inc. at June&nbsp;25, 2006 and June&nbsp;26, 2005 and
the results of its operations and its cash flows for each of the three years in the period ended
June&nbsp;25, 2006<B>, </B>in conformity with accounting principles generally accepted in the United States of
America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Also, in our opinion, the schedule for each of the three years in the period ended June&nbsp;25, 2006
presents fairly, in all material respects, the information set forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As more fully described in Note H to the consolidated financial statements, effective June&nbsp;27,
2005, the Company adopted the provisions of SFAS 123(R), &#147;Share Based Payment.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dallas, Texas<BR>
August&nbsp;18, 2006, except for Note L for which the date is September&nbsp;25, 2006

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS</B><BR>
<B><I>(In thousands, except per share amounts)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>REVENUES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Food and supply sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Franchise revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restaurant sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,988</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>COSTS AND EXPENSES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Franchise expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,882</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of long-lived assets and goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Litigation settlement accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for (recovery of) bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">613</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>(LOSS)&nbsp;INCOME BEFORE INCOME TAXES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,018</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision (benefit)&nbsp;for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,029</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>NET (LOSS)&nbsp;INCOME</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Basic (loss)&nbsp;earnings per common share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Diluted (loss)&nbsp;earnings per common share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average common shares outstanding</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,076</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average common and
potentially dilutive common shares outstanding</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,117</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)</B><BR>
<B><I>(In thousands)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (loss)&nbsp;income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap gain (net of
income tax expense of ($89), ($59),
and ($179), respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,816</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Report of Independent Registered Public<BR>
Accounting Firm and Notes to Consolidated Financial Statement.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
CONSOLIDATED BALANCE SHEETS</B><BR>
<B><I>(In thousands, except share amounts)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, less allowance for doubtful
accounts of $324 and $360, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable &#151; related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes receivable, current portion, less allowance
for doubtful accounts of $0 and $11, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,918</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current deferred income tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LONG-TERM ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,148</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property under capital leases, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-current notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term receivable &#151; related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Re-acquired development territory, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deposits and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,255</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable &#151; trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,962</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,753</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LONG-TERM LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,297</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,349</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">COMMITMENTS AND CONTINGENCIES (See Notes D and I)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, $.01 par value; authorized 26,000,000
shares; issued 15,090,319 and 15,046,319 shares, respectively;
outstanding 10,138,494 and 10,094,494 shares, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock at cost
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:39px; text-indent:-15px">Shares in treasury: 4,951,825 and 4,951,825, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,644</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,255</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Report of Independent Registered Public<BR>
Accounting Firm and Notes to Consolidated Financial Statement.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS&#146; EQUITY</B><BR>
<B><I>(In thousands)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accum.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Comp.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Treasury</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Loans to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Loss)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Officers</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gain</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>at Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BALANCE, JUNE 29, 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,059</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>150</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>7,825</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(569</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>18,135</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(650</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(19,484</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,407</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Principal repayment of loans
by officers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap gain (net
of income tax expense
of $179)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BALANCE, JUNE 27, 2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,134</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>150</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,975</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,378</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(302</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19,484</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,717</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock repurchase
(54 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap gain (net
of income tax expense
of $59)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BALANCE, JUNE 26, 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,095</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>150</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,582</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(187</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19,644</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,906</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap gain (net
of income tax expense
of $89)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BALANCE, JUNE 25, 2006</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,139</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>151</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>8,426</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>14,593</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(14</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(19,644</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>3,512</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Report of Independent Registered Public<BR>
Accounting Firm and Notes to Consolidated Financial Statement.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->37<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS</B><BR>
<B><I>(In thousands)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CASH FLOWS FROM OPERATING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net (loss)&nbsp;income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Adjustments to reconcile net (loss)&nbsp;income to
cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Impairment of goodwill and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Gain on property held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Stock compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Non cash settlement of accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(281</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Litigation settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Provision for (recovery of) bad debt, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(229</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,029</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Notes and accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(270</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(205</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(202</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable &#151; trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(711</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred franchise revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><B>Cash provided by operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CASH FLOWS FROM INVESTING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Proceeds from sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(655</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Re-acquisition of area development territory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(682</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><B>Cash used in investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,638</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,299</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CASH FLOWS FROM FINANCING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Repayments of long-term bank debt and
capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(414</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(415</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,534</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Borrowings of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in line of credit, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,300</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Proceeds from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Officer loan payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchases of treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><B>Cash provided (used)&nbsp;in financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,995</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(444</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">218</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Report of Independent Registered Public<BR>
Accounting Firm and Notes to Consolidated Financial Statement.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION</B><BR>
<B><I>(In thousands)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CASH PAID / (RECEIVED)&nbsp;FOR:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax payments / (refunds)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(283</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>NONCASH FINANCING AND INVESTING
ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on interest rate swap</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">527</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Report of Independent Registered Public<BR>
Accounting Firm and Notes to Consolidated Financial Statement.</I>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PIZZA INN, INC.<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE A &#151; ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Description of Business:</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pizza Inn, Inc. (the &#147;Company&#148;), a Missouri corporation incorporated in 1983, is the successor
to a Texas company of the same name, which was incorporated in 1961. The Company is the franchisor
and food and supply distributor to a system of restaurants operating under the trademark &#147;Pizza
Inn.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;25, 2006, the Pizza Inn system consisted of 375 locations, including three
Company-operated restaurants and 372 franchised restaurants, with franchises in 18 states and nine
foreign countries. Domestic restaurants are located predominantly in the southern half of the
United States, with Texas, North Carolina and Arkansas accounting for approximately 35%, 14%, and
8%, respectively, of the total domestic restaurants. Through the Company&#146;s Norco Restaurant
Services Company (&#147;Norco&#148;) division, and through agreements with third party distributors, the
Company provides or facilitates food, equipment and supply distribution to its domestic and
international system of restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Principles of Consolidation:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly owned. All appropriate inter-company balances and
transactions have been eliminated. Certain prior year amounts have been reclassified to conform
with current year presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cash and Cash Equivalents:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Inventories:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories, which consist primarily of food, paper products, supplies and equipment located
at the Company&#146;s distribution center, are stated at the lower of cost or market, with cost
determined according to the weighted average cost method. Provision is made for obsolete
inventories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Property Held for Resale:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assets that are to be disposed of by sale are recognized in the consolidated financial
statements at the lower of carrying amount or fair value, less cost to sell, and are not
depreciated after being classified as held for sale. In order for an asset to be classified as held
for sale, the asset must be actively marketed, be available for immediate sale and meet certain
other specified criteria.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Property, Plant and Equipment:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment, including property under capital leases, are stated at cost
less accumulated depreciation and amortization. Repairs and maintenance are charged to operations
as incurred; major renewals and betterments are capitalized. Internal and external costs incurred
to develop or purchase internal-use computer software during the application development stage,
including upgrades and enhancements, are capitalized. Upon the sale or disposition of a fixed
asset, the asset and the related accumulated depreciation or amortization are removed from the
accounts and the gain or loss is included in operations. The Company capitalizes interest on
borrowings during the active construction period of major capital projects. Capitalized interest
is added to the cost of the underlying asset and amortized over the estimated useful life of the
asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization is computed on the straight-line method over the estimated
useful lives of the assets or, in the case of leasehold improvements, over the term of the lease
including any reasonably assured renewal periods, if shorter. The useful lives of the assets range
from three to 39 years.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Goodwill:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill is tested for impairment annually or at the time of a triggering event in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;142, <I>Goodwill and
Other Intangible Assets</I>. The Company considers its Company-owned restaurants to be reporting units
when it tests for goodwill impairment. Fair values are estimated based on the Company&#146;s best
estimate of the expected present value of future cash flows and compared with the corresponding
carrying value of the reporting unit, including goodwill. During the quarter ended June&nbsp;25, 2006,
the Company reduced its expectations for the Company-owned restaurants in Houston, Texas based on
recent trends. At June&nbsp;25, 2006, the Company recorded a pre-tax, non-cash impairment charge of
$152,000 to write down the carrying value of the goodwill associated with the Houston are
restaurants. Impairment charges are included in general and administrative expenses in the
Consolidated Statements of Operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Long-Lived Asset Impairment Assessments, Excluding Goodwill:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reviews long-lived assets for impairment when events or circumstances indicate
that the carrying value of such assets may not be fully recoverable. Impairment is evaluated based
on the sum of undiscounted estimated future cash flows expected to result from use of the assets
compared to its carrying value. If impairment is recognized, the carrying value of the impaired
asset is reduced to its fair value, based on discounted estimated future cash flows. During fiscal
year 2006, the Company tested its long-lived assets for impairment and recognized pre-tax, non-cash
impairment charges of $1,166,000 related to the carrying value of the Houston area Company-owned
restaurants and the Little Elm, Texas restaurant. No impairment charges were necessary at June&nbsp;26,
2005. Impairment charges are included in general and administrative expenses in the Consolidated
Statements of Operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Accounts Receivable:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable consist primarily of receivables from food and supply sales and franchise
royalties. The Company records a provision for doubtful receivables to allow for any amounts that
may be unrecoverable and is based upon an analysis of the Company&#146;s prior collection experience,
customer credit worthiness and current economic trends. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance. Finance charges are accrued for
at a rate of 18% per year, or up to the maximum amount allowed by law, on past due receivables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Notes Receivable:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable primarily consist of notes from developers and master franchisees for the
purchase of area development and master license territories, the purchase of re-franchised
restaurants, and the refinancing of existing trade receivables. These notes generally have terms
ranging from one to five years, with interest rates of 6% to 12%. Of the notes receivable
outstanding on June&nbsp;25, 2006, $46,000 are collateralized by the improvements and fixtures of a
franchisee&#146;s restaurant. The Company records a provision for doubtful receivables to allow for any
amounts that may be unrecoverable and is based upon an analysis of the Company&#146;s prior collection
experience, customer creditworthiness and current economic trends. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Re-acquired Development Territory:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Re-acquired development franchise rights are initially recorded at cost. When circumstances
warrant, the Company assesses the fair value of these assets based on estimated, undiscounted
future cash flows, to determine if impairment in the value has occurred and an adjustment is
necessary. If an adjustment is required, a discounted cash flow analysis would be performed and an
impairment loss would be recorded.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has one re-acquired territory at June&nbsp;25, 2006. The territory was re-acquired in
December&nbsp;2003, and is being amortized against incremental cash flows received, which is estimated
to be approximately five years. The following chart summarizes the carrying amount at June&nbsp;25,
2006 and June&nbsp;26, 2005, the current year amortization expense and the estimated amortization
schedule to be expensed in fiscal years 2006 through 2009 (in thousands).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Carrying Amount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(481</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(289</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Aggregate Amortization Expense:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">For the year ended June&nbsp;25, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Estimated Amortization Expense:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">For the year ending 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">For the year ending 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">For the year ending 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total estimated amortization expense for the years ending 2007 &#150; 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income Taxes:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes are accounted for using the asset and liability method pursuant to Statement of
Financial Accounting Standards No.&nbsp;109, &#147;Accounting for Income Taxes&#148; (&#147;SFAS 109&#148;). Deferred taxes
are recognized for the tax consequences of &#147;temporary differences&#148; by applying enacted statutory
tax rates applicable to future years to differences between the financial statement and carrying
amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a
change in tax rates is recognized in income in the period that includes the enactment date. The
Company recognizes future tax benefits to the extent that realization of such benefits is more
likely than not.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax
assets that may not be realized based upon the evidence of the Company&#146;s significant pre-tax losses
in 2006, the possibility of a continued pre-tax loss in 2007, and the Company&#146;s analysis of
existing tax credits by jurisdiction and expectations of the Company&#146;s ability to utilize these tax
attributes through a review of estimated future taxable income and establishment of tax strategies.
These estimates could be impacted by changes in future taxable income and the results of tax
strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenue Recognition:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Norco division sells food, supplies and equipment to franchisees on trade
accounts under terms common in the industry. Revenue from such sales is recognized upon delivery.
The Company recognizes revenue when products are delivered and the customer takes ownership and
assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an
arrangement exists and the sales price is fixed or determinable. Title and risk of loss for
products the Company sells transfer upon delivery. Equipment that is sold requires installation
prior to acceptance. Recognition of revenue occurs upon installation of such equipment. Norco
sales are reflected under the caption &#147;food and supply sales.&#148; Shipping and handling costs billed
to customers are recognized as revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise revenue consists of income from license fees, royalties, and area development and
foreign master license (collectively, &#147;Territory&#148;) sales. License fees are recognized as income
when there has been substantial performance of the agreement by both the franchisee and the
Company, generally at the time the restaurant is opened. Royalties are recognized as income when
earned. For the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, 96%, 97% and 95%,
respectively, of franchise revenue was comprised of recurring royalties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Territory sales are the fees paid by selected experienced restaurant operators to the Company
for the right to develop a specified number of restaurants in designated geographical territories.
The Company recognizes the fee to the extent its obligations are fulfilled and to the extent of
cash received. Territory fees recognized as income for the years ended June&nbsp;26, 2005, June&nbsp;27,
2004 and June&nbsp;29, 2003 were $0, $0 and $12,500, respectively.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stock Options:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004 Financial Accounting Standards Board (the &#147;FASB&#148;) issued SFAS No.&nbsp;123(R),
&#147;Share-Based Payment,&#148; which revises SFAS No.&nbsp;123, &#147;Accounting for Stock-Based Compensation&#148; (&#147;SFAS
No.&nbsp;123&#148;), and supersedes Accounting Principles Board Opinion No.&nbsp;25, &#147;Accounting for Stock Issued
to Employees&#148; (&#147;APB No.&nbsp;25&#148;) and amends SFAS No.&nbsp;95 &#147;Statement of Cash Flows.&#148; SFAS No.&nbsp;123(R)
requires companies to recognize in their income statement the grant-date fair value of stock
options and other equity-based compensation issued to employees and directors. Pro forma
disclosure is no longer an alternative. The Company adopted SFAS No.&nbsp;123(R) on June&nbsp;27, 2005.
This Statement requires that compensation expense for most equity-based awards be recognized over
the requisite service period, usually the vesting period, while compensation expense for
liability-based awards (those usually settled in cash rather than stock) be re-measured to
fair-value at each balance sheet date until the award is settled.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company uses the Black-Scholes formula to estimate the value of stock-based compensation
granted to employees and directors and expects to continue to use this acceptable option valuation
model in the future. Because SFAS No.&nbsp;123(R) must be applied not only to new awards, but also to
previously granted awards that are not fully vested on the effective date, compensation cost for
the unvested portion of some previously granted options are recognized under SFAS No.&nbsp;123(R). SFAS
No.&nbsp;123(R) also requires the benefits of tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow, rather than as an operating cash flow as currently
required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company elected to utilize the modified prospective transition method for adopting SFAS
123(R). Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified
after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the
date of adoption, determined under the original provisions of SFAS 123, shall be recognized in net
earnings in the periods after the date of adoption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June&nbsp;25, 2006 the Company has two stock-based employee compensation plans, two stock-based
non-employee director compensation plans and an employment agreement with the Company&#146;s President
and Chief Executive Officer. Stock options under these plans are granted at exercise prices equal
to the fair market value of the Company&#146;s stock at the dates of grant; generally those options vest
ratably over various vesting periods. The Company&#146;s stock-based compensation plans are described
more fully in Note H. The Company recognizes stock-based compensation expense over the requisite
service period of the individual grants, which generally equals the vesting period. Prior to June
27, 2005 the Company accounted for these plans under the intrinsic value method described in
Accounting Principles Board Opinion No.&nbsp;25 &#147;Accounting for Stock Issued to Employees,&#148; and related
Interpretations. Under the intrinsic value method, no stock-based employee compensation cost was
reflected in net earnings. See Note H for effects on net earnings and earnings per share, if the
Company had applied the fair value recognition provisions of SFAS No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation&#148;, to stock-based compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of adopting SFAS No.&nbsp;123(R) on June&nbsp;27, 2005, our loss before income taxes and net
loss for the year ended June&nbsp;25, 2006, are $341,000 and $221,000 higher, respectively, than if we
had continued to account for share-based compensation under APB No.&nbsp;25. These amounts represents
previously issued awards vesting in fiscal year 2006 and awards granted in fiscal year 2006. Basic
and diluted loss per share for the year ended June&nbsp;25, 2006 are both $0.03 higher than if the
Company had continued to account for share-based compensation under APB No.&nbsp;25.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Disclosure about Fair Value of Financial Instruments:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amounts of accounts receivable, notes receivable and accounts payable approximate
fair value because of the short maturity of these instruments. The carrying amount of long-term
debt approximates fair value at June&nbsp;25, 2006, since a substantial portion of long-term debt is
variable rate, or at a rate consistent with market rates currently available to the Company. The
fair value of the Company&#146;s interest rate swap is based on pricing models using current market
rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Contingencies:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions for settlements are accrued when payment is considered probable and the amount of
loss is reasonably estimable. If the best estimate of cost can only be identified within a range
and no specific amount within that range can be determined more likely than any other amount within
the range, the minimum of the range
is accrued. Legal and related professional services costs to defend litigation of this nature have
been expensed as incurred.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Use of Management Estimates:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires the Company&#146;s management to make estimates and
assumptions that affect its reported amounts of assets, liabilities, revenues, expenses and related
disclosure of contingent liabilities. The Company bases its estimates on historical experience and
other various assumptions that it believes are reasonable under the circumstances. Estimates and
assumptions are reviewed periodically. Actual results could differ materially from estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Fiscal Year:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s fiscal year ends on the last Sunday in June. Fiscal years ending June&nbsp;25, 2006
and June&nbsp;26, 2005 and June&nbsp;27, 2004 all contained 52&nbsp;weeks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>New Pronouncements:</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; an amendment of SFAS No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.&#148; This Statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that would otherwise be required to be
bifurcated from its host contract. The election to measure a hybrid financial instrument at fair
value, in its entirety, is irrevocable and all changes in fair value are to be recognized in
earnings. This Statement also clarifies and amends certain provisions of SFAS No.&nbsp;133 and SFAS No.
140. This Statement is effective for all financial instruments acquired, issued or subject to a
remeasurement event occurring in fiscal years beginning after September&nbsp;15, 2006. Early adoption is
permitted, provided the Company has not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. The adoption of this Statement is not
expected to have a material impact on the Company&#146;s financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes.&#148; This Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected
to be taken in income tax returns. This Interpretation is effective for fiscal years beginning
after December&nbsp;15, 2006. The cumulative effects, if any, of applying this Interpretation will be
recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The
Company is in the process of determining the impact of adopting this Interpretation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;13, 2006, the Securities and Exchange Commission (&#147;SEC&#148;) issued Staff Accounting
Bulletin No. (&#147;SAB 108&#148;) which provides interpretive guidance on how the effects of the carryover
or reversal of prior year misstatements should be considered in quantifying a current year
misstatement. The guidance is applicable for our fiscal 2007. The adoption of this statement is not
expected to have a material impact on the company&#146;s financial position or results of operation.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE B &#151; PROPERTY, PLANT AND EQUIPMENT:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment and property under capital leases consist of the following (in
thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Estimated Useful</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Lives</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equipment, furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3 &#150; 7 yrs</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,681</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Building</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">5 &#150; 39 yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,071</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,071</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">7 yrs or lease term if shorter</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,429</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,224</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,148</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Real estate under capital lease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">20 yrs</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">118</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(106</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Depreciation and amortization expense was $1,214,000, $1,143,000 and $1,133,000 for the years
ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owns property in Little Elm, Texas that was purchased in June&nbsp;2003 for
approximately $127,000 from which the Company previously operated a Delco Unit. Finish out and
improvements for construction of the Delco Unit totaled approximately $440,000. The Company is
considering alternatives for the Little Elm location, including possible sale or lease of the land
and existing modular delivery/carry-out building to a franchisee for operation as a Pizza Inn
restaurant, or listing the land with a broker for sale to a third party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owned property in Prosper, Texas that was purchased with the intention of
constructing and operating a Buffet restaurant. The Company decided not to pursue development at
that location and sold the property for cash to a third party in September&nbsp;2005 for $474,000,
realizing a gain of $147,000 on the sale. The Company sold a Company-owned Buffet Unit in Dallas,
Texas in March&nbsp;2006 for $115,000, realizing no material gain or loss on the sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE C &#151; ACCRUED EXPENSES:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses consist of the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation reserve (Note I)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE D &#151; LONG-TERM DEBT:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an agreement on August&nbsp;29, 2005, effective June&nbsp;26, 2005 (the
&#147;Revolving Credit Agreement&#148;), with Wells Fargo to provide a $6.0&nbsp;million revolving credit line
that will expire October&nbsp;1, 2007, replacing a $3.0&nbsp;million line that was due to expire December
23, 2005. The amendment provides, among other terms, for modifications to certain financial
covenants, which would have resulted in an Event of Default had the Company not entered into the
new Revolving Credit Agreement. Interest is provided for at a rate equal to a range of Prime less
an interest rate margin of 0.75% to Prime plus an interest rate margin of 1.75% or, at the
Company&#146;s option, at the LIBOR rate plus an interest rate margin of 1.25% to 3.75%. The interest
rate margin is
based on the Company&#146;s performance under certain financial ratio tests. An annual commitment fee
is payable on
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">any unused portion of the Revolving Credit Agreement at a rate from 0.35% to 0.50%
based on the Company&#146;s performance under certain financial ratio tests. The interest rate
realized in 2006 was higher than the rate structure described above due to the events of default
described below. As of June&nbsp;25, 2006 and June&nbsp;26, 2005, the variable interest rates were 9.75% and
6.50%, using a Prime interest rate basis, respectively. Amounts outstanding under the Revolving
Credit Agreement as of June&nbsp;25, 2006 and June&nbsp;26, 2005 were $1,713,000 and $966,000, respectively.
Property, plant and equipment, inventory and accounts receivable have been pledged for the
Revolving Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an agreement effective December&nbsp;28, 2000, as amended (the &#147;Term Loan
Agreement&#148;), with Wells Fargo to provide up to $8.125&nbsp;million of financing for the construction of
the Company&#146;s new headquarters, training center and distribution facility. The construction loan
converted to a term loan effective January&nbsp;31, 2002 with the unpaid principal balance to mature on
December&nbsp;28, 2007. The Term Loan Agreement amortizes over a term of twenty years, with principal
payments of $34,000 due monthly. Interest on the Term Loan Agreement is also payable monthly.
Interest is provided for at a rate equal to a range of Prime less an interest rate margin of 0.75%
to Prime plus an interest rate margin of 1.75% or, at the Company&#146;s option, at the LIBOR rate plus
an interest rate margin of 1.25% to 3.75%. The interest rate margin is based on the Company&#146;s
performance under certain financial ratio tests. The Company, to fulfill the requirements of Wells
Fargo, fixed the interest rate on the Term Loan Agreement by utilizing an interest rate swap
agreement as discussed below. The Term Loan Agreement had an outstanding balance of $6.3&nbsp;million
at June&nbsp;25, 2006 and $6.7&nbsp;million at June&nbsp;26, 2005. Property, plant and equipment, inventory and
accounts receivable have been pledged for the Term Loan Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;18, 2005, the Company notified Wells Fargo that, as of September&nbsp;25, 2005 the
Company was in violation of certain financial ratio covenants in the Revolving Credit Agreement and
that, as a result, an event of default exists under the Loan Agreement. As a result of the
continuing event of default as of June&nbsp;25, 2006 all outstanding principal of the Company&#146;s
obligations under the Revolving Credit Agreement were reclassified as a current liability on the
Company&#146;s balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;28, 2005 Wells Fargo notified the Company that as a result of the default Wells
Fargo would continue to make Revolving Credit Loans (as defined in the Revolving Credit Agreement)
to the Company in accordance with the terms of the Revolving Credit Agreement, provided that the
aggregate principal amount of all such Revolving Credit Loans does not exceed $3,000,000 at any one
time. Additionally, Wells Fargo notified the Company that the LIBOR rate margin and the prime rate
margin have been adjusted, effective as of October&nbsp;1, 2005, according to the pricing rate grid set
forth in the Revolving Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;14, 2006, the Company and Wells Fargo entered into a Limited Forbearance Agreement
(the &#147;Forbearance Agreement&#148;), under which Wells Fargo agreed to forbear until October&nbsp;1, 2006 (the
&#147;Forbearance Period&#148;) from exercising its rights and remedies as a result of the Company&#146;s existing
defaults under the Revolving Credit Agreement, provided that the aggregate principal amount of all
such Revolving Credit Loans does not exceed $2,250,000 at any one time. Wells Fargo and the
Company entered into the Forbearance Agreement to provide the Company with time, during the
Forbearance Period, to pursue discussions with Wells Fargo regarding various possible options for
refinancing the Company&#146;s indebtedness and liabilities to Wells Fargo under the Revolving Credit
Agreement. The Company is currently in discussions with, and has recently received lending
proposals from, various lenders to amend or refinance the Revolving Credit Agreement and Term Loan
Agreement and believes that it will be able to execute such an agreement in the near future. While
no assurances can be provided that adequate financing will be available through an agreement with
Wells Fargo or any other lender, the Company believes a sale-leaseback transaction to monetize the
value in its corporate headquarters and distribution facility would provide the liquidity necessary
to meet currently known obligations as they come due. The majority of the Company&#146;s current debt
was incurred to fund the construction of the headquarters office and distribution facility, and the
Company believes that the market value of those real estate assets is in excess of its current
indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an interest rate swap effective February&nbsp;27, 2001, as amended,
designated as a cash flow hedge, to manage interest rate risk relating to the financing of the
construction of the Company&#146;s headquarters and to fulfill bank requirements. The swap agreement
has a notional principal amount of $8.125&nbsp;million with a fixed pay rate of 5.84%, which began
November&nbsp;1, 2001 and will end November&nbsp;19, 2007. The swap&#146;s notional amount amortizes over a term
of twenty years to parallel the terms of the Term Loan Agreement. SFAS No.&nbsp;133, &#147;Accounting for
Derivative Instruments and Hedging Activities,&#148; requires that for cash flow hedges which hedge the
exposure to variable cash flow of a forecasted transaction, the effective portion of the
derivative&#146;s gain or loss be initially reported as a component of other comprehensive income in the
equity section of the balance sheet and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any ineffective portion of the derivative&#146;s gain or loss is reported
in earnings immediately. At June&nbsp;25, 2006 there was no hedge ineffectiveness. At June&nbsp;25, 2006 the
fair value of the interest rate swap was a liability of $22,000.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PIBCO, Ltd., a wholly-owned insurance subsidiary of the Company, in the normal course of
operations, arranged for the issuance of a letter of credit for $230,000 to reinsurers to secure
loss reserves. At June&nbsp;25, 2006 and June&nbsp;26, 2005, this letter of credit was secured under the
Revolving Credit Agreement. Loss reserves for approximately the same amount have been recorded by
PIBCO, Ltd. and are reflected as current liabilities in the Company&#146;s consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE E &#151; INCOME TAXES:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision (benefit)&nbsp;for income taxes consist of the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current &#151; Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">637</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current &#151; State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred &#151; Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(889</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred &#151; State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(140</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision (benefit)&nbsp;for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,029</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effective income tax rate varied from the statutory rate for the years ended June&nbsp;25,
2006, June&nbsp;26, 2005 and June&nbsp;27, 2004 as reflected below (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Federal income taxes based on 34%
of pre-tax income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,386</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State income tax, net of federal effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(92</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Permanent adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,029</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tax effects of temporary differences that give rise to the net deferred tax assets
(liabilities)&nbsp;consisted of the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">131</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(244</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other reserves and accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Credit carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,564</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(116</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">190</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax assets and liabilities are determined based on temporary differences between
income and expenses reported for financial reporting and tax reporting. The Company is required to
record a valuation
allowance to reduce the net deferred tax assets to the amount that the Company believes is
more likely than not to be realized. In assessing the need for a valuation allowance, the Company
has historically have considered all positive
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and negative evidence, including scheduled reversals
of deferred tax liabilities, prudent and feasible tax planning strategies, projected future taxable
income and recent financial performance. Because of the Company&#146;s significant pre-tax losses in
2006 and the possibility of a continued pre-tax loss in 2007, the accounting guidance in SFAS 109
suggests that the future earnings may not support the realizability of the net deferred tax asset.
As a result, the Company has concluded that a partial valuation allowance against our deferred tax
asset was appropriate. Accordingly, in the fourth quarter of fiscal 2006, the deferred tax asset
was reduced by $1,448,000 with a corresponding adjustment to the provision for income taxes. The
book value of the remaining net deferred tax asset is supported by the ability to carry back the
significant majority of the net operating loss in 2006 of against prior taxes paid and the
likelihood of recognizing a gain on the sale of real estate assets. The Company expects to file a
refund claim carrying back the significant majority of the 2006 net operating loss against prior
taxes paid. The remaining net operating loss will be carried forward and will not expire until
2026.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;25, 2006, the Company had $176,000 of foreign tax credit carryforwards expiring
between 2006 and 2011. A related valuation allowance of $116,000 was established under SFAS 109,
since it is more likely than not that a portion of the foreign tax credit carryforwards will expire
before they can be utilized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE F &#151; LEASES:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premises occupied by Company-owned restaurants are leased for initial terms of five to ten
years, and each has multiple renewal terms. Each lease agreement contains either a provision
requiring additional rent if sales exceed specified amounts or an escalation clause based upon a
predetermined multiple.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Norco currently leases a significant portion of its transportation equipment under operating
leases with terms from five to seven years. Some of the leases include fair market value purchase
options at the end of the term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future minimum rental payments under non-cancelable leases with initial or remaining terms of
one year or more at June&nbsp;25, 2006 are as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Operating</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Leases</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental expense consisted of the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contingent rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sublease rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE G &#151; EMPLOYEE BENEFITS:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a tax advantaged savings plan that is designed to meet the requirements of
Section 401(k) of the Internal Revenue Code (the &#147;Code&#148;). The current plan is a modified
continuation of a similar savings plan established by the Company in 1985. Employees who have
completed six months of service and are at least 21&nbsp;years of age are eligible to participate in the
plan. Effective January&nbsp;1, 2002, as amended by the Economic Growth and Tax Relief Reconciliation
Act (EGTRRA), the plan provides that participating employees may
elect to have between 1% &#150; 15% of
their compensation deferred and contributed to the plan subject to certain IRS limitations.
Effective January&nbsp;1, 2001 through June&nbsp;30, 2004, the Company contributed on behalf of each
participating employee
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">an amount equal to 50% of up to 4% of the employee&#146;s contribution. Effective
July&nbsp;1, 2004 through June&nbsp;26, 2005, the Company elected to temporarily suspend its matching
contribution to the plan. Effective June&nbsp;27, 2005, the Company contributes on behalf of each
participating employee an amount equal to 50% of up to 4% of the employee&#146;s contribution. Separate
accounts are maintained with respect to contributions made on behalf of each participating
employee. Employer matching contributions and earnings thereon are invested in common stock of the
Company. The plan is subject to the provisions of the Employee Retirement Income Security Act, as
amended, and is a profit sharing plan as defined in Section&nbsp;401 of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, total matching
contributions to the tax advantaged savings plan by the Company on behalf of participating
employees were $75,000, $0 and $94,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE H &#151; STOCK OPTIONS:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;1994, the 1993 Stock Award Plan (&#147;the 1993 Plan&#148;) was approved by the Company&#146;s
shareholders with a plan effective date of October&nbsp;13, 1993. Officers and employees of the Company
were eligible to receive stock options under the 1993 Plan. Options were granted at market value
of the stock on the date of grant, and were subject to various vesting periods ranging from six
months to three years with exercise periods up to eight years, and could have been designated as
incentive options (permitting the participant to defer resulting federal income taxes).
Originally, a total of two million shares of common stock were authorized to be issued under the
1993 Plan. In December&nbsp;1996, 1997 and 1998, the Company&#146;s shareholders approved amendments that
increased the 1993 Plan by 500,000 shares in each year. In December&nbsp;2000, the Company&#146;s
shareholders approved amendments that increased the 1993 Plan by 100,000 shares. The 1993 Plan
expired on October&nbsp;13, 2003 and no further options may be granted pursuant to it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 1993 Outside Directors Stock Award Plan (the &#147;1993 Directors Plan&#148;) was also adopted by
the Company effective as of October&nbsp;13, 1993 as approved by the shareholders. Elected directors
not employed by the Company were eligible to receive stock options under the 1993 Directors Plan.
Options for common stock equal to twice the number of shares of common stock acquired during the
previous fiscal year were granted, up to 20,000 shares per year, to each outside director. Options
were granted at market value of the stock on the first day of each fiscal year, which was also the
date of grant, and with various vesting periods ranging from one to four years with exercise
periods up to nine years. A total of 200,000 shares of Company common stock were authorized to be
issued pursuant to the 1993 Directors Plan. The 1993 Directors Plan expired on October&nbsp;13, 2003
and no further options may be granted pursuant to it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2005 the Company and Tim Taft, the Company&#146;s President and Chief Executive
Officer, entered into a non-qualified stock option award agreement as part of Mr.&nbsp;Taft&#146;s employment
agreement. Pursuant to the agreement Mr.&nbsp;Taft was awarded options to purchase 500,000 shares of
the Company&#146;s common stock at an exercise price of $2.50 per share, which was the market value of
the stock on that day. Options for 50,000 shares vested immediately upon execution of the
agreement and the remaining options vest incrementally over the next three years. As of June&nbsp;25,
2006 150,000 options are vested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the 2005 Employee Incentive Stock Option Award Plan (the &#147;2005 Employee Plan&#148;)
was approved by the Company&#146;s shareholders with a plan effective date of June&nbsp;23, 2005. Under the
2005 Employee Plan, officers and employees of the Company are eligible to receive options to
purchase shares of the Company&#146;s common stock. Options are granted at market value of the stock on
the date of grant, are subject to various vesting and exercise periods as determined by the
Compensation Committee of the Board of Directors, and may be designated as incentive options
(permitting the participant to defer resulting federal income taxes). A total of one million
shares of common stock are authorized to be issued under the 2005 Employee Plan. As of June&nbsp;25,
2006 no options have been issued under the 2005 Employee Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shareholders also approved the 2005 Non-Employee Directors Stock Award Plan (the &#147;2005
Directors Plan&#148;) in June&nbsp;2005, to be effective as of June&nbsp;23, 2005. Directors not employed by the
Company are eligible to receive stock options under the 2005 Directors Plan. Options for common
stock equal to twice the number of shares of common stock acquired during the previous fiscal year
can be granted, up to 40,000 shares per year, to each non-
employee director. Options are granted at market value of the stock on the first day of each
fiscal year, which is also the date of grant, and with various vesting periods beginning at a
minimum of six months and with exercise periods up to ten years. A total of 500,000 shares of
Company common stock are authorized to be issued pursuant to the 2005 Directors Plan.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Summary of Stock Option Transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of stock option transactions under all of the Company&#146;s stock option plans and
information about fixed-price stock options follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27" style="border-bottom: 1px solid #000000">Year Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>


