-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 JWjIFzj6nHP9CkMb4jiJfty9xCG6OS2bvSfj8nOjYy0uV9F5GTA4i9RiyzK6q7bK
 IQbsJEsB+UxMRg3l+vocIg==

<SEC-DOCUMENT>0000950134-06-020948.txt : 20061108
<SEC-HEADER>0000950134-06-020948.hdr.sgml : 20061108
<ACCEPTANCE-DATETIME>20061108164539
ACCESSION NUMBER:		0000950134-06-020948
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20060924
FILED AS OF DATE:		20061108
DATE AS OF CHANGE:		20061108

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-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12919
		FILM NUMBER:		061198055

	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-Q
<SEQUENCE>1
<FILENAME>d41082e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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-Q</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(Mark One)</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">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Quarterly 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 quarterly period ended September&nbsp;24, 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</B></TD>
</TR>
</TABLE>
</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"><B>(Exact name of registrant as specified in its charter)</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="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"><B>(State or other jurisdiction of</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(I.R.S. Employer</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>incorporation or organization)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Identification No.)</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>3551 Plano Parkway<BR>
The Colony, Texas 75056<BR>
(Address of principal executive offices) (Zip Code)</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>(469)&nbsp;384-5000<BR>
(Registrant&#146;s telephone number,<BR>
including area code)</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>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 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.</B>&nbsp;&nbsp;<B>Yes</B>&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>No</B>&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>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 and large accelerated
filer&#148; in Rule&nbsp;12b-2 of the Exchange Act. (Check One)</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>Large accelerated filer</B>&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Accelerated filer</B>&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Non-accelerated filer</B>&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT></DIV>



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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>As of November&nbsp;1, 2006, 10,138,494 shares of the issuer&#146;s common stock were outstanding.</B>
</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>

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

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













<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U>Index</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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="76%">&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="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="5" align="left"><A href="#101"><B>PART I. FINANCIAL INFORMATION</B></A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#102">Item 1.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Condensed Consolidated Statements of Operations for the three months ended September&nbsp;24, 2006 and September&nbsp;25, 2005 (unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Condensed Consolidated Statements of Comprehensive Loss for the three months ended September&nbsp;24, 2006 and September&nbsp;25, 2005 (unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Condensed Consolidated Balance Sheets at September&nbsp;24, 2006 (unaudited)&nbsp;and June&nbsp;25, 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Condensed Consolidated Statements of Cash Flows for the three months ended September&nbsp;24, 2006 and September&nbsp;25, 2005 (unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Notes to Condensed Consolidated Financial Statements (unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#108">Item 2.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#109">Item 3.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Quantitative and Qualitative Disclosures about Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#110">Item 4.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="5" align="left"><A href="#111"><B>PART II. OTHER INFORMATION</B></A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#112">Item 1.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#113">Item 1A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#114">Item 2.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Unregistered Sales of Equity Securities and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#115">Item 3.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Defaults Upon Senior Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#116">Item 4.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#117">Item 5.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="3" valign="top" align="center"><A href="#118">Item 6.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv10w1.htm">Purchase and Sale Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv10w2.htm">Supplemental Limited Forbearance Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv31w1.htm">Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv31w2.htm">Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv32w1.htm">Section 1350 Certification of Principal Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d41082exv32w2.htm">Section 1350 Certification of Principal Financial Officer</A></FONT></TD></TR>
</TABLE>
</DIV>


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

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

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

<DIV align="left">
<!-- /TOC -->
</DIV>
<DIV align="left">
<A name="101"></A>
</DIV>

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

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;1. Financial Statements</B></U>
</DIV>


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

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(In thousands, except per share amounts)</I></B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(Unaudited)</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="6" style="border-bottom: 1px solid #000000"><B>Three Months 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>September 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 25,</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>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>
</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">$</TD>
    <TD align="right">10,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,308</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">1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180</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">370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">218</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">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</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>
</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">11,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,853</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"><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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,093</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Franchise expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">808</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,590</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for litigation costs</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169</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">13,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,660</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LOSS BEFORE INCOME TAXES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(807</TD>
    <TD nowrap>)</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:30px; text-indent:-15px">Benefit for income taxes</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">(317</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>NET LOSS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(490</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>
</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>Basic loss per common share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</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>
</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"><B>Diluted loss per common share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</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>
</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>Weighted average common shares outstanding</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,108</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average common and
potential dilutive common shares outstanding</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,108</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">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><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="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"><B>Three Months 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>September 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 25,</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">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap (loss)&nbsp;gain &#151; (net of tax expense
of $0 and $29, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,095</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(435</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>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Notes to Condensed Consolidated Financial Statements.</I>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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.</B>
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><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>September 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June 25,</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>2006</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>(unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</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">184</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 $326 and $324, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,627</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">412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes receivable, current portion, less allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</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:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,664</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">Current deferred income tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,145</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">228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299</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:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,531</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">1,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-current notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</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">383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</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">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</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">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,001</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable &#151; trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,217</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued litigation expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,991</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">7,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,044</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:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,052</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">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">437</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">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,489</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">COMMITMENTS AND CONTINGENCIES</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">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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common Stock, $.01 par value; authorized 26,000,000
shares; issued 15,090,319 and 15,090,319 shares, respectively;
outstanding 10,138,494 and 10,138,494 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">151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,426</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,593</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <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 align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:38px; 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: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:45px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,459</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: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">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,001</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="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Notes to Condensed Consolidated Financial Statements.</I>
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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.</B>
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(In thousands)</I></B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(Unaudited)</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="6" style="border-bottom: 1px solid #000000"><B>Three Months 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>September 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 25,</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>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>
</TR>
<TR><TD style="font-size: 6pt">&nbsp;</TD></TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred rent expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Litigation expense accrual</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(157</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112</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">Deferred income tax on stock compensation expense</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">(35</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in operating assets and liabilities (net of businesses acquired):</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:45px; text-indent:-15px">Notes and accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(369</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable &#151; trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued expenses</DIV></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">(163</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(111</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:45px; text-indent:-15px"><B>Cash provided by operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</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"><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>
</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:30px; text-indent:-15px">Proceeds from sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">474</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(347</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:45px; text-indent:-15px"><B>Cash (used for) provided by investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(84</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127</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"><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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred financing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</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">Change in line of credit, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayments of long-term bank debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from exercise of stock options</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">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: 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"><B>Cash used for financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(133</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126</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 increase in cash and cash equivalents</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">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</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">Cash and cash equivalents, end of period</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">179</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="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Notes to Condensed Consolidated Financial Statements.</I>
</DIV>






<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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.</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION</B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(In thousands)</I></B></DIV>


<DIV align="center" style="font-size: 10pt"><B><I>(Unaudited)</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="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"><B>Three Months 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 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 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>2006</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>CASH PAYMENTS 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>
</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:30px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">165</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"><B>NON CASH 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>
</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:30px; text-indent:-15px">(Loss) gain on interest rate swap</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><I>See accompanying Notes to Condensed Consolidated Financial Statements.</I>
</DIV>







<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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.</B>
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></DIV>


<DIV align="center" style="font-size: 10pt"><I>(Unaudited)</I></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%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The accompanying condensed consolidated financial statements of Pizza Inn, Inc. (the
&#147;Company&#148;) have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements have been omitted pursuant to such rules and regulations.
The condensed consolidated financial statements should be read in conjunction with the notes
to the Company&#146;s audited condensed consolidated financial statements in its Form 10-K for the
fiscal year ended June&nbsp;25, 2006. Certain prior year amounts have been reclassified to conform
with current year presentation.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to fairly present the Company&#146;s financial
position and results of operations for the interim periods. All adjustments contained
herein are of a normal recurring nature. Results of operations for the fiscal periods
presented herein are not necessarily indicative of fiscal year-end results.</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%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Principles of Consolidation</B></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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Fiscal Year</B></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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;s fiscal first quarter ends on the last Sunday in September. Fiscal first
quarters ended September&nbsp;24, 2006 and September&nbsp;25, 2005 both contained 13&nbsp;weeks.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Revenue Recognition</B></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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Franchise revenue consists of income from license fees, royalties, and area development and
foreign master license 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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Use of Management Estimates</B></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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</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%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company entered into an amendment to it existing credit agreement with Wells Fargo on
August&nbsp;29, 2005, effective June&nbsp;26, 2005 (as amended, the &#147;Revolving Credit Agreement&#148;), for a
$6.0&nbsp;million revolving credit line that will expire October&nbsp;1, 2007, replacing a</TD>
</TR>





</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$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 under the existing
credit agreement had the Company not entered into the Revolving Credit Agreement. Interest
under the Revolving Credit Agreement 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 the first quarter of fiscal 2007 was
higher than the rate structure described above due to the events of default described below.
As of September&nbsp;24, 2006 and September&nbsp;25, 2005, the variable interest rates were 10.25%
and 7.25%, respectively, using a Prime interest rate basis. Amounts outstanding under the
Revolving Credit Agreement as of September&nbsp;24, 2006 and June&nbsp;25, 2006 were $1.7&nbsp;million on
both dates. Property, plant and equipment, inventory and accounts receivable of the Company
have been pledged for the Revolving Credit 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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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. Amounts outstanding under the Term Loan Agreement as of September&nbsp;24, 2006
and June&nbsp;25, 2006 were $6.2&nbsp;million and $6.3&nbsp;million, respectively. Property, plant and
equipment, inventory and accounts receivable have been pledged for the Term 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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 Revolving Credit
Agreement. As a result of the continuing event of default, all outstanding principal of the
Company&#146;s obligations under the Revolving Credit Agreement and Term Loan Agreement were
reclassified as a current liability on the Company&#146;s balance sheet since that date.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 had been adjusted, effective as of
October&nbsp;1, 2005, according to the pricing rate grid set forth in the Revolving Credit
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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 related to 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.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;13, 2006, Wells Fargo provided written notice of acceleration to the Company
that, as a result of the expiration of the Forbearance Agreement and the Company&#146;s existing
defaults under the Revolving Credit Agreement and Term Loan Agreement, Wells Fargo elected
to terminate the Revolving Credit Commitment (as defined in the Term Loan Agreement) and
immediately accelerate and call due and payable all unpaid principal and accrued interest
under the Notes (as defined in the Term Loan Agreement), along with all other unpaid
obligations.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;19, 2006, the Company received a proposed commitment letter from Newcastle
Partners, L.P. (&#147;Newcastle&#148;) to provide the Company with a letter of credit in the amount of
$1.5&nbsp;million subject to certain conditions, including the execution of a new forbearance
agreement with Wells Fargo. Newcastle is the Company&#146;s largest shareholder, owning
approximately 41% of the Company&#146;s outstanding shares, and two of its officers are members
of the Company&#146;s board of directors.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;5, 2006, the Company and Wells Fargo entered into a Supplemental Limited
Forbearance Agreement (the &#147;Supplemental Forbearance Agreement&#148;), under which Wells Fargo
agreed to forbear until December&nbsp;28, 2006 (the &#147;Supplemental Forbearance Period&#148;) from
exercising its rights and remedies related to the Company&#146;s existing defaults under the
Revolving Credit Agreement, subject to the conditions described below. Under the
Supplemental Forbearance Agreement, Wells Fargo also agreed to fund additional advances on
the Revolving Credit Loans during the Supplemental Forbearance Period, provided that the
aggregate principal amount of all such Revolving Credit Loans does not exceed $2,020,000 at
any one time, which amount shall not be reduced by a $230,000 letter of credit issued to one
of the Company&#146;s insurers.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The commencement of the Supplemental Forbearance Period is conditioned upon Wells Fargo
receiving a letter of credit in the amount of $1.5&nbsp;million from a financial institution on
behalf of Newcastle (the &#147;Newcastle L/C&#148;). If the Newcastle L/C is not received by November
13,<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>2006 then the Supplemental Forbearance Agreement will terminate. If the
Newcastle L/C is issued by that date then the Company anticipates entering into agreement to
pay to Newcastle an initial fee of $15,000 plus the reimbursement of Newcastle&#146;s
out-of-pocket expenses related to this matter. If the Newcastle L/C is issued then the
Company also anticipates entering into agreements with Newcastle to provide that if the
Newcastle L/C is drawn on then it will be evidenced by a $1.5&nbsp;million note issued to
Newcastle that will accrue interest at a rate equal to Prime plus an interest rate margin of
5.00%. The Newcastle L/C may be drawn on by Wells Fargo to pay down the Company&#146;s
outstanding debt if there are certain new events of default during the Supplemental
Forbearance Period or if the Supplemental Forbearance Period expires and is not extended
before the Company&#146;s obligations to Wells Fargo are paid in full. The Company&#146;s payment
obligations under the note are anticipated to be secured by a security agreement granting
Newcastle an interest in certain of the Company&#146;s tangible and intangible assets, which will
be subordinate to Wells Fargo&#146;s security interests in such assets under the Term Loan
Agreement and the Revolving Credit 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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>While no assurances can be provided that adequate financing will be available through an
agreement with Wells Fargo or any other lender, the Company has entered into a
sale-leaseback transaction (described below) to monetize the value in its corporate
headquarters and distribution facility, and which the Company believes will 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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;20, 2006, the Company and Vintage Interests, L.P. (&#147;Vintage&#148;) entered into a
purchase and sale agreement (the &#147;Agreement&#148;) pursuant to which Vintage agreed to purchase
from the Company for $11.5&nbsp;million the real estate, corporate office building and
distribution facility located at 3551 Plano Parkway, The Colony, Texas. Under the terms of the Agreement, the </TD>
</TR>