    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">June 25, 2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 26, 2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 27, 2004</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted-</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Intrinsic</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Value</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>


    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">810,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">806,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(75,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canceled/Expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(202,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250,450</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">239,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">810,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average fair value of
options granted during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intrinsic value of
options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63,162</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table provides information on options outstanding and options exercisable at
June&nbsp;25, 2006:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Options Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Options Exercisable</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Range of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Exercisable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exercise Prices</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">at June 25, 2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Life (Years)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">at June 26, 2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">$2.00 - 3.25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">252,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">$3.30 - 4.25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">$4.38 - 5.50</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">$2.00 - 5.50</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at
year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company adopted SFAS No.&nbsp;123 (revised 2004), <I>&#147;Share-Based Payment&#148; </I>(SFAS 123(R)),
effective June&nbsp;27, 2005. SFAS 123(R) requires the recognition of the fair value of stock-based
compensation in net earnings. At June&nbsp;25, 2006 the Company has two stock-based employee
compensation plans, two stock-based non-employee director compensation plans and an employment
agreement with the Company&#146;s President and Chief Executive Officer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to July&nbsp;27, 2005, the Company accounted for these plans under the intrinsic value method
described in Accounting Principles Board Opinion No.&nbsp;25, <I>&#147;Accounting for Stock Issued to
Employees,&#148; </I>and related Interpretations. The Company, applying the intrinsic value method, did not
record stock-based compensation cost in net earnings because the exercise price of its stock
options equaled the market price of the underlying stock on the date of grant. The Company elected
to utilize the modified prospective transition method for adopting SFAS 123(R).
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under this method,
the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption.
In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined
under the original provisions of SFAS 123, are recognized in net earnings in the periods after the
date of adoption. The Company
recognized stock-based compensation expense for the fiscal year 2006 in the amount of $341,000 in
the statement of operations. The Company also recorded related tax benefits for the fiscal year
2006 in the amount of $120,000. The effect on net income from recognizing stock-based compensation
for the fiscal year ended June&nbsp;26, 2006 was $221,000, or $0.02 per basic share.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS 123(R) requires the Company to present pro forma information for periods prior to the
adoption as if it had accounted for all stock-based compensation under the fair value method of
that statement. For purposes of pro forma disclosure, the estimated fair value of the awards at the
date of grant is amortized to expense over the requisite service period, which generally equals the
vesting period. The following table illustrates the effect on net earnings and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS 123(R) to its
stock-based employee compensation for the periods indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 26, 2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 27, 2004</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">As Reported</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Pro Forma</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">As Reported</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Pro Forma</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For all of the Company&#146;s stock-based compensation plans, the fair value of each grant was
estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes
assumptions related to volatility, the risk-free interest rate, the dividend yield (which is
assumed to be zero, as the Company has not paid any cash dividends) and employee exercise behavior.
The following weighted average assumptions were used in fiscal 2006: risk-free interest rate of
3.77%, expected volatility of 40.1%, forfeiture rates of 0%, expected dividends yield of 0% and
expected life of six years. Assumptions used in fiscal year 2005: risk-free interest rates
ranging from 4.09% to 4.50%, expected volatility of 40.5% to 40.9%, expected dividend yield of 0%,
forfeiture rates of 0%, and expected lives of six to nine years. Assumptions used in fiscal year
2004 were as follows: risk-free interest rates ranging from 1.9% to 2.8%, expected volatility of
42.2% to 42.5%, expected dividend yield of 0%, forfeiture rates of 0%, and expected lives of two
years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June&nbsp;25, 2006 we had unvested options to purchase 370,000 shares with a weighted average
grant date fair value of $1.39. The total remaining unrecognized compensation cost related to
unvested awards amounted to $236,890 at June&nbsp;25, 2006 and is expected to be recognized over the
next two years. The weighted average remaining requisite service period of the unvested awards was
16&nbsp;months. The total fair value of awards that vested during the fiscal years ended June&nbsp;25, 2006,
June&nbsp;26, 2005 and June&nbsp;27, 2004 were $196,730, $69,800 and $0, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE I &#151; COMMITMENTS AND CONTINGENCIES:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;11, 2004, the Board of Directors of the Company terminated the Executive
Compensation Agreement dated December&nbsp;16, 2002 between the Company and its then Chief Executive
Officer, Ronald W. Parker (&#147;Parker Agreement&#148;). Mr.&nbsp;Parker&#146;s employment was terminated following
ten days written notice to Mr.&nbsp;Parker of the Company&#146;s intent to discharge him for cause as a
result of violations of the Parker Agreement. Written notice of termination was communicated to
Mr.&nbsp;Parker on December&nbsp;13, 2004. The nature of the cause alleged was set forth in the notice of
intent to discharge and based upon Section&nbsp;2.01(c) of the Parker Agreement, which provides for
discharge for &#147;any intentional act of fraud against the Company, any of its subsidiaries or any of
their employees or properties, which is not cured, or with respect to which Executive is not
diligently pursuing a cure, within ten (10)&nbsp;business days of the Company giving notice to Executive
to do so.&#148; Mr.&nbsp;Parker was provided with an opportunity to cure as provided in the Parker Agreement
as well as the opportunity to be heard by the Board of Directors prior to the termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;12, 2005, the Company instituted an arbitration proceeding against Mr.&nbsp;Parker with
the American Arbitration Association in Dallas, Texas pursuant to the Parker Agreement seeking
declaratory relief that Mr.&nbsp;Parker was not entitled to severance payments or any other further
compensation from the Company. In addition, the Company was seeking compensatory damages,
consequential damages and disgorgement of compensation paid to Mr.&nbsp;Parker under the Parker
Agreement. On January&nbsp;31, 2005, Mr.&nbsp;Parker filed claims against the Company for alleged
defamation, alleged wrongful termination, and recovery of amounts allegedly due under the Parker
Agreement. Mr.&nbsp;Parker had originally sought in excess of $10.7&nbsp;million from the Company, including
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">approximately (i) $7.0&nbsp;million for severance payments plus accrued interest, (ii) $0.8&nbsp;million in
legal expenses, and (iii) $2.9&nbsp;million in other alleged damages.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, the parties entered into a compromise and settlement agreement (the
&#147;Settlement Agreement&#148;) relating to the arbitration actions filed by the Company and Mr.&nbsp;Parker
(collectively, the &#147;Parker Arbitration&#148;). Pursuant to the
Settlement Agreement, each of the Company and Mr.&nbsp;Parker (i)&nbsp;denied wrongdoing and liability, (ii)
agreed to mutual releases of liability, and (iii)&nbsp;agreed to dismiss all pending claims with
prejudice. The Company also agreed to pay Mr.&nbsp;Parker $2,800,000 through a structured payment
schedule to resolve all claims asserted by Mr.&nbsp;Parker in the Parker Arbitration. The total amount
is to be paid within six months, beginning with an initial payment of $100,000 on September&nbsp;25,
2006 (the &#147;Initial Payment Date&#148;). Additional amounts are to be paid as follows: $200,000 payable
45&nbsp;days after the Initial Payment Date; $150,000 payable 75&nbsp;days after the Initial Payment Date;
and payments of $100,000 on each of the 105<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, 135<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, and 165<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>
day after the Initial Payment Date. The remaining amount of approximately $2,050,000 is to be paid
within 180&nbsp;days of the Initial Payment Date. All payments under the Settlement Agreement would
automatically and immediately become due upon any sale-leaseback transaction involving our
corporate headquarters office and distribution facility. The Company has accrued the full amount
of the settlement payments as of June&nbsp;25, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;22, 2005, the Company provided PepsiCo, Inc. (&#147;PepsiCo&#148;) written notice of PepsiCo&#146;s
breach of the beverage marketing agreement the parties had entered into in May&nbsp;1998 (the &#147;Beverage
Agreement&#148;). In the notice, the Company alleged that PepsiCo had not complied with the terms of
the Beverage Agreement by failing to (i)&nbsp;provide account and equipment service, (ii)&nbsp;maintain and
repair fountain dispensing equipment, (iii)&nbsp;make timely and accurate account payments, and by
providing the Company beverage syrup containers that leaked in storage and in transit. The notice
provided PepsiCo 90&nbsp;days within which to cure the instances of default. On May&nbsp;18, 2005 the
parties entered into a &#147;standstill&#148; agreement under which the parties agreed to a 60-day extension
of the cure period to attempt to renegotiate the terms of the Beverage Agreement and for PepsiCo to
complete its cure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties were unable to renegotiate the Beverage Agreement, and the Company contends that
PepsiCo did not cure each of the instances of default set forth in the Company&#146;s April&nbsp;22, 2005
notice of default. On September&nbsp;15, 2005, the Company provided PepsiCo notice of termination of
the Beverage Agreement. On October&nbsp;11, 2005, PepsiCo served the Company with a Petition in the
matter of <I>PepsiCo, Inc. v. Pizza Inn Inc., </I>filed in District Court in Collin County, Texas. In the
Petition, PepsiCo alleges that the Company breached the Beverage Agreement by terminating it
without cause. PepsiCo seeks damages of approximately $2.6&nbsp;million, an amount PepsiCo believes
represents the value of gallons of beverage products that the Company is required to purchase under
the terms of the Beverage Agreement, plus return of any marketing support funds that PepsiCo
advanced to the Company but that the Company has not earned. The Company has filed a counterclaim
against PepsiCo for amounts earned by the Company under the Beverage Agreement but not yet paid by
PepsiCo, and for damage for business defamation and tortuous interference with contract based upon
statements and actions of the PepsiCo account representative servicing the Company&#146;s account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that it had good reason to terminate the Beverage Agreement and that it
terminated the Beverage Agreement in good faith and in compliance with its terms. The Company
further believes that under such circumstances it has no obligation to purchase additional
quantities of beverage products. Due to the preliminary nature of this matter and the general
uncertainty surrounding the outcome of any form of legal proceeding, it is not practicable for the
Company to provide any certain or meaningful analysis, projection or expectation at this time
regarding the outcome of this matter. Although the outcome of the legal proceeding cannot be
projected with certainty, the Company believes that PepsiCo&#146;s allegations are without merit. The
Company intends to vigorously defend against such allegations and to pursue all relief to which it
may be entitled. An adverse outcome to the proceeding could materially affect the Company&#146;s
financial position and results of operation. In the event the Company is unsuccessful, it could be
liable to PepsiCo for approximately $2.6&nbsp;million plus costs and fees. This matter is set for trial
beginning on May&nbsp;7, 2007. No accrual for such amounts has been made as of June&nbsp;25, 2006 regarding
the PepsiCo litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;19, 2006, the Company was served with notice of a lawsuit filed against it by
former franchisees who operated one restaurant in the Houston, Texas market in 2003. The former
franchisees allege generally that the Company intentionally and negligently misrepresented costs
associated with development and operation of the Company&#146;s franchise, and that as a result they
sustained business losses that ultimately led to the closing of the restaurant. They seek damages
of approximately $740,000, representing amounts the former franchisees claim to have lost in
connection with their development and operation of the restaurant. In addition, they seek
unspecified punitive damages, and recovery of attorneys&#146; fees and court costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the preliminary nature of this matter and the general uncertainty surrounding the
outcome of any form of legal proceeding, it is not practicable for the Company to provide any
certain or meaningful analysis,
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">projection or expectation at this time regarding the outcome of
this matter. Although the outcome of the legal proceeding cannot be projected with certainty, the
Company believes that the plaintiff&#146;s allegations are without merit. The Company intends to
vigorously defend against such allegations and to pursue all relief to which it may be entitled.
An adverse outcome to the proceeding could materially affect the Company&#146;s financial position and
results of operation. In the event the Company is unsuccessful, it could be liable to the
plaintiffs for approximately $740,000 plus punitive damages, costs and fees. No accrual for such
amounts has been made as of June&nbsp;25, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;30, 1998, Mid-South Pizza Development, Inc. (&#147;Mid-South&#148;) entered into a promissory
note whereby, among other things, Mid-South borrowed $1,330,000 from a third party lender (the
&#147;Loan&#148;) with the Company acting as the guarantor. The proceeds of the Loan, less transaction
costs, were used by Mid-South to purchase area developer rights from the Company for certain
counties in Kentucky and Tennessee. Effective December&nbsp;28, 2003, the Company reacquired all such
area development rights from Mid-South. The Company paid approximately $963,000 for these rights
of which $682,000 was a cash payment, and a non-cash settlement of accounts receivable of
approximately $281,000. A long-term asset was recorded for the same amount. Restaurants operating
or developed in the reacquired territory will now pay all royalties and franchise fees directly to
Pizza Inn, Inc. The asset will be amortized over the life of the asset, which is estimated to be
approximately five years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is also subject to other various claims and contingencies related to employment
agreements, lawsuits, taxes, food product purchase contracts and other matters arising out of the
normal course of business. With the possible exception of the matters set forth above, management
believes that any such claims and actions currently pending against us are either covered by
insurance or would not have a material adverse effect on the Company&#146;s annual results of operations
or financial condition if decided in a manner that is unfavorable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE J &#151; RELATED PARTIES</B>:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two directors of the Company are franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of the director franchisees, Bobby Clairday, currently operates a total of 10 restaurants
located in Arkansas. Purchases by this franchisee comprised 6.5%, 6.3%, and 6.0% of the Company&#146;s
total food and supply sales in the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004,
respectively. Royalties and license fees and area development sales from this franchisee comprised
3.5%, 3.4%, and 3.2% of the Company&#146;s total franchise revenues in the years ended June&nbsp;25, 2006,
June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. As of June&nbsp;25, 2006 and June&nbsp;26, 2005, his accounts
and note payable to the Company were $442,000 and $898,000, respectively. These restaurants pay
royalties to the Company and purchase a majority of their food and supplies from Norco.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The other director franchisee, Ramon Phillips, currently operates one restaurant in Oklahoma.
Purchases by this franchisee comprised 0.4%, 0.4%, and 0.5% of the Company&#146;s total food and supply
sales in the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. Royalties
from this franchisee comprised 0.4%, 0.5%, and 0.5% of the Company&#146;s total franchise revenues in
the years ended June&nbsp;25, 2006, June&nbsp;26, 2005 and June&nbsp;27, 2004, respectively. As of June&nbsp;25, 2006
and June&nbsp;26, 2005, his accounts payable to the Company were $10,000 and $39,000, respectively.
This restaurant pays royalties to the Company and purchases a majority of its food and supplies
from Norco.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that the above transactions were at the same prices and on the same
payment terms available to non-related parties, with one exception. This exception relates to the
enforcement of the personal guarantee by Mr.&nbsp;Clairday of the debt of a franchisee of which he is
the President and sole shareholder. In addition to normal trade receivables, the Company claimed
that the franchisee, Advance Food Services, Inc., owed the Company approximately $339,000,
representing debt incurred by Advance Foods, Inc. for royalty and advertising fee payments and
Norco product deliveries during a period in 1996 and 1997 following Mr.&nbsp;Clairday&#146;s sale of that
company to unrelated third parties and prior to his reacquisition of the company in 1997 (&#147;Advance
Foods Debt&#148;). Mr.&nbsp;Clairday had guaranteed payment of approximately $236,000 of the Advance Foods
Debt (&#147;Guaranteed Amount&#148;). During fiscal 2005 the Company applied against the Guaranteed Amount
of the Advance Foods Debt approximately $7,250 in board fees due Mr.&nbsp;Clairday, and on June&nbsp;20, 2006
the Company and Mr.&nbsp;Clairday entered into a settlement agreement whereby Mr.&nbsp;Clairday paid the
Company the remaining balance of the Guaranteed Amount. In the fourth quarter of 2006 the Company
recognized a bad debt provision to related party accounts receivable of approximately $76,000,
representing the amount of the Advance Foods Debt either in dispute or not guaranteed by Mr.
Clairday. The full amount of the provision was written off as uncollectible at that time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;1999, the Company also loaned $557,056 to then Chief Operating Officer Ronald W.
Parker in the form of a promissory note due in June&nbsp;2004 to acquire 200,000 shares of the Company&#146;s
common stock through the exercise of vested stock options previously granted to him in 1995 by the
Company. The note bore interest at the same floating interest rate the Company pays on its
revolving credit line with Wells Fargo and was collateralized
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">by certain real property and existing
Company stock owned by Ronald W. Parker. The note was reflected as a reduction to shareholders&#146;
equity. As of June&nbsp;27, 2004, the note balance was paid in full.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2000, the Company loaned $302,581 to Ronald W. Parker in the form of a promissory note
due in June&nbsp;2004, in conjunction with a cash payment of $260,000 from Mr.&nbsp;Parker, to acquire
200,000 shares of the Company&#146;s common stock through the exercise of vested stock options
previously granted in 1995 by the Company. The note bore interest at the same floating interest
rate the Company pays on its revolving credit line with Wells Fargo and was collateralized by
certain real property and existing Company stock owned by Ronald W. Parker. The note was reflected
as a reduction to shareholders&#146; equity. As of June&nbsp;27, 2004, the note balance was paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE K &#151; EARNINGS PER SHARE:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company computes and presents earnings per share (&#147;EPS&#148;) in accordance with SFAS 128,
&#147;Earnings Per Share.&#148; Basic EPS excludes the effect of potentially dilutive securities while
diluted EPS reflects the potential dilution that would occur if securities or other contracts to
issue common stock were exercised, converted or resulted in the issuance of common stock that then
shared in the earnings of the entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the reconciliation of the numerator and denominator of the basic EPS
calculation to the numerator and denominator of the diluted EPS calculation (in thousands, except
per share amounts).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Income (loss)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Numerator)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Denominator)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year Ended June&nbsp;25, 2006</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BASIC EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (Loss) Available to Common Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>DILUTED EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (Loss) Available to Common Shareholders
&#038; Potentially Dilutive Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,989</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.59</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year Ended June&nbsp;26, 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BASIC EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of Dilutive Securities &#151; Stock Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>DILUTED EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders
&#038; Potentially Dilutive Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year Ended June&nbsp;27, 2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>BASIC EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of Dilutive Securities &#151; Stock Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>DILUTED EPS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders
&#038; Potentially Dilutive Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options to purchase 120,858 shares of common stock at exercise prices ranging from $2.85
to $5.00 per share were outstanding at June&nbsp;25, 2006 but were not included in the computation of
diluted EPS as such inclusion would have been anti-dilutive to EPS due to the Company&#146;s net loss.
Options to purchase 206,958 and 391,650 shares of common stock during fiscal years 2005 and 2004,
respectively, were not included in the computation of diluted EPS because the option&#146;s exercise
price was greater than the average market price of the common share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE L
&#151; SUBSEQUENT EVENTS:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;14, 2006, the Company and Wells Fargo entered into the Forbearance Agreement, under
which Wells Fargo agreed to forbear until October&nbsp;1, 2006 from exercising its rights and remedies
as a result of the Company&#146;s existing defaults under the Revolving Credit Agreement, provided that
the aggregate principal amount of all such Revolving Credit Loans does not exceed $2,250,000 at any
one time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;28, 2006, the Company entered into agreements with The SYGMA Network, Inc. (&#147;SYGMA&#148;)
and The Institutional Jobbers Company (&#147;IJ&#148;) to provide warehousing and delivery of food and
restaurant supplies
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to the Company&#146;s franchisee and Company-operated restaurants. Pursuant to the
distribution service agreements, under which services will begin on November&nbsp;1, 2006, (i)&nbsp;SYGMA, a
subsidiary of SYSCO Corporation, will distribute to the Pizza Inn restaurants in Arkansas,
Missouri, New Mexico, Oklahoma, South Dakota and Texas, and (ii)&nbsp;IJ will distribute to the
Pizza Inn restaurants in Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee, and Virginia.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;28, 2006, SYGMA and the Company also entered into a 35-month lease agreement at
market rates for SYGMA&#146;s lease of the Company&#146;s 102,000 square foot warehouse and distribution
facility in The Colony, Texas commencing on November&nbsp;1, 2006. SYGMA and the Company have also
entered into a 1-month access agreement at market rates providing SYGMA access to the facility
commencing on October&nbsp;1, 2006. During the term of the lease SYGMA will provide its distribution
services for the Company from that facility. In connection with its use of the facility, SYGMA and
the Company have entered into agreements for SYGMA to purchase or assume leases for certain of the
Company&#146;s assets used in connection with the operation of the facility and the performance of
distribution services, including certain refrigerated trailers currently operating as a part of the
distribution fleet of the Company&#146;s operating division, Norco Restaurant Services Company. IJ has
indicated that it may elect to purchase or assume leases for certain other refrigerated trailers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;19, 2006, the Company was served with notice of a lawsuit filed against it by
former franchisees who operated one restaurant in the Houston, Texas market in 2003. The former
franchisees allege generally that the Company intentionally and negligently misrepresented costs
associated with development and operation of the Company&#146;s franchise, and that as a result they
sustained business losses that ultimately led to the closing of the restaurant. They seek damages
of approximately $740,000, representing amounts the former franchisees claim to have lost in
connection with their development and operation of the restaurant. In addition, they seek
unspecified punitive damages, and recovery of attorneys&#146; fees and court costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the preliminary nature of this matter and the general uncertainty surrounding the
outcome of any form of legal proceeding, it is not practicable for the Company to provide any
certain or meaningful analysis, projection or expectation at this time regarding the outcome of
this matter. Although the outcome of the legal proceeding cannot be projected with certainty, the
Company believes that the plaintiff&#146;s allegations are without merit. The Company intends to
vigorously defend against such allegations and to pursue all relief to which it may be entitled.
An adverse outcome to the proceeding could materially affect the Company&#146;s financial position and
results of operation. In the event the Company is unsuccessful, it could be liable to the
plaintiffs for approximately $740,000 plus punitive damages, costs and fees. No accrual for such
amounts has been made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, the Company and Mr.&nbsp;Parker, our former President and Chief Executive
Officer, entered into the Settlement Agreement relating to the Parker Arbitration. Pursuant to the
Settlement Agreement, each of the Company and Mr.&nbsp;Parker (i)&nbsp;denied wrongdoing and liability, (ii)
agreed to mutual releases of liability, and (iii)&nbsp;agreed to dismiss all pending claims with
prejudice. The Company also agreed to pay Mr.&nbsp;Parker $2,800,000 through a structured payment
schedule to resolve all claims asserted by Mr.&nbsp;Parker in the Parker Arbitration, as described in
Note I.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE M
&#151; SEGMENT REPORTING:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has two reportable operating segments as determined by management using the
&#147;management&#148; approach as defined in SFAS No.&nbsp;131, &#147;Disclosures about Segments of an Enterprise and
Related Information.&#148; (1)&nbsp;Food and Equipment Sales and Distribution, and (2)&nbsp;Franchise and Other.
These segments are a result of differences in the nature of the products and services sold.
Corporate administration costs, which include, but are not limited to, general accounting, human
resources, legal and credit and collections, are partially allocated to the two operating segments.
Other revenue consists of nonrecurring items.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Food and Equipment Distribution segment sells and distributes proprietary and
non-proprietary items to franchisees and to Company-owned restaurants. Inter-segment revenues
consist of sales to the company-owned restaurants. Assets for this segment include equipment,
furniture and fixtures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Franchise and Other segment include income from royalties, license fees and area
development and foreign master license sales. The Franchise and Other segment include the
company-owned restaurants, which are used as prototypes and training facilities. Assets for this
segment include equipment, furniture and fixtures for the company restaurants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate administration and other assets primarily include the deferred tax asset, cash and
short-term investments, as well as furniture and fixtures located at the corporate office. All
assets are located within the United States.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized in the following tables are net sales and operating revenues, depreciation and
amortization expense, interest expense, interest income, operating profit, income tax expense,
capital expenditures and assets for the Company&#146;s reportable segments for the years ended June&nbsp;25,
2006, June&nbsp;26, 2005, and June&nbsp;27, 2004 (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net sales and operating revenues:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,916</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inter-segment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">640</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less inter-segment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(228</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(640</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,988</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Depreciation and amortization:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">575</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Interest expense:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">365</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">613</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating income (loss):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(994</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,066</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inter-segment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,069</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,555</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less inter-segment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(182</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(170</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,495</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,737</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income (loss)&nbsp;before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(7,018</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income tax provision (benefit):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,231</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(845</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,077</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(607</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,029</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Does not include full allocation of corporate administration</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 27,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Capital Expenditures:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">161</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,186</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Franchise and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,280</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,466</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate administration and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Geographic Information (Revenues):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,419</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,988</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTE N &#151; QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes the unaudited quarterly results of operations for the fiscal years
ended June&nbsp;25, 2006 and June&nbsp;26, 2005 (in thousands, except per share amounts):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Quarter Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 25,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 25,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Fiscal Year 2006</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,157</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(601</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(477</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,421</TD>
    <TD nowrap>)</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.06</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.43</TD>
    <TD nowrap>)</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.06</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.43</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Quarter Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 26,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 27,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 26,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Fiscal Year 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,679</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">942</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(112</TD>
    <TD nowrap>)</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share on net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<TR>    <TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share on net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2006, the Company incurred an impairment of $152,000 to the
goodwill related to the Company-owned restaurants and an impairment of $1,166,000 to the equipment
and improvements related to the two Company-owned Buffet Units in the Houston, Texas market and one
Company-owned Delco Unit in Little Elm, Texas. The impairments were recognized due to the
underperformance of the Company-owned restaurants and the Company&#146;s determination that it is more
likely than not that the Company-owned restaurants in Houston, Texas and Little Elm, Texas will be
sold prior to the end of their useful lives. In addition, the Company incurred a $125,000 expense
related to the write-off of capitalized software development costs associated with a proprietary
on-line
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ordering system that was under development for the Company by a third party and that had
been intended to serve as an ordering and communication platform for franchisees placing orders
with Norco. The system was never fully developed or implemented and the Company&#146;s decision to
terminate the development contract and suspend system implementation was primarily a factor of the
Company&#146;s decision to outsource certain distribution services to third party providers. The
Company also accrued an expense of $20,000 to terminate a service agreement related to the
online-ordering system.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of fiscal 2006, the Company also incurred the following pre-tax items:
(i)&nbsp;a bad debt provision of $201,000 related to accounts receivable from franchisees, (ii)&nbsp;a
reduction in compensation expense of $126,000 due to a change in the estimate for bonus accrual,
and (iii)&nbsp;a reduction of state tax expense of $109,000 and its related accrual due to a change in
estimated state taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;24, 2006, the Company and Mr.&nbsp;Parker, our former President and Chief Executive
Officer, entered into the Settlement Agreement relating to the Parker Arbitration. Pursuant to the
Settlement Agreement, each of the Company and Mr.&nbsp;Parker (i)&nbsp;denied wrongdoing and liability, (ii)
agreed to mutual releases of liability, and (iii)&nbsp;agreed to dismiss all pending claims with
prejudice. The Company also agreed to pay Mr.&nbsp;Parker $2,800,000 through a structured payment
schedule to resolve all claims asserted by Mr.&nbsp;Parker in the Parker Arbitration, as described in
Note I. Settlement payments of $2,800,000 were accrued in the fourth quarter of 2006.
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>SCHEDULE II</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>PIZZA INN, INC.<BR>

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS</B><BR>

<I>(In thousands)</I>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Additions</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Charged to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Recovered</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>beginning</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>cost and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>cost and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>at end</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>expense</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>expense</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Deductions</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of period</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Allowance for doubtful
accounts and notes receivable</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;25, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">324</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;26, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(31</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">371</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;27, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(264</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(315</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Valuation allowance for
deferred tax asset</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;25, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;26, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(21</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year Ended June&nbsp;27, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<!-- link2 "ITEM 9" -->
<DIV align="left"><A NAME="013"></A></DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no events to report under this item.
</DIV>
<!-- link2 "ITEM 9A" -->
<DIV align="left"><A NAME="014"></A></DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9A. CONTROLS AND PROCEDURES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains disclosure controls and procedures designed to ensure that information
it is required to disclose in the reports filed or submitted under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the Commission&#146;s rules
and forms. The Company&#146;s disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in the reports filed or
submitted under the Exchange Act is accumulated and communicated
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to the Company&#146;s management,
including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management has evaluated, with the participation of its principal executive and
principal financial officers, or persons performing similar functions, the effectiveness of the
Company&#146;s disclosure controls and procedures as of the end of period covered by this report. In
connection with this evaluation, management, including the Company&#146;s principal executive and
principal financial officers, or persons performing similar functions, identified the deficiencies
in disclosure controls and procedures described below, which in aggregate are considered a material
weakness in financial reporting. Based on this evaluation, the Company&#146;s principal executive and
principal financial officers, or persons performing similar functions, have concluded that
disclosure controls and procedures were not effective as of the end of the period covered by this
report, primarily as a result of certain accounting errors being identified by management and BDO
Seidman LLP, which were researched and appropriately adjusted in the financial statements by
management. The Company has implemented, and is implementing, the measures described below and
believes that these measures will remediate the identified deficiencies and improve the
effectiveness of the Company&#146;s disclosure controls and procedures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Deficiencies in The Company&#146;s Disclosure Controls and Procedures</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s management, including its principal executive and principal financial officers,
or persons performing similar functions, has concluded that the following deficiencies in its
disclosure controls and procedures existed as of June&nbsp;25, 2006:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We experienced significant turnover in our accounting staff, including in the positions
of chief financial officer and controller, during the fiscal year ended June&nbsp;25, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not have sufficient staff-level personnel with adequate technical expertise to
analyze effectively, and review in a timely manner, our accounting for certain non-routine
business matters.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As a result of accounting staff turnover and unfilled staff and management positions,
including the positions of chief financial officer and controller, certain remaining
personnel were temporarily assigned responsibilities for which they did not have adequate
training or experience.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Remediation for Identified Deficiencies Disclosure Controls and Procedures</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to management&#146;s evaluation of the effectiveness of the Company&#146;s disclosure
controls and procedures as of the end of period covered by this report and as a result of, and in
response to, the deficiencies identified in connection with the evaluation, the Company
implemented, and/or is in the process of implementing, the following measures in an effort to
improve the effectiveness of disclosure controls and procedures and to remediate the material
deficiencies described above:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has initiated a search for a qualified individual to serve as its permanent
Chief Financial Officer;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is evaluating the need for additional qualified accounting and finance
personnel to appropriately staff the accounting and finance departments, including a
qualified individual to support the financial accounting and reporting functions. The
hiring process is not complete and the Company is continuing to assess staffing needs.
Currently, the existing staff is addressing application of accounting principles generally
accepted in the United States of America. The Company is considering application of
additional resources and improvements to the documentation of job descriptions within the
financial accounting and reporting functions, but more is needed in this area and will be
enhanced with the addition of additional personnel.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has revised its processes, procedures and documentation standards relating
to accounting for non-routine business matters;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has redesigned existing training and will require additional training for
accounting staff;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company will require continuing education for accounting and finance staff to ensure
compliance with current and emerging financial reporting and compliance practices;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is considering, and will consider, additional measures, and will alter the
measures described above, in an effort to remediate the identified deficiencies.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several of the remediation measures described above may take time to fully implement and may
not immediately improve the effectiveness of disclosure controls and procedures. As of the filing
of this report, the Company had not fully implemented the measures described above. Although the
Company believes that the measures implemented to date have improved the effectiveness of
disclosure controls and procedures, documentation and testing of the corrective processes and
procedures relating thereto have not been completed. Accordingly, the Company&#146;s principal
executive and principal financial officers, or persons performing similar functions, have concluded
that disclosure controls and procedures may not yet be effective as of the filing of this report.
The Company may still have certain deficiencies in disclosure controls and procedures as of the
filing of this report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for certain of the remediation measures described above, there were no changes in the
Company&#146;s internal control over financial reporting identified in connection with the evaluation
required by paragraph (d)&nbsp;of Rule&nbsp;13a-15 or Rule&nbsp;15d-15 under the Exchange Act that occurred during
the Company&#146;s fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company&#146;s internal control over financial reporting.
</DIV>
<!-- link2 "ITEM 9B. OTHER INFORMATION" -->
<DIV align="left"><A NAME="015"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9B. OTHER INFORMATION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no information required to be disclosed under this item.
</DIV>
<!-- link1 "PART III" -->
<DIV align="left"><A NAME="016"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART III</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be incorporated by reference from the Company&#146;s
definitive Proxy Statement to be filed pursuant to Regulation&nbsp;14A in connection with the Company&#146;s
next annual meeting of shareholders, which is expected to be held in December&nbsp;2006.
</DIV>
<!-- link2 "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" -->
<DIV align="left"><A NAME="017"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
</DIV>
<!-- link2 "ITEM 11. EXECUTIVE COMPENSATION" -->
<DIV align="left"><A NAME="018"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. EXECUTIVE COMPENSATION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
</DIV>
<!-- link2 "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS" -->
<DIV align="left"><A NAME="019"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
</DIV>
<!-- link2 "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" -->
<DIV align="left"><A NAME="020"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
</DIV>
<!-- link2 "ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES" -->
<DIV align="left"><A NAME="021"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
</DIV>
<!-- link1 "PART IV" -->
<DIV align="left"><A NAME="022"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART IV</B>
</DIV>

<!-- link2 "ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES" -->
<DIV align="left"><A NAME="023"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;&nbsp;&nbsp;1.&nbsp;</TD>
    <TD>The financial statements filed as part of this report are listed in the Index to Financial
Statements
and Supplemental Data under Part&nbsp;II, Item&nbsp;8 of this Form 10-K.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;&nbsp;&nbsp;2.&nbsp;</TD>
    <TD>The financial statement schedule filed as part of this report are listed in the Index to
Financial<BR>
Statements and Supplemental Data under Part&nbsp;II, Item&nbsp;8 of this Form 10-K.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amended and Restated By-Laws</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Restated Articles of Incorporation</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Construction Loan Agreement between the Company and Wells Fargo Bank
(Texas), N.A. dated December&nbsp;28, 2000 (filed as Item&nbsp;10.2 to Form 10-Q for the
fiscal quarter ended December&nbsp;24, 2000 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Promissory Note between the Company and Wells Fargo Bank (Texas), N.A.
dated December&nbsp;28, 2000 (filed as Item&nbsp;10.3 to Form 10-Q for the fiscal quarter
ended December&nbsp;24, 2000 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Third Amended and Restated Loan Agreement dated January&nbsp;22, 2003 but
effective December&nbsp;29, 2002, between the Company and Wells Fargo Bank (Texas), N.A.
(filed as Item&nbsp;10.1 to Form 10-Q for the fiscal quarter ended December&nbsp;29, 2002 and
incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sixth Amended and Restated Revolving Credit Note Agreement dated
January&nbsp;22, 2003 but effective as of December&nbsp;29, 2002, between the Company and
Wells Fargo Bank (Texas), N.A. (filed as Item&nbsp;10.2 to Form 10-Q for the fiscal
quarter ended December&nbsp;29, 2002 and incorporated herein by reference.)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.5</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>First Amendment to Third Amended and Restated Loan Agreement dated
April&nbsp;22, 2004 but effective as of March&nbsp;28, 2004, between the Company and Wells
Fargo Bank (Texas), N.A. (filed as Item&nbsp;10.1 to Form 10-Q for the fiscal quarter
ended March&nbsp;28, 2004 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.6</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Seventh Amended and Restated Revolving Credit Note Agreement dated
April&nbsp;22, 2004 but effective as of March&nbsp;28, 2004, between the Company and Wells
Fargo Bank (Texas), N.A. (filed as Item&nbsp;10.2 to Form 10-Q for the fiscal quarter
ended March&nbsp;28, 2004 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.7</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Second Amendment to Third Amended and Restated Loan Agreement and
Amendment to Real Estate Note dated February&nbsp;11, 2005 but effective as of December
26, 2004, between the Company and Wells Fargo Bank (Texas), N.A. (filed as Item
10.2 to Form 10-Q for the fiscal quarter ended March&nbsp;27, 2005 and incorporated
herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.8</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Eighth Amended and Restated Revolving Credit Note Agreement dated
February&nbsp;11, 2005 but effective as of December&nbsp;26, 2004, between the Company and
Wells Fargo Bank, N.A. (filed as Item&nbsp;10.3 to Form 10-Q for the quarterly period
ended March&nbsp;27, 2005 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.9</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Third Amendment to Third Amended and Restated Loan Agreement and Second
Amendment to Real Estate Note dated August&nbsp;29, 2005 but effective as of June&nbsp;26,
2005, between the Company and Wells Fargo Bank (Texas), N.A. (filed as Item&nbsp;1.01 to
Form 8-K on August&nbsp;29, 2005 and incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.10</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ninth Amended and Restated Revolving Credit Note Agreement dated
August&nbsp;29, 2005 but effective as of June&nbsp;26, 2005, between the Company and Wells
Fargo Bank (Texas), N.A. (filed as Item&nbsp;1.01 to Form 8-K on August&nbsp;29, 2005 and
incorporate herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.11</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employment Agreement dated March&nbsp;31, 2005 between the Company and
Timothy P. Taft (filed as Item&nbsp;10.4 on Form 10-Q for the quarterly period ended
March&nbsp;27, 2005 and incorporated herein by reference). *</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.12</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-Qualified Stock Option Agreement dated March&nbsp;31, 2005 between the
Company and Timothy P. Taft (filed as Item&nbsp;10.5 on Form 10-Q for the quarterly
period ended March&nbsp;27, 2005 and incorporated herein by reference).*</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.13</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>2005 Non-Employee Directors Stock Award Plan of the Company and form
of Stock Option Award Agreement (filed as Item&nbsp;10.25 to Form 10-K for the fiscal
year ended June&nbsp;26, 2005 and incorporated herein by reference).*</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.14</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>2005 Employee Incentive Stock Option Award Plan of the Company and
form of Stock Option Award Agreement (filed as Item&nbsp;10.26 to Form 10-K.for the
fiscal year ended June&nbsp;26, 2005 and incorporated herein by reference)*</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.15</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Warehouse Lease Agreement dated August&nbsp;25, 2006 between the Company
and The SYGMA Network.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">10.16</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compromise and Settlement Agreement dated September&nbsp;24, 2006 between
the Company and Ronald W. Parker.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">21.0</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>List of Subsidiaries of the Company (filed as Exhibit&nbsp;21.0 to the
Company&#146;s Annual Report on Form 10-K for the fiscal year ended June&nbsp;26, 1994 and
incorporated herein by reference).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">23.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consent of Independent Registered Public Accounting Firm.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Rule&nbsp;13a-14(a)/15d-14(a) Certification of Principal Executive Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Rule&nbsp;13a-14(a)/15d-14(a) Certification of Principal Financial Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Section&nbsp;1350 Certification of Principal Executive Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">32.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Section&nbsp;1350 Certification of Principal Financial Officer.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt">* &nbsp;&nbsp;&nbsp;&nbsp;Denotes a management contract or any compensatory plan, contract or arrangement.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="024"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date:   October 9, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Clinton J. Coleman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Clinton J. Coleman&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Interim Chief Financial Officer
Treasurer
(Principal Accounting Officer)<BR>

(Principal Financial Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name and Position</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Date</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark E. Schwarz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mark E. Schwarz</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Director and Chairman of the Board</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Ramon D. Phillips
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ramon D. Phillips</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Director and Vice Chairman of the Board</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Bobby L. Clairday
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bobby L. Clairday</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ John D. Harkey, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">John D. Harkey, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Robert B. Page
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert B. Page</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Steven J. Pully
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Steven J. Pully</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Tim P. Taft
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tim P. Taft</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">President and Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Principal Executive Officer)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>d39929exv3w1.htm
<DESCRIPTION>AMENDED AND RESTATED BY-LAWS
<TEXT>
<HTML>
<HEAD>
<TITLE>exv3w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;3.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMENDED AND RESTATED BY-LAWS<BR>
OF<BR>
PIZZA INN, INC.</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(As Amended June&nbsp;23, 2005)</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>ARTICLE I &#151; OFFICE</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal office of the Corporation shall be located in the County of Dallas, Texas. The
Corporation may have offices at such other places, both within and without the State of Missouri,
as the Board of Directors may from time to time designate.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE II &#151; SEAL</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate seal shall have inscribed thereon the name of the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE III &#151; SHAREHOLDERS&#146; MEETING</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Place of Meeting</U>. All meetings of the shareholders shall be held at such
location, either within or without the State of Missouri, as designated, from time to time, by a
majority of the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Annual Meeting</U>. The annual meeting of the shareholders, commencing with
the year 1992, shall be held on Wednesday of the second full calendar week of December of each year
at 10:00&nbsp;a.m., or any other day determined by the Board of Directors within sixty (60)&nbsp;calendar
days before or after such date, when the shareholders shall conduct business as shall properly come
before the meeting. It is expressly provided in Article&nbsp;IV hereof that the Board of Directors is
divided into two classes, Class&nbsp;I Directors consisting of four (4)&nbsp;Directors who shall hold office
for two (2)&nbsp;years from election at the annual meeting of the shareholders in 1992, and Class&nbsp;II
Directors consisting of three (3)&nbsp;Directors who shall hold office until the annual meeting of
shareholders in 1993. Commencing with the annual meeting of shareholder in 1992 and 1993, the
shareholders shall elect members to Class&nbsp;I and Class&nbsp;II, respectively, to serve for their
respective two (2)&nbsp;year terms and until their successors are duly elected or chosen and qualify.
Vacancies occurring on the Board of Directors shall be filled in accordance with the provision
hereinafter set forth in Section&nbsp;3 of Article&nbsp;IV hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Quorum</U>. The holders of a majority of the stock issued and outstanding
entitled to vote at any meeting, present in person or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the shareholders for the transaction of business,
except as otherwise provided by express provision of the statutes, the Articles of Incorporation or
by these By-laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Voting</U>. At each meeting of the shareholders, every shareholder entitled
to vote at any meeting shall be entitled to vote in person, or by proxy, appointed by an instrument
in writing subscribed by such shareholder, or by his duly authorized attorney-in-fact, and he shall
have one vote for each share of stock registered in his name at the time of the closing of the
transfer books for said meeting. The vote of the holders of a majority of the stock having voting
power, present in person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the statutes, the Articles
of Incorporation or these By-laws, a different vote is required, in which case, such express
provision shall govern and control the decision of such questions.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">AMENDED AND RESTATED BY-LAWS OF PIZZA INN, INC.<BR>
Page 2

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. No Cumulative Voting</U>. Unless otherwise provided in the Articles of
Incorporation, cumulative voting is not permitted with respect to the election of directors and,
thus, no shareholders entitled to vote in the election of directors shall have the right to cast as
many votes in the aggregate as shall equal the number of votes held by the shareholders in the
Corporation, multiplied by the number of directors to be elected at the election, for one
candidate, or distribute them among two or more candidates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Notice of Meeting</U>. Notice of any special or annual meeting shall be
served personally on each shareholder or shall be mailed to each shareholder at such address as
appears on the stock book of the Corporation not less than ten (10)&nbsp;days nor more than sixty (60)
days before such meeting. Service or mailing of such notice shall be made by the Secretary. In
addition, such published notice shall be given as required by law. The notice of any special
meeting shall state the purpose or purposes of the proposed meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;7. Special Meetings</U>. Special meetings of the shareholders for any purpose or
purposes may be called by the Chief Executive Officer or by the Board of Directors, or by the
Secretary at the request in writing by shareholders owning at least one-third (1/3) in amount of
the entire capital stock of the Corporation issued and outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;8. Waiver of Notice</U>. Any shareholder may waive notice of any meeting of the
shareholders, by a writing signed by him, or by his duly authorized attorney-in-fact, either before
or after the time of such meeting. A copy of such waiver shall be entered in the minutes, and
shall be deemed to be the notice required by law or by these By-laws. Any shareholder present in
person, represented by proxy or represented by his duly authorized attorney-in-fact, at any meeting
of the shareholders, shall be deemed to have thereby waived notice of such meeting, except where a
shareholder attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;9. Informal Action by Shareholders</U>. Whenever the vote of shareholders at a
meeting thereof is required or permitted to be taken in connection with any corporate action by any
provisions of the statutes, the Articles of Incorporation or these By-laws, the meeting, any notice
thereof and vote of shareholders thereat may be dispensed with if all the shareholders who would
have been entitled to vote upon the action, if such meeting were held, shall consent in writing to
such corporate action being taken. Such consents shall have the same force and effect as a
unanimous vote of the shareholders at a meeting duly held, and may be stated as such in any
certificate or document filed under the statutes of Missouri. Such written consent shall be filed
with the minutes of shareholders&#146; meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;10. Shareholders Entitled to Vote</U>. The Board of Directors may prescribe a
period not exceeding sixty (60)&nbsp;days prior to any meeting of the shareholders during which no
transfer of stock on the books of the Corporation may be made. The Board of Directors may fix a
day not more than sixty (60)&nbsp;days prior to the holding of any meeting of the shareholders as the
day as of which shareholders are entitled to notice of and to vote at such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;11. Organization</U>. The Chairman of the Board, and in his absence, the Chief
Executive Officer, and in his absence, the President, and in the absence of the Chairman of the
Board, the Chief Executive Officer, the President and all the Vice Presidents, a chairman pro tem
chosen by the shareholders present, shall preside at such meeting of shareholders and shall act as
chairman thereof. The Secretary, and in his absence the Assistant Secretary, a Secretary pro tem
chosen by the shareholders present, shall act as secretary of all meetings of the shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;12. Adjournment</U>. If at any meeting of the shareholders, a quorum shall fail
to attend at the time and place for which the meeting was called, or if the business of such
meeting shall not be completed, the shareholders present in person, represented by proxy may, by a
majority vote, adjourn the meeting from day to day or from time to
</DIV>

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</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">time, not exceeding ninety (90)
days from such adjournment without further notice until a quorum shall attend or the business
thereof shall be completed. At any such adjourned meeting, any business may be transacted which might
have been transacted at the meeting as originally called.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;13. Business at Shareholders&#146; Meeting</U>. &#091;Deleted&#093;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>ARTICLE IV &#151; DIRECTORS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Number and Election</U>. The number of Directors of the Corporation to
constitute the Board of Directors shall be seven (7). Each Director shall hold office until such
Director&#146;s successor has been elected and has qualified, or until such Director&#146;s death,
retirement, disqualification, resignation or removal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Classes, Election and Term</U>. Beginning with the Company&#146;s 2004 annual
meeting of shareholders there shall be one (1)&nbsp;class of directors, who shall be elected annually.
Those directors currently referred to as Class&nbsp;I Directors, who are nominated for election at the
2004 annual meeting of shareholders, if elected, will hold office until the 2005 annual meeting of
shareholders, at which time they, or their successors, must be nominated for election as members of
a single class of directors. Those directors currently referred to as Class&nbsp;II Directors, who were
elected at the 2003 annual meeting of shareholders to hold office until the 2005 annual meeting of
shareholders, will complete their terms at the 2005 annual meeting of shareholders, at which time
they, or their successors, must be nominated for election as members of a single class of
directors. Any director elected to fill any vacancy on the Board of Directors shall hold office for
the remainder of the full term of the director whose position such newly elected director fills
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Vacancies</U>. Any vacancy on the Board of Directors arising from the death,
resignation, retirement, disqualification, or removal from office of one or more Directors, may be
filled by a majority of the Board of Directors then in office, although less than a quorum, or by a
sole remaining Director. Any Director elected to fill a vacancy shall have the same remaining term
as that of his or her predecessor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Powers of the Board</U>. The business of the Corporation shall be managed by
its Board of Directors, which may exercise all such powers of the Corporation, and do all such
lawful acts and things as are not by statute, or by the Articles of Incorporation, or by these
By-laws, directed or required to be exercised or done by the shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. Removal of Directors</U>. Except as otherwise expressly provided in the
Articles of Incorporation, the shareholders shall have the power by a vote of the holders of a
majority of the seventy-five percent (75%) shares then entitled to vote at an election of Directors
at any meeting expressly called for that purpose, to remove any Director from office with or
without cause. Such meeting shall be held at the registered office or principal business office of
the Corporation in the State of Texas or at such other location within or without the States of
Missouri or Texas, as directed, from time to time, by the Board of Directors. If less than the
entire Board is to be removed, no one of the Directors may be removed if the votes cast against his
removal would be sufficient to elect him, if then cumulatively voted at an election of the entire
Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Nominations to Board of Directors</U>. &#091;Deleted&#093;
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE V &#151; MEETINGS OF THE BOARD</B></U>
</DIV>


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</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Place of Meetings</U>. Meetings of the Board of Directors of the Corporation,
both regular and special, may be held at any place either within or without the State of Missouri.
Members of the Board of Directors or of any committee designated by the Board of Directors may
participate in a meeting of the Board or committee by means of conference


telephone or similar communications equipment, whereby all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall constitute
presence in person at the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Regular Meetings</U>. Regular meetings of the Board of Directors may be held
at such time and place as shall from time to time be determined by the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Notice of Regular Meetings</U>. After the time and place of regular meetings
shall have been determined, no notice of any regular meetings need be given. Notice of any change
in the place of holding any regular meeting, or any adjournment of a regular meeting, shall be
given by mail, telegram, or telephone not less than forty-eight (48)&nbsp;hours before such meeting, to
all Directors who were absent at the time such action was taken.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Special Meetings</U>. Special meetings of the Board, for any purpose, may be
called by the Chairman of the Board on three (3)&nbsp;days&#146; notice to each Director, either personally,
by mail or by telegram. Upon like notice, the Secretary of the Corporation, upon the written
request of a majority of the Directors, shall call a special meeting of the Board. Such request
shall state the purpose or purposes of the proposed meeting. The officer calling the special
meeting may designate the place for holding same.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. Quorum</U>. At all meetings of the Board, a majority of the Directors
entitled to vote shall constitute a quorum for the transaction of business, and the act of a
majority of the Directors so entitled to vote, present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except where otherwise provided by statute, by the
Articles of Incorporation or by these By-laws. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors entitled to vote present thereat may adjourn the meeting,
from time to time, without notice other than announcement, at the meeting that the meeting is
adjourned until a quorum shall be present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Waiver of Notice</U>. Any Director may waive notice of any meeting of the
Board by a writing signed by him, either before or after the time of such meeting. A copy of such
waiver shall be entered in the minutes and shall be deemed to be the notice required by statute or
by these By-laws. Any Director present in person, or by means of conference telephone or similar
communications equipment, at any meeting of the Board, shall be deemed to have thereby waived
notice of such meeting, except where a Director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully called or
convened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;7. Informal Meetings</U>. Whenever the vote of Directors at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any provisions of the
statutes or of the Articles of Incorporation, the meeting, any notice thereof, and vote of
Directors thereat, may be dispensed with if all the Directors who would have been entitled to vote
upon the action, if such meeting were held, shall consent in writing to such corporate action being
taken. Such written consent shall be filed with the minutes of the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;8. Organization</U>. The Chairman of the Board, and in his absence, the Chief
Executive Officer, and in his absence, the President, and in the absence of the Chairman of the
Board, the Chief Executive Officer, the President and all the Vice Presidents, a chairman pro tem
chosen by the Directors present, shall preside at each meeting of the Directors and shall act as
Chairman thereof. The Secretary, and in his absence, the Assistant Secretary, and in his absence a
secretary pro tem chosen by the Directors present, shall act as Secretary of all meetings of the
Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;9. Minutes and Statements</U>. The Board of Directors shall cause to be kept a
complete record of their meetings and acts, and of the proceedings of the shareholders.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE VI &#151; OFFICERS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Officers</U>. The officers of this Corporation shall be a Chairman of the
Board, any number of Vice Chairmen (who may be specifically designated with a descriptive title), a
President, one or more Vice Presidents (any one of whom may be specifically designated or Senior
Vice President, or some particular phrase descriptive of a portion of the Corporation&#146;s business),
a Secretary, one or more assistant Secretaries, and a Treasurer, all of whom shall be chosen by the
Board of Directors. Any person may hold two or more offices, except the offices of President and
Secretary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Subordinate Officers and Employees</U>. The Board of Directors may appoint
such other officers and agents, as it may deem necessary, who shall hold their offices for such
terms, and shall exercise such powers and perform such duties, as shall be determined from time to
time by the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Compensation</U>. The Board of Directors shall, from time to time, in its
discretion, fix or alter the compensation of any officer or agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Tenure of Office and Removal</U>. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer, elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of the Board of Directors.
Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. Chairman of the Board</U>. The Chairman of the Board shall preside at all
meetings of the shareholders and the Directors. He shall perform such other duties and have such
other powers as the Board of Directors may, from time to time, prescribe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Vice Chairman</U>. The Vice Chairman, if any, in such order as designated by
the Board of Directors, shall, in the absence or disability of the Chairman, perform the duties and
exercise the powers of the Chairman and shall perform such other duties and have such other powers
as the Board of Directors or the Chairman may, from time to time, prescribe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;7. Chief Executive Officer</U>. The Chief Executive Officer shall be the
ranking chief executive officer of the Company, shall have general supervision of the affairs of
the Company and general control of all of its business and shall see that all orders and
resolutions of the Board are carried into effect. The Chief Executive Officer may delegate all or
any of his powers or duties to the president, if and to the extent deemed by the Chief Executive
Officer to be desirable or appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;8. President</U>. The President shall be the chief operating officer of the
Company and shall, subject to the supervision of the Chief Executive Officer and the Board, have
general management and control of the day-to-day business operations of the Company. The President
shall put into operation the business policies of the Company as determined by the Chief Executive
Officer and the Board and as communicated to him by such officer and bodies. In the absence of the
Chief Executive Officer or in the event of his inability or refusal to act, the President shall
perform the duties and exercise the powers of the Chairman of the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;9. Vice Presidents</U>. The Vice Presidents, in the order designated by the
Board of Directors, shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties and have such other powers
as the Board of Directors or the President may, from time to time, prescribe.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;10. Secretary</U>. The Secretary shall attend all meetings of the shareholders
of the Corporation and of the Board of Directors, and shall record all of the proceedings of such
meetings in minute books kept for that purpose. He shall keep in safe custody the corporate seal
of the Corporation, and is authorized to affix the same to all instruments requiring the
Corporation&#146;s seal. He shall have charge of the corporate records, and, except to the extent
authority may be conferred upon
any transfer agent or registrar duly appointed by the Board of Directors, he shall maintain
the Corporation&#146;s books and stock ledgers, and such other books, records and papers as the Board of
Directors may, from time to time, entrust to him. He shall give or cause to be given proper notice
of all meetings of shareholders and Directors, as required by law and the By-laws, and shall, with
the President, or a Vice President, sign the stock certificates of the Corporation, and shall
perform such other duties as may, from time to time, be prescribed by the Board of Directors or the
President.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;11. Assistant Secretary</U>. Each Assistant Secretary shall assist the Secretary
in the performance of his duties, and may at any time, perform any of the duties of the Secretary;
in case of the death, resignation, absence, or disability of the Secretary, the duties of the
Secretary shall be performed by an Assistant Secretary, and each Assistant Secretary shall have
such other powers and perform such other duties as, from time to time, may be assigned to him by
the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;12. Treasurer</U>. The Treasurer shall have the custody of the corporate funds
and securities, and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation, and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation, in such depositories as may be designated by the Board of
Directors. He shall deposit the funds of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation, as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to the President and
Directors at the regular meetings of the Board, or whenever they may require it, an account of all
his transactions as Treasurer, and of the financial condition of the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE VII &#151; RESIGNATIONS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any Director or officer may resign his office at any time, such resignation to be made in
writing and to take effect from the time of its receipt by the Corporation, unless some time be
fixed in the resignation, and then from that time. The acceptance of a resignation shall not be
required to make it effective.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE VIII &#151; CERTIFICATES OF STOCK AND TRANSFERS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Form and Execution of Certificates</U>. Each shareholder of the Corporation,
whose stock has been paid for in full, shall be entitled to have a certificate or certificates
certifying the number of shares of stock of the Corporation owned by him. The certificates of
stock shall be numbered and registered as they are issued. They shall exhibit the holder&#146;s name
and the number of shares, and shall be signed by the Chairman of the Board, the Chief Executive
Officer, the President or the Vice President, and the Secretary or the Assistant Secretary, and
have affixed to them the seal of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Restricted Stock</U>. The Corporation shall, at all times, have the authority
and discretion to place a restrictive legend on those shares of stock which may not be transferred
pursuant to the various federal, state and local securities laws, rules and regulations.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Transfer of Stock</U>. Shares of nonrestricted stock may be transferred by
endorsement thereon of the signature of the proprietor, his agent, attorney or legal
representative, and such guaranties as may be required by the Transfer Agent and Registrar, and the
delivery of the certificate; but such transfer shall not be valid against the Corporation until the
same is so entered on the books of the Corporation and the old certificate is surrendered for
cancellation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Registered Shareholders</U>. The Corporation shall be entitled to treat the
registered holder of any share or shares of stock, whose name appears on its books as the owner or
holder thereof, as the absolute owner of all legal and equitable interest therein, for all purposes
and (except as may be otherwise provided by law) shall not be bound to recognize
any equitable or other claim to or interest in such shares of stock on the part of any other
person, regardless of whether or not it shall have actual or implied notice of such claim or
interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. Closing of Stock Transfer Books &#151; Fixing Record Date</U>. The Board of
Directors shall have power to close the stock transfer books of the Corporation for a period not
exceeding sixty (60)&nbsp;days preceding the date of any meeting of shareholders, or the date for
payment of any dividend, or the date for the allotment of rights, or the date when any change,
conversion, or exchange of capital stock shall go into effect; provided, however, that in lieu of
closing the stock transfer books as aforesaid, the Board of Directors may fix, in advance, a date
not exceeding sixty (60)&nbsp;days preceding the date of any meeting of shareholders, or the date of the
payment of any dividend, or the date for the allotment of rights, or the date when any change,
conversion, or exchange of capital stock shall go into effect, as a record date for the
determination of the shareholders entitled to notice of, and to vote at any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment
of rights, or to exercise the rights in respect of any such change, conversion or exchange of
capital stock, and in such case such shareholders, and only such shareholders who are shareholders
of record on the date so fixed, shall be entitled to notice of, and to vote at such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock
on the books of the Corporation after any such record date fixed as aforesaid. If the Board of
Directors does not close the transfer books or set a record date for the determination of the
shareholders entitled to notice of, and to vote at, a meeting of shareholders, only the
shareholders who are shareholders of record at the close of business on the twentieth day preceding
the date of the meeting shall be entitled to notice of, and to vote at, the meeting, and any
adjournment of the meeting, except that, if prior to the meeting written waivers of notice of the
meeting are signed and delivered to the Corporation by all of the shareholders of record at the
time the meeting is convened, only the shareholders who are shareholders of record at the time the
meeting is convened shall be entitled to vote at the meeting, and any adjournment of the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Lost Certificates</U>. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or certificates theretofore
issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost or destroyed and the Board
may adopt and approve a Comprehensive Bond offered by the Transfer Agent and Registrar. When
authorizing such issue of a new certificate or certificates, the Board of Directors or the Transfer
Agent and Registrant may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates or his legal
representative, to advertise the same in such manner as it shall require, and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been lost or destroyed.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE IX &#151; DEALINGS WITH COMPANIES IN </B></U><BR>
<U><B>WHICH DIRECTORS MAY HAVE AN INTEREST</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inasmuch as the Directors of this Corporation are or may be persons of diversified business
interests, and are likely to be connected with other corporations with which from time to time this
Corporation may have business dealings, no contract or other transaction between this Corporation
and any other corporation shall be affected by the fact that Directors of this Corporation are
interested in, or are directors or officers of such other corporation.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">AMENDED AND RESTATED BY-LAWS OF PIZZA INN, INC.<BR>
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</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE X &#151; MISCELLANEOUS PROVISIONS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;1. Fiscal Year</U>. The fiscal year of the Corporation shall be determined by
the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;2. Inspection of Books</U>. The Directors shall determine, from time to time,
whether, and if allowed, when and under what conditions and regulations, the accounts and books of
the Corporation (except such as may by statute be specifically open to inspection) or any of them,
shall be open to inspection of the shareholders, and shareholders&#146; rights, in this respect, are and
shall be restricted and limited accordingly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3. Checks and Notes</U>. All checks and drafts on the Corporation&#146;s bank
accounts, and all bills of exchange and promissory notes, and all acceptances, obligations and
other instruments for the payment of money, shall be signed by such officer or officers, or agent
or agents, as shall be thereunto duly authorized, from time to time, by the Board of Directors;
provided, that checks drawn on the Corporation&#146;s payroll, dividend and special accounts, may bear
the facsimile signatures, affixed thereto by a mechanical devise, of such officers or agents as the
Board of Directors may authorize.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;4. Dividends</U>. The Board of Directors shall declare such dividends, as they
in their discretion see fit, whenever the condition of the Corporation, in their opinion, shall
warrant the same. The Board may declare dividends in cash, in property or in capital stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;5. Notices</U>. Whenever, under the provisions of these By-laws, notice
is required to be given to any Director, officer or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing by depositing the same in the post office
or letter box, in a postage paid sealed wrapper addressed to such shareholder, officer or Director
at such address as appears on the records of the Corporation, and such notice shall be deemed to be
given at the time when the same shall be thus mailed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;6. Plan of Reorganization</U>. The term &#147;Plan of Reorganization&#148; shall mean the
Debtors&#146; Second Amended Joint Plan of Reorganization, together with any modifications thereto as
may be filed by the debtors and debtors-in-possession, in the United States Bankruptcy Court for
the Northern District of Texas, Dallas Division, in the following Chapter&nbsp;11 reorganization cases:
In Re: Pizza Inn, Inc. f/k/a PZ Acquico, Inc., Debtor, Case No.&nbsp;389-35942-HCA-11; In Re: Memphis
Pizza Inns, Inc., Debtor, Case No.&nbsp;389-35944-HCA-11; and In Re: Pantera&#146;s Corporation, Debtor, Case
No.&nbsp;389-35943-HCA-11, as approved by the Bankruptcy Court.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE XI &#151; INDEMNIFICATION OF OFFICERS AND DIRECTORS</B></U><BR>
<U><B>AGAINST LIABILITIES AND EXPENSE IN ACTIONS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Indemnification with Respect to Third Party Actions</U>. The Corporation shall
indemnify any person who was or is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of this Corporation) by reason of the fact
that he is or was a director, officer, employee or agent of this Corporation, or is or was serving
at the request of this Corporation as a director, officer, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise, against expenses
(including attorneys&#146; fees), judgments, fines, taxes and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best interests of this
Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">AMENDED AND RESTATED BY-LAWS OF PIZZA INN, INC.<BR>
Page 9