</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Company agreed to (i)&nbsp;assign to Vintage the
three-year lease agreement for the distribution facility entered into between the Company
and The SYGMA Network on August&nbsp;25, 2006, and (ii)&nbsp;enter into a lease agreement with Vintage
for the corporate office building (the &#147;Office Lease&#148;). The initial term of the Office
Lease is ten years and the annual rent is at market rates. The sale is expected to close on
or about December&nbsp;19, 2006 subject to certain conditions, including satisfactory completion
by Vintage of its due diligence investigation. Vintage may terminate the Agreement during
the due diligence period without penalty.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 September&nbsp;24, 2006, there was no hedge ineffectiveness. At September&nbsp;24,
2006, the estimated fair value of the interest rate swap was a liability of $48,200.</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%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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)
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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
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,</TD>
</TR>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 105th, 135th, and 165th 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 remaining settlement payments as of September&nbsp;24, 2006 and 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="4%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 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 have exposed the Company to significant
financial liability which could have had 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.</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%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>




</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
Although the outcome of the legal proceeding cannot be projected with certainty, the Company
believes that PepsiCo&#146;s allegations are without merit and the Company intends to vigorously
defend against such allegations and to pursue all relief to which it may be entitled. In
the event the Company is unsuccessful, it could be liable to PepsiCo for approximately $2.6
million plus costs and fees, and such an adverse outcome to the proceeding could materially
affect the Company&#146;s financial position and results of operation. Due to the potential that
the Company may incur a loss to conclude this matter, as of September&nbsp;24, 2006 the Company
has accrued a $410,000 expense for its potential liability regarding this matter, which is
based on management&#146;s estimate of a likely outcome of the litigation. However, due to the
preliminary nature of this matter and the general uncertainty surrounding the outcome of any
form of legal proceeding, the Company&#146;s actual liability for this matter may differ
significantly from this accrual amount. This matter is set for trial beginning on May&nbsp;7,
2007.</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%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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. 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 September
24, 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="4%" nowrap align="left">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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).</TD>
</TR>

</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="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>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" style="border-bottom: 1px solid #000000"><B>(Numerator)</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Denominator)</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</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>Three Months Ended September&nbsp;24, 2006
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">Loss Available to Common Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders
&#038; Assumed Conversions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Three Months Ended September&nbsp;25, 2005
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">Loss Available to Common Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income Available to Common Shareholders
&#038; Assumed Conversions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</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>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Options to purchase shares of common stock 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 in
both the current and prior quarters.</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%" nowrap align="left">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company had $10.7&nbsp;million and $0 of assets classified as assets held for sale as of
September&nbsp;24, 2006 and June&nbsp;25, 2006, respectively. As of September&nbsp;24, 2006, $10.4&nbsp;million
of such amount represents the net book value of the Company&#146;s headquarters office,
distribution facility, and warehouse and distribution equipment to be sold as part of the
Company&#146;s decision to outsource distribution services and sell the Company&#146;s headquarters
office and distribution facility. Of this amount, $10.1&nbsp;million represents land and buildings
and $0.3&nbsp;million represents equipment. The remaining $0.3&nbsp;million of assets held for sale as
of September&nbsp;24, 2006 represents the net book value of the Company-owned restaurant located in
Little Elm, Texas.</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%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;20, 2006, the Company entered into an agreement to sell its headquarters office
and distribution facility. On August&nbsp;28, 2006, the Company entered into an agreement to
sell certain of its warehouse equipment to The SYGMA Network. The remaining assets held for
sale are currently being actively marketed for sale. For those asset groups classified as
held for sale, each asset group is valued at the lower of its carrying amount or estimated
fair value less cost to sell.</TD>
</TR>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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="4%" nowrap align="left">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Summarized in the following tables are net sales and operating revenues, operating profit and
geographic information (revenues)&nbsp;for the Company&#146;s reportable segments for the three month
periods ended September&nbsp;24, 2006 and September&nbsp;25, 2005 (in thousands). Operating profit and
loss excludes gains on sale of assets, interest expense, and income tax provision.</TD>
</TR>

</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="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>September 24,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 25,</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>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>
</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">$</TD>
    <TD align="right">10,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,308</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">1,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,398</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">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</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:30px; text-indent:-15px">combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,873</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">Less intersegment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(150</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,853</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" 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>
</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">$</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">131</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">93</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 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">219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</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">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</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:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">276</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" 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>
</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">$</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">94</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</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:30px; text-indent:-15px">combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95</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">92</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 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">$</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">169</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating (loss)&nbsp;income:</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Food and equipment distribution (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(214</TD>
    <TD nowrap>)</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>&nbsp;</TD>
    <TD align="right">388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</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:30px; text-indent:-15px">combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less intersegment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18</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">(986</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(811</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(871</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(785</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>
</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"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,535</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">462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</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:30px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,853</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">
<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 -->14<!-- /Folio -->
</DIV>

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

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





<DIV align="left">
<A name="108"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 Quarterly
Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June&nbsp;25, 2006 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 our business objectives, our customers and our franchisees, our liquidity and
capital resources, the impact of our historical and potential business strategies on our business,
financial condition, and operating results and the expected effects of potentially adverse
litigation outcomes. Our actual results could differ materially from our expectations. Further
information concerning our business, including additional risk factors and uncertainties that could
cause actual results to differ materially from the forward-looking statements contained in this
Quarterly Report on Form 10-Q, may be set forth 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 Quarterly Report on Form 10-Q and, except as may be required by
applicable law and regulation, we do not undertake, and specifically disclaim 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="center" style="font-size: 10pt; margin-top: 18pt"><B><I>Results of Operations</I></B>
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a franchisor and food and supply distributor to a system of restaurants operating under
the trade name &#147;Pizza Inn&#148;. Our distribution division is Norco Restaurant Services Company
(&#147;Norco&#148;). At September&nbsp;24, 2006, there were 369 domestic and international Pizza Inn restaurants,
consisting of three Company-owned restaurants and 366 franchised restaurants. The 293 domestic
restaurants consisted of: (i)&nbsp;175 buffet restaurants (&#147;Buffet Units&#148;) that offer dine-in,
carry-out, and, in many cases, delivery services; (ii)&nbsp;48 restaurants that offer delivery and
carry-out services only (&#147;Delco Units&#148;); and (iii)&nbsp;70 express units (&#147;Express Units&#148;) typically
located within a convenience store, college campus building, airport terminal, or other commercial
facility that offers quick carry-out service from a limited menu. The 293 domestic restaurants
were located in 18 states predominately situated in the southern half of the United States. The 76
international restaurants were located in 9 foreign countries.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted loss per common share increased to ($0.10) from ($0.05) for the three month period
ended September&nbsp;24, 2006 compared to the comparable period in the prior year. Net loss for the
three month period ended September&nbsp;24, 2006 increased $571,000 to ($1,061,000) from ($490,000) for
the comparable period in the prior year, on revenues of $11,990,000 in the current fiscal year and
$12,853,000 in the prior fiscal year. Pre-tax loss for the three month period ended September&nbsp;24,
2006 compared to the comparable period in the prior year increased by $254,000 primarily due to a
$410,000 expense accrual related to the Company&#146;s potential liability regarding its litigation with
PepsiCo and an 8% reduction in food and supply sales. This increase in pre-tax loss was partially
offset by a reduction of stock compensation expense of $61,000 and a reduction of franchise
expenses of $136,000.
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that key performance indicators in evaluating financial results include
domestic 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="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">Three Months Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 24,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 25,</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">Domestic retail sales Buffet Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic retail sales Delco Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Domestic retail sales Express Units (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,311</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">Average number of domestic Buffet Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of domestic Delco Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average number of domestic 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">70</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues are primarily derived from sales of food, paper products, and equipment and
supplies by Norco to franchisees, franchise royalties and franchise fees. Our 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 are 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Food and supply sales by Norco include food and paper products, equipment, marketing material
and other distribution revenues. Food and supply sales for the three month period ended September
24, 2006 decreased 8%, or $920,000, to $10,388,000 from $11,308,000 compared to the comparable
period in the prior year. The decrease in revenues for the three month period ended September&nbsp;24,
2006 compared to the three month period ended September&nbsp;25, 2005 is primarily due to a decline of
6% in overall domestic chainwide retail sales and the impact of cheese price decreases, which
combined to negatively impact Norco product sales by approximately $970,000. In addition, sales
of restaurant-level marketing materials decreased $121,000. These decreases were offset slightly
by increased international food and supply sales, equipment sales, and fuel surcharges.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise revenue, which includes income from royalties, franchise fees and foreign master
license sales, increased 1%, or $9,000, to $1,180,000 from $1,189,000 for the three month period
ended September&nbsp;24, 2006 compared to the comparable period in the prior year. Domestic royalties
decreased due to lower chainwide retail sales but were offset by increased international royalties
and franchise fees. 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">Three Months 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">September 24,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 25,</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">$</TD>
    <TD align="right">1,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,085</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">102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International franchise fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</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">Domestic franchise fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</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">$</TD>
    <TD align="right">1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,180</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 -->16<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restaurant sales, which consist of revenue generated by Company-owned restaurants, increased
70%, or $152,000, to $370,000 from $218,000 for the three month period ended September&nbsp;24, 2006
compared to the comparable period of the prior year due to the opening of three additional
Company-owned restaurants. The following chart details the revenues from 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">Three Months 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">September 24,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 25,</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">Bufft Units</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delco Unit</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">82</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">Restaurant sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">218</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">C<B><I>osts and Expenses</I></B>
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales decreased 8%, or $915,000, to $10,178,000 from $11,093,000 for the three-month
period ended September&nbsp;24, 2006 compared to the comparable period in the prior year. This decrease
is primarily the result of lower food and supply sales resulting from lower retail sales. Cost of
sales, as a percentage of sales for the three month period ended September&nbsp;24, 2006, decreased to
95% from 96% from the comparable period in the prior year. This percentage decrease is primarily
due to pre-opening expenses, including payroll, rent and utilities for the three new Company-owned
restaurants under development last year. The Company experiences fluctuations in commodity prices
(most notably, block cheese prices), increases in transportation costs (particularly in the price
of diesel fuel) and net increases or decreases in the number of restaurants open in any particular
period, among other things, all of which have impacted operating margins over the past several
quarters to some extent. Future fluctuations in these factors are difficult for the Company to
meaningfully predict with reasonable certainty. The Company&#146;s decision to outsource certain of its
warehouse management and delivery services for the distribution of food product to restaurants will
likely result in a decreased cost of sales relative to recent trends because the aggregate fees
paid to the third-party distributors are expected to be lower than the Company&#146;s current cost
structure to provide those same services.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Franchise expenses include selling, general and administrative expenses directly related to
the sale and continuing service of domestic and international franchises. These costs decreased
17%, or $136,000, for the three month period ended September&nbsp;24, 2006 compared to the comparable
period in the prior year. This decrease is primarily the result of lower payroll due to reduced
staffing levels.
</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">Three Months 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">September 24,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 25,</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">Payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tradeshows and contributions</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">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</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 expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">808</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 -->17<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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>General and Administrative Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses, including the provision for litigation costs, which is
broken out separately in the statement of operations, increased 26%, or $411,000, to $2,001,000
from $1,590,000 for the three month period ended September&nbsp;24, 2006 compared to the comparable
period in the prior year. The following chart summarizes the major components of 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">Three Months 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">September 24,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 25,</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">Payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">570</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">540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">615</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">194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for litigation costs</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</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">42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</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">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,590</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>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The legal fees for the three months ended September&nbsp;24, 2006 are related to ongoing litigation
and related matters described previously. The Company anticipates incurring relatively high legal
fees until the outstanding litigation described in the footnotes to the financial statements is
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 provision for litigation costs
for the three months ended September&nbsp;24, 2006 represents management&#146;s estimate of the Company&#146;s
potential liability related to the PepsiCo litigation, which is described in the footnotes to the
financial statements. The increase in other professional fees for the three month period ended
September&nbsp;24, 2006 compared to the comparable period in the prior year includes increased audit
fees and executive recruiting fees.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased 18%, or $31,000, to $200,000 from $169,000 for the three month
period ended September&nbsp;24, 2006 compared to the comparable period of the prior year due to higher
interest rates for all outstanding debt and higher debt balances under the Revolving Credit
Agreement.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The benefit for income taxes decreased $317,000 for the three month period ended September&nbsp;24,
2006 compared to the comparable period in the prior year. The benefit from the income tax
provision was reduced by a valuation allowance of $386,000 for a reserve against its deferred tax
asset for amounts that more likely than not will not be realized. The effective tax rate was 0%
compared to 35% in the previous year. The change in the effective tax rate is primarily due to the
valuation allowance recognized in the three month period ended September&nbsp;24, 2006.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A total of seven new Pizza Inn franchise restaurants opened, including three domestic and four
international, during the three month period ended September&nbsp;24, 2006. Domestically, eleven
restaurants were closed by franchisees or terminated by the Company, typically because of
unsatisfactory standards of operation or poor performance. Additionally, two international
restaurants were closed. We do not believe that these closings had any material impact on
collectibility of any outstanding receivables and royalties due to us because (i)&nbsp;these amounts
have been previously reserved for by us with respect to restaurants that were closed during fiscal
year 2006 and (ii)&nbsp;these closed restaurants were generally lower volume restaurants whose financial
impact on our business as a whole was not significant. For those
</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="#tocpage">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">restaurants that are anticipated
to close or are 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 activity for the period ended September&nbsp;24, 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Three months ending September&nbsp;24, 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="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">182</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">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">175</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">49</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">2</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">48</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">70</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">1</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">4</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</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">375</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">13</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">369</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Three months ending September&nbsp;25, 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">199</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">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">191</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">1</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</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">&#151;</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</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">5</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">72</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">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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">385</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="center" style="font-size: 10pt; margin-top: 18pt"><B><I>Liquidity and Capital Resources</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from operating activities are generally the result of net loss adjusted for
depreciation and amortization, changes in working capital, deferred revenue and provision for
litigation costs. In the three month period ended September&nbsp;24, 2006 the Company generated cash
flows of $217,000 from operating activities as compared to $5,000 for the same period in the prior year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from investing activities primarily reflect the Company&#146;s capital expenditure
strategy. For the three month period ended September&nbsp;24, 2006, $84,000 cash was used by investing
activities as compared to cash provided for investing activities of $127,000 for the comparable
period in the prior year, which included proceeds from the sale of land in Prosper, Texas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from financing activities generally reflect changes in the Company&#146;s borrowings
during the period, treasury stock transactions and exercise of stock options. Net cash used for
financing activities was $133,000 for the three month period ended September&nbsp;24, 2006 as compared
to cash used for financing activities of $126,000 for the comparable period in the prior year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that the Company&#146;s ability to carry back the significant majority of the
net operating loss in fiscal year 2006 against prior taxes paid and the likelihood of recognizing a
gain on the sale of real estate assets will allow the Company to fully realize the deferred tax
asset, net of a valuation allowance of $1,950,000 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 pre-tax loss recognized in the three month
period ended September&nbsp;24, 2006 will be carried forward against future taxable income.
</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="#tocpage">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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into an amendment to it existing credit agreement with Wells Fargo on
August&nbsp;29, 2005, effective June&nbsp;26, 2005 (as amended, the &#147;Revolving Credit Agreement&#148;), for a $6.0
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 under the existing
credit agreement had the Company not entered into the Revolving Credit Agreement. Interest under
the Revolving Credit Agreement 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
the first quarter of fiscal 2007 was higher than the rate structure described above due to the
events of default described below. As of September&nbsp;24, 2006 and June&nbsp;25, 2006, the variable
interest rates were 10.25% and 9.75%, respectively, using a Prime interest rate basis. Amounts
outstanding under the Revolving Credit Agreement as of September&nbsp;24, 2006 and June&nbsp;25, 2006 were
$1.7&nbsp;million on both dates. Property, plant and equipment, inventory and accounts receivable of
the Company have been pledged for the Revolving Credit Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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. Amounts outstanding under the Term Loan Agreement as of September
24, 2006 and June&nbsp;25, 2006 were $6.2&nbsp;million and $6.3&nbsp;million, respectively. 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;&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 Revolving Credit Agreement. As a result of
the continuing event of default as of September&nbsp;24, 2006, all outstanding principal of the
Company&#146;s obligations under the Revolving Credit Agreement and Term Loan 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;&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 had 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;&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 related to 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>