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of <U>nolo contendere</U> or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of this Corporation,
and, with respect to any criminal action or proceeding, that he had reasonable cause to believe
that his conduct was unlawful.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>Indemnification with Respect to Actions by or in the Right of the
Corporation</U>. This Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action, suit by or in the
right of this Corporation to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of this Corporation, or is or was serving at the request
of this Corporation as a director, officer, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise against expenses (including
attorneys&#146; fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best
interests of this Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter if such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless and only to the extent that
the court in which such action or suit was brought, shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Any indemnification under this Article&nbsp;XI (unless ordered by a court) shall be made by this
Corporation only as authorized in the specific instance upon a determination that indemnification
of the director, officer, employee, partner, trustee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in this Article&nbsp;XI. Such
determination shall be made (1)&nbsp;by the Board of Directors by a majority vote of a quorum consisting
of Directors who were not parties to such action, suit or proceeding, or (2)&nbsp;if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, or (3)&nbsp;by the shareholders. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in this Article&nbsp;XI, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses (including attorneys&#146;
fees), actually and reasonably incurred by him, in connection with the action, suit, or proceeding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Payment of Expenses in Advance of Disposition of Action</U>. Expenses incurred in
defending any actual or threatened civil or criminal action, suit, or proceeding may be paid by
this Corporation in advance of the final disposition of such action, suit, or proceeding, as
authorized by the Board of Directors in the specific instance upon receipt of an undertaking by or
on behalf of the director, officer, employee, partner, trustee or agent to repay such amount,
unless it shall be ultimately determined that he is entitled to be indemnified by the Corporation
as authorized in this Article&nbsp;XI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Indemnification Provided in this Article&nbsp;Non-Exclusive</U>. The indemnification
provided in this Article&nbsp;XI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any By-law, agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action in his official capacity while holding such
office, and shall continue as to a person who has ceased to be a director, officer, employee,
partner, trustee or agent and shall inure to the benefit of the heirs, executors and administrator
of such a person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Definition of &#147;Corporation&#148;</U>. For the purposes of this Article&nbsp;XI, references to
this &#147;Corporation&#148; include all constituent corporations absorbed in a consolidation or merger, as
well as the resulting or surviving corporation so that any person who is or was a director,
officer, employee, partner, trustee or agent of such a constituent corporation as a director,
officer, employee, partner, trustee or agent of another enterprise shall stand in the same position
under the provision of this Article&nbsp;XI with respect to the resulting surviving corporation in the
same capacity.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">AMENDED AND RESTATED BY-LAWS OF PIZZA INN, INC.<BR>
Page 10

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>Saving Clause</U>. In the event any provision of this Article&nbsp;XI shall be held invalid
by any court of competent jurisdiction, such holding shall not invalidate any other provisions of
this Article&nbsp;XI and any other provisions of this Article&nbsp;XI shall be construed as if such invalid
provisions had not been contained in this Article&nbsp;XI.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ARTICLE XII &#151; AMENDMENTS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to any and all restrictions imposed, or prohibitions provided by the General and
Business Corporation Law of Missouri, these By-laws may be altered, amended, suspended, or repealed
and new By-laws may be adopted, from time to time, by a majority vote of the Board of Directors.
</DIV>