<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="#tocpage">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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;13, 2006, Wells Fargo provided written notice of acceleration to the Company that,
as a result of the expiration of the Forbearance Agreement and the Company&#146;s existing defaults
under the Revolving Credit Agreement and Term Loan Agreement, Wells Fargo elected to terminate the
Revolving Credit Commitment (as defined in the Term Loan Agreement) and immediately accelerate and
call due and payable all unpaid principal and accrued interest under the Notes (as defined in the
Term Loan Agreement), along with all other unpaid obligations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;19, 2006, the Company received a proposed commitment letter from Newcastle
Partners, L.P. to provide the Company with a letter of credit in the amount of $1.5&nbsp;million subject
to certain conditions, including the execution of a new forbearance agreement with Wells Fargo.
Newcastle is the Company&#146;s largest shareholder, owning approximately 41% of the Company&#146;s
outstanding shares, and two of its officers are members of the Company&#146;s board of directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;5, 2006, the Company and Wells Fargo entered into a Supplemental Limited
Forbearance Agreement (the &#147;Supplemental Forbearance Agreement&#148;), under which Wells Fargo agreed to
forbear until December&nbsp;28, 2006 (the &#147;Supplemental Forbearance Period&#148;) from exercising its rights
and remedies related to the Company&#146;s existing defaults under the Revolving Credit Agreement,
subject to the conditions described below. Under the Supplemental Forbearance Agreement, Wells
Fargo also agreed to fund additional advances on the Revolving Credit Loans during the Supplemental
Forbearance Period, provided that the aggregate principal amount of all such Revolving Credit Loans
does not exceed $2,020,000 at any one time, which amount shall not be reduced by a $230,000 letter
of credit issued to one of the Company&#146;s insurers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The commencement of the Supplemental Forbearance Period is conditioned upon Wells Fargo
receiving a letter of credit in the amount of $1.5&nbsp;million from a financial institution on behalf
of Newcastle (the &#147;Newcastle L/C&#148;). If the Newcastle L/C is not received by November&nbsp;13, 2006 then
the Supplemental Forbearance Agreement will terminate. If the Newcastle L/C is issued by that date
then the Company anticipates entering into agreement to pay to Newcastle an initial fee of
$15,000, plus reimbursement of Newcastle&#146;s out-of-pocket expenses related to this matter. If the Newcastle L/C
is issued then the Company also anticipates entering into agreements with Newcastle to provide that
if the Newcastle L/C is drawn on then it will be evidenced by a $1.5&nbsp;million note issued to
Newcastle that will accrue interest at a rate equal to Prime plus an interest rate margin of 5.00%.
The Newcastle L/C may be drawn on by Wells Fargo to pay down the Company&#146;s outstanding debt if
there are certain new events of default during the
Supplemental Forbearance Period or if the Supplemental Forbearance Period expires and is not
extended before the Company&#146;s obligations to Wells Fargo are paid in full. The Company&#146;s payment
obligations under the note are anticipated to be secured by a security agreement granting Newcastle
an interest in certain of the Company&#146;s tangible and intangible assets, which will be subordinate
to Wells Fargo&#146;s security interests in such assets under the Term Loan Agreement and the Revolving
Credit Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While no assurances can be provided that adequate financing will be available through an
agreement with Wells Fargo or any other lender, the Company has entered into a sale-leaseback
transaction (described below) to monetize the value in its corporate headquarters and distribution
facility, and which the Company believes will 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;20, 2006, the Company and Vintage Interests, L.P. (&#147;Vintage&#148;) entered into a
purchase and sale agreement (the &#147;Agreement&#148;) pursuant to which Vintage agreed to purchase from the
Company for $11.5&nbsp;million the real estate, corporate office building and distribution facility
located at 3551 Plano Parkway, The Colony, Texas. Under the terms of the Agreement, the Company
agreed to (i)&nbsp;assign to Vintage the three-year lease agreement for the distribution facility
entered into between the Company and The SYGMA Network on August&nbsp;25, 2006, and (ii)&nbsp;enter into a
lease agreement with Vintage for the corporate office building (the &#147;Office Lease&#148;). The initial
term of the Office Lease is ten years and the annual rent is at market rates. The sale is expected
to close on December&nbsp;19, 2006 subject to certain
</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="#tocpage">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">conditions, including satisfactory completion by
Vintage of its due diligence investigation. Vintage may terminate the Agreement during the due
diligence period without penalty.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 September&nbsp;24, 2006, there was no hedge ineffectiveness. At September
24, 2006, the fair value of the interest rate swap was a liability of $48,200.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&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;&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 105th, 135th, and 165th 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 remaining settlement payments as of September&nbsp;24,
2006.
</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="#tocpage">Table of Contents</A></H5><P>
r
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also a party to a lawsuit brought against us by PepsiCo, as previously described. We
believe that the allegations made against the Company by PepsiCo are unfounded, although the
ultimate outcome of the lawsuit cannot be predicted with certainty at this time. We intend to
vigorously contest all of PepsiCo&#146;s claims and to pursue all relief to which we may be entitled.
However, in the event the Company is unsuccessful, it could be liable to PepsiCo for approximately
$2.6&nbsp;million plus fees and costs. Due to the potential that the Company may incur a loss to
conclude this matter, as of September&nbsp;24, 2006 the Company has accrued a $410,000 expense for its
potential liability regarding this matter, which is based on management&#146;s estimate of a likely
outcome of the litigation. However, due to the preliminary nature of this matter and the general
uncertainty surrounding the outcome of any form of legal proceeding, the Company&#146;s actual liability
for this matter may differ significantly from this accrual amount.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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. 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
September&nbsp;24, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 and the other outstanding litigation described above is 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.
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been no material changes in the Company&#146;s contractual obligations and commitments
from the contractual obligations and commitments previously disclosed in the Company&#146;s most recent
Annual Report on Form 10-K or otherwise discussed in this report.
</DIV>


<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;&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;&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. Accounts receivable consist primarily  of receivables
</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="#tocpage">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">
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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;&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;&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;&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;&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;&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 -->24<!-- /Folio -->
</DIV>

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

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



<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September&nbsp;24, 2006, the Company had approximately $8.0&nbsp;million of variable rate debt
obligations outstanding with a weighted average interest rate of 9.73%. A hypothetical 10%
increase in the effective interest rate for these borrowings, assuming debt levels at September&nbsp;24,
2006, would have increased interest expense by approximately $20,000 for the three month period
ending September&nbsp;24, 2006. As discussed previously, the Company has entered into an interest rate
swap designed to manage the interest rate risk relating to $6.2&nbsp;million of the variable rate debt.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 September&nbsp;24, 2006, there was no hedge ineffectiveness.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 average block price per pound of
cheese was $1.22 in the first three months of fiscal 2007. The estimated increase in annual sales
from a hypothetical $0.20 decrease in the average cheese block price per pound would have been
approximately $1.2&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 -->25<!-- /Folio -->
</DIV>

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

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



<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;4. Controls and Procedures</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits 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 by
the Company in the reports that it files of submits under the Exchange Act is accumulated and
communicated 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;&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. Based
on the evaluation of the Company&#146;s disclosure controls and procedures required by paragraph (b)&nbsp;of
Rule&nbsp;13a-15 or Rule&nbsp;15d-15 under the Exchange Act, the Company&#146;s principal executive and principal
financial officers, or persons performing similar functions, have concluded that the Company&#146;s
disclosure controls and procedures were not effective as of the end of the period due, in part, to
the deficiencies identified below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with its 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 the aggregate, are considered by
the Company&#146;s management to constitute a material weakness in the Company&#146;s disclosure controls and
procedures. This weakness was first identified during the Company&#146;s preparation of its financial
statements for the fiscal year ended June&nbsp;25, 2006 primarily as a result of certain accounting
errors in the financial statements for that period identified by management and BDO Seidman, LLP,
the Company&#146;s independent registered public accounting firm, which were researched and
appropriately adjusted in the financial statements by management. Since that time, the Company has
continued to implement 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;&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;&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 continue to exist as of September&nbsp;24, 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Remediation for Identified 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;&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
</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="#tocpage">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">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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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 Chief
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"><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.
Management believes that there is a need, at a minimum, for a strong accountant to ensure
compliance with all current and future accounting rules. Currently, the existing staff is
addressing application of generally accepted accounting principles. 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 a technical accountant.</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>&#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>

<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>&#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>

<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>&#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>

<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>&#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>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for certain of the remediation measures described above, there was no change 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 last fiscal quarter (the Company&#146;s fourth fiscal quarter in the case of any annual
report) that has materially affected, or is reasonably likely to materially affect, the Company&#146;s
internal control over financial reporting.
</DIV>


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

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

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



<DIV align="left">
<A name="111"></A>
</DIV>

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

<DIV align="left">
<A name="112"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Item&nbsp;1. Legal Proceedings</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&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;&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 PepsiCo, Inc. v. Pizza Inn Inc., 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;&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. Although the outcome of the legal proceeding cannot be projected
with certainty, the Company believes that PepsiCo&#146;s allegations are without merit and the Company
intends to vigorously defend against such allegations and to pursue all relief to which it may be
entitled. In the event the Company is unsuccessful, it could be liable to PepsiCo for
approximately $2.6&nbsp;million plus costs and fees, and such an adverse outcome to the proceeding could
materially affect the Company&#146;s financial position and results of operation. Due to the potential
that the Company may incur a loss to conclude this matter, as of September&nbsp;24, 2006 the Company has
accrued a $410,000 expense for its potential liability regarding this matter, which is based on
management&#146;s estimate of a likely outcome of the litigation. However, due to the preliminary
nature of this matter and the general uncertainty surrounding the outcome of any form of legal
proceeding, the Company&#146;s actual liability for this matter may differ significantly from this
accrual amount. This matter is set for trial beginning on May&nbsp;7, 2007.
</DIV>


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



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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">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;&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 September&nbsp;24, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth herein, there have been no material changes from the legal proceedings
previously disclosed in the Company&#146;s most recent Annual Report on Form 10-K in response to Part&nbsp;I,
Item&nbsp;3 of Form 10-K.
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;1A. Risk Factors</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the other risk factors and uncertainties and other information contained in
this report, the following risks described below 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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred a net loss of $5,989,000 for the fiscal year ended June&nbsp;25, 2006 and a net
loss of $1,061,000 for the quarter ending September&nbsp;24, 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;&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;&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 $2,020,000 under a supplemental forbearance agreement that is conditioned on Wells
Fargo receiving a letter of credit of $1.5&nbsp;million by November&nbsp;13, 2006. The forbearance period
provided under this agreement expires on December&nbsp;28, 2006, and the Company may not be able to
reach an agreement with Wells Fargo to extend the forbearance period if necessary. This 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>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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;&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. The limited forbearance agreement was not extended beyond the October&nbsp;1, 2006 date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;13, 2006, Wells Fargo provided a notice of acceleration to the Company regarding
amounts outstanding under the Revolving Credit Agreement and the Term Loan Agreement. The notice
provided that the Revolving Loan Commitment, as defined in the Revolving Credit Agreement, was
terminated and all unpaid principle and accrued interest owed to Wells Fargo had become immediately
due and payable, and all such obligations remaining unpaid after October&nbsp;13, 2006 will accrue
interest at the default rate of interest as defined in the Revolving Credit Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;5, 2006, the Company and Wells Fargo entered into a supplemental limited
forbearance agreement under which Wells Fargo agreed to forbear until December&nbsp;28, 2006 from
exercising its rights and remedies related to the Company&#146;s existing defaults under the revolving
credit loan agreement, subject to the conditions described below. Wells Fargo also agreed to fund
additional advances on the revolving credit loans during the supplemental forbearance period,
provided that the aggregate principal amount of all such loans does not exceed $2,020,000 at any
one time, which amount shall not be reduced by a $230,000 letter of credit issued to one of the
Company&#146;s insurers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The commencement of the supplemental forbearance period is conditioned upon Wells Fargo
receiving a letter of credit in the amount of $1.5&nbsp;million from a financial institution on behalf
of Newcastle Partners, L.P., the Company&#146;s largest shareholder. If the letter of credit is not
received by November&nbsp;13, 2006 then the supplemental forbearance agreement will terminate. If the
letter of credit is issued by Newcastle then the Company also anticipates entering into agreements
to provide that if the letter of credit is drawn on then it will be evidenced by a $1.5&nbsp;million
note issued to Newcastle that will accrue interest at a rate equal to Prime plus an interest rate
margin of 5.00%. The letter of credit may be drawn on by Wells Fargo to pay down the Company&#146;s
outstanding debt if there are certain new events of default during the supplemental forbearance
period or if the supplemental forbearance period expires and is not extended before the Company&#146;s
obligations to Wells Fargo are paid in full.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 the end of the
fiscal year ended June&nbsp;25, 2006 and continues to exist at September&nbsp;24, 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 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.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 is taking steps to remedy the ineffective disclosure controls that
resulted in the material weakness, but has not completed implementation of all actions management
believes is necessary. 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
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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">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: 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 October&nbsp;25, 2006, our consolidated long-term indebtedness was $8.0&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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" 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;&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;&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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 obtained through
a sale-leaseback transaction entered into on October&nbsp;20, 2006, whereby we have agreed to sell our
corporate office building and distribution facility for $11.5&nbsp;million. The sale is expected to
close on December&nbsp;19, 2006 subject to certain conditions, including satisfactory completion by the
purchaser of its due diligence investigation. The purchaser may terminate the agreement during the
due diligence period without penalty. However, 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 if the sale-leaseback
transaction is not consummated as expected, then our liquidity, financial condition, business, and
results of operations may be materially adversely affected.
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">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;&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;&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. As of September&nbsp;24, 2006 the Company has accrued a $410,000
expense for its potential liability regarding this matter, which is based on management&#146;s estimate
of a likely outcome of the litigation. However, due to the preliminary nature of this matter and
the general uncertainty surrounding the outcome of any form of legal proceeding, the Company&#146;s
actual liability for this matter may differ significantly from this accrual amount.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&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. Beginning in November&nbsp;2006, the
Company will rely upon two third-party distributors, The SYGMA Network and The Institutional
Jobbers Company, to provide warehousing and delivery services that are currently performed by
Norco. Any problems in the transition to the outsourcing of these services may result in
interruptions in the delivery of food products to our franchisees and Company-owned restaurants,
which would adversely affect our operating results.
</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;&nbsp;Except as set forth herein, there have been no material changes from the risk factors
previously disclosed in the Company&#146;s most recent Annual Report on Form 10-K in response to Item
1A. to Part&nbsp;I of Form 10-K.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;2. Unregistered Sales of Equity Securities and the Use of Proceeds</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No information is required to be furnished by Item&nbsp;703 of Regulation&nbsp;S-K for any other
purchase made in the quarter covered by this report.
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;3. Defaults upon Senior Securities</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 Revolving Credit Agreement. As a result of
the continuing event of default as of September&nbsp;24, 2006, all outstanding principal of the
Company&#146;s obligations under the Revolving Credit Agreement and Term Loan Agreement were
reclassified as a current liability on the Company&#146;s balance sheet.
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;4. Submission of Matters to a Vote of Security Holders</B></U>
</DIV>


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




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

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

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



<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;5. Other Information</B></U>
</DIV>


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

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;6. Exhibits</B></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="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="89%">&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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and Sale Agreement entered into between the Company and Vintage
Interests, L.P. on October&nbsp;20, 2006</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supplemental Limited Forbearance Agreement entered into between the Company and
Wells Fargo Bank, N.A. on November&nbsp;5, 2006</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">31.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Principal Executive Officer.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">31.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Principal Financial Officer.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">32.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;1350 Certification of Principal Executive Officer.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">32.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;1350 Certification of Principal Financial Officer.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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

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

<DIV align="left">
<A name="119"></A>
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant 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">PIZZA INN, INC.<BR>
(Registrant)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Timothy P. Taft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Timothy P. Taft&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&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">&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&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dated: November&nbsp;8, 2006
</DIV>



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


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>d41082exv10w1.htm
<DESCRIPTION>PURCHASE AND SALE AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w1</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 10.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Purchase And Sale Agreement</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS PURCHASE AND SALE AGREEMENT </B>(this &#147;Agreement&#148;) is dated as of October&nbsp;20, 2006 (the
&#147;Effective Date&#148;) and is entered into between <B>PIZZA INN, INC</B>., a Missouri corporation (&#147;Seller&#148;)
and <B>VINTAGE INTERESTS, L.P.</B>, a Texas limited partnership (&#147;Purchaser&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For and in consideration of the mutual agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Seller and
Purchaser agree as follows:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 1. <U>SALE AND PURCHASE OF THE PROPERTY</U>. Subject to the terms and conditions set
forth herein, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller,
the following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;That certain tract or parcel of land situated at 3551 Plano Parkway, in The Colony,
Denton County, Texas and further described in <U>Exhibit&nbsp;A</U> attached hereto, together with all
rights and interests appurtenant thereto including, without limitation, (i)&nbsp;all right, title and
interest of Seller in and to adjacent streets, roads, alleys and rights-of-way, and any awards made
or to be made in connection therewith, (ii)&nbsp;all rights of Seller in and to all easements
appurtenant to or benefiting such parcels of land, and (iii)&nbsp;all of Seller&#146;s rights in all mineral
rights and interests with respect to such parcels of land (collectively, the &#147;Land&#148;), including all
improvements, buildings, structures and fixtures located on the land (the &#147;Improvements&#148;) and all
rights, titles and interests appurtenant to the Land and Improvements;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;All right, title and interest of Seller in all assignable licenses, permits and other
items of the tangible and intangible personal property and fixtures (the &#147;Personal Property&#148;)
attached to or used in connection with the ownership, maintenance or operation of the Land or
Improvements, not including Seller&#146;s books and records;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;All right, title and interest of Seller in and to the Assumed Contracts (hereafter
defined); and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;All of Seller&#146;s right, title and interest in and to that certain Warehouse Lease (the
&#147;Warehouse Lease&#148;), dated August&nbsp;25, 2006, by and between Seller, as Landlord, and The Sygma
Network, Inc., a Delaware corporation, as Tenant, covering approximately 102,000 square feet of
warehouse and office space, and related land as designated as &#147;Warehouse Area&#148; on the attached
<U>Exhibit&nbsp;A-1</U>, attached hereto. A true, correct and complete copy of the Warehouse Lease is
attached hereto as <U>Exhibit&nbsp;B</U>.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The above-listed items are herein collectively called the &#147;Property&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 2. <U>PURCHASE PRICE AND EARNEST MONEY</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The purchase price (the &#147;Purchase Price&#148;) for which Seller agrees to sell and convey the
Property to Purchaser, and which the Purchaser agrees to pay to Seller, subject to the terms
hereof, is the amount of ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000.00).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Within two (2)&nbsp;business days after the Effective Date (hereinafter defined), Purchaser
shall deposit with Benchmark Title Services, L.L.C. (the &#147;Title Company&#148;), whose address is 5700
Legacy Drive, #10, Plano, Texas 75024; Attention: Kiley McGuire, the sum of $100,000.00 (the
&#147;Earnest Money&#148;) to be invested by the Title Company in an interest-bearing account and to be held
and disbursed by the Title Company strictly in accordance with the terms and provisions of this
Agreement. At the Closing (hereinafter defined), the Earnest Money shall be applied to the
Purchase Price. For the purposes hereof, the term &#147;business day&#148; shall mean any day upon which
national banks in Dallas, Texas are open for business. If the Earnest Money is in the form of a
check, the Title Company shall immediately present the check for payment. Seller shall have the
option of terminating this Agreement if the Earnest Money is not timely delivered to Title Company.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 3. <U>TITLE COMMITMENT AND SURVEY</U>.
</DIV>