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<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>d39929exv3w2.htm
<DESCRIPTION>RESTATED ARTICLES OF INCORPORATION
<TEXT>
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<TITLE>exv3w2</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;3.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">RESTATED ARTICLES OF INCORPORATION<BR>
OF<BR>
PIZZA INN, INC.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">(as amended on June&nbsp;23, 2005)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned being the President and Assistant Secretary of Pizza Inn, Inc. (the
&#147;Corporation&#148;) do hereby certify that the following RESTATEMENT OF THE ARTICLES OF INCORPORATION OF
PIZZA INN, INC. (the &#147;RESTATED ARTICLES&#148;) were adopted by the unanimous consent of the Board of
Directors of the Corporation on August&nbsp;31, 1990, and the following RESTATED ARTICLES correctly set
forth without change the corresponding provisions of the Articles of Incorporation of the
Corporation as theretofore amended, and the following RESTATED ARTICLES supercede the original
Articles of Incorporation of the Corporation and all amendments thereto. The incorporator of the
Corporation was Roy Breeling, 5074 South 107<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Street, Omaha, Nebraska 68127.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE I.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1. The name of this Corporation shall be PIZZA INN, INC.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE II.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1. The period of the Corporation&#146;s duration is perpetual.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE III.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1. The purposes for which this Corporation is organized are the following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) To acquire, lease, own, hold, manage, conduct and/or otherwise operate a
fast food service facility and/or facilities, including, but not limited to, food
vending facilities, and/or other connection therewith to conduct, perform and/or
otherwise operate services and facilities ancillary thereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or assume
the whole or any part of the obligations or liabilities of any person, firm,
association or corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) To acquire, hold, use, sell, assign, mortgage, lease and grant licenses and
franchises in respect of, letters patent of the United States or any foreign
country, patent rights, licenses and privileges, inventions, improvements and
processes, copyrights, trademarks and trade names, relating to or useful in
connection with any business of this Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) To acquire by purchase, subscription or otherwise and to receive, hold,
own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">otherwise dispose of or deal in and with any of the shares of the capital
stock, or voting trust certificates in respect of the shares of the capital stock,
scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, choses in action and evidences of indebtedness or interest
issued or created by any corporations, joint stock companies, syndicates,
associations, firms, trusts or persons, public or private, or by the government of
the United States of America, or by any foreign government, or by any state,
territory, province, municipality or other political subdivision or by any
governmental agency and as owner thereof to possess and exercise all the rights,
power sand privileges of ownership, including the right to execute consents and vote
thereon, and to do any and all acts and things, necessary or advisable for the
preservation, protection, improvement and enhancement invention value thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) To borrow or raise moneys for any of the purposes of the Corporation, and
from time to time without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest thereon
by mortgage upon or pledge, conveyance or assignment in trust of the whole or any
part of the property of the corporation, whether at the time owned or thereafter
acquired, and to sell, pledge or otherwise dispose of such bonds or other
obligations of the Corporation and for its corporate purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) To purchase, receive, take by grant, gift, devise, bequest or otherwise,
lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in
and with real or personal property, or any interest therein, wherever situated, and
to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or
pledge, all or any of the Corporation&#146;s property and assets, or any interest
therein, wherever situated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) To purchase, receive or otherwise acquire, hold, own, pledge, transfer or
otherwise dispose of its own shares, provided that it shall not purchase, either
directly or indirectly, its own shares when its net assets are less than its stated
capital or when, by so doing, its net assets would be reduced below its stated
capital.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) To aid either by loans or by guarantee of securities or in any other
manner, any corporation, domestic or foreign, any shares of stock, or any bonds,
debentures, evidences of indebtedness or other securities whereof are held by this
Corporation or in which it shall have any interest, and to do any acts designed to
protect, preserve, improve, or enhance the value of any property at any time held or
controlled by this Corporation or in which it at the time may be interest.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) To do any or all of the things hereinabove enumerated alone for its own
account, or for the account of others, or as the agent for others, or in association
with others or by or through others, and to enter into all lawful contracts and
undertakings in respect thereof.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10) To have one or more offices, to conduct its business, carry on its
operations and promote its objects within and without the State of Missouri, in
other states, the District of Columbia, the territories, colonies and dependencies
of the United States, in foreign countries and anywhere in the World, without
restriction as to place, manner or amount, but subject to the laws applicable
thereto; and to do any or all of the things herein set forth to the same extent as a
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;natural person might or could do and in any part of the world, either alone or in
company with others.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11) In general, to carry on any other business in connection with each and all
of the foregoing or incidental thereto, and to carry on, transact and engage in any
and every lawful business or other lawful thing calculated to be of gain, profit or
benefit to the Corporation as fully and freely as a natural person might do, to the
extent and in the manner, and anywhere within and without the State of Missouri, as
it may from time to time determine; and to have and exercise each and all of the
powers and privileges, either direct or incidental, which are given and provided by
or are available under the laws of the State of Missouri in respect of general and
business corporations organized for profit thereunder; provided, however, that the
Corporation shall not engage in any activity for which a Corporation may not be
formed under the laws of the State of Missouri.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the purposes and powers specified in any of the paragraphs of this ARTICLE III shall
be in any way limited or restricted by reference to or inference from the terms of any other
paragraph, and the purposes and powers specified in each of the paragraphs of this ARTICLE III
shall be regarded as independent purposes and powers. The enumeration of specific purposes and
powers in this ARTICLE III shall not be construed to restrict in any manner the general purposes
and powers of this Corporation, nor shall the expression of one thing be deemed to exclude another,
although it be of like nature. The enumeration of purposes or powers herein shall not be deemed to
exclude or in any way limit by inference any purposes or powers which this Corporation has power to
exercise, whether expressly by the laws of the State of Missouri, nor hereafter in effect, or
implied by any reasonable construction of such laws.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IV.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1. The total number and designation of shares of capital stock that the Corporation shall
have the authority to issue is Twenty-Six Million (26,000,000) shares of Common Stock, with the par
value of one cent ($.01) per share and Five Million (5,000,000) shares of Preferred Stock, with the
par value of one dollar ($1.00) per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2. Each holder of Common Stock shall be entitled to cast one (1)&nbsp;vote for each share of
Common Stock issued and outstanding in his or her name. No Common Stock shall be issued without
voting rights. Except as hereinafter provided in Section&nbsp;5.7, Preferred Stock shall be non-voting
unless converted to Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3. For the purposes of Sections&nbsp;4.3 to 4.18 of this ARTICLE IV:
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The term &#147;<U>Act</U>&#148; shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) The terms &#147;<U>acquire</U>,&#148; &#147;<U>acquisition</U>&#148; or &#147;<U>acquiring</U>&#148;
with respect to the acquisition of any security of the Corporation shall refer to
the acquisition of such security by any means whatsoever, including without
limitation, an acquisition of such security by gift, by operation of law, by will or
by intestacy.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) The term &#147;<U>Amended and Restated Credit Agreement</U>&#148; shall mean the
Amended and Restated Credit Agreement among the Corporation, Lloyds Bank Plc and
Kleinwort Benson Limited as lender and as agent for itself and Lloyds Bank Plc as
the same may be amended and supplemented from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) The term &#147;<U>Code</U>&#148; means the Internal Revenue Code of 1986, as
amended, and any successor statute.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) The term &#147;<U>Common Stock</U>&#148; means all Common Stock of the Corporation
and any other securities (other than Preferred Stock as hereinafter defined in
Section&nbsp;4.3(14)) issued by the Corporation which are treated as stock for purposes
of Section&nbsp;382 of the Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) The term &#147;<U>Excess Cash Flow</U>&#148; shall have the meaning assigned to that
term in the Amended and Restated Credit Agreement (except that for purposes hereof,
clause (ii)&nbsp;of the definition of Excess Cash Flow specified in the Amended and
Restated Credit Agreement shall be disregarded).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) The term &#147;<U>Excess Shares</U>&#148; shall have the meaning ascribed to it in
Section&nbsp;4.7(1) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) The term &#147;<U>Fair Market Value</U>&#148; of the Common Stock shall mean the
average of the daily closing prices of the Common Stock for 15 consecutive trading
days commencing 20 trading days before the date of such computation. The closing
price is the last reported sale price on the principal securities exchange on which
the Common Stock is listed or, if the Common Stock is not listed on any national
securities exchange, the NASDAQ National Market System, or, if the Common Stock is
not designated for trading on the NASDAQ National Market System, the average of the
closing bid and asked prices as reported on NASDAQ or, if not so reported, the
average of the closing bid and asked prices as reported on NASDAQ&#146;s OTC Bulletin
Board Service, or, if not so reported, as furnished by the National Quotation Bureau
Incorporated. In the absence of such a quotation, the Corporation shall determine
the current market price on a reasonable and appropriate basis of the average of the
daily closing prices for 15 consecutive trading days commencing 20 trading days
before the date of such computation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) The term &#147;<U>Five Percent Limitation</U>&#148; shall mean the limitations on
ownership of Common Stock imposed by Section&nbsp;4.4 hereof.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10) The term &#147;<U>Five Percent or More Holder</U>&#148; shall mean any shareholder
(or group of shareholders acting in concert) who directly or indirectly beneficially
owns, or whose shares are or would be attributed to any shareholder (or group of
shareholders acting in concert) who directly or indirectly beneficially owns Common
Stock and Warrants which, in the aggregate, and assuming conversion of the Warrants
into the maximum number of shares of Common Stock that may be acquired pursuant
thereto, regardless of contingencies, equal or exceed five percent of the Fair
Market Value of the then outstanding Common Stock plus the shares of Common Stock
deemed to be outstanding by reason of the assumed conversion of Warrants then owned
by such Person, but only for as long as such shareholder or any shareholder to whom
such shareholder&#146;s shares would be attributed in a &#147;5-percent shareholder&#148; within
the meaning of Section&nbsp;382(i)(7) of the Code and the regulations issued with respect
thereto, provided that, notwithstanding the foregoing, such shareholder shall be a
&#147;Five Percent or More Holder&#148; if such shareholder directly or indirectly
beneficially owns five percent more of the issued and outstanding shares of Common
Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11) The term &#147;<U>Net Operating Loss Carryover</U>&#148; means the net operating
loss carryovers to which the Corporation is entitled from time to time under the
Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(12) The term &#147;<U>own</U>,&#148; &#147;<U>owing</U>,&#148; &#147;<U>ownership</U>&#148; or
&#147;<U>owning</U>&#148; refer to the ownership of securities within the meaning of Section
382 of the Code after taking into account the attribution rules of Section&nbsp;382(1)(3)
of the Code and the regulations promulgated thereunder (except insofar as such
attribution would be inconsistent with provisions of this ARTICLE IV relating to
Warrants).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(13) The term &#147;<U>Permitted Transferee</U>&#148; shall have the meaning ascribed to
it in Section&nbsp;4.7(1)(a) hereof or Section&nbsp;4.11(1)(a) as the context requires.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(14) The term &#147;<U>Person</U>&#148; shall mean any individual, firm, corporation,
partnership, joint venture or other entity and shall include any group comprised of
such Person and any other Person with whom such Person or any Affiliate or Associate
(as those terms are defined in Rule&nbsp;12b-2 of the General Rules and Regulations under
the Act) of such Person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of Common
Stock or Warrants, and any other Person who is a member of such group.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(15) The term &#147;<U>Plan of Reorganization</U>&#148; or &#147;<U>Plan</U>&#148; shall mean the
Debtors&#146; Second Amended Joint Plan of Reorganization together with any modifications
thereto as may be filed by the debtors and debtors-in-possession in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division, in the
following Chapter&nbsp;11 reorganization cases: <I>In Re: Pizza Inn, Inc.</I>, f/k/a PZ
Acquizo, Inc., Debtor, Case No.&nbsp;389-35942-HCA-11; <I>In Re: Memphis Pizza Inns, Inc.</I>,
Debtor, Case No.&nbsp;389-35944-HCA-11; and <I>In Re:</I>
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><I>Pantera&#146;s Corporation</I>, Debtor, Case No.&nbsp;389-35943-HCA-11, as approved by the
Bankruptcy Court.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(16) The term &#147;<U>Preferred Stock</U>&#148; means the 10% non-voting cumulative
convertible preferred stock which may be issued by the Corporation pursuant to the
Plan and having the terms delineated in Article&nbsp;V hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(17) The term &#147;<U>Proceeds</U>&#148; shall have the meaning ascribed to it in
Section&nbsp;4.7(1)(d) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(18) The term &#147;<U>Prohibited Shares</U>&#148; shall have the meaning ascribed to it
in Section&nbsp;4.11(1) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(19) The term &#147;<U>Purported Owner</U>&#148; shall have the meaning ascribed to it
in Section&nbsp;4.7(1) hereof or Section&nbsp;4.11(1) as the context requires.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(20) The term &#147;<U>Purported Owner&#146;s Transferor</U>&#148; shall have the meaning
ascribed to it in Section&nbsp;4.7(1)(a) hereof or Section&nbsp;5.23(2)(a) as the context
requires.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(21) The term &#147;<U>Share Trustee</U>&#148; shall mean the trustee of the Excess
Shares nominated and appointed by the Board of Directors from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(22) The term &#147;<U>Ten Percent Limitation</U>&#148; shall mean the limitation on
ownership of Common Stock imposed by Section&nbsp;4.6 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(23) The term &#147;<U>Termination Date</U>&#148; shall mean the date set forth in
Section&nbsp;4.4 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(24) The term &#147;<U>Testing Date</U>&#148; shall mean the date set by the Board of
Directors from time to time to determine whether any person is a Purported Owner of
Excess Shares or a Purported Owner of Prohibited Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(25) The term &#147;<U>Testing Period</U>&#148; shall mean the three-year period ending
on the Testing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(26) The term &#147;<U>Transfer Agent</U>&#148; shall mean the transfer agent with
respect to the Common Stock or the Preferred Stock nominated and appointed by the
Board of Directors from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(27) The term &#147;<U>Warrant</U>&#148; shall mean any securities issued or assumed by
the Corporation, or any securities issuable by the Corporation in respect of issued
securities, or any rights granted by any Person to another Person, for consideration
or otherwise, which are convertible into, or which include the right to acquire,
shares of Preferred Stock, Common Stock or Warrants, whether or not the right to
make such conversion or acquisition is subject to any contingencies, including,
without limitation, warrants, options, calls, contracts to acquire
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">securities, convertible debt instruments or any other interests treated as an
option pursuant to Section&nbsp;382(1)(3) of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4. At no time on or before September&nbsp;5, 1993 (such date being the &#147;Termination Date&#148;):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) shall any Person (or group of Persons acting in concert) who directly or
indirectly beneficially owns (as determined pursuant to Rules&nbsp;13d-3 and 13d-5 under
the Act), or whose shares are or would be attributed to any Person (or group of
Persons acting in concert) who directly or indirectly beneficially owns, Common
Stock or Warrants of the Corporation which, in the aggregate, and assuming exercise
of such Warrants into the maximum number of shares of Common Stock that may be
acquired pursuant thereto, regardless of contingencies, equal less than five percent
of the Fair Market Value of the outstanding Common Stock plus the shares of Common
Stock deemed to be outstanding by reason of the assumed conversion of Warrants owned
by such Person, acquire (whether voluntarily or involuntarily) any shares of Common
Stock or Warrants, which, together with the shares of Common Stock or Warrants owned
by such Person, if any, assuming conversion of such Warrants into the maximum number
of shares of Common Stock that may be acquired pursuant thereto, regardless of
contingencies, would increase such ownership percentage of such Person to five
percent or more of the Fair Market Value of the then outstanding Common Stock, plus
the shares of Common Stock deemed to be outstanding and owned by such Person by
reason of the assumed conversion of Warrants owned by such Person; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) shall any Five Percent or More Holder increase the ownership by such Person
of Common Stock or Warrants (excluding Common Stock that is acquired upon the
exercise of Warrants secured by such Person pursuant to a distribution permitted or
required to be made to such Person pursuant to the Plan of Reorganization); or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) shall any Person (or group of Persons acting in concert) who directly or
indirectly beneficially owns, or whose shares are or would be attributed to any
Person (or group of Persons acting in concert) who directly or indirectly
beneficially owns, Common Stock or Warrants attempt any sale, transfer, assignment,
conveyance, pledge or other method of disposition (other than as hereinafter
specifically permitted in this subsection (3)) of any Common Stock or Warrants to
any Person (or group of Persons acting in concert) who directly or indirectly
beneficially owns, or whose shares are or would be attributed to any Person (or
group of Persons acting in concert) who directly or indirectly beneficially owns,
or, as a result of such attempted disposition, would beneficially own, Common Stock
or Warrants which, in the aggregate, and assuming conversion of such Warrants into
the maximum number of shares of Common Stock that may be acquired pursuant thereto,
regardless of contingencies, equal or exceed five percent of the aggregate Fair
Market Value of the then outstanding Common Stock plus the shares of Common Stock
deemed to
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">be outstanding by reason of the assumed conversion of Warrants then owned by
such Person; provided, however, that any such Person may sell or otherwise make a
disposition of such Common Stock or Warrants of a type described in the first
sentence of section (f)&nbsp;or section (g)&nbsp;of Rule&nbsp;144 under the Securities Act of 1933,
as amended, or a sale or other disposition in which the Purported Owner executes a
statement under penalties of perjury that, immediately after such sale or other
disposition, such Person is not a Five Percent or More Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5. For purposes of applying Section&nbsp;4.4 hereinabove, increase in percentage ownership of
Common Stock of the acquiror as a result of the subject acquisition and the increase in percentage
ownership of Common Stock from other acquisitions during the Testing Period shall be measured under
Section&nbsp;382 of the Code and the regulations promulgated thereunder, except that Warrants, whether
or not the conversion of such Warrants results in an ownership change as defined under Section&nbsp;382
of the Code, will be assumed to be converted in such manner as will maximize the percentage point
increase which may occur in the ownership of Common Stock of the Corporation of Five Percent or
More Holders. Persons referred to in Section&nbsp;4.4(1) shall include Persons who own no Common Stock
or Warrants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation and the Board of Directors shall be fully protected in relying in good faith
upon the information, opinions, reports or statements of the chief executive officer, the chief
financial officer, or the chief accounting officer of the Corporation or of independent public
accountants or the Corporation&#146;s legal counsel in making the determination and finding contemplated
by Sections&nbsp;4.4 and 4.5.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6. Commencing on the Termination Date, any sale thereafter of Common Stock that would result
in a Person who owns less than ten percent of the outstanding Common Stock increasing such Person&#146;s
ownership to ten percent or more of Common Stock in the Corporation and any sale that would result
in an increase in the holdings of a Person holding ten percent or more of Common Stock in the
Corporation shall be void unless the purchaser shall have first offered <U>pro</U> <U>rata</U>
(proportionately based on a fraction, the numerator of which is the number of shares of Common
Stock held by such holder and the denominator of which is the total number of outstanding shares of
Common Stock) to all holders of Common Stock of the Corporation the right to sell shares to such
purchaser aggregating at least equal in voting power to the amount actually purchased. This
Section&nbsp;4.6 shall not apply to the purchase of shares by an underwriter for resale in a registered
public offering of Common Stock by the Corporation but shall apply to any purchaser from such
underwriter. Notwithstanding anything to the contrary contained in the Articles, this Section&nbsp;4.6
also shall not apply to the sale of Preferred Stock or any Common Stock into which such Preferred
Stock is converted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7. The transfer of any shares of Common Stock in violation of this ARTICLE IV prohibited and
shall be null and void <U>ab</U> <U>initio</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) If, notwithstanding the foregoing prohibition, a person shall, voluntarily
or involuntarily, purport to become a transferee (a &#147;<U>Purported Owner</U>&#148;) of
shares of Common Stock in excess of such Five Percent Limitation or the Ten Percent
Limitation (the number of shares of Common Stock so exceeding the Five
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Percent Limitation or Ten Percent Limitation being herein the &#147;<U>Excess
Shares</U>&#148;), then
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Purported Owner shall not obtain any rights in and to the Excess
Shares, and the purported transfer of the Excess Shares to the Purported Owner shall
not be recognized by the Secretary of the Corporation or the Transfer Agent. Until
the Excess Shares are transferred to a Person whose acquisition thereof will not
violate the Five Percent Limitation or Ten Percent Limitation as then applicable (a
&#147;<U>Permitted Transferee</U>&#148;), the transferor of the Excess Shares to the
Purported Owner (the &#147;<U>Purported Owner&#146;s Transferor</U>&#148;) shall be deemed to have
retained the Excess Shares and shall hold and be entitled to exercise all rights
incident to ownership of such Excess Shares (including receiving dividends and other
distributions), except that if the Excess Shares are Warrants, they may not be
exercised, converted or exchanged until exercised, converted or exchanged in
accordance with their terms by a Permitted Transferee; provided, however, that, the
foregoing notwithstanding, in the event shares of Common Stock are issued in respect
of Warrants which are Excess Shares, the shares of Common Stock so issued shall be
deemed to be issued and outstanding shares of Common Stock of the Corporation and
shall be Excess Shares deemed retained by the Purported Owner&#146;s Transferor.
Warrants issued by the Corporation shall reflect the provisions of the foregoing
sentence. All Excess Shares will continue to be issued and outstanding.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No employee or agent of the Corporation, including the Transfer Agent,
shall be permitted to record any attempted or purported transfer made in violation
of this ARTICLE IV. If the Transfer Agent or any employee or agent of the
Corporation obtains possession of a certificate or certificates representing the
Excess Shares, such person shall deliver such certificate or certificates to the
Share Trustee who shall proceed forthwith to sell or cause the sale of the Excess
Shares to a Permitted Transferee. Upon notice from the Corporation of the existence
of Excess Shares and the identity of the Purported Owner, the Share Trustee shall
take all lawful action to cause the Purported Owner and the Purported Owner&#146;s
Transferor to deliver or cause delivery of any indicia of ownership thereof to the
Share Trustee and upon obtaining possession thereof, the Share Trustee shall proceed
as soon as feasible to sell or cause the sale of the Excess Shares to a Permitted
Transferee. The Share Trustee shall sell or cause the sale of the Excess Shares in
the then existing public market or in such other commercially reasonable fashion as
the Corporation shall direct. In performing the duties herein imposed upon it, the
Share Trustee shall act at all times as the agent for the Purported Owner&#146;s
Transferor. The Purported Owner and the Purported Owner&#146;s Transferor shall each be
deemed to have appointed the Corporation and the Share Trustee, jointly and
severally, as each such person&#146;s attorney-in-fact, with full power of substitution
and full power and authority in the name and on behalf of the Purported Owner and
the Purported Owner&#146;s Transferor, to sell, assign and transfer each Excess Shares
attempted to be transferred in violation of this ARTICLE IV, and to do all lawful
acts and execute
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">all documents deemed necessary and advisable to effect such sale, assignment
and transfer, in an arm&#146;s-length transaction, to another Person.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Once the Excess Shares are acquired by a Permitted Transferee, the
Permitted Transferee shall have and shall be entitled to exercise all rights
incident to the ownership of such Excess Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Proceeds from the sale of the Excess Shares to the Permitted Transferee
(the &#147;<U>Proceeds</U>&#148;) shall be distributed as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) first, to the Share Trustee for any costs incurred in
respect of its administration of the Excess Shares (in the event
that the Proceeds are insufficient to reimburse the Share Trustee
for any costs incurred in respect of its administration of the
Excess Shares, the Purported Owner&#146;s Transferor shall be primarily
liable to reimburse the Share Trustee for such costs, and if such
Purported Owner&#146;s Transferor fails or refuses to pay such costs, the
Corporation shall pay such costs to the Share Trustee and the
Corporation shall become subrogated to any rights the Share Trustee
may have against the Purported Owner&#146;s Transferor to seek
reimbursement for such costs);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) second, to the Purported Owner, if known, in an amount up
to the amount paid by the Purported Owner, if determinable, for the
Excess Shares; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the remaining proceeds, if any, shall be distributed to
the Purported Owner&#146;s Transferor, if known and if not known, such
remaining Proceeds shall be held by the Corporation for the benefit
of the Purported Owner&#146;s Transferor or such other Person as their
interests may appear.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Notwithstanding anything in this ARTICLE IV to the contrary, the
Corporation shall at all times be entitled to make application to any court of
equitable jurisdiction within the State of Missouri for an adjudication of the
respective rights and interests of any Person in and to the Proceeds pursuant to
this ARTICLE IV and applicable law and for leave to pay the Proceeds into such
court.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Pursuant to Section&nbsp;382 of the Code, in determining whether any Person has
become a Purported Owner of Excess Shares:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Corporation is entitled to rely on the existence or absence, as of the
Testing Date, or any other date of filings on Schedules 13D and 13G as required by
Rule&nbsp;13d-1 of the Act to identify any Person who is a Five Percent or More Holder,
and the existence or absence of any amendments to Schedules 13D and 13G showing any
material increase or decrease in the percentage of Common
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Stock or Warrants owned by such Person, as required by Rule&nbsp;13d-2 of the Act;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) in the case of any entity which is a Five Percent or More Holder, in order
to determine shifts in the indirect ownership of Common Stock or Warrants, without
regard to the actual identity of the ultimate beneficial owners of such Common Stock
or Warrants, the Corporation may rely on a statement, signed under oath or
affirmation of such entity, to establish the extent, if any, to which the ownership
interests of any such entity&#146;s owners have changed as of the Testing Date. The
Corporation may not rely on a statement by such an entity if:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Corporation knows that the statement is false; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the statement is offered by an entity that has either a
direct or indirect ownership interest of 50% or more of the Common
Stock of the Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">The Board of Directors shall be fully protected in relying on good faith on
the items set forth in subparagraphs (a)&nbsp;and (b)&nbsp;of this Paragraph (2),
together with such other items or sources of information as may be required
from time to time by the Code, to determine whether any Person has become a
Purported Owners of Excess Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8. Immediately upon the purported acquisition of any Excess Shares, the Purported Owner
thereof shall give, or cause to be given, written notice thereof to the Corporation. Each owner of
shares of Common Stock and Warrants shall furnish to the Corporation all information reasonably
requested with respect to all shares of Common Stock and Warrants directly and indirectly owned by
such Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9. Upon a determination by the Board of Directors that a Person has attempted or may attempt
to transfer or to acquire Excess Shares, the Board of Directors may take such action as it deems
advisable to refuse to give effect to such transfer or acquisition on the books and records of the
Corporation, including, without limitation, to cause the Transfer Agent to record the Purported
Owner&#146;s Transferor as the record owner of the Excess Shares and to institute proceedings to enjoin
any such transfer or acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10. Except as provided in Section&nbsp;5.1, at no time on or before the Termination Date shall
any holder of Preferred Stock or Warrants transfer any Preferred Stock or Warrants except to a bank
(as that term is defined in Section&nbsp;581 of the Code), an insurance company (as that term is defined
in Section&nbsp;1.801-3(a) of Regulations promulgated under the Code), or a trust qualified under
Section 401(a) of the Code. No such transfer shall be made unless it is part of a transfer of an
interest in the Term Loan (as defined in Section&nbsp;5.5 hereof) and unless such transfer and the
holding of an interest in the Term Loan and Preferred Stock or Warrants shall be in the ordinary
course of the trade or business of such bank, insurance company or qualified trust.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11. The transfer of any shares of Preferred Stock in violation of this Section&nbsp;4.10 is
prohibited and shall be null and void <U>ab</U> <U>initio</U>.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) If, notwithstanding the foregoing prohibition, a persona shall, voluntarily
or involuntarily, purport to become a transferee (a &#147;<U>Purported Owner</U>&#148;) of
shares of Preferred Stock in violation of Section&nbsp;4.10 (the shares of Preferred
Stock purported to be transferred in violation of the Section&nbsp;4.10 limitation being
herein the &#147;<U>Prohibited Shares</U>&#148;), then
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Purported Owner shall not obtain any rights in and to the Prohibited
Shares, and the purported transfer of the Prohibited Shares to the Purported Owner
shall not be recognized by the Secretary of the Corporation or the Transfer Agent.
Until the Prohibited Shares are transferred to a Person whose acquisition thereof
will not violate the Section&nbsp;4.10 limitation (a &#147;<U>Permitted Transferee</U>&#148;), the
transferor of the Prohibited Shares to the Purported Owner (the &#147;<U>Purported
Owner&#146;s Transferor</U>&#148;) shall be deemed to have retained the Prohibited Shares and
shall hold and be entitled to exercise all rights incident to ownership of such
Prohibited Shares (including receiving dividends and other distributions), except
that if the Prohibited Shares are Warrants, they may not be exercised, converted or
exchanged until exercised, converted or exchanged in accordance with their terms by
a Permitted Transferee; provided, however, that, the foregoing notwithstanding, in
the event shares of Preferred Stock are issued in respect of Warrants which are
Prohibited Shares, the shares of Preferred Stock so issued shall be deemed to be
Prohibited Shares deemed retained by the Purported Owner&#146;s Transferor. Warrants
issued by the Corporation shall reflect the provisions of the foregoing sentence.
All Prohibited Shares will continue to be issued and outstanding.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No employee or agent of the Corporation, including the Transfer Agent,
shall be permitted to record any attempted or purported transfer made in violation
of this ARTICLE IV.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Once the Prohibited Shares are acquired by a Permitted Transferee, the
Permitted Transferee shall have and shall be entitled to exercise all rights
incident to the ownership of such Prohibited Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Notwithstanding anything in this ARTICLE IV to the contrary, the
Corporation shall at all times be entitled to make application to any court of
equitable jurisdiction within the State of Missouri for an adjudication of the
respective rights and interests of any Person pursuant to this ARTICLE IV.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Pursuant to Section&nbsp;382 of the Code, in determining whether any Person has
become a Purported Owner of Prohibited Shares the Corporation may rely on a
statement, signed under oath or affirmation of such entity, to establish the
qualification of the transferee hereunder. The Corporation may not rely on a
statement by such an entity if the Corporation knows that the statement is false.
The Board of Directors shall be fully protected in relying in good faith on the
items set forth in this Paragraph (2), together with such other items or sources of
information as may be required from time to time by the Code, to determine whether
any Person has become a Purported Owner of Prohibited Shares.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.12. Immediately upon the purported acquisition of any Prohibited Shares, the Purported Owner
thereof shall give, or cause to be given, written notice thereof to the Corporation. Each owner of
shares of Preferred Stock and Warrants shall furnish to the Corporation all information reasonably
requested with respect to all shares of Preferred Stock and Warrants directly and indirectly owned
by such Person, including a statement, signed under oath or affirmation of the Purported
Transferee, to establish the qualification of the Purported Transferee hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.13. Upon a determination by the Board of Directors that a Person has attempted or may
attempt to transfer or to acquire Prohibited Shares, the Board of Directors may take such action as
it deems advisable to refuse to give effect to such transfer or acquisition on the books and
records of the Corporation, including, without limitation, to cause the Secretary or Transfer Agent
to record the Purported Owner&#146;s Transferor as the record owner of the Prohibited Shares and to
institute proceedings to enjoin any such transfer or acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.14. If any provision of this ARTICLE IV or any application of any such provision is
determined to be invalid by any federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and other applications of such provision
shall not be affected only to the extent necessary to comply with the determination of such court.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.15. It is the purpose of this ARTICLE IV to facilitate the Corporation&#146;s ability to preserve
and utilize its Net Operating Loss Carryover and to that end the Board of Directors is authorized
to take such action, to the extent permitted by law and not inconsistent with this ARTICLE IV as it
may deem necessary or advisable to protect the Corporation and the interests of holders of its
equity and debt securities by preservation of the Corporation&#146;s ability to preserve and utilize its
Net Operating Loss Carryover. The Corporation shall issue no Warrants unless such Warrants are
issued subject to restrictions consistent with those contained in this ARTICLE IV, which
restrictions are deemed necessary or advisable to protect the Corporation and the interests of
holders of its equity and debt securities by preservation of the Corporation&#146;s ability to preserve
and utilize its Net Operating Loss Carryover.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.16. The Board of Directors may, to the extent permitted by law, from time to time establish,
modify, amend or rescind, by By-law or otherwise, regulations and procedures not inconsistent with
the express provisions of this ARTICLE IV for determining whether any transfer of Common Stock,
Warrants or Preferred Stock would jeopardize the Corporation&#146;s ability to preserve and utilize its
Net Operating Loss Carryover, and for the orderly application, administration and implementation of
the provisions of this ARTICLE IV. Such procedures and regulations shall be kept on file with the
Secretary of the Corporation and with its Transfer Agent and shall be made available to inspection
by the public and, upon request, shall be mailed to any holder of Common Stock of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.17. All certificates evidencing ownership of Common Stock, Warrants and Preferred Stock of
the Corporation shall bear a conspicuous legend with respect to provisions of this ARTICLE IV in
compliance with the General Corporation Law of Missouri.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE V.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1. The distinctive designation of the series of Preferred Stock authorized hereby shall be
&#147;10% Non-Voting Cumulative Convertible Preferred Stock&#148; (the &#147;Preferred Stock&#148;). The number of
authorized shares of Preferred Stock shall be 5,000,000. Shares of Preferred Stock which have been
issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance
with any applicable provisions of the General Corporation Law of Missouri) have the status of
authorized and unissued shares. The Preferred Stock shall only be issued prior to August&nbsp;1, 1992
in lieu of payment of interest on the Term Loan pursuant to the Amended and Restated Credit
Agreement. Any reallocation of the respective interests of Lloyds Bank Plc and Kleinwort Benson
Limited between themselves with respect to ownership of the Preferred Stock shall not be subject to
the provisions of Section&nbsp;4.10. Except as hereinafter provided in Section&nbsp;5.7, the Preferred Stock
shall be non-voting; provided, however, that the Preferred Stock may be converted into voting
Common Stock as hereinafter set forth in Section&nbsp;5.5 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2. The holders of shares of Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available therefor, dividends at the
annual rate of ten percent ($0.10) per share, and no more. Such dividend shall be cumulative and
shall be payable within 110&nbsp;days after the end of the Corporation&#146;s fiscal year commencing with the
first fiscal year ended subsequent to the issuance of any shares of Preferred Stock and within 110
days of the end of each fiscal year ended thereafter (each of such dates being a &#147;dividend payment
date&#148;) with respect to each fiscal year of the Corporation ending subsequent to the issuance of any
shares of Preferred Stock, to stockholders of record on the respective date, not exceeding 50&nbsp;days
preceding such dividend payment date, as shall be fixed for this purpose by the Board of Directors
in advance of payment of each particular dividend. In the event that Preferred Stock has been
outstanding for less than a full fiscal year or the Corporation shall have changed its fiscal year,
as the case may be, such dividend shall accrue at the annual rate of 10% only for such period of
time as such Preferred Stock shall have been issued and outstanding. All dividends paid with
respect to shares of Preferred Stock shall be paid pro rata to the holders entitled thereto.
Dividends on such Preferred Stock shall be fully cumulative and shall accrue (whether or not earned
or declared) from and after their respective issuance date. Holders of Preferred Stock will not be
entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative
dividends. No interest or sum of money in lieu of interest shall be payable in respect of any
accumulated unpaid dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3. (a)&nbsp;In the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, then, before any distribution or payment shall be made to the
holders of Common Stock, the holders of shares of Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for distribution to its
shareholders an amount in cash equal to $1.00 for each share of Preferred Stock outstanding (which
amount is hereinafter referred to as the &#147;liquidation preference&#148;), together with an amount in cash
equal to all accrued and unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up. Except as provided in the preceding sentence, holders of Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs
of the Corporation. If the assets of the Corporation are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the Preferred
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock, then the holders of all such shares shall share ratably in any distribution of assets in
accordance with the amount which would be payable on such distribution if the amounts to which the
holders of outstanding shares of Preferred Stock are entitled were paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;For the purposes of this Section&nbsp;5.3, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all or substantially all
of the property or assets of the Corporation nor the consolidation or merger of the Corporation
with any other corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, unless such voluntary sale, conveyance, exchange,
transfer, consolidation, or merger shall be in connection with a plan of liquidation, dissolution
or winding up of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4. (a)&nbsp;Subject to subsection (b)&nbsp;of this Section&nbsp;5.4, to the extent the Corporation shall
have funds legally available for such redemption, the Corporation, at the option of the Board of
Directors, may redeem, in whole or in part, the shares of Preferred Stock at the time outstanding,
at any time or from time to time, upon notice given as hereinafter specified, at a redemption price
of $1.00 per share, together with accrued and unpaid dividends thereon to the redemption date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Notwithstanding the foregoing provisions of Section&nbsp;5.4(a) hereof, unless the full
cumulative dividends on all outstanding shares of preferred Stock shall have been paid or
contemporaneously are declared and paid for all past dividend periods, none of the shares of
preferred Stock shall be redeemed pursuant to Section&nbsp;5.4(a) hereof unless all outstanding shares
of Preferred Stock are simultaneously redeemed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;On or prior to 100&nbsp;days after the end of each fiscal year of the Corporation, commencing
with the fiscal year ending in 1991, to the extent the Corporation shall have funds legally
available therefor, the Corporation shall apply an amount equal to Excess Cash Flow as of the end
of the immediately preceding fiscal year of the Corporation to mandatory redemption, in whole or in
part, of the shares of Preferred Stock at the time outstanding, upon notice given as hereinafter
specified, at a redemption price of $1.00 per share, together with accrued and unpaid dividends
thereon to the redemption date. If any shares of Preferred Stock shall be outstanding on August&nbsp;1,
1995, to the extent the Corporation shall have funds legally available for such payment, the
Corporation shall redeem all outstanding shares of Preferred Stock at a redemption price of $1.00
per share, together with accrued and unpaid dividends thereon to the redemption date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;If the Corporation shall fail to discharge its obligation to redeem any outstanding shares
of Preferred Stock pursuant to Section&nbsp;5.4(c) hereof (the &#147;Mandatory Redemption Obligation&#148;), the
Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge
much Mandatory Redemption Obligation. If and so long as the Mandatory Redemption Obligation with
respect to the Preferred Stock shall not be fully discharged, the Corporation shall not declare or
pay any dividend or make any distribution on, or, directly or indirectly, purchase, redeem or
satisfy any mandatory redemption, sinking and/or other similar obligations in respect of Common
Stock (other than as a result of a reclassification of Common Stock, or the exchange or conversion
of one class or series of Common Stock for or into another class or series of Common Stock, or
other than through the use of the proceeds of a
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">substantially contemporaneous sale of the Common Stock) or any warrants, rights or options
exercisable for or convertible into any of the Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;In the event that fewer than all the outstanding shares of Preferred Stock are to be
redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the
shares shall be redeemed on a pro rata basis among holders of Preferred Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;In the event that the Corporation shall redeem shares of Preferred Stock, notice of every
redemption of shares of Preferred Stock shall be mailed by first class mail, postage prepaid, and
mailed not less than 30&nbsp;days nor more than 60&nbsp;days prior to the redemption date addressed to the
holders of record of the shares to be redeemed at their respective last addresses as they shall
appear on the books of the Corporation; provided, however, that failure to give such notice or any
defect therein or in the mailing thereof shall not affect the validity of the procedure for the
redemption of any shares of Preferred Stock to be redeemed except as to any holder to whom the
Corporation has failed to give such notice or except as to any holder to whom notice was defective.
Each such notice shall state: (i)&nbsp;the redemption date; (ii)&nbsp;the number of shares of Preferred
Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed; (iii)&nbsp;the redemption price; (iv)&nbsp;the place or places where
certificates for such shares are to be surrendered for payment of the redemption price; and (v)
that dividends on the shares to be redeemed will cease to accrue on such redemption date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Notice having been mailed as aforesaid and provided that on or before the redemption date
specified in such notice all funds necessary for such redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be and to continue to be available
therefor, then, from and after the redemption date dividends on the shares of Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Preferred Stock, and all rights of the
holders thereof as shareholders of the Corporation (except the right to receive from the
Corporation the redemption price and any accrued and unpaid dividends) shall cease. Upon surrender
in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors shall so require and the notice shall so state),
such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer
than all the shares represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares without cost to the holder thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5. Upon the occurrence of a default resulting from the Corporation&#146;s failure to make a
scheduled payment of principal or accrued interest on the Term Loan, the Revolving Credit Loan or
the Asset Paydown Loan (as such loans are defined in the Plan) and the continuance of such default
for 90 calendar days, the Agent for the Banks (as defined in the Plan) will be entitled to convert
all shares of Preferred Stock into shares of Common Stock equal to 51% of the issued and
outstanding shares of Common Stock on a fully diluted basis; provided, however, that the Agent will
only be entitled to consummate the foregoing conversion if at the time of default the Agent is
holding shares of Preferred Stock with an aggregate par value equal to or greater than $250,000.00;
and provided further that in the event the Corporation has reduced the
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">outstanding principal indebtedness on such loans to an aggregate of $15,000,000.00, the
Preferred Stock will be converted into a lesser percentage of Common Stock on a fully diluted basis
as defined by the following formula: (par value of Preferred Stock held by the Agent on the date
of exercise of conversion, divided by the par value of the maximum amount of Preferred Stock
previously issued) times 51%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6. No holder of shares of stock authorized or issued pursuant to ARTICLE IV or this ARTICLE
V shall have any preferential or preemptive rights of subscription to any shares of capital stock
of this Corporation, either now or hereafter authorized, or to any obligations convertible into
capital stock of this Corporation, issued or sold, nor any rights of subscription to any thereof,
other than such rights, if any, as are hereinabove stated in this Article&nbsp;V with respect to the
Preferred Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7. The holders of the Common Stock shall have the exclusive right to vote upon all questions
presented for shareholder vote, and the holders of the Preferred Stock shall have no right to vote
upon any such question except as otherwise expressly provided by Missouri law, these Articles of
Incorporation or by any other law, rule or regulation to which the Corporation is or may become
subject.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8. The Corporation reserves the right to alter, amend, or repeal any provision contained in
its Articles of Incorporation in the manner now or hereafter prescribed by the statutes of
Missouri, and all rights and powers conferred herein are granted subject to this reservation; and,
in particular, the Corporation reserves the right and privilege to amend its Articles of
Incorporation from time to time so as to authorize other or additional classes of shares (including
preferential shares), to increase or decrease the number of shares of any class now or hereafter
authorized, to establish, limit or deny to stockholders of any class the right to purchase or
subscribe for any shares of stock of the Corporation of any class, whether now or hereafter
authorized or whether issued for cash, property or services or as a dividend or otherwise, or to
purchase or subscribe for any obligations, bonds, notes, debentures, or securities or stock
convertible into shares of stock of the Corporation or carrying or evidencing any right to purchase
shares of stock of any class, and to vary the preferences, priorities, special powers,
qualifications, limitations, restrictions and the special or relative rights or other
characteristics in respect to the shares of each class, and to accept and avail itself of or
subject itself to, the provisions of any statutes of Missouri hereafter enacted pertaining to
general and business corporations, to exercise all the rights, powers and privileges conferred upon
corporations organized thereunder or accepting the provisions thereof and to assume the obligations
and duties imposed therein, upon the affirmative vote of the holders of a majority of the shares of
each class whose separate vote is required thereon.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VI.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the absence of fraud, no contract or other transaction between the Corporation and any
other person, corporation, firm, syndicate, association, partnership, or joint venture shall be
wholly or partially invalidated or otherwise affected by reason of the fact that one or more of the
directors of the Corporation are or are to become Directors or officers of such other corporation,
firm, syndicate or association, or members of such partnership or joint venture, or are pecuniarily
or otherwise interested in such contractual transaction, provided, that the fact such director or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">directors of the Corporation are so situated or so interested or both, shall be disclosed or
shall have been known to the Board of Directors of the Corporation. Any director or directors of
the Corporation who is also a director or officer of such other corporation, firm, syndicate or
association, or a member of such partnership, or joint venture, or pecuniarily or otherwise
interested in such contract or transaction, may be counted for the purpose of determining the
existence of a quorum at any meeting of the Board of Directors of the Corporation which shall
authorize any such contract or transaction and in the absence of fraud, and as long as he acts in
god faith, any such director may vote there at to authorize any such contract or transaction, with
like force and effect as if he were not a director or officer of such other corporation, firm,
syndicate, or association, or a member of such partnership or joint venture, or pecuniarily or
otherwise interested in such contract or transaction; it is expressly provided, however, that the
Board of Directors may not authorize the contract or transaction without the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors constitute less
than a quorum.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VII.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The street address of the registered office of the Corporation is 906 Olive Street, St. Louis,
Missouri 63101, and the initial registered agent at such address is CT Corporation System.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VIII.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1. The business and affairs of the Corporation shall be managed by, or under the direction
of, a Board of Directors. The number of directors to constitute the Board of Directors is seven
(7).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2. Beginning with the Company&#146;s 2004 annual meeting of shareholders there shall be one (1)
class of directors, who shall be elected annually. Those directors currently referred to as Class
I Directors, who are nominated for election at the 2004 annual meeting of shareholders, if elected,
will hold office until the 2005 annual meeting of shareholders, at which time they, or their
successors, must be nominated for election as members of a single class of directors. Those
directors currently referred to as Class&nbsp;II Directors, who were elected at the 2003 annual meeting
of shareholders to hold office until the 2005 annual meeting of shareholders, will complete their
terms at the 2005 annual meeting of shareholders, at which time they, or their successors, must be
nominated for election as members of a single class of directors. Any director elected to fill any
vacancy on the Board of Directors shall hold office for the remainder of the full term of the
director whose position such newly elected director fills.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3. Any vacancy on the Board of Directors arising from the death, resignation, retirement,
disqualification or removal from office of one or more directors may be filled by a majority of the
Board of Directors then in office, although less than a quorum, or by a sole remaining director.
At any time until August&nbsp;1, 1995, the shareholders shall have the power by vote of the holders of
75% of the shares of stock then entitled to vote at any meeting expressly called for that purpose,
to remove any director from office with or without cause; provided, however, that notwithstanding
the foregoing, during the initial terms of office of the Class&nbsp;I and Class&nbsp;II Directors, no
director shall be removed from office except for cause, cause being defined
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">solely as fraud, physical disability or mental incapacity. Any director elected to fill a
vacancy shall have the same remaining term as that of his or her predecessor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4. The method of nomination and conduct of the election of directors at the annual meeting
of shareholders shall be prescribed in the By-Laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5. Notwithstanding any other provision of these Articles of Incorporation, until August&nbsp;1,
1995, no amendment, alteration or repeal of this Article&nbsp;VIII shall be effective unless approved by
the holders of shares of stock of the Corporation representing at least 75% of the votes entitled
to be cast thereon at a meeting of the shareholders duly called for consideration of such
amendment.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IX.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The private property of the stockholders shall not be subject to the payment of the corporate
debts of the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE X.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation shall have and exercise all powers and rights conferred upon corporations by
the General and Business Corporation Law of Missouri and any enlargement of such powers conferred
by subsequent legislative acts; and, in addition thereto, the Corporation shall have and exercise
all powers and rights, not otherwise denied corporations by the General and Business Corporation
Law of Missouri, as are necessary, suitable, proper, convenient or expedient to the attainment of
the purposes set forth in Article&nbsp;III above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as may be otherwise specifically provided by statute, or the Articles of Incorporation
or the By-laws of the Corporation, as from time to time amended, all powers of management,
direction and control of the Corporation shall be, and hereby are, vested in the Board of
Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The By-laws of the Corporation may from time to time be altered, amended, suspended or
repealed, or new By-laws may be adopted by a majority vote of the Board of Directors, subject to
any and all restrictions imposed, or prohibitions provided, by the General and Business Corporation
Law of Missouri.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors may designate an Executive Committee in the manner and subject to the
limitations set forth in the By-laws of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors shall have power to hold their meetings and to keep the books (except any books
required to be kept in the State of Missouri, pursuant to the laws thereof) at any place within or
without the State of Missouri.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE XI.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1. The Corporation may agree to the terms and conditions upon which any director or officer
accepts his office or position and in its By-laws or by contract may agree to indemnify and protect
each and all of such persons and any person who, at the request of the Corporation
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">served as a director or officer of another Corporation in which this Corporation owned stock
against all costs and expenses reasonably incurred by any or all of them, and all liability imposed
or threatened to be imposed upon any or all of them, by reason of or arising out of their or any of
them being or having been a director or officer of this Corporation or of such other corporation;
but any such By-law or contractual provision shall not be exclusive of any other right or rights
of any such director or officer to be indemnified and protected against such costs and liabilities
which he may otherwise possess.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2. The Corporation shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the right of this
Corporation) by reason of the fact that he is or was a director, officer, employee or agent of this
Corporation, or is or was serving at the request of this Corporation as a director, officer,
employee, partner, trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys&#146; fees), judgments, fines, taxes and amounts
paid in settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of this Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of <U>nolo contendere</U>
or its equivalent, shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to the best interests of
this Corporation, and, with respect to any criminal action or proceeding, that he had reasonable
cause to believe that his conduct was unlawful.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.3. This Corporation shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit by or in the right of this
Corporation to procure a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of this Corporation, or is or was serving at the request of this
Corporation as a director, officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorneys&#146; fees)
and amounts paid in settlement actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of this Corporation except that
no indemnification shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the performance of his duty
to the Corporation unless and only to the extent that the Court in which such action or suit was
brought shall determine upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for
such expenses which the Court shall deem proper. Any indemnification under this Article&nbsp;XI (unless
ordered by a Court) shall be made by this Corporation only as authorized in the specific instance
upon a determination that indemnification of the director, officer, employee, partner, trustee or
agent is proper in the circumstances because he has met the applicable standard of conduct set
forth in this Article&nbsp;XI. Such determination shall be made (1)&nbsp;by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (2)&nbsp;if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested Directors so directs, by independent legal counsel in a written opinion,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or (3)&nbsp;by the shareholders. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in this Article&nbsp;XI, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses, including attorneys&#146; fees, actually and reasonably incurred
by him in connection with the action, suit, or proceeding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.4. Expenses incurred in defending any actual or threatened civil or criminal action, suit
or proceeding may be paid by this Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the specific instance upon receipt of
an undertaking by or on behalf of the director, officer, employee, partner, trustee or agent to
repay such amount unless it shall be ultimately determined that he is entitled to be indemnified by
the Corporation as authorized in this Article&nbsp;XI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.5. The indemnification provided by this Article&nbsp;XI shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any By-law, agreement,
vote of shareholders or disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and shall continue as to a
person who has caused to be a director, officer, employee, partner, trustee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.6. For the purposes of this Article&nbsp;XI, references to this &#147;Corporation&#148; include all
constituent corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation so that any person who is or was a director, officer, employee, partner,
trustee or agent of such a constituent corporation as a director, officer, employee, partner,
trustee or agent of another enterprise shall stand in the same position under the provisions of
this Article&nbsp;XI with respect to the resulting surviving corporation in the same capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.7. In the event any provision of this Article&nbsp;XI shall be held invalid by any court of
competent jurisdiction, such holding shall not invalidate any other provisions of this Article&nbsp;XI
and any other provisions of this Article&nbsp;XI shall be construed as if such invalid provisions had
not been contained in this Article&nbsp;XI.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.8.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned, C Jeffrey Rogers, President, has executed this instrument
and its Assistant Secretary has affixed its corporate seal hereto and attested said seal as of the
5<SUP style="font-size: 85%; vertical-align: text-top">th </SUP>day of September, 1990.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">(seal)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">PIZZA INN, INC.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">ATTEST:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">Paula A. Pedigo</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">C. Jeffrey Rogers</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">Assistant Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">THE STATE OF TEXAS
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">)</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">)</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">COUNTY OF DALLAS
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">)</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, Notary Public, do hereby certify that on this <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> day of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 1990, personally appeared before me C. Jeffrey Rogers, who, being by me first
duly sworn, declared that he is the President of Pizza Inn, Inc. that he signed the foregoing
document as President of the Corporation, and that the statements therein contained are true.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="white-space: nowrap">Notary Public, State of</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">My Commission Expires:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Printed Name of Notary Public</TD>
</TR>
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<P align="left" style="font-size: 10pt"><!-- Folio -->RESTATED ARTICLES OF INCORPORATION OF PIZZA INN, INC. - Page 22<!-- /Folio -->
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<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>4
<FILENAME>d39929exv10w15.htm
<DESCRIPTION>WAREHOUSE LEASE AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w15</TITLE>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit
10.15</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>WAREHOUSE LEASE</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS <B>WAREHOUSE LEASE </B>(&#147;Lease&#148;), dated August&nbsp;25, 2006, is made between PIZZA INN, INC., a
Missouri corporation (&#147;Landlord&#148;) and THE SYGMA NETWORK, INC., a Delaware corporation (&#147;Tenant&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration of the mutual covenants contained in this Lease, Landlord and Tenant agree as
follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">1. DEFINED TERMS; EXHIBITS; AND PREMISES.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.01. <U>Defined Terms.</U>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencement Date:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November&nbsp;1, 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expiration Date:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;30, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Landlord&#146;s Address:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pizza Inn, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3551 Plano Parkway</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Colony, Texas 75056</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Mr.&nbsp;Darrell G. Smith</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Vice President of Development</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Telephone No. 469.384.5101</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile No. &nbsp;&nbsp;469.384.5060</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Monthly Base Rent or Base Rent:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Base Rent (PSF)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Monthly Base Rent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Annual Base Rent</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$8.00
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$68,000
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$816,000</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Permitted Uses: Warehouse and distribution facility, with related offices
</DIV>