<P align="right" style="font-size: 10pt"><!-- Folio -->Page 1<!-- /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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Within ten (10)&nbsp;days after the Effective Date, Seller, at its sole cost and expense,
shall deliver or cause to be delivered to Purchaser 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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Commitment for Title Insurance (the &#147;Title Commitment&#148;) from the
Title Company, addressed to the Purchaser, covering the Property and binding the
Title Company to issue to Purchaser at Closing a Texas Standard Form&nbsp;Owner
Policy of Title Insurance (the &#147;Title Policy&#148;) in the amount of the Purchase
Price, including such endorsements as may be specified by Purchaser, with such
Title Commitment setting forth the status of the title of the Property and
showing all liens, claims, encumbrances, easements, rights-of-way,
encroachments, reservations, restrictions and any other matters affecting the
Property. The Title Commitment shall reflect that the survey exception may be
modified in the Title Policy, at Purchaser&#146;s sole cost and expense, to reflect
&#147;shortages in area&#148; only.</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">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legible copies of all documents referred to in Schedule&nbsp;B of the
Title Commitment.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Within twenty (20)&nbsp;days after the Effective Date, Seller shall, at its expense, obtain a
current as-built survey (the &#147;Survey&#148;) of the Property prepared in accordance with the minimum
standard detail requirements imposed by ALTA/ACSM, prepared and certified by a registered and
licensed land surveyor, containing a certification in the form attached hereto as <U>Exhibit
H</U>. Upon receipt of the Survey, Seller shall promptly furnish a copy of same to Purchaser,
Purchaser&#146;s legal counsel and the Title Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Purchaser shall have ten (10)&nbsp;days from the receipt of the information referred to in
Section 3(a) and 3(b) hereof to examine the same and to specify to Seller in writing those items in
the Title Commitment and/or the Survey which Purchaser reasonably finds objectionable (the
&#147;Encumbrances&#148;). If Purchaser does not deliver to Seller a written notice specifying those items
which are Encumbrances within ten (10)&nbsp;days after the receipt by Purchaser of all of the
information referred to in Section 3(a) and 3(b) hereof, then all of the items reflected on the
Title Commitment and Survey shall be considered to be Permitted Encumbrances, as hereinafter
defined; provided, however, Purchaser shall not be required to object to financing or mechanic&#146;s
liens on the Property or requirements of Seller which are contained on Schedule&nbsp;C of the Title
Commitment, and any such liens or Schedule&nbsp;C requirements shall not be a Permitted Encumbrance
under any circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Seller may, but shall have no obligation to, at its sole cost and expense, cure or remove
the Encumbrances. If Seller fails to cause all of the Encumbrances to be removed or cured prior to
the Closing Date (hereinafter defined) or if Seller notifies Purchaser of its decision not to cure
or remove some or all of the Encumbrances, Purchaser&#146;s sole remedy shall be 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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Terminate this Agreement, in which event the Earnest Money
together with all interest earned thereon shall be returned to Purchaser, and
neither party shall have any further rights, duties or obligations hereunder,
except as may be otherwise specified herein; or</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">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Elect to purchase the Property subject to the Permitted
Encumbrances and the Encumbrances not so removed or cured, in which event the
Encumbrances not removed or cured shall be deemed Permitted Encumbrances and the
Purchase Price shall not be reduced by any amount.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Purchaser&#146;s election must be made by giving Seller written notice thereof, which notice must be
given within five (5)&nbsp;days after Seller notifies Purchaser in writing of its decision not to cure
or remove Encumbrances. Purchaser&#146;s failure to give such notice shall be deemed an election by
Purchaser to purchase the Property subject to the Permitted Encumbrances and the Encumbrances not
so removed or cured.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The Title Policy shall be purchased at Seller&#146;s expense and shall guarantee Purchaser&#146;s
title to the Property to be good and indefeasible, subject only to all matters reflected in the
Title Commitment not objected
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 2<!-- /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">to by Purchaser, or if objected to by Purchaser, waived by Purchaser, and any liens or other
encumbrances created pursuant to the terms of this Agreement (collectively, the &#147;Permitted
Encumbrances&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 4. <U>DUE DILIGENCE PERIOD</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Within ten (10)&nbsp;days after the Effective Date, Seller shall deliver to Purchaser the
following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Copies of any and all engineering or environmental reports relating to the
Property and any plans and specifications for the Property which are in the
possession or under the control of Seller;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Copies of any zoning reports or zoning information relating to the Property
which are in the possession or under the control of Seller;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) A copy of each certificate of occupancy for the Improvements;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) A copy of each agreement between Seller and a third party pursuant to which
such third party provides goods or services to or with respect to the Property and
all amendments thereto (collectively, the &#147;Service Contracts&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) Copies of all bonds, guarantees and warranties in Seller&#146;s possession or
control relating to the Property (collectively, the &#147;Warranties&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) Copies of the real estate and personal property tax bills applicable to the
Property for the years 2004, 2005 and 2006;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) Copies of each lease agreement, including, without limitation, the
Warehouse Lease, between Seller and a third party tenant which is in effect with
respect to the Property and all amendments thereto (collectively, the &#147;Leases&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) A schedule detailing operating expenses prepared by or on behalf of
Seller with respect to the Property for 2004, 2005 and 2006 (year-to-date); and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) Copies of the Seller&#146;s certified financial statements for 2004, 2005 and
2006 (year-to-date).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Commencing on the Effective Date hereof and expiring at 5:00 p.m., Dallas, Texas time, on
November&nbsp;22, 2006 (the &#147;Due Diligence Period&#148;), Purchaser shall have the right to inspect the
Property at all reasonable times during normal business hours and to determine whether the Property
is suitable and satisfactory for Purchaser&#146;s needs and intended uses (taking into consideration
matters including, without limitation, soil and environmental conditions, engineering
characteristics, utilities, access, zoning, condition of improvements, and financing prospects).
However, Purchaser shall not have the right to tests other than visual tests, including, without
limitation, subsurface testing or drilling on the Property, without the prior written consent of
Seller, such consent not to be unreasonably withheld, conditioned or delayed. Purchaser shall make
all inspections in good faith and with due diligence. All inspection fees, appraisal fees,
engineering fees and other expenses of any kind incurred by Purchaser relating to the inspection of
the Property shall be solely Purchaser&#146;s expense. Seller shall cooperate with Purchaser in all
reasonable respects in making such inspections or tests, at no expense to Seller. Seller hereby
reserves the right, at Seller&#146;s sole cost and expense, to have a representative present at the time
of making any such inspection or test. Purchaser shall notify Seller in advance of making any such
inspection or test.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;In making any inspection or test hereunder, Purchaser will not reveal or disclose, and
will cause any
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 3<!-- /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">party acting on behalf of Purchaser to not reveal or disclose, any information obtained by
Purchaser regarding the Property. In addition, Purchaser shall (1)&nbsp;not unreasonably disturb the
Property, (2)&nbsp;not damage any part of the Property or any personal property owned or held by Seller,
its agents, contractors, tenants, invitees, or employees, (3)&nbsp;not injure or otherwise cause bodily
harm to Seller, its agents, contractors, tenants, invitees, or employees, (4)&nbsp;maintain general
commercial liability insurance, on terms and in reasonable amounts, to cover any accident arising
in connection with the presence on the Property of Purchaser and all parties acting on behalf of
Purchaser, (5)&nbsp;promptly pay when due the costs of all tests or inspection done with regard to the
Property by or on behalf of Purchaser, (6)&nbsp;not permit any liens to attach to the Property by reason
of the exercise of its rights hereunder, and (7)&nbsp;restore the Property to the condition in which it
was prior to any such inspection or test by or on behalf of Purchaser. Purchaser indemnifies and
agrees to defend and hold Seller harmless from any and all injuries, losses, liens, claims,
judgments, liabilities, costs, expenses or damages (including reasonable attorneys&#146; fees and court
costs) sustained by Seller which result from or arise out of any inspection or test by Purchaser or
any party acting on Purchaser&#146;s behalf or from any breach of the covenants of Purchaser contained
in this paragraph. The foregoing indemnity shall not terminate upon the Closing or any termination
of this Agreement. Notwithstanding the foregoing, in no event shall Purchaser be deemed to
indemnify Seller with respect to Seller&#146;s negligence or willful misconduct or any pre-existing
conditions on the Property as of Purchaser&#146;s entry onto the Property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;In the event Purchaser determines, in its sole discretion, for any reason, or for no
reason, during the Due Diligence Period that the Property is not acceptable, Purchaser may elect to
terminate this Agreement by delivering written notice thereof to Seller prior to the expiration of
the Due Diligence Period, in which event the Earnest Money, less the $100.00 independent
consideration to Seller described below, shall be returned to Purchaser by the Title Company, and
the parties shall have no further right or obligation hereunder, except as specifically provided
herein. If Purchaser so terminates this Agreement, as a condition precedent to Purchaser&#146;s right
to receive the Earnest Money, Purchaser shall deliver to Seller all information, studies and
reports Purchaser or Purchaser&#146;s agents have obtained with respect to the Property or the condition
of the Property. If Purchaser fails to deliver written notice of termination of this Agreement to
Seller prior to expiration of the Due Diligence Period, Purchaser shall be deemed to have waived
its right to terminate this Agreement pursuant to this Section.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Purchaser represents that it is knowledgeable and experienced in real property comparable
to the Property and will have conducted prior to the expiration of the Due Diligence Period such
inspection and investigations of the Property as Purchaser deems appropriate. Purchaser further
represents and acknowledges that by the expiration of the Due Diligence Period, Purchaser shall
have fully informed and satisfied itself as to all matters relevant to the acquisition, use and
development of the Property, including without limitation, all environmental matters with respect
to the Property. <B>EXCEPT FOR SELLER&#146;S REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
PURCHASER ACKNOWLEDGES THAT IT IS NOT RELYING IN WHOLE OR IN PART UPON ANY STATEMENT MADE OR
INFORMATION OR DOCUMENTATION PROVIDED BY OR ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OF
ANY KIND, TYPE, CHARACTER, OR NATURE WHATSOEVER, MADE OR FURNISHED BY SELLER, ITS AGENTS,
EMPLOYEES, CONTRACTORS, REPRESENTATIVES, ATTORNEYS, AFFILIATES, TRUSTEES, BENEFICIARIES, PARTNERS,
MEMBERS MANAGERS, SHAREHOLDERS, DIRECTORS, OFFICERS OR AFFILIATES. </B>Except for Seller&#146;s
representations and warranties contained in this Agreement, Purchaser waives any obligation which
might be imposed upon Seller to disclose material facts regarding the Property, regardless of
whether such facts are discoverable by Purchaser. Purchaser agrees that it has the right to
conduct an assessment or inspection of the Property pursuant to this Section&nbsp;4 and subject to the
terms and conditions hereof, and Purchaser waives any requirement under law that Seller provide any
other right to conduct an assessment or inspection of the Property. The obligations of this
paragraph shall survive the Closing or any termination of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Purchaser acknowledges that several ordinances, statutes, rules, regulations, codes, and
public and private covenants, conditions and restrictions may affect the development and/or use of
the Property. Purchaser shall review and verify all such matters prior to the expiration of the
Due Diligence Period. Notwithstanding anything contained herein to the contrary, Purchaser&#146;s
failure to terminate this Agreement pursuant to its rights
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 4<!-- /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">under this Section shall constitute Purchaser&#146;s irrevocable approval of the ordinances, statutes,
rules, regulations, codes, and public and private covenants, conditions and restrictions which
affect the development and/or use of the Property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;On or prior to the expiration of the Due Diligence Period, Purchaser shall review the
Service Contracts and notify Seller in writing as to which if any of the Service Contracts it
wishes to assume at Closing (collectively, the &#147;Assumed Contracts&#148;). In the event that Purchaser
does not timely notify Seller within the Due Diligence Period, it shall be deemed to have elected
not to assume any of the Service Contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 5. <U>REPRESENTATIONS AND WARRANTIES OF SELLER</U>. Seller hereby represents and
warrants to Purchaser, both as of the date hereof and as of the Closing Date, as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Seller is a corporation duly formed, validly existing and in good standing under the laws
of the State of Missouri, and Seller is a corporation qualified to do business, validly existing
and in good standing under the laws of the State of Texas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Seller is the owner of the Property and has all requisite power and authority, and has
taken all actions required by its organizational documents and to authorize it to execute and
deliver this Agreement. The individual executing this Agreement and any other documents and
instruments executed by Seller pursuant hereto has the legal power, right, and actual authority to
bind Seller to the terms and conditions hereof and thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The Property is not subject to any leases, tenancies or other occupancy rights, recorded
or unrecorded, written or oral, except for the Warehouse Lease, and Seller is not in default of any
of its obligations under the Warehouse Lease and no event has occurred which with notice, the
passing of time or both, would constitute a default or an event of default under the Warehouse
Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;To Seller&#146;s knowledge, there is no action, claim, lawsuit, litigation or proceeding
pending against or with respect to the Property and no such action, claim, lawsuit, litigation or
proceeding has been made or threatened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Seller has not received notice of any pending or contemplated taking of all or any
portion of the Property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Seller has not received any notice asserting that the Property is in violation of any
law, code, ordinance or restriction applicable to the Property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Seller is not a &#147;foreign person&#148; as that term is defined in Section&nbsp;1445 of the Internal
Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;Seller will not, from and after the Effective Date through Closing or the earlier
termination of this Agreement: (i)&nbsp;enter into any lease or otherwise encumber the Property; (ii)
enter into any agreements which would be binding on Purchaser after its acquisition of the Property
or which would affect Purchaser&#146;s title to the Property; or (iii)&nbsp;perform any act which would
materially and adversely affect Seller&#146;s right or ability to convey the Property to Purchaser
pursuant to this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties in this Section&nbsp;5 shall survive the Closing of this
Agreement for a period of twelve (12)&nbsp;months from and after the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, &#147;knowledge&#148; (as it relates to Seller) means the actual,
conscious knowledge, and not the constructive or imputed knowledge, of Rod McDonald (Seller&#146;s
General Counsel), without personal liability to such persons, and without the obligation of such
persons to undertake any further
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 5<!-- /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">investigation and inquiry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties set forth in this Section&nbsp;5 are made as of the date of this
Agreement and shall survive the Closing for a period of one (1)&nbsp;year from the Closing Date. If (a)
any of Seller&#146;s representations and warranties set forth in this Section&nbsp;5 are untrue in any
material respect, and (b)&nbsp;the party gaining knowledge of such facts (either Purchaser or Seller)
gains such knowledge prior to the Closing Date, such party shall give the other party prompt
written notice thereof, and Purchaser shall, as Purchaser&#146;s sole remedy for such breach, have the
right to terminate this Agreement by delivering written notice prior to the earlier of (i)&nbsp;ten (10)
days from the date of such written notice, or (ii)&nbsp;the Closing Date, whereupon Title Company shall
refund the Earnest Money to Purchaser, Seller shall reimburse Purchaser for the actual, reasonable
out-of-pocket costs and expenses incurred in connection with the transaction contemplated in this
Agreement up to, but not in excess of the Cap (as defined in Section&nbsp;10 hereof), and neither party
shall have any further rights or obligations hereunder, except for those obligations which
expressly survive the termination of this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, Purchaser acknowledges and agrees that no claim for a breach of a
representation or warranty of Seller shall be actionable, payable or give rise to any right, claim
or defense on the part of Purchaser: (x)&nbsp;at any time if the breach in question results from or is
based on a condition, state of facts or other matter with respect to which Purchaser has knowledge
on or prior to the Effective Date, or (y)&nbsp;after Closing if the breach in question results from or
is based on a condition, state of facts or other matter with respect to which Purchaser acquires
knowledge after the Effective Date but prior to Closing.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If the parties consummate the Closing and (a)&nbsp;any of the representations and warranties are untrue
in any material respect, and (b)&nbsp;the party gaining knowledge of such facts (either Purchaser or
Seller) gains such knowledge after the Closing Date, such party shall give the other party prompt
written notice thereof, and Seller shall indemnify and hold Purchaser harmless from and against
actual damages proximately caused by such breach. Purchaser shall not have the right to bring an
action against Seller for and Purchaser hereby expressly waives any action or suit against Seller
for consequential damages, incidental damages, lost profits, punitive damages or any other damages
other than actual damages arising out of Seller&#146;s default under this Section&nbsp;5.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 6. <U>CLOSING</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Closing (the &#147;Closing&#148;) of the sale of the Property by Seller to Purchaser shall
occur on December&nbsp;19, 2006 (&#147;Closing Date&#148;) or on such earlier date as Purchaser and Seller may
agree. The Closing shall occur in the offices of the Title Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The performance by Seller of all of its obligations hereunder shall be a condition
precedent to Purchaser&#146;s obligation to consummate the Closing of this Agreement (subject to waiver
by Purchaser, in its sole discretion). At the Closing, the Seller shall deliver or cause to be
delivered to Purchaser 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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A Special Warranty Deed in the form attached hereto as
<U>Exhibit&nbsp;C</U> (the &#147;Deed&#148;), executed by Seller and conveying good and
indefeasible fee simple title to the Property to Purchaser, subject only to the
Permitted Encumbrances;</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">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A Bill of Sale and Assignment in the form attached hereto as
<U>Exhibit&nbsp;D</U> (the &#147;Bill of Sale&#148;), transferring to Purchaser Seller&#146;s
interest in the Personal Property (including the Assumed Contracts), without
warranty and on an &#147;as is&#148; basis as set forth in the Deed;</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">iii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An Assignment of Lease, in the form attached hereto as
<U>Exhibit&nbsp;E</U> (the &#147;Assignment&#148;), assigning all of Seller&#146;s interest in and
under the Warehouse Lease. In connection with said Assignment, Seller shall
execute in counterpart that certain tenant notice letter in the form attached
hereto as <U>Exhibit&nbsp;F</U> (the &#147;Tenant Notice Letter&#148;), informing the tenant
of the assignment of the Warehouse Lease to Purchaser;</TD>
</TR>

</TABLE>
</DIV>
<P align="right" style="font-size: 10pt"><!-- Folio -->Page 6<!-- /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 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">iv.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An estoppel certificate executed by each of the tenants under the
Leases, including, without limitation, the Warehouse Lease, dated not more than
thirty (30)&nbsp;days prior to the Closing Date, and in a form and content acceptable
to Purchaser;</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">v.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the irrevocable commitment from the Title Company to issue the
Title Policy issued by the Title Company in the amount of the Purchase Price
insuring that Purchaser owns fee simple title to the Property, and including
such endorsements as may be specified by Purchaser, subject to no exceptions
other than the Permitted Encumbrances. At Purchaser&#146;s option, the standard
printed exception for &#147;any discrepancies, conflicts, or shortages in area or
boundary lines, or any encroachments, or any overlapping of improvements&#148; shall
be deleted (except for &#147;shortages in area&#148;), any mortgagee policy of title
insurance, and any other additions, deletions, certifications, or amendments to
the Title Policy or any mortgagee policy of title insurance shall be at Seller&#146;s
expense;</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">vi.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a certificate of non-foreign status, in form reasonably
acceptable to Seller and Purchaser, that Seller is not a &#147;foreign person&#148; within
the meaning of Section&nbsp;1445 of the Internal Revenue Code;</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">vii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evidence reasonably acceptable to Purchaser and the Title Company
authorizing the consummation by Seller of the purchase and sale transaction
contemplated hereby; 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">viii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>execute and deliver such other documents as the Title Company
may reasonably require in connection with the Closing, including, without
limitation, a closing statement and one (1)&nbsp;or more affidavits regarding debts,
liens and possession of the Property.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The performance by Purchaser of all of its obligations hereunder shall be a condition
precedent to Seller&#146;s obligation to consummate the Closing of this Agreement (subject to waiver by
Seller, in its sole discretion). At the Closing, the Purchaser shall execute and deliver (or cause
to be delivered) to Seller 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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>cash, wired funds or a cashier&#146;s or certified check made payable
to the order of Seller, at Seller&#146;s option, in the amount of the Purchase Price,
due credit being given for the Earnest Money (including interest earned
thereon);</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">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evidence reasonably acceptable to Seller and the Title Company
authorizing the consummation by Purchaser of the purchase and sale transaction
contemplated hereby;</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">iii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Bill of Sale;</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">iv.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Assignment;</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">v.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Tenant Notice Letter; 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">vi.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>execute and deliver such other documents as the Title Company may
reasonably require in connection with the Closing, including, without
limitation, a closing statement.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;At Closing, Seller and Purchaser shall execute that certain Office Lease in the form of
<U>Exhibit&nbsp;G</U> attached hereto (the &#147;Office Lease&#148;), pursuant to which Seller, as tenant, will
lease the portion of the Property shown on Exhibit&nbsp;A-1 as the &#147;Office Area&#148; from Purchaser, as
landlord. The obligations of each of Seller and Purchaser to consummate the Closing are expressly
conditioned upon the other party&#146;s execution of the Office Lease, and the failure of either party
to so execute the Office Lease at Closing shall be a default of such party, entitling the
non-defaulting party to the remedies set forth in Section&nbsp;9 of this Agreement.
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 7<!-- /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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;All ad valorem real estate taxes and assessments levied or assessed against the Property
for the tax year during which the Closing occurs shall not be prorated between Purchaser and Seller
as of the Closing Date, as such taxes shall remain the obligation of Seller as tenant under the
Office Lease and Warehouse Tenant under the Warehouse Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Purchaser shall pay for the costs (i)&nbsp;of any financing obtained by Purchaser in connection
with its purchase of the Property pursuant hereto, (ii)&nbsp;of any documentary stamp taxes, deed taxes,
transfer taxes, intangible taxes, mortgage taxes or other similar taxes, fees or assessments, (iii)
incurred by Purchaser in performing its feasibility study and related tests and investigations, and
(iv)&nbsp;of one-half of the Title Company&#146;s escrow fee. Seller shall pay for the costs (x)&nbsp;of the
Survey, (y)&nbsp;the Title Commitment and the premium for the Title Policy and (z)&nbsp;one-half of the Title
Company&#146;s escrow fee. Each party shall pay its own attorneys&#146; fees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Upon completion of the Closing, Seller shall deliver to Purchaser possession of the
Property, subject to the Permitted Encumbrances, free and clear of all tenancies of every kind and
parties in possession, except for the Warehouse Lease and the Office Lease.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 7. <U>NOTICES</U>. All notices or other communications required to be given or served on
any party pursuant to this Agreement must be in writing and given to the parties at the addresses
set forth hereinbelow:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt"><U>If to Seller:</U><BR>
Pizza Inn, Inc.<BR>
3551 Plano Parkway<BR>
The Colony, Texas 75056<BR>
Attention: Rod McDonald, General Counsel<BR>
Telephone No.&nbsp;469.384.5000<BR>
Facsimile No.&nbsp;469.384.5061
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt"><U>With copy to Seller&#146;s legal counsel</U>:<BR>
Cherry, Petersen &#043; Landry, LLP<BR>
9400 North Central Expressway, Suite&nbsp;1616<BR>
Dallas, Texas 75231<BR>
Attention: Terry R. Landry<BR>
Telephone: (214)&nbsp;265-7007<BR>
Facsimile: (214)&nbsp;265-7008
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">If to Purchaser:<BR>
Vintage Interests, LP<BR>
2525 Fairmount Street<BR>
Dallas, Texas 75201<BR>
Telephone: 214.954.4344<BR>
Facsimile: 214.954.4355
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt"><U>With copy to Purchaser&#146;s legal counsel</U>:<BR>
Jenkens &#038; Gilchrist, PC<BR>
1445 Ross Avenue, Suite&nbsp;3700<BR>
Dallas, Texas 75202<BR>
Attention: George C. Dunlap, Jr.<BR>
Telephone: 214.855.4723<BR>
Facsimile: 214.855.4300
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any such notice or other communication shall be deemed given on the earliest to occur of the
following: (a)&nbsp;the first business day following the day sent by United States express mail, postage
prepaid, return receipt requested; (b)&nbsp;on the first business day following the day sent by an overnight carrier service
that operates on a
</DIV>