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premises:</TD>
    <TD>&nbsp;</TD>
    <TD>The warehouse building consisting of approximately 102,000 square feet, which is
situated on that certain tract of real property described on Exhibit&nbsp;A attached hereto and
made a part hereof for all purposes.</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premises Address: 3551 Plano Parkway, The Colony, Texas 75056
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Security Deposit:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NONE</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tenant&#146;s Address:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Sygma Network, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5550 Blazer Parkway, Suite&nbsp;300</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dublin, Ohio 43017</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: &nbsp;&nbsp;&nbsp; Mr.&nbsp;Ron Winters</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Vice President, Distribution Services</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Telephone: &nbsp;&nbsp; 614-734-2254</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: &nbsp;&nbsp;&nbsp;&nbsp; 614-734-2575</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Term: The period between the Commencement Date and the Expiration Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing provisions constitute the defined terms (&#147;Defined Terms&#148;). Each reference in this Lease to
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Article&nbsp;1.01 or the Defined Terms shall be construed to incorporate the applicable Defined Terms in
this Article&nbsp;1.01.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.02. <U>Exhibits</U>. The Exhibits listed below are attached to this Lease after the
signatures and by reference thereto are incorporated herein:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exhibit&nbsp;A</U> Premises
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.03. <U>Premises</U>. Landlord leases the Premises to Tenant, subject to the provisions of
this Lease. Except as otherwise expressly provided in this Lease, upon Tenant&#146;s commencing
occupancy of the Premises, Tenant shall be deemed to have accepted the same in their condition
existing as of the date of such commencement of occupancy and subject to all applicable municipal,
county, state and federal statutes, laws, ordinances, including zoning ordinances, and regulations
governing and relating to the use, occupancy or possession of the Premises. Tenant acknowledges
that the only warranties and representations Landlord has made in connection with the physical
condition of the Premises or Tenant&#146;s use of the same upon which Tenant has relied directly or
indirectly for any purpose, if any, are those expressly provided in this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TENANT ACKNOWLEDGES THAT IT HAS (OR WILL HAVE BY SEPTEMBER 15, 2006) FULLY INSPECTED AND
ACCEPTS THE PREMISES IN THEIR PRESENT CONDITION, AND TENANT WARRANTS AND ACKNOWLEDGES TO AND AGREES
WITH LANDLORD THAT TENANT IS LEASING THE PREMISES IN AN &#147;AS IS, WHERE IS&#148; PHYSICAL CONDITION &#147;WITH
ALL FAULTS&#148; AND SPECIFICALLY AND EXPRESSLY WITHOUT ANY WARRANTY, REPRESENTATION OR GUARANTY, EITHER
EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR TYPE WHATSOEVER FROM OR ON BEHALF OF THE LANDLORD,
EXCEPT AS EXPRESSLY PROVIDED IN THIS LEASE.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tenant shall perform an inspection of the Premises and its appurtenant systems and fixtures
prior to September&nbsp;15, 2006, and shall provide Landlord with written notice of any reasonable and
material objection that it has regarding such physical condition of the Premises and its
appurtenant systems and fixtures (giving due consideration towards the age of the Premises, and
ordinary wear and tear thereto; provided that such consideration shall not prevent Tenant from
making an objection with respect to the Premises and its appurtenant systems and fixtures, or any
portion thereof, that is not in reasonably good and safe operating condition and repair) discovered
during its inspection on or before such date. If Landlord cannot or will not cure any or all of
Tenant&#146;s objections, Landlord shall provide Tenant with written notice of such intention within
three (3)&nbsp;business days of Tenant&#146;s notice; otherwise, Landlord shall be deemed to have elected to
cure Tenant&#146;s objection to Tenant&#146;s reasonable satisfaction. In the event that Landlord elects
not to give or fails to give such notice and further fails to cure Tenant&#146;s objections, to Tenant&#146;s
reasonable satisfaction, or if Seller gives such notice, then Tenant may, at its option,
either (i)&nbsp;terminate this Lease by written notice thereof to Landlord prior to the Commencement
Date, whereupon neither party shall have any further obligation to the other under this Lease, or
(ii)&nbsp;proceed to the Commencement Date, in which event there shall be no abatement in rent or other
terms (except as may be mutually agreed by the parties). In the event that Tenant does not
exercise the option described in (i)&nbsp;above within five (5)&nbsp;business days of any notice by Landlord
that it cannot or will not cure an objection, then Tenant shall be conclusively deemed to have
elected option (ii)&nbsp;above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Landlord retains risk of loss to the Premises prior to the Commencement Date, except to the
extent caused by the negligence or willful misconduct of Tenant or its employees, agents,
contractors and consultants. If prior to the Commencement Date, all or any portion of the Premises
is damaged or destroyed by fire or other casualty prior to the Commencement Date as a result of
events or circumstances other than the negligence or willful misconduct of Tenant or its employees,
agents, contractors and consultants, which damage or destruction will result in a material
disruption to Tenant&#146;s planned operations at the Premises, in Tenant&#146;s reasonable judgment, then
Tenant shall give prompt written notice to Landlord, and either of the parties may, at their
option, terminate this Lease by written notice to the other within ten (10)&nbsp;days of Tenant&#146;s notice
to Landlord, whereupon neither party shall have any further obligation to the other under this
Lease. In the event that neither of the parties terminate this Lease, the provisions of Article&nbsp;9
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">shall control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.04. <U>Term</U>. The Term shall commence upon the Commencement Date and expire on the
Expiration Date specified in Article&nbsp;1.01. The Term is subject to earlier termination as provided
herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.05. <U>Holdover</U>. In the event that Tenant desires to extend the Term of this Lease,
Tenant shall deliver written notice to Landlord not later than six (6)&nbsp;months prior to the
expiration of the Term. Upon Landlord&#146;s receipt of such notice, the parties shall attempt to agree
on the terms for the extension of the Term. In the event of holding over by Tenant after
expiration of the Term or earlier termination of this Lease without the written consent of
Landlord, Tenant shall pay as Base Rental the sum of one and one-half times the scheduled Base Rent
for the entire holdover period. Notwithstanding the foregoing sentence, no holding over by Tenant
after the term of this Lease shall operate to extend this Lease and in the event of any
unauthorized holding over, Tenant shall indemnify Landlord against all claims for damages by
another lessee to whom Landlord may have leased all or any part of the Premises effective upon the
termination of this Lease. Any holding over with the consent of Landlord in writing shall
thereafter constitute this Lease as a lease from month to month.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.06. <U>Tenant&#146;s Access to Premises Prior to Commencement Date</U>. Simultaneously with
the execution and delivery of this Lease, the parties will execute and deliver an access agreement
governing Tenant&#146;s access to the Premises prior to the Commencement Date hereunder (the &#147;Access
Agreement&#148;), and Landlord will provide Tenant and its representatives and agents with access to the
Premises as provided in the Access Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.07 <U>Transaction Documents</U>. Pursuant to (i)&nbsp;that certain Distribution Service
Agreement of even date herewith (the &#147;Distribution Agreement&#148;), Tenant and Landlord have entered
into an agreement for Purchaser to be the primary approved distributor for Landlord and Landlord&#146;s
franchisees, as more particularly described therein, and (ii)&nbsp;that certain Agreement for the
Assignment of Equipment Leases of even date herewith (the &#147;Assignment&#148;), Landlord has agreed to
assign to Tenant, and Tenant has agreed to assume the rights of Landlord in and to, certain
equipment leases, as more particularly described therein, and (iii)&nbsp;that certain Purchase and Sale
Agreement (Owned Personal Property) of even date herewith (the &#147;Purchase Agreement&#148;), whereby
Landlord has agreed to sell to Tenant, and Tenant has agreed to purchase, certain personal
property, as more particularly described therein. The foregoing agreements are collectively
referred to herein as the &#147;Transaction Documents&#148;. The parties acknowledge that the transactions
described herein are part of a larger transaction as reflected in the Transaction Documents, and
that the core transactions noted therein shall occur simultaneously (i.e. on the same date, which
is anticipated to be the &#147;Closing Date&#148; under the Purchase Agreement, Tenant shall purchase the
&#147;Property&#148; under the Purchase Agreement, assume the equipment leases under the Assignment, become
the Tenant hereunder and begin providing distribution services to Landlord under the Distribution
Agreement). As such, in the event that the Distribution Agreement is terminated prior to the
Commencement Date for any reason, then this Lease shall be automatically terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">2. RENT
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.01. <U>Base Rent</U>. The Monthly Base Rent (or Base Rent) set forth in Article&nbsp;1.01 shall
be payable in equal monthly installments. Tenant shall pay the Base Rent to Landlord in advance
upon the first day of each calendar month of the Term, at Landlord&#146;s address or at such other place
designated by Landlord in a notice to Tenant, without any prior demand therefor and
without any deduction, abatement or setoff whatsoever. If the Term shall commence or end on a
day other than the first day of a calendar month, then Tenant shall pay, upon the Term Commencement
Date and the first day of the last calendar month of the Term, a pro rata portion of the Monthly
Base Rent, prorated on a per diem basis, with respect to the portions of this fractional calendar
month included in the Term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.02.
<U>Additional Rent</U>. All charges required to be paid by Tenant hereunder, including
without limitation, payments for Tax Expenses, Insurance Expenses, Tenant&#146;s Share of Operating
Expenses, and any other amounts payable hereunder, shall be considered additional rent for the
purposes of this Lease (&#147;Additional Rent&#148;). Unless another time shall be herein expressly provided
for the payment thereof, Tenant shall pay Additional Rent upon
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">written demand by Landlord or together with the next succeeding installment of Monthly Base Rent.
&#147;Rent&#148; shall mean Base Rent and Additional Rent. The Rent shall be absolutely net to Landlord, and
Landlord shall have no obligation under this Lease except as herein specifically provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencing on the Commencement Date and continuing throughout the remainder of the Term,
Tenant shall pay to Landlord as Additional Rent, on the first day of each calendar month, an amount
equal to one-twelfth (1/12) of the estimated Additional Rent incurred with respect to each calendar
year in the Term of this Lease (the total amount paid by the Tenant in each Calendar Year being
referred to herein as the &#147;Expense Adjustment Amount&#148;). The Expense Adjustment Amount for each
calendar year shall be estimated from time to time by Landlord and communicated by written notice
to Tenant. Landlord shall cause to be kept books and records showing Additional Rent in accordance
with an appropriate system of accounts and account practices consistently maintained. Following
the close of each calendar year, Landlord shall cause the amount of the Expense Adjustment Amount
which should have been paid by Tenant for such calendar year (the &#147;Final Expense Amount&#148;) to be
computed on the basis of the actual Additional Rent for each Calendar Year, and Landlord shall
deliver to Tenant a statement of such Final Expense Amount. If the Final Expense Amount exceeds
the Expense Adjustment Amount, Tenant shall pay such deficiency within thirty (30)&nbsp;days after
receipt of such statement. If the Expense Adjustment Amount exceeds the Final Expense Amount, then
at Landlord&#146;s option such excess shall be either credited against payments of Additional Rent next
due or refunded by Landlord, provided no Event of Default exists hereunder. Delay in computation
of the Final Expense Amount or any Expense Adjustment Amount shall not be deemed a default
hereunder or a waiver of Landlord&#146;s right to collect the Final Expense Amount or Expense Adjustment
Amount, as the case may be. Landlord will provide Tenant with such supporting documentation
regarding the Additional Rent as Tenant may reasonably request.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the foregoing or anything herein to the contrary, in the event that any cost,
expense, liability or obligation included in Tenant&#146;s obligation for Additional Rent is of the
nature of capital improvements then Tenant shall pay to Landlord a monthly &#147;Capital Improvement
Amortization Charge&#148; (as defined herein) to cover such cost, expense, liability or obligation,
which Capital Improvement Amortization Charge shall be due and payable together with each monthly
installment of Base Rent hereunder. The monthly Capital Improvement Amortization Charge shall be
equal to the aggregate dollar value of the cost, expense, liability or obligation, divided by the
useful life in months of the item(s) which are being funded or purchased therewith, as mutually
agreed by the parties or, if the parties are unable to agree, as determined by Internal Revenue
Service depreciation guidelines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.03. <U>Late Payment</U>. Tenant hereby acknowledges and agrees that any payment of Rent
received by Landlord at any time after the due date thereof may cause Landlord to incur costs not
contemplated by this Lease (including, without limitation, bookkeeping, personnel, processing
charges, late charges and interest) and the exact amount of such costs may be impossible to
ascertain. Accordingly, in the event any rental is not received when due, for any reason
whatsoever, or if any rental payment is by check which is returned for insufficient funds, then in
addition to the past due amount Tenant shall pay to Landlord interest on the rental then due at the
maximum contractual rate which could legally be charged in the event of a loan of such rental to
Tenant (but in no event to exceed 1-1/2% per month), such interest to accrue continuously on any
unpaid balance due to Landlord by Tenant during the period commencing with the rental due date and
terminating with the date on which Tenant makes full payment of all amounts owing to Landlord at
the time of said payment. Any such late charge or interest payment shall be payable as Additional
Rent under this Lease, and shall be payable immediately on demand. Should
Tenant remit a partial payment for any outstanding Base Rent or Additional Rent due, Landlord
shall apply said partial payment to the outstanding Base Rent or Additional Rent as Landlord deems
necessary, in its sole discretion. This provision shall not relieve Tenant from payment of Rent at
the time and in the manner herein specified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.01. <U>Tenant&#146;s Obligations</U>. Tenant shall pay to Landlord, as Additional Rent, the Tax
Expenses. &#147;Tax Expenses&#148; shall include the sum of the following: all real estate taxes and other
taxes relating to the Premises
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(including, without limitation, all improvements, fixtures and personal property thereon),
assessments, governmental charges, fees and levies, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind and nature for public improvements,
services or benefits and all other fees or taxes which may be levied in lieu of any of the above,
which are assessed, levied, confirmed, imposed or become a lien upon the Premises, or become
payable during the Term; provided, however, that any sum payable by Tenant, which would not
otherwise be due until after the date of the termination of this Lease, shall be paid by Tenant to
Landlord upon such termination.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.02. <U>Personal Property Taxes</U>. Tenant shall pay or cause to be paid, prior to
delinquency, any and all taxes and assessments levied upon trade fixtures, inventories and other
personal property owned by Tenant and located in the Premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.03. <U>Tax on Rents</U>. Tenant shall pay, promptly when due as Additional Rent, any
sales, use, excise or other tax imposed on the rents or other sums payable to Landlord (to the
extent such tax is imposed by applicable law) and all taxes imposed upon Tenant&#146;s business
operations in the Premises; provided, that this provisions shall not require Tenant to pay or
reimburse Landlord for any income taxes payable by Landlord with respect to rents or other sums
payable to Landlord hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">4. INSURANCE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.01. <U>Tenant&#146;s Obligations</U>. Tenant shall pay to Landlord, as Additional Rent, the
Insurance Expenses. &#147;Insurance Expenses&#148; shall include the cost of all premiums for insurance
maintained by Landlord on or related to the Premises, including without limitation, the cost of
premiums for insurance maintained under Article&nbsp;4.02. The amount owed by Tenant for Insurance
Expenses, as set forth in this Article&nbsp;4.01, shall be prorated between Landlord and Tenant so that
Tenant shall pay that proportion which the part of such period within the Term bears to the entire
period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.02. <U>Property Coverage</U>. During the Term, Landlord shall procure and maintain in full
force and effect with respect to the building which is a part of the Premises (the &#147;Building&#148;), a
policy or policies of Fire and Extended Coverage Insurance. Such insurance, at Landlord&#146;s
election, may include, but is not limited to sprinkler leakage, vandalism and malicious mischief
coverage, and any other endorsements required by the holder of any fee or leasehold mortgage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.03. <U>Public Liability</U>. Tenant shall, at Tenant&#146;s sole cost and expense, keep and
maintain in full force during the Term a policy or policies of comprehensive public liability
insurance, written by an insurance company approved by Landlord in the form customary to the
locality insuring Tenant&#146;s activities and those of Tenant&#146;s employees, agents, licensees and
invitees with respect to the Premises and/or Building against loss, damage or liability for
personal injury or death of any person or loss or damage to property occurring in, upon or about
the Premises in the amount of Two Million and No/100 Dollars ($2,000,000.00) combined single limit,
bodily injury and property damage, each occurrence; provided, however, that if at any time during
the Term Tenant shall have in full force and effect a blanket policy of public liability insurance
with the same coverage for the Premises as described above, as well as coverage of other premises
and properties of Tenant, or in which Tenant has some interest, such blanket insurance shall
satisfy the requirements hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.04. <U>Tenant&#146;s Property and Fixtures.</U> Tenant shall assume the risk of loss or damage
to Tenant&#146;s fixtures, equipment, inventory, goods in the care, custody or control of Tenant, and
tenant improvements that Tenant has installed to the Premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.05. <U>Insurance Certificates</U>. All insurance required hereunder shall be in form and
in responsible companies reasonably satisfactory to Landlord. Tenant shall furnish to Landlord on
or before the Commencement Date and thereafter within thirty (30)&nbsp;days prior to the expiration of
each such policy, a certificate of insurance signed by an authorized agent of the insurance carrier
of each policy of insurance carried by Tenant pursuant hereto. Each
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">certificate shall expressly provide that such policies shall not be cancellable or
subject to reduction of coverage or otherwise be subject to modification except after thirty (30)
days&#146; prior written notice to the parties named as insureds in this Article&nbsp;4.05. Landlord, its
successors and assigns, and any nominee of Landlord holding any interest in the Premises,
including, without limitation, any ground lessor and the holder of any fee or leasehold mortgage,
shall be named as insureds under each policy of insurance maintained by Tenant pursuant to this
Lease. Each policy shall be primary, irrespective of any policy in force for Landlord.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.06. <U>Tenant&#146;s Failure</U>. If Tenant fails to maintain any insurance required in this
Lease, Tenant shall be liable for any loss or cost resulting from said failure. This Article&nbsp;4.06
shall not be deemed to be a waiver of any of Landlord&#146;s rights and remedies under any other article
of this Lease or at law or equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.07. <U>Waiver of Subrogation</U>. Any policy or policies of fire, extended coverage or
similar casualty insurance which either party obtains in connection with the Premises or Tenant&#146;s
personal property therein, shall, to the extent the same can be obtained without undue expense,
include a waiver by the insurer of all right of subrogation against Landlord or Tenant in
connection with any loss or damage thereby insured against. Neither party, nor its agents,
employees or guests shall be liable to the other for loss or damage caused by any risk covered by
such insurance, provided such policies shall be obtainable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.08.
<U>Indemnification of Landlord</U>. <B>TENANT INDEMNIFIES AND HOLDS LANDLORD AND THE
PREMISES HARMLESS FROM AND AGAINST: (A)&nbsp;ANY AND ALL LIABILITIES, PENALTIES, LOSSES, DAMAGES, COSTS
AND EXPENSES, DEMANDS, CAUSES OF ACTION, CLAIMS OR JUDGMENTS ARISING FROM OR GROWING OUT OF ANY
INJURY TO ANY PERSON OR PERSONS OR ANY DAMAGE TO ANY PROPERTY AS A RESULT OF ANY ACCIDENT OR OTHER
OCCURRENCE DURING THE TERM OCCASIONED IN ANY WAY AS A RESULT OF TENANT&#146;S OR TENANT&#146;S OFFICERS&#146;,
EMPLOYEES&#146;, AGENTS&#146;, SERVANTS&#146;, SUBTENANTS&#146;, CONCESSIONAIRES&#146;, LICENSEES&#146;, CONTRACTORS&#146;, OR
INVITEES&#146; USE, MAINTENANCE, OCCUPATION OR OPERATION OF THE PREMISES DURING THE TERM, (B)&nbsp;ANY AND
ALL LIABILITIES, PENALTIES, LOSSES, DAMAGES, COSTS AND EXPENSES, DEMANDS, CAUSES OF ACTION, CLAIMS
OR JUDGMENTS ARISING FROM OR GROWING OUT OF ANY INJURY TO ANY PERSON OR PERSONS OR ANY DAMAGE TO
ANY PROPERTY BECAUSE OF THE NEGLIGENCE OF TENANT, TENANT&#146;S OFFICERS, EMPLOYEES, AGENTS, SERVANTS,
SUBTENANTS, LICENSEES, CONTRACTORS, INVITEES OR CUSTOMERS, AND (C)&nbsp;ALL LEGAL COSTS AND CHARGES,
INCLUDING ATTORNEYS&#146; FEES, INCURRED IN CONNECTION WITH SUCH MATTERS AND THE DEFENSE OF ANY ACTION
ARISING OUT OF THE SAME OR IN DISCHARGING THE PREMISES ANY PART THEREOF FROM ANY AND ALL LIENS,
CHARGES OR JUDGMENTS WHICH MAY ACCRUE OR BE PLACED THEREON BY REASON OF ANY ACT OR OMISSION OF
TENANT OR ITS OFFICERS, EMPLOYEES OR AGENTS; PROVIDED, HOWEVER, THAT TENANT SHALL NOT BE REQUIRED
TO INDEMNIFY LANDLORD FOR ANY DAMAGE OR INJURY ARISING AS THE RESULT OF LANDLORD&#146;S NEGLIGENCE OR
WILLFUL MISCONDUCT OR THAT OF LANDLORD&#146;S AGENTS OR EMPLOYEES.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">5. REPAIRS AND MAINTENANCE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.01. <U>Tenant Repairs and Maintenance</U>. Tenant shall, at Tenant&#146;s own expense, keep,
maintain, repair and replace the entirety of the interior of the Premises, including without
limitation all doors, entryways, subfloors and floor coverings, all plumbing fixtures and systems,
electrical wiring, ceilings, interior walls, interior surfaces of exterior walls, signs, all
heating, ventilating and air conditioning systems, all loading doors, loading docks and pads, all
fire sprinkler systems, all doors and locks, all skylights and other fixtures and equipment in good
repair and in a clean and safe condition, casualties covered by insurance excepted to the extent of
proceeds received. Tenant shall, at Tenant&#146;s sole expense, immediately replace all broken glass,
including skylights, in the Premises with glass equal to the specification and quality of the
original glass. Tenant shall, at Tenant&#146;s sole expense, repair any area damaged by
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tenant, Tenant&#146;s agents, employees, licensees and visitors, provided that, for repairs in excess of
$10,000, Tenant obtains Landlord&#146;s prior approval with respect to the method and quality of such
repair, such approval not to be unreasonably withheld. All repairs shall be completed by
contractors approved by Landlord, such approval not to be unreasonably withheld. Any replacements
required of Tenant shall be made with equipment and/or materials equal to the specification and
quality of the original. All damage to the concrete of the parking areas resulting from Tenant&#146;s
use of forklifts or other equipment shall be repaired by Landlord at Tenant&#146;s sole cost and
expense. Tenant shall maintain the exterior of the Premises in neat and attractive condition.
Tenant shall not store supplies, work in process, inventory or other materials, or waste or garbage
outside the Building. Tenant shall obtain any containers or dumpsters desired by Tenant for trash,
garbage or rubbish at Tenant&#146;s expense and shall contract and pay for all trash, garbage and
rubbish disposal and removal. Tenant shall maintain the areas around such trash containers and any
dumpster in clean, orderly and sanitary condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.02. <U>Landlord Repairs and Maintenance</U>. Landlord shall, at Landlord&#146;s expense, after
written notice from Tenant, repair in a prompt and diligent manner any damage to structural
portions of the Building, and the roof of the Building. In the event Landlord elects, in
Landlord&#146;s sole discretion, to replace the roof or paint the exterior walls of the Building, such
replacement or painting shall be at Landlord&#146;s sole expense. However, if such damage is caused or
such replacement or painting is made necessary by an act or omission of Tenant, then Tenant shall
reimburse Landlord for Landlord&#146;s expense in performing such repairs, replacements or painting.
There shall be no abatement of Rent during the performance of any work described in this Article
5.02. <B>LANDLORD SHALL NOT BE LIABLE TO TENANT FOR INJURY OR DAMAGE THAT MAY RESULT FROM ANY DEFECT
IN THE CONSTRUCTION OR CONDITION OF THE PREMISES, NOR FOR ANY DAMAGE THAT MAY RESULT FROM
INTERRUPTION OF TENANT&#146;S USE OF THE PREMISES DURING ANY REPAIRS BY LANDLORD, UNLESS CAUSED BY
LANDLORD&#146;S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. </B>Tenant waives any right to repair at the
expense of Landlord under any law, regulation, statute or ordinance, now or hereafter in effect.
Landlord shall have no obligation to maintain or repair the Premises except as specifically
provided by this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.03. <U>Operating Expenses</U>. Tenant shall pay to Landlord, as Additional Rent, Tenant&#146;s
Share of the Operating Expenses. &#147;Operating Expenses&#148; shall include all expenses, unless expressly
excepted in this Section&nbsp;5.03, which Landlord shall pay or become obligated to pay for the
administration, management, cleaning, maintenance, painting, and repair of the Premises (including
without limitation, any landscaping, parking lots and other common areas related to the Premises).
Operating Expenses shall not include (a)&nbsp;the cost of utilities relating to the Premises, whether or
not such utilities are separately metered to the Premises, the costs of such utilities being fully
payable by Tenant pursuant to Article&nbsp;7 hereof; (b)&nbsp;Insurance Expenses and Tax Expenses; (c)&nbsp;any
items not considered to be operating expenses under generally accepted accounting principles; or
(d)&nbsp;items of maintenance and repair allocated to Landlord under Section&nbsp;5.02. Any Operating
Expenses attributable to a period which falls only partially within the Term shall be prorated
between Landlord and Tenant so that Tenant shall pay only that proportion thereof which the part of
such period within the Term bears to the entire period. Where used in this Section&nbsp;5.03, &#147;Tenant&#146;s
Share&#148; shall mean thirty-four percent (34%), which is equal to the total number of gross acres
comprising the land contained within the Premises divided by the total number of gross acres of
land owned by Landlord (whether comprised within the Premises and/or otherwise adjacent to or
contiguous with the Premises).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.04. <U>Inspection of Premises</U>. Landlord and Landlord&#146;s authorized agents may enter the
Premises at any reasonable time, in order to inspect the same, to inspect the performance by Tenant
of the terms and conditions hereof, to affix reasonable signs and displays, to show the Premises to
prospective purchasers, tenants and lenders, and for all other purposes as Landlord shall
reasonably deem necessary. If Tenant shall not be personally present to permit an entry into the
Premises when for any reason an entry therein shall be permissible, Landlord may enter the same by
master key or, in the event of an emergency, by the use of force without rendering Landlord liable
therefor and without in any manner affecting Tenant&#146;s obligations under this Lease. Neither the
performance of work on the Premises by Landlord, whether done to discharge Landlord&#146;s obligations
hereunder or to prevent waste or deterioration, nor the placement in the Premises of supplies and
materials necessary for such work, shall be deemed to
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">constitute a partial or total eviction of Tenant, and neither the Rent nor any other obligation of
Tenant hereunder shall abate or be reduced while any entry or work by Landlord hereunder is being
performed. Landlord shall, however, use reasonable efforts in the conduct of any such work to
minimize any interference with Tenant&#146;s use of the Premises. In no case of entry shall Landlord
have any liability to Tenant, and Tenant shall have no claim against Landlord hereunder. None of
Landlord&#146;s rights under this Article shall be deemed to impose upon Landlord any obligation for the
inspection, maintenance or repair of the Premises not specifically imposed upon Landlord by any
terms, provision or conditions of this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.05. <U>Liens</U>. Tenant shall promptly pay and discharge all claims for labor performed,
supplies furnished or services rendered at the request of Tenant and shall keep the Property free
of all mechanic&#146;s and materialmen&#146;s liens in connection therewith. Tenant shall bond or discharge
any such lien within 45&nbsp;days. If Tenant fails to so bond or discharge, Landlord may, but shall not
be required to, take such action as may be necessary to remove such lien; and Tenant shall pay to
Landlord, as Additional Rent, any such amounts expended by Landlord within five (5)&nbsp;days after
notice is received from Landlord of the amount expended by Landlord.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">6. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.01.
<U>Fixtures and Personal Property</U>. Tenant, at Tenant&#146;s sole expense, may install
any necessary trade fixtures, equipment, machinery and furniture in the Premises, provided that
such items are installed and are removable without damage to the structure of the Building. Such
improvements must be submitted for Landlord&#146;s written approval prior to installation, consent not
to be unreasonably withheld, or Landlord may remove or replace such items at Tenant&#146;s sole expense.
Excepting fixtures which are bolted to or incorporated into the Premises, which fixtures shall not
be removed by Tenant unless and until Landlord instructs Tenant in writing to do so (provided, that
Tenant shall be permitted to remove owned racking which is bolted to the Premises), said trade
fixtures, equipment and furniture shall remain Tenant&#146;s property and shall be removed by Tenant
prior to expiration of the Term or earlier termination of this Lease; provided, however, that
Tenant shall not have the right to remove any such personal property of Tenant or any of Tenant&#146;s
trade fixtures at any time in which Tenant is in default under any term, condition or provision of
this Lease. Upon Landlord&#146;s prior written approval, not to be unreasonably withheld, Tenant may
install temporary improvements in the interior of the Premises, provided that such temporary
improvements are installed and removable without structural damage to the Building. Such temporary
improvements shall remain Tenant&#146;s property and shall be removed by Tenant on expiration of the
Term or earlier termination of this Lease. Tenant shall assume the risk of damage to any of
Tenant&#146;s fixtures, unless caused by Landlord&#146;s gross negligence or willful misconduct. Tenant
shall repair, at Tenant&#146;s sole expense, all damage caused by the installation, replacement or
removal of trade fixtures, equipment, furniture or temporary improvements. If Tenant fails to
remove the foregoing items on expiration of the Term or earlier termination of this Lease, Landlord
may keep and use them or remove any of them and cause them to be stored or sold in accordance with
applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.02.
<U>Alterations</U>. Tenant shall not make or allow to be made any alterations,
additions or improvements to the Premises, either at the inception of this Lease or subsequently
during the Term, without obtaining the prior written consent of Landlord, which may not be
unreasonably withheld but may be conditioned upon Tenant&#146;s removing such alterations, additions or
improvements and repairing any damage caused by such removal upon the expiration of the Term or the
earlier termination of this Lease
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">7. UTILITIES. Tenant agrees that it shall not install any equipment which will exceed or overload
the capacity of any existing utility facilities and that if any equipment installed by Tenant shall
require additional utility facilities, the same shall be installed at Tenant&#146;s expense in
accordance with plans and specifications to be approved in writing by Landlord. Tenant shall pay
all bills for all utilities, including without limitation water, telephone, gas, electricity, fuel,
light, heat and power, and other energy furnished to or used by Tenant on or about the Premises and
all sewerage disposal or sewerage service charges for the Premises. If Tenant does not pay such
charges, Landlord may pay the same, and such amount so paid shall be due and payable to Landlord by
Tenant, on demand, as Additional Rent. In no event shall Landlord be liable to Tenant for an
interruption or failure in the supply of any utilities to the Premises,
</DIV>