<P align="right" style="font-size: 10pt"><!-- Folio -->Page 8<!-- /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">nationwide basis; (c)&nbsp;on the third business day following the day sent by United
States certified mail, postage prepaid, return receipt requested; or (d)&nbsp;on the date delivered by
hand to the address above for which a signed receipt is given, whether or not actually received by
the person to whom directed. From time to time either party may designate another address within
the continental United States for purposes of this Agreement by giving the other party not less
than ten (10)&nbsp;days advance written notice of such change of address in accordance with the
provisions of this Section. Facsimile transmissions shall not constitute notice hereunder, unless
the recipient acknowledges receipt of the facsimile in writing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 8. <U>COMMISSIONS</U>. Except for The Staubach Company, who represents Seller in
connection with this transaction, Purchaser and Seller each represent and warrant to the other that
no real estate broker or agent has been used or consulted by such representing party in connection
with the negotiation or execution of this Agreement or the purchase and sale of the Property.
Purchaser and Seller covenant and agree that each will defend, indemnify and hold the other
harmless from and against all liabilities, claims, demands and actions by third parties for
brokerage, commission, finder&#146;s or other fees relative to negotiation or execution of this
Agreement, or the purchase and sale of the Property, and any court costs, attorneys&#146; fees or other
costs or expenses arising therefrom, alleged to be due to the indemnifying party&#146;s acts. Such
indemnities shall survive any termination or Closing of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 9. <U>ASSIGNS</U>. This Agreement shall inure to the benefit of and be binding on the
parties hereto and their respective heirs, legal representatives, successors and assigns.
Notwithstanding the foregoing, Purchaser shall not have the right nor the power to assign this
Agreement or any right, title, interest or obligation hereunder to any party other than an
affiliate of Purchaser without the prior written approval of Seller. Any purported assignment in
violation of this provision shall be null and void. Any assignment to which Seller consents, which
consent must be in writing, shall not release Purchaser from any obligation or liability hereunder
unless such release is provided in writing signed by Seller.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 10. <U>REMEDIES</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;In the event that Purchaser shall fail to consummate this Agreement for any reason,
except Seller&#146;s default or a termination of this Agreement by Purchaser or Seller pursuant to a
right to do so under the provisions hereof, Seller shall, as its sole and exclusive remedy, be
entitled to terminate this Agreement by written notice to Purchaser, and Seller shall retain the
Earnest Money, which shall constitute liquidated damages hereunder. The parties agree that Seller
will suffer damages in the event of Purchaser&#146;s default on its obligations, that the Earnest Money
represents a reasonable forecast of just compensation for the harm that would be caused by such
default by Purchaser, and that the harm that would be caused by such default is one that is
incapable, or very difficult, of accurate estimation. Upon termination of this Agreement under
this Section, neither party shall have any further rights or obligations hereunder except as
otherwise expressly provided herein. Purchaser also shall be in default under this Agreement if
Purchaser becomes bankrupt, whether voluntarily or involuntarily, or insolvent, or makes an
assignment for the benefit of its creditors. Except as otherwise provided herein, such liquidated
damages shall constitute Seller&#146;s sole and exclusive remedy. In the event Seller is entitled to
the Earnest Money as liquidated damages and to the extent Seller has not already received the
Earnest Money, the Earnest Money shall be immediately paid to Seller by the Title Company upon
receipt of written notice from Seller that Purchaser has defaulted under this Agreement, and
Purchaser agrees to take all such actions and execute and deliver all such documents necessary or
appropriate to effect such payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;In the event that Seller shall fail to consummate this Agreement for any reason, except
Purchaser&#146;s default or a termination of this Agreement by Purchaser or Seller pursuant to a right
to do so under the provisions hereof, Purchaser, as its sole and exclusive remedy, may either (i)
enforce specific performance of Seller&#146;s obligations hereunder, or (ii)&nbsp;terminate this Agreement by
giving written notice of termination to Seller, whereupon the Earnest Money (and any interest
earned thereon) shall be immediately returned to Purchaser. If Purchaser elects to not terminate
this Agreement, but seeks specific performance in accordance with option (i)&nbsp;above, and specific
performance is rendered unavailable to Purchaser by reason of Seller&#146;s default under this
Agreement, and if such default is the result of Seller&#146;s act or omission (as opposed to an act or
omission of a
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 9<!-- /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">third party not under the control or agency of Seller), then, and only in such case
Seller shall reimburse Purchaser for the reasonable out-of-pocket costs and expenses up to $50,000
incurred in connection with the transaction contemplated in this Agreement (the &#147;Cap&#148;). It is the
intent of the parties that the phrase &#147;specific performance is rendered unavailable to Purchaser&#148;
shall mean that Purchaser would have been entitled to specific performance but for Seller&#146;s default
and Seller is unable to deliver possession of the Property to Purchaser in the condition required
by this Agreement. Upon termination of this Agreement under this Section, neither party shall have
any further rights or obligations hereunder, except as otherwise expressly provided herein. Except
as otherwise provided in Section&nbsp;5 and in this Section&nbsp;10(b), Purchaser shall not have the right to
bring and Purchaser hereby expressly waives any action or suit against Seller for consequential
damages, lost profits, or punitive damages arising out of Seller&#146;s default under this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The provisions of this Section&nbsp;10 shall survive the Closing or any termination of this
Agreement.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 11. <U>CONDEMNATION; CASUALTY</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;In the event that all or any substantial portion of the Property is condemned or taken by
eminent domain after the Due Diligence Period but prior to Closing, Purchaser may, at its option,
either (i)&nbsp;terminate this Agreement by written notice thereof to Seller within ten (10)&nbsp;days after
Seller notifies Purchaser of the condemnation and receives an immediate refund of the Earnest
Money, or (ii)&nbsp;proceed to close the transaction contemplated herein pursuant to the terms hereof,
in which event Seller shall assign to Purchaser at the Closing all proceeds and awards and/or shall
deliver to Purchaser at the Closing any proceeds and awards actually received by Seller
attributable to the Property from such condemnation or eminent domain proceeding. In the event
Purchaser fails to timely deliver written notice of termination as described in (i)&nbsp;above,
Purchaser shall be deemed to have elected to proceed in accordance with (ii)&nbsp;above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;In the event that all or any substantial portion of the Property shall be damaged or
destroyed by fire or other casualty after the Due Diligence Period but prior to the Closing,
Purchaser may, at its option, either (i)&nbsp;terminate this Agreement by written notice thereof to
Seller within ten (10)&nbsp;days after Seller notifies Purchaser of the casualty and receive an
immediate refund of the Earnest Money, or (ii)&nbsp;proceed to close the transaction contemplated herein
pursuant to the terms hereof, in which event Seller shall deliver to Purchaser at the Closing any
insurance proceeds actually received by Seller attributable to the Property from such casualty and
Seller shall assign to Purchaser any and all claims for such insurance proceeds attributable to the
Property, and there shall be no reduction in the Purchase Price. In the event Purchaser fails to
timely deliver written notice of termination as described in (i)&nbsp;above, Purchaser shall be deemed
to have elected to proceed in accordance with (ii)&nbsp;above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;For the purposes of Sections 10(a) and 10(b), a &#147;substantial portion&#148; of the Property
shall be deemed to include any taking or casualty loss equal to or greater than 10% of the gross
number of square feet contained in the buildings and other improvements that are situated on the
Land, and shall not include any taking or casualty loss of less than 10% of the gross number of
square feet contained in the buildings and improvements that are situated on the Land.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 12. <U>DISCLAIMER</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;<B>IT IS UNDERSTOOD AND AGREED THAT EXCEPT FOR THE WARRANTY OF TITLE CONTAINED IN THE DEED
AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, (A)&nbsp;THE PROPERTY IS SOLD BY SELLER AND
PURCHASED AND ACCEPTED BY PURCHASER ON AN &#147;</B><U><B>AS IS</B></U><B>,&#148; &#147;</B><U><B>WHERE IS</B></U><B>&#148; AND &#147;</B><U><B>WITH ALL
FAULTS</B></U><B>&#148; BASIS, SUBJECT TO ANY CONDITION WHICH MAY EXIST, AND WITHOUT THE EXISTENCE OF AND
WITHOUT RELIANCE UPON ANY REPRESENTATION, WARRANTY, AGREEMENT, OR STATEMENT BY SELLER, OR ANYONE
ACTING ON BEHALF OF SELLER INCLUDING, WITHOUT LIMITATION, ANY BROKER, ENGINEER, ARCHITECT,
ATTORNEY, SURVEYOR, APPRAISER, OR ENVIRONMENTAL CONSULTANT; (B)&nbsp;PURCHASER HAS OR WILL HAVE, PRIOR
TO THE CLOSING THOROUGHLY INSPECTED AND EXAMINED THE PROPERTY TO THE EXTENT</B>
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->Page 10<!-- /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"><B>DEEMED NECESSARY BY PURCHASER
IN ORDER TO ENABLE PURCHASER TO EVALUATE THE PURCHASE OF THE PROPERTY ON THE FOREGOING BASIS; AND
(C)&nbsp;PURCHASER IS RELYING SOLELY UPON SUCH INSPECTIONS, EXAMINATION, AND EVALUATION OF THE PROPERTY
BY PURCHASER IN PURCHASING THE PROPERTY ON AN &#147;</B><U><B>AS IS</B></U><B>&#148;, &#147;</B><U><B>WHERE IS</B></U><B>&#148; AND &#147;</B><U><B>WITH ALL
FAULTS</B></U><B>&#148; BASIS, WITHOUT REPRESENTATION, WARRANTY, AGREEMENT OR STATEMENT BY SELLER OR ANYONE
ACTING ON BEHALF OF SELLER, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE, OTHER THAN THE WARRANTY OF
TITLE CONTAINED IN THE DEED. THE PROVISIONS OF THIS SECTION SHALL SURVIVE THE CLOSING OR ANY
TERMINATION HEREOF.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;With respect to any information provided to Purchaser and any information made available
to Purchaser by or on behalf of Seller, including, without limitation the Title Commitment and the
Survey, Purchaser acknowledges and agrees that (i)&nbsp;Purchaser shall use and rely on such information
at Purchaser&#146;s own risk, (ii)&nbsp;the parties preparing such information are not the agents of Seller,
(iii)&nbsp;Seller shall have no duty to advise Purchaser of any misrepresentations, misstatements,
mistakes, errors or other inaccuracies contained in such information, and (iv)&nbsp;Seller shall have no
and is hereby released from all liability to Purchaser, its successors and/or assigns, with respect
to such information, including, without limitation any liability for misrepresentations,
misstatements, mistakes, errors or other inaccuracies contained in such information, regardless of
whether or not Seller actually knows of the existence thereof. Notwithstanding anything in this
Agreement to the contrary, nothing in this Agreement shall be deemed to affect any obligations of
Seller, or release Seller from any liability whatsoever, as the tenant under the terms and
provisions of the Office Lease.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SECTION 13. <U>MISCELLANEOUS</U>.
</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>Notices to Purchaser.</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="5%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Purchaser should have an abstract covering the Property examined
by an attorney of Purchaser&#146;s selection, or Purchaser should be furnished with
or obtain a title policy.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">ii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Property is situated in a utility or other statutorily
created district providing water, sewer, drainage, or flood control facilities
and services, Chapter&nbsp;49, Texas Water Code, requires Seller to deliver and
Purchaser to sign the statutory notice relating to the tax rate, bonded
indebtedness, or standby fees of the district before final execution of 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="5%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">iii.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Seller advises Purchaser that Seller does not know the location
of any transportation pipelines on the Property, including, without limitation,
pipelines for the transportation of natural gas, natural gas liquids, synthetic
gas, liquefied petroleum gas, petroleum or petroleum products, or hazardous
substances.</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">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Entire Agreement; Governing Law. <B>THIS AGREEMENT AND ANY EXHIBITS ATTACHED
HERETO CONTAIN THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND NO PROMISE,
REPRESENTATION, WARRANTY OR COVENANT NOT INCLUDED IN THIS AGREEMENT OR ANY SUCH
REFERENCED EXHIBITS HAS BEEN OR IS RELIED UPON OR MADE BY EITHER PARTY. </B>Each party has
relied upon its own examination of the full Agreement and the provisions thereof, and
the counsel of its own advisers, and the warranties, representations and covenants
expressly contained in this Agreement. No modification or amendment of this Agreement
shall be of any force or effect unless made in writing and executed by both Purchaser
and Seller. In the event that any litigation arises hereunder, it is specifically
stipulated that this Agreement shall be interpreted and construed according to the laws
of the State of Texas, without regard to conflicts
of laws principles, and shall be performed in Dallas County, Texas.</TD>
</TR>



</TABLE>
</DIV>
<P align="right" style="font-size: 10pt"><!-- Folio -->Page 11<!-- /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 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">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Authority to Enter into Agreement. Purchaser represents and warrants to Seller
that (i)&nbsp;Purchaser has full right and authority to enter into this Agreement and to
consummate the transactions contemplated herein, (ii)&nbsp;each of the persons executing
this Agreement on behalf of Purchaser is authorized to do so, and (iii)&nbsp;this Agreement
constitutes a valid and legally binding obligation of Purchaser, enforceable in
accordance with its terms. Seller represents and warrants to Purchaser that (i)&nbsp;Seller
has full right and authority to enter into this Agreement and to consummate the
transactions contemplated herein, (ii)&nbsp;each of the persons executing this Agreement on
behalf of Seller is authorized to do so, and (iii)&nbsp;this Agreement constitutes a valid
and legally binding obligation of Seller, enforceable in accordance with its terms.</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>Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of the Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its severance
from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be deemed added automatically as a part or this Agreement, a
provision as similar in terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.</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">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Attorneys&#146; Fees and Legal Expenses. Should either party hereto institute any
action or proceeding in court or through arbitration to enforce any provision hereof or
for damages by reason of any alleged breach of any provision of this Agreement or for
any other remedy, the prevailing party shall be entitled to receive from the losing
party all reasonable attorneys&#146; fees and all court and/or arbitration costs in
connection with said proceeding.</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">f.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Construction. The parties acknowledge that the parties and their counsel have
reviewed and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any exhibits or amendments hereto.</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">g.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Calculation of Dates and Times. Unless otherwise specified, in computing any
period of time described in this Agreement, the day of the act or event after which the
designated period of time begins to run is not to be included and the last day of the
period so computed is to be included, unless such last day is a Saturday, Sunday or
legal holiday under the laws of the State of Texas, in which event the period shall run
until the end of the next day which is neither a Saturday, Sunday or legal holiday. The
final day of any such period shall be deemed to end at 5 p.m., Dallas, Texas time.</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">h.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Counterparts. This Agreement may be executed in any number of counterparts
which together shall constitute the agreement of the parties. The Section headings
herein contained are for purposes of identification only and shall not be considered in
construing 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">i.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Seller Exculpated Parties. Notwithstanding anything to the contrary contained
in this Agreement, none of the partners of Seller nor any of the directors, officers,
employees, shareholders, members, managers, partners or agents of any of the partners
of Seller nor any other person, partnership, corporation or trust, as principal of
Seller, whether disclosed or undisclosed (collectively, the &#147;Seller Exculpated
Parties&#148;) shall have any personal obligation or liability hereunder, and Purchaser
shall not seek to assert any claim or enforce any of its rights hereunder against any
Seller Exculpated Party.</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">j.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Purchaser Exculpated Parties. Notwithstanding anything to the contrary
contained in this Agreement, none of the partners of Purchaser nor any of the directors, officers,
employees,</TD>
</TR>