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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">nor shall Landlord be liable for damages from any of the fixtures, equipment or utility
systems in the Building being out of repair, or for injury to persons or property caused by any
defects in the water, sewer, electrical or sprinkler systems, if any, or in the heating, air
conditioning, ventilating or other equipment, or for any damages arising out of the failure to
furnish heating, air conditioning, ventilating, water, electricity or other utility service.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">8. USE OF PREMISES
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.01. <U>General</U>. The Premises shall be used only for the Permitted Uses. By commencing occupancy
of the Premises, Tenant accepts the Premises in the condition existing as of the date of such
entry, subject to all applicable municipal, county, state and federal statutes, laws, ordinances,
and private restrictive covenants, including zoning ordinances and regulations governing and
relating to the use, occupancy and possession of the Premises (collectively &#147;Regulations&#148;). Tenant
shall, at Tenant&#146;s sole expense, comply with all Regulations now in force or which may hereafter be
in force relating to the Premises and the use of the Premises, and Tenant shall secure any permits
therefor. Furthermore, Tenant agrees, by Tenant&#146;s entry, that Tenant has conducted an
investigation of the Premises and the acceptability of the Premises for Tenant&#146;s use, to the extent
that such investigation might affect or influence Tenant&#146;s execution of this Lease. Tenant shall
not commit waste, subject the Premises to any use which would damage the Premises or raise or
violate any insurance coverage required by this Lease. Tenant shall strictly comply with all
statutes, laws, ordinances, rules, regulations, and precautions now or hereafter mandated or
advised by any federal, state, local or other governmental agency with respect to the use,
generation, storage, or disposal of hazardous, toxic, or radioactive materials (collectively
&#147;Hazardous Materials&#148;). Landlord shall have the right at all reasonable times to inspect the
Premises and to conduct tests and investigations to determine whether Tenant is in compliance with
the foregoing provisions, the costs of all such inspections, tests and investigations to be borne
by Tenant. Tenant shall not cause, or allow anyone else under the control of Tenant to cause, any
Hazardous Materials to be used, generated, stored, or disposed of on or about the Premises or the
Building without the prior written consent of Landlord, which consent may be withheld in the sole
discretion of Landlord, and which consent may be revoked at any time. <B>TENANT&#146;S INDEMNIFICATION OF
LANDLORD PURSUANT TO ARTICLE 4.08, ABOVE, SHALL EXTEND TO ALL LIABILITY, INCLUDING ALL FORESEEABLE
AND UNFORESEEABLE CONSEQUENTIAL DAMAGES, DIRECTLY OR INDIRECTLY ARISING OUT OF THE USE, GENERATION,
STORAGE, OR DISPOSAL OF HAZARDOUS MATERIALS BY TENANT INCLUDING, WITHOUT LIMITATION, THE COST OF
ANY REQUIRED OR NECESSARY REPAIR, CLEANUP, OR DETOXIFICATION AND THE PREPARATION OF ANY CLOSURE OR
OTHER REQUIRED PLANS, WHETHER SUCH ACTION IS REQUIRED OR NECESSARY PRIOR TO OR FOLLOWING THE
TERMINATION OF THIS LEASE, TO THE FULL EXTENT THAT SUCH ACTION IS ATTRIBUTABLE, DIRECTLY OR
INDIRECTLY, TO THE USE, GENERATION, STORAGE, OR DISPOSAL OF HAZARDOUS MATERIALS BY TENANT. </B>Neither
the written consent by Landlord to the use, generation, storage, or disposal of Hazardous Materials
nor the strict compliance by Tenant with all statutes, laws, ordinances, rules, regulations, and
precautions pertaining to Hazardous Materials shall excuse Tenant from Tenant&#146;s obligation of
indemnification pursuant to this subsection. Tenant&#146;s obligations pursuant to the foregoing
indemnity shall survive the termination of this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.02. <U>Signs</U>. Tenant shall not install any advertisement, sign or other notice on the interior
or exterior of the Premises or Building without obtaining Landlord&#146;s specific prior written
consent, subject to the following provisions. Any sign placed by Tenant on the Premises or
Building shall be installed at Tenant&#146;s sole cost and expense. All signs so permitted by
Landlord shall comply with all applicable requirements of all governmental authorities, applicable
recorded restrictions, and all requirements of Landlord for coordinating Tenant&#146;s signs with the
signs of other tenants in the Building. Any sign, except in the interior of the Premises, shall
contain only Tenant&#146;s name or the name of any affiliate of Tenant actually occupying the Premises
and no advertising matter. Tenant shall maintain all Tenant&#146;s signs in good and neat condition and
repair throughout the Term. Tenant shall remove any such sign upon expiration of the Term or
earlier termination of this Lease and shall return the Premises to their condition prior to the
placement or erection of said sign.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.03.
<U>Parking Access</U>. In addition to the general obligation of Tenant to comply with laws and
without limitation thereof, Landlord shall not be liable to Tenant nor shall this Lease be affected
if any parking privileges appurtenant to the Premises are impaired by reason of any moratorium,
initiative, referendum, statute, regulation, or other governmental decree or action which could in
any manner prevent or limit any parking rights of Tenant hereunder. Any governmental charges or
surcharges or other monetary obligations imposed relative to parking rights with respect to the
Premises or the Building shall be considered as Tax Expenses and shall be payable by Tenant under
the provisions of Article&nbsp;3 hereinabove. Tenant shall not use the Premises for the placement of
dumpsters, refuse collection, outdoor storage or parking of cars and/or trucks which are not in
working order. Tenant shall neither park nor allow the parking on the Premises of any recreational
vehicles, satellite dishes, non-motorized vehicles or other items of equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.04. <U>Floor Load</U>. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor is designed to carry and which is then allowed by law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">9. DAMAGE AND DESTRUCTION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.01. <U>Determination as to Reconstruction</U>. Tenant shall give immediate written notice to
Landlord of any damage by fire or other casualty to the Premises. If all or any part of the
Premises shall be damaged or destroyed by fire or other casualty, the Lease shall continue in full
force and effect unless terminated as hereinafter provided, and Landlord shall repair, restore or
rebuild the Premises to their condition as initially constructed by Landlord; provided, however,
Landlord shall not be obligated to commence such repair or restoration or rebuilding until
insurance proceeds are received by Landlord, and Landlord&#146;s obligation hereunder shall be limited
to the proceeds actually received by Landlord under any insurance policy or policies, if any, which
have not been required to be applied towards the reduction of any indebtedness secured by a
mortgage covering the Premises or any portion thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No damage or destruction to the Premises shall allow Tenant to surrender possession of the
Premises nor affect Tenant&#146;s liability for the payment of Rent except as may be specifically
provided in this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything to the contrary contained in this Article or elsewhere in this Lease,
in the event that 50% or more of the Premises has been rendered unusable by such fire or other
casualty, Landlord, at its option and in its discretion, may decline to repair the Premises and
terminate this Lease upon thirty (30)&nbsp;days&#146; notice to Tenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Premises shall be damaged or destroyed and in the event that Landlord has elected to
continue this Lease, Landlord and Tenant shall commence their respective obligations under this
Article as soon as is reasonably possible and prosecute the same to completion with all due
diligence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of any termination of this Lease under the provisions of this Article, this Lease
shall terminate on the date such notice of termination is given.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.02 <U>Reconstruction Obligations</U>. Landlord&#146;s obligations to repair, replace and/or rebuild the
Premises shall not apply to any improvements installed by Tenant on the Premises (the same having
been paid for entirely or partially by Tenant) or Tenant&#146;s personal property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.03 <U>Rent Abatement</U>. Rent due and payable hereunder shall be abated proportionately during any
period in which, by reason of any such damage or destruction, Landlord reasonably determines that
there is substantial interference with the operation of Tenant&#146;s business in the Premises, having
regard to the extent to which Tenant may be required to discontinue its business in the Premises;
<B>PROVIDED, HOWEVER, IF THE DAMAGE IS DUE TO THE FAULT OR NEGLECT OF TENANT OR ITS EMPLOYEES, AGENTS
OR INVITEES, THERE SHALL BE NO ABATEMENT OF RENT</B>. Such abatement shall continue for the period
commencing with such damage or destruction and ending with the earlier to occur of (i)&nbsp;the
substantial completion by Landlord of the work of repair or reconstruction which Landlord is
obligated or undertakes to do or (ii)&nbsp;total or partial resumption of
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">business by Tenant in the Premises (provided, that if the resumption is only partial, such
abatement shall continue but be reasonably adjusted to reflect the then-current condition of the
Premises).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.04. <U>Waiver</U>. With respect to any destruction which Landlord may elect to repair under the
terms of this Article&nbsp;9, Tenant hereby waives all rights, if any, to terminate this Lease pursuant
to rights otherwise presently or hereafter accorded to tenants under the laws of the state of
Texas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">10. EMINENT DOMAIN
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.01. <U>Total Condemnation</U>. If the whole of the Premises is acquired or condemned by eminent
domain, inversely condemned or sold in lieu of condemnation, for any public or quasi public use or
purpose (&#147;Condemned&#148;), then the Term shall terminate as of the date of title vesting in such
proceeding, and Rent shall be adjusted as of the date of such termination. Landlord shall thereupon
refund to Tenant any prepaid Rent, and Tenant shall pay to Landlord any rent or charges due
Landlord under the Lease, each of such payments to be prorated as of the date of termination.
Tenant shall immediately notify Landlord of any such occurrence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.02. <U>Partial Condemnation</U>. If any part of the Premises is partially Condemned, and such
partial condemnation renders the Premises unusable for the business of the Tenant, as reasonably
determined by Landlord, then the Term shall terminate as of the date of title vesting in such
proceeding, and Rent shall be adjusted to the date of termination. If such condemnation is not
sufficiently extensive to render the Premises unusable for the business of Tenant as reasonably
determined by Landlord, then Landlord shall promptly restore the Premises to a condition comparable
to its condition immediately prior to such condemnation less the portion thereof lost in such
condemnation, and this Lease shall continue in full force and effect except that after the date of
such title vesting the Base Rent shall be appropriately reduced as reasonably determined by
Landlord.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.03.
<U>Landlord&#146;s Award</U>. If the Premises are wholly or partially Condemned, then Landlord
shall be entitled to the entire award paid for such condemnation, and Tenant waives any right or
claim to any part thereof from Landlord or the condemning authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.04. <U>Notice and Execution</U>. Landlord shall, immediately upon service of process in connection
with any condemnation or potential condemnation, give Tenant notice in writing thereof. Tenant
shall immediately execute and deliver to Landlord all instruments that may be required to
effectuate the provisions of this Article&nbsp;10.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">11. DEFAULT
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.01. <U>Events of Default</U>. The occurrence of any of the following events shall, at the election
of Landlord, constitute an &#147;Event of Default&#148; on the part of Tenant;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;<U>&#091;Intentionally deleted&#093;</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;<U>Payment</U>. Landlord fails to receive any installment of Base Rent, Additional Rent or other
monies due and payable hereunder upon the date when said payment is due after a five (5)&nbsp;day cure
period following notice from Landlord (it being agreed that if more than two (2)&nbsp;such
notices are given during any calendar year, then no further notice shall be required of
Landlord, and only a five (5)&nbsp;day grace period shall be afforded to Tenant for any subsequent
payment failures during the remainder of the Term);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;<U>Performance</U>. Failure to perform any of Tenant&#146;s covenants, agreements or obligations
hereunder (except default in the payment of Rent, Additional Rent or other monies) within twenty
(20)&nbsp;days after written notice thereof from Landlord, provided that as to a default which is not
susceptible of being cured within such twenty (20)&nbsp;day period, then within sixty (60)&nbsp;days after
written notice from Landlord, so long as Tenant commences to cure such failure within such twenty
(20)&nbsp;day period and diligently pursues its attempt to cure such failure;
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;<U>Assignment</U>. A general assignment by Tenant for the benefit of creditors;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;<U>Bankruptcy</U>. The filing of a voluntary petition by Tenant, or the filing of an involuntary
petition by any of Tenant&#146;s creditors seeking the rehabilitation, liquidation or reorganization of
Tenant under any law relating to bankruptcy, insolvency or other relief of debtors, and any such
involuntary proceeding not being dismissed within twenty (20)&nbsp;days after filing;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;<U>Receivership</U>. The appointment of a receiver or other custodian to take possession of
substantially all of Tenant&#146;s assets or of this leasehold and any such receiver or custodian not
being discharged within twenty (20)&nbsp;days after appointment;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;<U>Insolvency, Dissolution, Etc</U>. Tenant shall become insolvent or unable to pay its debts or
shall fail generally to pay its debts as they become due; or any court shall enter a decree or
order directing the winding up or liquidation of Tenant or of substantially all of its assets; or
Tenant shall take any action toward the dissolution or winding up of its affairs or the cessation
or suspension of its use of the Premises; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;<U>Attachment</U>. Attachment, execution or other judicial seizure of substantially all of
Tenant&#146;s assets or this leasehold.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;<U>Default under Distribution Agreement</U>. Tenant shall be in material default under the
Distribution Agreement, which material default Tenant fails to cure within twenty (20)&nbsp;days after
written notice thereof from Landlord, provided that as to a material default which is not
susceptible of being cured within such twenty (20)&nbsp;day period, then within sixty (60)&nbsp;days after
written notice from Landlord, so long as Tenant commences to cure such failure within such twenty
(20)&nbsp;day period and diligently pursues its attempt to cure such material default.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.02.
<U>Landlord&#146;s Remedies</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Upon the occurrence of any such Event of Default, Landlord shall have the right to pursue
any one or more of the following remedies in addition to all other rights or remedies provided
herein or at law or in equity:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(i)&nbsp;Without any further notice or demand whatsoever, Tenant shall be obligated to
reimburse Landlord for the damages suffered by Landlord as a result of the event of
default, plus interest on such amount at the maximum contractual rate which could
legally be charged in the event of a loan of such amount to Tenant (but in no event
to exceed 1-1/2% per month); and Landlord may pursue a monetary recovery from
Tenant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(ii)&nbsp;Without any further notice or demand whatsoever, Landlord may take any one or
more of the actions permissible at law to insure performance by Tenant of Tenant&#146;s
covenants and obligations under this Lease. In this regard, and without limiting
the generality of the immediately preceding sentence, if Tenant deserts or vacates
the Premises, Landlord may enter upon and take possession of such Premises in order
to protect them from deterioration and continue to demand from Tenant the monthly
rentals and other charges provided in this Lease, without any obligation to relet;
however, if Landlord does, at its sole discretion, elect to relet the Premises,
such action by Landlord shall not be deemed as an acceptance of Tenant&#146;s surrender
of the Premises.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(iii)&nbsp;Landlord may terminate this Lease by written notice to Tenant, in which event
Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to
do so, Landlord may, without prejudice to any other remedy which Landlord may have
for possession or arrearages in rent (including any late charge or interest which
may have accrued pursuant to this Lease), enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">occupying said Premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor. Tenant hereby waives any
statutory requirement of prior written notice for filing eviction or damage suits
for nonpayment of rent. In addition, Tenant agrees to pay to Landlord on demand the
amount of all loss and damage which Landlord may suffer by reason of any
termination effected pursuant to this subsection, said loss and damage to be
determined by either of the following alternative measures of damages:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">(1)&nbsp;Until Landlord is able, through reasonable efforts, the nature of
which efforts shall be at the sole discretion of Landlord, to relet the
Premises under terms satisfactory to Landlord in its sole discretion,
Tenant shall pay to Landlord on or before the first day of each calendar
month the monthly rentals and other charges provided in this Lease. If
and after the Premises have been relet by Landlord, Tenant shall pay to
Landlord on the twentieth (20th) day of each calendar month the difference
between the monthly rentals and other charges provided in this Lease for
such calendar month and that actually collected by Landlord for such
month. If it is necessary for Landlord to bring suit in order to collect
any deficiency, Landlord shall have a right to allow such deficiencies to
accumulate and to bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not prejudice in any way the
right of Landlord to bring a similar action for any subsequent deficiency
or deficiencies. Any amount collected by Landlord from subsequent tenants
for any calendar month in excess of the monthly rentals and other charges
provided in this Lease, shall be credited to Tenant in reduction of
Tenant&#146;s liability for any calendar month for which the amount collected
by Landlord will be less than the monthly rentals and other charges
provided in this Lease; but Tenant shall have no right to such excess
other than the above-described credit.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">(2)&nbsp;When Landlord desires, Landlord may demand a final settlement. Upon
demand for a final settlement, Landlord shall have a right to, and Tenant
hereby agrees to pay, the difference between the total of all monthly
rentals and other charges provided in this Lease for the remainder of the
term and the reasonable rental value of the Premises for such period, such
difference to be discounted to present value at a rate equal to the rate
of interest which is allowed by law in the State of Texas when the parties
to a contract have not agreed on any particular rate of interest (or, in
the absence of such law, at the rate of six percent (6%) per annum). <B>The
parties agree that the foregoing satisfies any duty of mitigation on the
part of the Landlord, and the Tenant waives any further duty of mitigation
on the part of the Landlord.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(iv)&nbsp;Lessor may alter locks and other security devices at the Premises and prevent
Lessee from entering the Premises, in accordance with Section&nbsp;93.002 of the Texas
Property Code, as amended from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">If Landlord elects to exercise any remedy prescribed above, this election shall in no way
prejudice Landlord&#146;s right at any time thereafter to cancel said election in favor of any
other remedy prescribed above or in other sections of this Lease and any other remedies
provided by law. Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute a waiver
of such default.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;It is expressly agreed that in determining &#147;the monthly rentals and other charges provided
in this Lease,&#148; as that term is used throughout this Section, there shall be added to the Base
Monthly Rent a sum equal to the charges for Tax Expenses and Insurance Expenses
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;It is further agreed that, in addition to payments required above, Tenant shall
reimburse and/or otherwise
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">compensate Landlord for all expenses incurred by Landlord in repossession of the Premises and the
enforcement of its rights under this Lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;In the event that any one or more provisions of this Lease authorizes Landlord to enter
the Premises, Landlord is entitled and is hereby authorized, without any notice to Tenant, to enter
upon the Premises by use of a duplicate key, a master key, a locksmith&#146;s entry procedures or any
other means not involving personal confrontation, and to alter or change the door locks on all
entry doors of the Premises, thereby permanently excluding Tenant. In such event Landlord shall not
be obligated to place any written notice on the Premises explaining Landlord&#146;s action; moreover, if
a reason for Landlord&#146;s action is the failure of Tenant to pay any one or more rentals when due
pursuant to this Lease, Landlord shall not be required to provide the new key (if any) to Tenant
until and unless all rental defaults of Tenant have been fully cured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">12.&nbsp;ASSIGNMENT AND SUBLETTING.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.01 <U>Assignment by Tenant</U>. Tenant shall not assign, mortgage, pledge, hypothecate or
otherwise transfer Tenant&#146;s interest in or under this Lease, in whole or in part, nor sublet or
permit occupancy by any party other than Tenant of all or any part of the Premises, without the
prior written consent of Landlord in each instance, which consent may be granted or withheld in
Landlord&#146;s sole discretion. No assignment or subletting by Tenant shall relieve Tenant of any
obligation under this Lease, including Tenant&#146;s obligation to pay Rent hereunder. Any purported
assignment or subletting contrary to the provisions hereof without consent shall be void. The
consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity
for such consent to any subsequent assignment or subletting. As Additional Rent hereunder, Tenant
shall reimburse Landlord for reasonable legal and other expenses incurred by Landlord in connection
with any request by Tenant for consent to assignment or subletting. If Tenant is a corporation,
partnership or other entity and if at any time during the term of this lease the person or entity
owning a majority of either the outstanding voting rights or the outstanding ownership interests of
Tenant at the time of the execution of this lease cease to own a majority of such voting rights or
ownership interests or otherwise lose control, then such loss of a majority of such voting rights
or ownership interests or control is deemed to be an assignment of this lease by Tenant and,
therefore, subject in all respects to the provisions of this Section&nbsp;12. The previous sentence does
not apply, however, if at the time of the execution of this lease, Tenant is a corporation and the
outstanding voting shares of capital stock of Tenant are listed on a recognized security exchange
or over-the-counter market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.02. <U>Release</U>. Landlord shall have the right at any time to convey all or any portion of its
interest in the Premises. Whenever Landlord conveys any interest in the Premises, Landlord shall be
automatically released from the further performance of covenants on the part of Landlord herein
contained and from any and all further liability, obligations, costs and expenses, demands, causes
of action, claims or judgments arising from or growing out of, or connected with this Lease after
the effective date of said release. The effective date of said release shall be the date the
assignee executes an assumption of such an assignment whereby the assignee expressly agrees to
assume all of Landlord&#146;s obligations, duties, responsibilities and liabilities with respect to this
Lease. If requested, Tenant shall execute a form of release and such other documentation as may be
required to further effect the provisions of this Article&nbsp;12.02
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">13. ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.01. <U>Estoppel Certificate</U>. Within ten (10)&nbsp;days after request therefor by Landlord, Tenant
shall deliver, in recordable form, a certificate to any proposed mortgagee or purchaser,
and to Landlord, certifying (if such be the case) as follows: (i)&nbsp;that to Tenant&#146;s best
knowledge, there is no outstanding and uncured Event of Default under this Lease, and that this
Lease is in full force and effect; (ii)&nbsp;that no modifications have been made in this Lease since
the original execution of the same or, if there have been modifications, stating the modifications;
(iii)&nbsp;the expiration date of this Lease; (iv)&nbsp;the date through which rent has been paid; (v)&nbsp;that
Tenant has no claims, defenses or offsets to any action for collection of rents thereafter accruing
under this Lease; and (vi)&nbsp;no more than one month&#146;s Monthly Base
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Rent has been paid in advance. In addition, such certificate shall contain such other information
as Landlord may reasonably require. Tenant hereby acknowledges that prospective purchasers or
encumbrancers of the Premises may incur obligations or extend credit in reliance upon the
representations of Tenant contained in such statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.02. <U>Attornment</U>. Tenant shall (i)&nbsp;in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of
trust made by the Landlord, its successors or assigns, encumbering the Premises, or any part
thereof, or (ii)&nbsp;in the event of termination of a ground lease, if any, or (iii)&nbsp;in the event of a
sale or conveyance by Landlord of all or any part of the Premises, and if so requested, attorn to
the purchaser upon such foreclosure, sale or conveyance, or upon any grant of a deed in lieu of
foreclosure, and recognize such purchaser as the Landlord under this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.03. <U>Subordination</U>. The rights of Tenant hereunder are and shall be, at the election of the
mortgagee, subject and subordinate to the lien of such mortgage, or the lien resulting from any
other method of financing or refinancing, now or hereafter in force against the Premises, and to
all advances made or hereafter to be made upon the security thereof; provided, however, that
notwithstanding such subordination, so long as Tenant is not in default under any of the terms,
covenants and conditions of this Lease, neither this Lease nor any of the rights of Tenant
hereunder shall be terminated or subject to termination by any trustee&#146;s sale, any action to
enforce the security, or by any proceeding or action in foreclosure. If requested, Tenant agrees to
execute whatever documentation may be required to further effect the provisions of this Article
within seven (7)&nbsp;days after receipt by Tenant of such request.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">14. NOTICES. All notices required to be given hereunder shall be in writing and mailed postage
prepaid by certified or registered mail, return receipt requested, or by personal delivery, to the
appropriate address indicated below or at such other place or places as either Landlord or Tenant
may, from time to time, respectively, designate in a written notice given to the other. Notices
shall be deemed sufficiently served, whether actually received or not, on the date of mailing
thereof in accordance with the foregoing provisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><u>To Landlord</u>: At the Landlord&#146;s Address specified in Article&nbsp;1.01 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><u>To Tenant</u>: At the Tenant&#146;s Address, as specified in Article&nbsp;1.01 hereof, or at the address of the
Premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">15. SUCCESSORS BOUND. Subject to the provisions of Article&nbsp;12, Tenant may not assign this Lease or
any interest herein without the prior written consent of Landlord, which may be granted or withheld
in Landlord&#146;s sole discretion. Subject to the foregoing, this Lease and each of its covenants and
conditions shall be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and legal representatives and their respective assigns, subject to the
provisions hereof. Whenever in this Lease a reference is made to the Landlord, such reference shall
be deemed to refer to the person in whom the interest of the Landlord shall be vested, and Landlord
shall have no obligation hereunder as to any claim arising after the transfer of its interest in
the Premises. Any successor or assignee of the Tenant who accepts an assignment or the benefit of
this Lease and enters into possession or enjoyment hereunder shall thereby assume and agree to
perform and be bound by the covenants and conditions thereof. Nothing herein contained shall be
deemed in any manner to give a right of assignment to Tenant without the written consent of
Landlord.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">16. MISCELLANEOUS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.01. <U>Waiver</U>. No waiver of any default or breach of any covenant by either party hereunder
shall be implied from any omission by either party to take action on account of such default if
such default persists or is repeated, and no express waiver shall affect any default other than the
default specified in the waiver, and then said waiver shall be operative only for the time and to
the extent therein stated. Waivers of any covenant, term or condition contained herein by either
party shall not be construed as a waiver of any subsequent breach of the same covenant, term or
condition. The consent or approval by either party to or of any act by either party requiring
further consent or approval shall not be deemed to waive or render unnecessary their consent or
approval to or of any
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">subsequent similar acts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.02. <U>Easements</U>. Landlord reserves the right to (i)&nbsp;alter the boundaries of the Premises and
(ii)&nbsp;grant easements on the Premises and dedicate for public use portions thereof without Tenant&#146;s
consent; provided, however, that no such grant or dedication shall materially interfere with
Tenant&#146;s use of the Premises and that if such boundary change or easement shall materially reduce
or impair Tenant&#146;s use of the Premises, the Base Rent shall be adjusted equitably. From time to
time, and upon Landlord&#146;s demand, Tenant shall execute, acknowledge and deliver to Landlord, in
accordance with Landlord&#146;s instructions, any and all documents, instruments, maps or plats
necessary to effectuate Tenant&#146;s covenants hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.03. <U>No Light, Air or View Easement</U>. Any diminution or shutting off of light, air or view to
the Premises by any structure which may be erected on lands adjacent to or in the vicinity of or
within the Building shall in no way affect this Lease or impose any liability on Landlord.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.04. <U>Corporate or Partnership Authority</U>. Each of the persons executing this Lease on behalf
of Tenant hereby covenants and warrants that: (a)&nbsp;Tenant is a duly authorized and existing
corporation; (b)&nbsp;Tenant is qualified to do business in the state of Texas; (c)&nbsp;Tenant has full
right and authority to enter into this Lease; (d)&nbsp;each of the persons executing this Lease on
behalf of Tenant is authorized to do so; and (e)&nbsp;this Lease constitutes a valid and legally binding
obligation of Tenant, enforceable in accordance with its terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;If Tenant executes this Lease as a partnership or joint venture, each of the persons
executing this Lease on behalf of Tenant hereby covenants and warrants that: (i)&nbsp;Tenant is a duly
authorized and existing partnership or joint venture; (ii)&nbsp;Tenant is qualified to do business in
the State of Texas; (iii)&nbsp;Tenant has full right and authority to enter into this Lease; (iv)&nbsp;each
of the persons executing this Lease on behalf of Tenant is authorized to do so; and (v)&nbsp;this Lease
constitutes a valid and legally binding obligation of Tenant, enforceable in accordance with its
terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Tenant acknowledges that, prior to the execution of this Lease, Tenant has delivered to
Landlord such documentation as may be required by Landlord to evidence the matters referenced in
parts (a)&nbsp;and (b)&nbsp;above of this Article&nbsp;16.04, including without limitation corporate or
partnership resolutions. Tenant further represents and warrants that all such documentation is
true and correct in all material respects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.05. <U>Accord and Satisfaction</U>. No payment by Tenant or receipt by Landlord of a lesser amount
than the Rent herein stipulated shall be deemed to be other than on account of the Rent, nor shall
any endorsement or statement on any check or any letter accompanying any check or payment as Rent
be deemed an accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord&#146;s right to recover the balance of such Rent or pursue any other remedy
provided in this Lease or available at law or in equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.06. <U>Limitation of Landlord&#146;s Liability</U>. The obligations of Landlord under this Lease shall
not constitute personal obligations of the Landlord; Tenant shall look solely to the real estate
that is the subject of this Lease and to no other assets of Landlord for satisfaction of any
liability in respect of this Lease; and Tenant shall not seek personal recourse against Landlord
for such satisfaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.07. <U>Time</U>. Time is of the essence of every provision hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.08. <U>Attorneys&#146; Fees</U>. In any action or proceeding which the Landlord or the Tenant may be
required to prosecute to enforce its respective rights hereunder, the unsuccessful party therein
agrees to pay all costs incurred by the prevailing party therein, including reasonable attorneys&#146;
fees to be fixed by the court, and said costs and attorneys&#146; fees shall be made a part of the
judgment in said action. In any situation in which a dispute is settled other than by action or
proceeding, Tenant shall pay all Landlord&#146;s costs and attorneys&#146; fees relating thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.09.<U>Captions and Article&nbsp;Numbers</U>. The captions, article numbers and table of contents
appearing in this
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Lease are inserted only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of such sections or articles of this Lease nor in any way affect this
Lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.10. <U>Severability</U>. If any term, covenant, condition or provision of this Lease, or the
application thereof to any person or circumstance, shall to any extent be held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants,
conditions or provisions of this Lease, or the application thereof to any person or circumstance,
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.11. <U>Applicable Law</U>. This Lease, and the rights and obligations of the parties hereto, shall
be construed and enforced in accordance with the laws of the state of Texas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.12. <U>Surrender</U>. Upon the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord in good order, condition and repair, except for reasonable wear
and tear or as otherwise provided herein, and Tenant shall surrender all keys for the Premises to
Landlord at the place then fixed for the payment of Rent and shall inform Landlord of all
combinations on locks, safes and vaults, if any, in the Premises. Tenant shall not commit or allow
any waste or damage to be committed on any portion of the Premises. Any of Tenant&#146;s personal
property that is not removed from the Premises prior to the date of termination of this Lease shall
become the property of Landlord. Landlord may cause any of said personal property that is not
removed from the Premises within thirty (30)&nbsp;days after the date of any termination of this Lease
to be removed from the Premises and stored at Tenant&#146;s expense, or, at Landlord&#146;s election said
personal property thereafter shall belong to Landlord without the payment of any consideration,
subject to the rights of any person holding a perfected security interest therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.13. <U>No Nuisance</U>. Tenant shall conduct its business and control its agents, employees,
invitees and visitors in such a manner as not to create any nuisance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.14. <U>Broker</U>. Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease and that it knows of no other real estate
broker or agent who is entitled to any commission or finder&#146;s fee in connection with this Lease.
Tenant agrees to indemnify Landlord, defend by counsel acceptable to Landlord and hold Landlord
harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments,
costs and expenses (including without limitation, attorneys&#146; fees and costs) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of Tenant&#146;s dealings
with any real estate broker or agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Landlord warrants that, except for The Staubach Company, who represents Landlord in connection
with this transaction, it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease and that it knows of no other real estate broker or agent who is
entitled to any commission or finder&#146;s fee in connection with this Lease. Landlord agrees to
indemnify Tenant, defend by counsel acceptable to Tenant and hold Tenant harmless from and against
any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses
(including without limitation, attorneys&#146; fees and costs) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of Landlord&#146;s dealings with any real estate
broker or agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.15. <u>Landlord&#146;s Right to Perform</u>. Upon Tenant&#146;s failure to perform any obligation of Tenant
hereunder, including without limitation, payment of Tenant&#146;s insurance premiums, and
charges of contractors who have supplied materials or labor to the Premises, Landlord shall
have the right to perform such obligation of Tenant on behalf of Tenant and/or to make payment on
behalf of Tenant to such parties. Tenant shall reimburse Landlord the reasonable cost of Landlord&#146;s
performing such obligation on Tenant&#146;s behalf, including reimbursement of any amounts that may be
expended by Landlord, plus interest at the maximum rate permitted by law, as Additional Rent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.16. <U>Nonliability</U>. Landlord shall not be in default hereunder or be liable for any
damages directly or
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">indirectly resulting from, nor shall the rental herein reserved be abated by reason of (i)&nbsp;the
interruption of use of the Premises as a result of the routine installation of any equipment in
connection with the Premises or Building or (ii)&nbsp;any failure to furnish or delay in furnishing any
services required to be provided by Landlord when such failure or delay is caused by accident or
any condition beyond the reasonable control of Landlord or by the making of necessary repairs or
improvements to the Premises or to the Building, or the limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or the Building. Landlord shall use reasonable efforts to
remedy any interruption in the furnishing of such services. If Landlord is delayed or prevented
from performing any of its obligations under this Lease by reason of strike, labor disputes, or any
cause whatsoever beyond Landlord&#146;s reasonable control, the period of such delay or such prevention
shall be deemed added to the time herein provided for the performance of any obligation by
Landlord.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.17. <U>&#091;Intentionally deleted&#093;</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.18. <U>Landlord&#146;s Right to Terminate Upon Abandonment</U>. Tenant shall have the right to cease
doing business in the Premises, so long as (a)&nbsp;Tenant delivers written notice of its intent to
cease business no later than ninety (90)&nbsp;days prior to its ceasing business, (b)&nbsp;Tenant continues
to comply with all other terms and conditions of the Lease, including, without limitation, the
payment of Base Rent and Additional Rent, (c)&nbsp;Tenant shall pay to Landlord any expenses incurred by
Landlord as a result of Tenant&#146;s cessation of doing business in the Premises, such as increases in
insurance premiums, and (d)&nbsp;Tenant shall take all reasonable precautions to secure the Premises. At
any time when Tenant has exercised its right to cease doing business in the Premises, Landlord
shall have the right, upon written notice to Tenant, to recapture the Premises, and upon delivery
of such written notice to Tenant, this Lease shall terminate (other than any obligations of the
parties which have accrued prior to such date or which by the terms hereof survive the termination
or expiration of this Lease).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.19. <U>Recording</U>. Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the prior written consent of the other; provided, that Landlord and
Tenant shall cooperate to record a reasonable short-form memorandum giving notice of the existence
of this Lease and the Term hereof, at Tenant&#146;s sole cost and expense. Tenant shall, at its sole
cost and expense, prepare and record a termination of such memorandum upon the expiration or
earlier termination of this Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.20. <U>Entire Agreement</U>. This Lease, including any Exhibits and Riders attached hereto, sets
forth all covenants, promises, agreements, conditions and understandings between Landlord and
Tenant concerning the Premises. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between Landlord and Tenant other than as are herein set
forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition
to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by
Landlord and Tenant. <B>EXCEPT FOR THE MATTERS EXPRESSLY SET FORTH IN THIS LEASE AND EXCEPT WITH
RESPECT TO THE TRANSACTION DOCUMENTS DESCRIBED HEREIN, TENANT ACKNOWLEDGES AND AGREES THAT (A)
NEITHER LANDLORD NOR ANY PARTY ACTING ON LANDLORD&#146;S BEHALF HAS MADE ANY AGREEMENT, REPRESENTATION,
WARRANTY, COMMITMENT OR STATEMENT IN ANY WAY PERTAINING TO THE PREMISES, (B), TENANT HAS NOT RELIED
UPON ANY AGREEMENT, REPRESENTATION, WARRANTY, COMMITMENT OR STATEMENT IN MADE OR PURPORTEDLY MADE
BY OR ON BEHALF OF LANDLORD WITH RESPECT TO THE PREMISES,
AND (C)&nbsp;TENANT HAS RELIED SOLELY UPON TENANT&#146;S OWN EVALUATIONS, EXAMINATIONS, STUDIES,
REPORTS, AND INFORMATION WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS LEASE.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.21. <U>Tenant&#146;s Notice to Landlord of Default</U>. Should Landlord be in default under any of the
terms of this Lease, Tenant shall give Landlord prompt written notice thereof in the manner
specified herein, and Tenant shall allow Landlord a reasonable length of time in which to cure such
default, which time shall not in any event be less than thirty (30)&nbsp;days from the date of such
notice.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.22. <U>Test Kitchen</U>. Notwithstanding anything to the foregoing in this Lease, Landlord shall
have the ongoing right to access, utilize and use the existing test kitchen located within the
Premises without cost to Landlord, except as set forth in this Section&nbsp;16.22. Within a reasonable
time after the Commencement Date, Landlord shall have the test kitchen separately metered for
electricity, and such the utility costs for the test kitchen during Landlord&#146;s usage of the same
shall be at Landlord&#146;s sole expense. The right of Landlord to use the kitchen shall continue for
such time as Pizza Inn, Inc. is the occupant of the office space adjacent to the Premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.23. <U>Special Condition</U>. Notwithstanding anything to the contrary contained in this Lease, on
or before October&nbsp;16, 2006, Landlord shall either (i)&nbsp;confirm to Tenant in writing its ability to
deliver good title to the Racking System (as defined in the Purchase Agreement) to Tenant as
contemplated in the Purchase Agreement, or (ii)&nbsp;propose to Tenant in writing an alternate plan for
the Racking System, which must (1)&nbsp;furnish Tenant with the use of the Racking System for the entire
Term, (2)&nbsp;include the consent of the lessor of the Racking System, (3)&nbsp;provide for Landlord&#146;s
payment of all lease, license, rental or other costs or fees relating to obtaining use and
possession of the Racking System for Tenant during the continuation of such alternate plan, and (4)
be otherwise reasonable acceptable to Tenant. If an alternate plan is proposed, Tenant shall have
ten (10)&nbsp;days after receipt of such notice to accept such alternate plan in writing. If Tenant
accepts such alternate plan in writing, then (a)&nbsp;Landlord will implement such alternate plan, (b)
Landlord will indemnify Tenant against loss, cost or damage suffered by Tenant if Tenant is
dispossessed of the Racking System during the Term, or if Tenant&#146;s use of the Racking System is
materially interfered with during the Term, (c)&nbsp;Tenant will have the option to terminate this Lease
and/or the Distribution Agreement upon such dispossession or material interference, and (d)&nbsp;Tenant
will have the option to require Landlord to continue to pursue the purchase and transfer of the
Racking System to Tenant as contemplated by the Purchase Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that (i)&nbsp;Landlord fails to confirm transfer of the Racking System to Tenant or
fails to propose an alternate plan meeting the conditions above, or (ii)&nbsp;Tenant fails to accept
such alternate plan as described above, or (iii)&nbsp;Tenant otherwise does not have title to or
possession and use of the Racking System as of November&nbsp;1, 2006, then Tenant shall have the right
to terminate this Lease by giving written notice (which may be given by fax, email or any other
reasonable means) to Landlord on or before November&nbsp;1, 2006, whereafter all such rights to
terminate shall expire.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">IN
WITNESS WHEREOF, the parties have executed this Lease as of the date first above written.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&#147;LANDLORD&#148;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>PIZZA INN, INC.</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">a Missouri corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:&nbsp;</TD>

    <TD colspan="2" align="left" valign="top">/s/ Timothy P. Taft&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;Name:&nbsp;&nbsp;
</TD>

    <TD colspan="2" align="left" valign="top"><DIV style="border-top: 1px solid #000000">Timothy P. Taft&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;Title:&nbsp;
</TD>


<TD colspan="2" align="left" valign="top"><DIV style="border-top: 0px solid #000000">President
/ CEO&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>


<TD colspan="2" align="left" valign="top"><DIV style="font-size: 1pt; border-top: 0px solid #000000">&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&#147;TENANT&#148;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>THE SYGMA NETWORK,
INC.,</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">a Delaware corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</TD>

    <TD colspan="2" align="left" valign="top">/s/ Ronald H. Epple, Sr V.P.&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;Name:
</TD>


<TD colspan="2" align="left" valign="top"><DIV style="border-top: 1px solid #000000">Ronald H. Epple&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;Title:
</TD>


<TD colspan="2" align="left" valign="top"><DIV style="border-top: 0px solid #000000">Sr
V.P. &#38; CFO&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>


<TD colspan="2" align="left" valign="top"><DIV style="font-size: 1pt; border-top: 0px solid #000000">&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>Exhibit&nbsp;A</B></U>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Premises/Property Drawing

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="d39929d3992901.gif" alt="(PIZZA INN CORPORATE MAP)">
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>5
<FILENAME>d39929exv10w16.htm
<DESCRIPTION>COMPROMISE AND SETTLEMENT AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w16</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.16</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>IN THE MATTER OF ARBITRATION BETWEEN</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="41%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>
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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>RONALD W. PARKER</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>American Arbitration</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Association</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>-and-</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>No.&nbsp;71 166 00025 05</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>PIZZA INN, INC.</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>&#167;</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>Compromise and Settlement Agreement</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Compromise and Settlement Agreement (the &#147;Agreement&#148;) is entered into by and between
Ronald W. Parker (&#147;Parker&#148;), on the one hand, and Pizza Inn, Inc. (&#147;Pizza Inn&#148;) on the other hand.
(Parker and Pizza Inn are sometimes referred to jointly as the &#147;Parties&#148;.)
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Recitals</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS the above-styled arbitration proceeding (the &#147;Arbitration&#148;) commenced following Pizza
Inn&#146;s termination of Parker&#146;s employment as Pizza Inn CEO in December&nbsp;2004; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS Parker and Pizza Inn have alleged various claims against each other and the pleadings
filed in the Arbitration more fully describe their respective allegations and positions with
respect to the claims being made; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS the Parties now desire to resolve by settlement any and all disputes between them
including the claims being made in the Arbitration.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Settlement Terms and Provisions</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, for good and valuable consideration, the adequacy, receipt, and sufficiency of
which is hereby acknowledged, the Parties hereby agree as follows:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;Pizza Inn agrees to pay to Parker the sum of $2,800,000 for Parker&#146;s claims of defamation,
defamation per se, loss of reputation, malicious civil prosecution, breach of contract and any
other claims, known or unknown, to be paid as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>First Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$100,000 payable upon execution by Parker of this&nbsp;Agreement
and no later than September&nbsp;24, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Second Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$200,000 payable 45&nbsp;days following Parker&#146;s execution
of this Agreement.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Third Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$150,000 payable 75&nbsp;days following Parker&#146;s execution of
this Agreement.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Fourth Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$100,000 payable 105&nbsp;days following Parker&#146;s execution
of this Agreement.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Fifth Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$100,000 payable 135&nbsp;days following Parker&#146;s execution
of this Agreement.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Sixth Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$100,000 payable 165&nbsp;days following Parker&#146;s execution
of this Agreement.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>Final Installment</U>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The remaining balance shall be payable on the earlier of
(i)&nbsp;180&nbsp;days following execution of this Agreement by Parker or (ii)&nbsp;the date
of closing of any sale by Pizza Inn of the main office building or warehouse
at Pizza Inn&#146;s corporate headquarters located at or near 3551 Plano Parkway.
In the event the closing of any sale of the main office building or warehouse
at Pizza Inn&#146;s corporate headquarters occurs prior to 180&nbsp;days following
Parker&#146;s execution of this Agreement, the full amount of $2.8&nbsp;million (less
any amounts already paid) will be due at the closing of any such sale.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Pizza Inn agrees to pay interest of 5% per annum on any unpaid balance due to Parker
pursuant to Paragraph&nbsp;1. Such interest shall begin to
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 2</B></TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">accrue on the date of Parker&#146;s execution of this Agreement. Upon Pizza Inn&#146;s payment of
the First Installment interest shall accrue on the $2.7&nbsp;million unpaid balance; after payment by
Pizza Inn of the Second Installment, interest will accrue on the $2.5&nbsp;million unpaid balance and so
forth. The accrued interest shall be due and payable upon payment of the Final Installment
referenced in Paragraph&nbsp;1 above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;Parker agrees that all payments or other claims allowed by this Agreement are not and will
not be secured by a lien on any assets of Pizza Inn and will be subordinate to Pizza
Inn&#146;s indebtedness to Wells Fargo Bank or its assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;Parker agrees to sell all shares of Pizza Inn stock that he directly or indirectly owns
within 60&nbsp;days from the date he is paid in full the amounts referenced in Paragraphs 1 and 2 above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;Parker agrees that he will not attend Pizza Inn&#146;s 2006 annual meeting of shareholders
currently scheduled for December&nbsp;13, 2006 (or any other meeting if the currently scheduled meeting
is adjourned, postponed or rescheduled). However, this prohibition shall not apply if any payment
referenced in Paragraph&nbsp;1 or 2 is past due to Parker.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;Parker, his heirs, assigns, agents, representatives, insurers, and attorneys hereby forever
release, acquit and discharge Pizza Inn, its directors, officers, employees, agents, representatives, attorneys, heirs and assigns and Newcastle
Partners, L.P., its affiliated entities and their officers, employees, directors, shareholders
(hereafter collectively &#147;Newcastle&#148;) from any and all
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 3</B></TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">claims, obligations, demands, actions, causes
of action, complaints, lawsuits (pending or otherwise), costs, charges, judgments, attorneys&#146; fees,
damages and liabilities of any kind whatsoever, known or unknown, direct or indirect, asserted or
unasserted, liquidated or unliquidated, in tort, contract, or any other legal theory, statutory or
otherwise, arising out of, resulting from, or in any manner related to any cause or thing
whatsoever that was brought, or that could have been brought in the Arbitration or a lawsuit,
including but not limited to any and all claims relating to Parker&#146;s employment at Pizza Inn or the
termination of Parker&#146;s employment at Pizza Inn.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;Pizza Inn, its directors, officers, employees, assigns, agents, representatives, insurers,
attorneys and Newcastle hereby forever release, acquit and discharge Parker, his agents,
representatives, attorneys, heirs and assigns from any and all claims, obligations, demands,
actions, causes of action, complaints, lawsuits (pending or otherwise), costs, charges, judgments,
attorneys&#146; fees, damages and liabilities of any kind whatsoever, known or unknown, direct or
indirect, asserted or unasserted, liquidated or unliquidated, in tort, contract, or any other legal
theory, statutory or otherwise, arising out of, resulting from, or in any manner related to any
cause or thing whatsoever that was brought, or that could have been brought in the Arbitration or
a lawsuit, including but not limited to any and all claims relating to Parker&#146;s employment at Pizza Inn,
Parker&#146;s service as a director or board member, the termination of Parker&#146;s employment at Pizza Inn
or any of the allegations or claims asserted in Cause No.&nbsp;04-10265 in the 191<SUP style="font-size: 85%; vertical-align: text-top">st</SUP> District
Court of Dallas County, Texas (the &#147;Akin
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 4</B></TD>
</TR>
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</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gump Lawsuit&#148;). Nothing in this Paragraph&nbsp;7 shall be
construed as a release by Pizza Inn of its claims against Akin Gump Strauss Hauer &#038; Feld, L.L.P.
and Kenneth Menges, Jr. If any director, officer or employee of Pizza Inn or Newcastle initiates a
lawsuit or legal proceeding against Parker concerning a matter being released in this Paragraph&nbsp;7,
then Parker&#146;s release of that person only pursuant to this Agreement is withdrawn and is no longer
binding on Parker.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;In addition to the release in Paragraph&nbsp;7 above, Pizza Inn agrees to sign a release in a
form similar to Paragraph&nbsp;7 with respect to potential claims, if any, by Pizza Inn against Shawn
Preator (the &#147;Preator Release&#148;). However, Pizza Inn shall only be obligated to execute the Preator
Release upon the execution by Mr.&nbsp;Preator of a release in a form similar to Paragraph&nbsp;7 with
respect to potential claims, if any, by Mr.&nbsp;Preator against Pizza Inn.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;The parties wish both (1)&nbsp;to allow the parties to make comments and express opinions
concerning the Arbitration and claims made therein and (2)&nbsp;to prevent their engaging in negative or
harmful communications about each other. Therefore the parties agree to each of the specific
undertakings set forth in paragraphs 10-13 below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;Parker agrees to strictly refrain from making any disparaging statements about Pizza Inn,
its directors, officers, employees and Newcastle. Pizza Inn, its directors, officers, employees and
Newcastle agree to strictly refrain from making any disparaging statements about Parker. For
purposes of this paragraph, &#147;disparage&#148; shall mean any &#147;false or injurious statement of fact that
discredits or detracts from the reputation&#148; of Parker or Pizza Inn, its directors,
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 5</B></TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">officers,
employees or Newcastle. The Parties further agree and acknowledge that this provision shall
survive the execution and delivery of this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;In addition to the provisions of Paragraph&nbsp;10, Parker agrees that he will not knowingly
make any oral or written statement that is critical of or casts in a negative light Pizza Inn&#146;s
business model, business strategies, financial performance, current management (including its
officers, directors and employees), or Newcastle. Pizza Inn, its directors, officers, employees
and Newcastle agree that they will not knowingly make an oral or written statement that is critical
of or casts Parker in a negative light. The Parties agree that nothing in this Agreement shall
prohibit the Parties from commenting or stating their opinions regarding the allegations or claims
made in the Arbitration (AAA No.&nbsp;71-166-00025-05), including but not limited to comments or
opinions about the dispute between the Parties, the settlement amount, or comments or opinions
regarding the outcome of the Arbitration and any such statements by the Parties shall not be a
violation of this Agreement. The Parties agree and acknowledge that this provision shall survive
the execution and delivery of this Agreement
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;Pizza Inn, its directors, officers and employees and Parker further agree that they shall
not knowingly make or publish, or cause to be made or published, any oral or written statement to
any person or entity: (i)&nbsp;that discusses or otherwise discloses the substance of any settlement
discussions or negotiations relating to the claims asserted in the Arbitration prior to the
settlement of the Arbitration (other than the specific terms of this Agreement); or (ii)&nbsp;regarding
the reasonableness or necessity of legal fees and expenses
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 6</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">incurred by Parker or Pizza Inn in the
Arbitration or any related litigation. The Parties agree and acknowledge that this provision shall
survive the execution and delivery of this Agreement
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;In addition, Parker further agrees not to knowingly initiate or voluntarily communicate
with any third-party regarding any claim or potential claim by such third-party against Pizza Inn,
its officers or directors. Pizza Inn, its officers and directors and Newcastle agree not to
knowingly initiate or voluntarily communicate with any third-party regarding any claim or potential
claim by such third-party against Parker. The Parties agree and acknowledge that this provision
shall survive the execution and delivery of this Agreement
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;Notwithstanding the provisions of Paragraphs 10-13 above, the Parties agree that Pizza
Inn, its witnesses and Parker shall have absolute immunity for statements made in filings or
testimony provided in the Akin Gump Lawsuit. The Parties further agree that any alleged breach of
Paragraphs 10-13 of this Agreement shall not entitle Pizza Inn to delay, withhold, or not make any payment
scheduled to be made under this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;The Parties agree to cooperate to take all action necessary to effectuate the dismissal of
the Arbitration with prejudice. In this regard, the Parties agree to execute and cause to be filed
an Agreed Order of Dismissal with Prejudice in the form of <I>Exhibit&nbsp;A </I>attached.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;The Parties do not release one another from their respective obligations under this
Agreement or for torts or other wrongful acts committed after the execution of this Agreement.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 7</B></TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;Parker and Pizza Inn represent and warrant (which representations and warranties shall
survive the execution and delivery of this Agreement) the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each party possesses all capacities, including but not limited to, the legal capacity
and authority to execute this Agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No party has received or relied upon any oral or written representation of
any other party or any other party&#146;s employees, agents, partners, or representatives
regarding any fact in executing this Agreement, other than those specifically included
in this Agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Breach of this Agreement, if any, shall not affect the non-breaching party&#146;s
continuing right to full observance of the release; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each party solely owns and has not assigned or otherwise transferred to any
person, party, or entity any of the claims, causes of action, liabilities, or
potential liabilities being released hereby or any portion thereof.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.&nbsp;This Agreement and any proceedings taken hereunder are not and shall not in any way be
construed as or deemed to be evidence of or any
admission or concession of wrongdoing or liability on the part of either Party, their counsel, or
any of them, which liability is expressly denied.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.&nbsp;This Agreement, including all matters of construction, validity and performance, shall be
governed by and construed and enforced in accordance with the laws of the State of Texas. The
Parties agree that the American Arbitration Association in Dallas County, Texas shall be the
exclusive forum for any litigation arising under or relating to this Agreement, including
enforcement thereof.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 8</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;This Agreement contains the entire understanding and agreement of the Parties with respect
to the matters addressed herein, and supersedes all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the parties or their
representatives, oral or written, with respect to the subject matter set forth in this Agreement.
No amendment, modification, waiver or cancellation of any term or condition of this Agreement shall
be effective unless executed in writing by all of the Parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;Each Party acknowledges on its own behalf that it has been represented by independent
legal counsel of its own choice throughout all of the negotiations that have preceded the execution
of this Agreement, and that its respective legal counsel had the requisite experience and
sophistication to understand, interpret, and provide advice regarding the particular language of
the provisions hereof. Each Party further acknowledges that it has executed this Agreement
voluntarily and of its own free will, without duress.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.&nbsp;This Agreement shall inure to the benefit of, and shall be binding upon, the undersigned
Parties and each of their respective successors, heirs and assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;Any captions and headings contained in this Agreement are inserted only as a matter of
convenience and in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. Whenever the text hereof requires, use of a singular number shall
include the appropriate plural number.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 9</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24.&nbsp;The provisions of this Agreement are severable, and if any part of it is found to be
unenforceable, the other portions shall remain fully valid and enforceable to the extent possible
while maintaining the essential purposes of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25.&nbsp;This Agreement may be signed in any number of counterparts and via facsimile with the same
effect as if the signatures to each counterpart were upon a single instrument, and all such
counterparts together shall be deemed to be an original of this Agreement.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Executed as of the 24<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of September&nbsp;2006.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">Ronald W. Parker</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">PIZZA INN, INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rod McDonald, Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Newcastle Partners, L.P. and its affiliates execute this Agreement for the purposes of agreeing to
and acknowledging the provisions of Paragraphs 6-7, 10-13.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Newcastle Partners, L.P. and its affiliates
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Newcastle Capital Management, L.P.<br>
Its general partner
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Steven J. Pully<BR>
President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 10</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Acknowledgment</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">State of Texas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">County of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before me, the undersigned authority, on this day personally appeared Ronald W. Parker, who is
known to me and who, after having been by me duly sworn according to law upon his oath, deposed and
said that he is the person named in the above document, and that he executed the document for the
purposes and consideration therein contained.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ronald W. Parker</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subscribed and sworn to before me on the &#95;&#95;&#95;day of September&nbsp;2006, to certify which witness
my hand and official seal.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Notary Public, State of Texas
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 11</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Acknowledgment</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">State of Texas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">County of Dallas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before me, the undersigned authority, on this day personally appeared Rod McDonald, who is
known to me and who, after having been by me duly sworn according to law upon his oath, deposed and
said that he is the Secretary of Pizza Inn, Inc., and he is authorized to execute this
Acknowledgement on its behalf, and that Pizza Inn, Inc. has executed the above document for the
purposes and consideration therein contained.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Rod McDonald
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subscribed and sworn to before me on the <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>day of September&nbsp;2006, to certify which witness
my hand and official seal.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Notary Public, State of Texas
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 12</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Acknowledgment</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">State of Texas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">County of Dallas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#167;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before me, the undersigned authority, on this day personally appeared Steven J. Pully, who is
known to me and who, after having been by me duly sworn according to law upon his oath, deposed and
said that he is the President of Newcastle Capital Management, L.P., the General Partner of
Newcastle Partners, L.P., that he is authorized to execute this Acknowledgment on behalf of
Newcastle Partners, L.P., and that Newcastle Partners, L.P. and its affiliates have executed the
above document for the purposes and consideration therein contained.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Steven J. Pully
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subscribed and sworn to before me on the &#95;&#95;&#95;day of September&nbsp;2006, to certify which witness
my hand and official seal.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Notary Public, State of Texas
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>COMPROMISE AND SETTLEMENT AGREEMENT</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Page 13</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>d39929exv23w1.htm
<DESCRIPTION>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pizza Inn, Inc.<BR>
The Colony, Texas

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8
(Nos. 33-56590, 33-71700, as amended by Post-Effective Amendments No.&nbsp;One and Two, 333-77617, and
333-76296) of Pizza Inn, Inc. of our report dated August&nbsp;18, 2006, except for Note L for which the
date is September&nbsp;25, 2006, relating to the consolidated financial statements and financial
statement schedule, which appears in this Form 10-K. Our report refers to the adoption of SFAS
123(R), &#147;Share Based Payment.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BDO Seidman, LLP

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dallas, Texas<BR>
October&nbsp;9, 2006

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>d39929exv31w1.htm
<DESCRIPTION>RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER<BR>
Pursuant to section 3.22 of the Sarbanes-Oxley Act of 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Tim P. Taft certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of Pizza Inn, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant&#146;s internal control over financial reporting;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant&#146;s auditors and the audit committee of the registrant&#146;s board of directors
(or persons performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s internal
control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: October 9, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Tim P. Taft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Principal Executive Officer)
Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>d39929exv31w2.htm
<DESCRIPTION>RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER<BR>
Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Clinton J. Coleman, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of Pizza Inn, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant&#146;s internal control over financial reporting;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant&#146;s auditors and the audit committee of the registrant&#146;s board of directors
(or persons performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s internal
control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: October 9, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Clinton J. Coleman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Principal Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>d39929exv32w1.htm
<DESCRIPTION>SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED<BR>
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (subsections (a)&nbsp;and (b)&nbsp;of Section
1350, Chapter&nbsp;63 of Title 18, United States Code), the undersigned officer of Pizza Inn, Inc. (the
&#147;Company&#148;), does hereby certify, to such officer&#146;s knowledge, that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annual Report on Form 10-K for the year ended June&nbsp;25, 2006 (the &#147;Form&nbsp;10-K&#148;) of the
Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in
all material respects, the financial condition and results of operations of the Company as of, and
for, the periods presented in the Form 10-K.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: October 9, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Tim P. Taft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">(Principal Executive Officer)
Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item
601(b)(32) of Regulation&nbsp;S-K and Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (subsections (a)&nbsp;and
(b)&nbsp;of Section&nbsp;1350, Chapter&nbsp;63 of Title 18, United States Code) and, accordingly, is not being
filed as part of the Form 10-K for purposes of Section&nbsp;18 of the Securities Exchange Act of 1934,
as amended, and is not incorporated by reference into any filing of the Company, whether made
before or after the date hereof, regardless of any general incorporation language in such filing.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>10
<FILENAME>d39929exv32w2.htm
<DESCRIPTION>SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED<BR>
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (subsections (a)&nbsp;and (b)&nbsp;of Section
1350, Chapter&nbsp;63 of Title 18, United States Code), the undersigned officer of Pizza Inn, Inc. (the
&#147;Company&#148;), does hereby certify, to such officer&#146;s knowledge, that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annual Report on Form 10-K for the year ended June&nbsp;25, 2006 (the &#147;Form&nbsp;10-K&#148;) of the
Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in
all material respects, the financial condition and results of operations of the Company as of, and
for, the periods presented in the Form 10-K.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: October 9, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Clinton J. Coleman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Principal Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item
601(b)(32) of Regulation&nbsp;S-K and Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (subsections (a)&nbsp;and
(b)&nbsp;of Section&nbsp;1350, Chapter&nbsp;63 of Title 18, United States Code) and, accordingly, is not being
filed as part of the Form 10-K for purposes of Section&nbsp;18 of the Securities Exchange Act of 1934,
as amended, and is not incorporated by reference into any filing of the Company, whether made
before or after the date hereof, regardless of any general incorporation language in such filing.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>11
<FILENAME>d39929d3992901.gif
<DESCRIPTION>GRAPHIC
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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