</TABLE>
</DIV>
<P align="right" style="font-size: 10pt"><!-- Folio -->Page 12<!-- /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 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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shareholders, members, managers, partners or agents of any of the partners
of Purchaser nor any other person, partnership, corporation or trust, as principal of
Purchaser, whether disclosed or undisclosed (collectively, the &#147;Purchaser Exculpated
Parties&#148;) shall have any personal obligation or liability hereunder, and Seller shall
not seek to assert any claim or enforce any of its rights hereunder against any
Purchaser Exculpated Party.</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">k.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>WAIVER OF JURY TRIAL. PURCHASER AND SELLER EACH HEREBY AGREE NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD
TO THIS AGREEMENT OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY
PURCHASER AND SELLER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. SELLER OR
PURCHASER, AS APPLICABLE, IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY
PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY PURCHASER OR SELLER, AS APPLICABLE.</B></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">l.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No Recordation. Seller and Purchaser hereby acknowledge that neither this
Agreement nor any memorandum or affidavit thereof shall be recorded of public record in
any county or state. Should Purchaser ever record or attempt to record this Agreement,
or a memorandum or affidavit thereof, or any other similar document, then,
notwithstanding anything herein to the contrary, said recordation or attempt at
recordation shall constitute a default by Purchaser hereunder, and, in addition to the
other remedies provided for herein, Seller shall have the express right to terminate
this Agreement by filing a notice of said termination in the place where such
memorandum or affidavit is recorded and in the county in which the Property is located.</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">m.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Time is of the Essence. Time is of the essence with respect to the performance
of all obligations provided herein and the consummation of all transactions
contemplated hereby.</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">n.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Merger Provision. Except where expressly provided in this Agreement, any and
all rights of action of Purchaser for any breach by Seller of any representation,
warranty or covenant contained in this Agreement shall merge with the Deed and other
instruments executed at Closing and shall not survive the Closing.</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">o.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Confidentiality. Purchaser and Seller shall keep the terms of this Agreement
strictly confidential and shall not disclose or permit their respective officers,
shareholders, directors, partners, employees or agents to disclose such terms, unless
otherwise required by applicable law or process of law.</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">p.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Waiver of DTPA. <FONT style="font-variant: SMALL-CAPS"><B>Purchaser acknowledges and agrees, on its own behalf and
on behalf of any permitted assigns and successors of Purchaser hereafter, that the
Texas Deceptive Trade Practices-Consumer Protection Act, Subchapter E of Chapter&nbsp;17 of
the Texas Business and Commerce Code (the &#147;DTPA&#148;), is not applicable to this
transaction. Accordingly, Purchaser&#146;s rights and remedies with respect to the
transaction contemplated under this Agreement, and with respect to all acts or
practices of the Seller, past, present or future, in connection with such transaction,
shall be governed by legal principles other than the DTPA. The provisions of this
Section shall survive the termination or the Closing of this Agreement. </B></FONT></TD>
</TR>

</TABLE>
</DIV>
<P align="right" style="font-size: 10pt"><!-- Folio -->Page 13<!-- /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 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">q.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Time Limit. This Agreement, until fully executed, is only an offer of the
party first executing the same, and shall not be considered effective until and unless
this Agreement is fully executed by both Buyer and Seller within three (3)&nbsp;days after
the first party executes this Agreement. All references herein to the date of this
Agreement shall mean the Effective Date.</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">r.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Survival. It is expressly agreed that all indemnities set forth in this
Agreement shall survive the termination or Closing of this Agreement.</TD>
</TR>

</TABLE>
</DIV>
<P align="right" style="font-size: 10pt"><!-- Folio -->Page 14<!-- /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 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">s.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Independent Consideration. Notwithstanding anything herein to the contrary, a
portion of the Earnest Money Deposit in the amount of $100.00 shall be non-refundable
and shall be distributed to Seller at Closing or other termination of this Agreement as
full payment and independent consideration for Seller&#146;s performance under this
Agreement and for the rights granted to Purchaser hereunder. Any refund or delivery of
the Earnest Money to Purchaser pursuant to this Agreement shall be less the
non-refundable portion thereof which shall simultaneously be distributed to Seller.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">(<B><I>Signatures on following page</I></B>)
</DIV>




<P align="right" style="font-size: 10pt"><!-- Folio -->Page 15<!-- /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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the
Effective Date.
</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="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="19%">&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">SELLER:</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>
    <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"><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="5" valign="top" align="left">a Missouri corporation</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>
    <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">By:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">/s/ Clinton J. Coleman</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 align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;<BR></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">Name:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Clinton J. Coleman</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">Title:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Interim Chief Financial Officer</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>
    <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">Date:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><U>October&nbsp;20, 2006</U></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>
    <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">PURCHASER:</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>
    <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"><B>VINTAGE INTERESTS, L.P.,</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="5" valign="top" align="left">a Texas limited partnership</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>
    <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">By:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Vintage Interests GP, LLC,</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 colspan="3" valign="top" align="left">a Texas limited liability company,</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 colspan="3" valign="top" align="left">its general partner</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>
    <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">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Ernest O. Perry, III</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>
    <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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ernest O. Perry, III</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Partner</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>
    <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">Date:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>October&nbsp;20, 2006</U></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>d41082exv10w2.htm
<DESCRIPTION>SUPPLEMENTAL LIMITED FORBEARANCE AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w2</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 10.2</B>
</DIV>


<DIV align="CENTER" style="font-size: 10pt; margin-top: 6pt"><U><B>SUPPLEMENTAL LIMITED FORBEARANCE AGREEMENT </B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS <B>SUPPLEMENTAL LIMITED FORBEARANCE AGREEMENT </B>(this &#147;<U>Agreement</U>&#148;) dated effective as
of November &#95;&#95;&#95;, 2006 (the &#147;<U>Effective Date</U>&#148;) is entered into by and among PIZZA INN, INC.,
a Missouri corporation (the &#147;<U>Borrower</U>&#148;), the Guarantors identified on the signature pages
hereto (the &#147;<U>Guarantors</U>&#148;), NEWCASTLE PARTNERS, LP, a Texas limited partnership
(&#147;<U>Newcastle</U>&#148;) and WELLS FARGO BANK, NATIONAL ASSOCIATION (successor to Wells Fargo Bank
(Texas), National Association) (the &#147;<U>Bank</U>&#148;). The Borrower and the Guarantors are
sometimes collectively referred to herein as the &#147;<U>Obligors</U>&#148;, and the Obligors and Newcastle
are sometimes collectively referred to herein as the &#147;<U>Borrower Parties</U>&#148;. Capitalized terms
used and not otherwise defined herein shall have the meanings as set forth in the Loan Agreement
(as defined below).
</DIV>

<DIV align="CENTER" style="font-size: 10pt; margin-top: 12pt"><U><B>PRELIMINARY STATEMENTS </B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;The Borrower and the Bank have entered into that certain Third Amended and Restated Loan
Agreement dated as of January&nbsp;22, 2003 (as amended or otherwise modified from time to time, the
&#147;<U>Loan Agreement</U>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;Borrower, the other Obligors and the Bank have entered into that certain Limited
Forbearance Agreement dated as of August&nbsp;8, 2006 (the &#147;<U>Original Forbearance Agreement</U>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;The forbearance period established in connection with the Original Forbearance Agreement
expired on October&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;On October&nbsp;13, 2006, the Bank exercised its right to terminate the Revolving Credit
Commitment and to accelerate all unpaid principal and accrued interest under the Notes, along with
all other unpaid obligations under the Loan Documents (the &#147;<U>Acceleration</U>&#148;) and all such
obligations are now immediately due and payable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW THEREFORE, in consideration of the premises and the mutual agreements, representations and
warranties herein set forth and for other good and valuable consideration, the parties hereto
hereby agree as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 1. <U>Acceleration of the Obligations and Default Interest</U>. The Obligors each
acknowledge that as a result of the Acceleration, all unpaid principal and accrued interest under
the Notes, along with all other unpaid obligations under the Loan Documents became immediately due
and payable, and subject to the terms of this Agreement, all such obligations remain immediately
due and payable as of the date hereof. Each of the Obligors further acknowledges that except
during the Forbearance Period as set forth in Section&nbsp;4 hereof, all such unpaid obligations which
remain outstanding after October&nbsp;13, 2006 shall bear interest at lesser of (i)&nbsp;the default rate of
interest applicable thereto under the Loan Documents or (ii)&nbsp;the Maximum Rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 2. <U>Existing Events of Default</U>. The Obligors each hereby acknowledge that the
following defaults and events of default currently exist under the Loan Documents and shall
continue to exist under the Loan Documents under the Forbearance Period (the &#147;<U>Existing Events
of Default</U>&#148;):
</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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The failure of Borrower to immediately pay, upon the Acceleration, all unpaid principal
and accrued interest under the Notes, along with all other unpaid obligations under the Loan
Documents and the continued failure of Borrower to pay such amounts during the Forbearance Period;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The failure of Borrower to maintain the required Fixed Charge Coverage Ratio as required
by Section&nbsp;12.1 of the Loan Agreement for all periods ended on or before the Forbearance
Termination Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The failure of Borrower to maintain profitable operations as required by Section&nbsp;12.3 of
the Loan Agreement for all periods ended on or before the Forbearance Termination Date; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;The failure of Borrower to maintain the ratio of Consolidated Liabilities less
Subordinated Debt to Tangible Net Worth as required by Section&nbsp;12.2 of the Loan Agreement for all
periods ended on or before the Forbearance Termination Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 3. <U>Forbearance</U>. (a)&nbsp;The Obligors hereby agree that but for the forbearance
of the Bank set forth below, which is subject to the satisfaction of the terms and conditions set
forth herein, the Bank would be entitled to pursue it rights and remedies for the enforcement of
the Obligors&#146; obligations under the Loan Documents. The Obligors further agree that (i)&nbsp;the
Existing Events of Default are not cured or waived by reason of the Bank&#146;s execution of this
Agreement and (ii)&nbsp;the Acceleration shall not be affected by the forbearance of Bank set forth
below. The Bank is only agreeing in this Agreement to forbear from the exercise of its rights and
remedies which may arise or have arisen by virtue of the Existing Events of Default, and upon
termination of the Forbearance Period (as hereinafter defined), the Bank shall remain entitled to
pursue any and all of its rights and remedies which may arise or have arisen by virtue of the
Existing Events of Default.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Bank agrees that for a period (the &#147;<U>Forbearance Period</U>&#148;) commencing on the
Effective Date and ending on the Forbearance Termination Date (as hereinafter defined), the Bank
will not commence any Foreclosure Proceedings as a result of the Existing Events of Default. The
Bank&#146;s forbearance under this Agreement will automatically terminate without any notice to the
Borrower Parties or any other Person on such date (the &#147;<U>Forbearance Termination Date</U>&#148;)
being the <I>earliest </I>of (i)&nbsp;4:59 p.m., (Houston, Texas time) on December&nbsp;28, 2006, (ii)&nbsp;the
occurrence of any default or event of default under the Loan Documents (other than the Existing
Events of Default), (iii)&nbsp;the date on which any of the Forbearance Conditions described in Section
5 below shall fail to be satisfied and (iv)&nbsp;the date on which any of the Borrower Parties shall
fail to satisfy any of their obligations or covenants under this Agreement or any representation or
warranty made by any Borrower Party in this Agreement fails to be true and correct in any material
respect. On the Forbearance Termination Date, the Bank&#146;s agreement hereunder to forebear from
exercising its remedies under the Loan Documents with respect to the Existing Events of Default
shall automatically cease and terminate and be of no further force and effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Notwithstanding the provisions of this Agreement, the Bank is entitled to take any and all
action as may be necessary and appropriate to perfect, protect and defend the priority
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /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">of any liens or security interests granted to it pursuant to the Loan Documents against the claims
and actions of any other creditors (including any bankruptcy trustee) and to make such filings as
may be necessary and appropriate to insure or maintain the priority and perfection of such liens.
No failure on the part of the Bank to exercise, and no delay in exercising, any right or remedy
hereunder shall operate as a waiver of any such right or remedy nor shall any single or partial
exercise of any right or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by applicable law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 4. <U>Interest Rate During Forbearance Period</U>. During the Forbearance Period,
the Bank and the Borrower Parties agree that all unpaid principal and accrued interest under the
Notes, along with all other unpaid obligations under the Loan Documents, shall bear interest at the
lesser of (i)&nbsp;the sum of the Prime Rate in effect from day to day plus two and three quarters
percent (2.75%) per annum or (ii)&nbsp;the Maximum Rate. After the Forbearance Termination Date, all
such obligations shall bear interest at the lesser of (i)&nbsp;the Maximum Rate or (ii)&nbsp;the default rate
of interest applicable thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 5. <U>Conditions to Forbearance</U>. Each of the following conditions shall
constitute a &#147;<U>Forbearance Condition</U>&#148; and the Obligors agree that all of the following shall
be satisfied as a condition to the Bank&#146;s agreements hereunder:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Newcastle shall have delivered to the Bank either (i)&nbsp;a letter of credit in favor of the
Bank in the amount of $1,500,000 issued by a credit-worthy financial institution containing terms
and conditions acceptable to the Bank in its sole discretion (the &#147;<U>Newcastle Letter of
Credit</U>&#148;) or (ii)&nbsp;a guaranty agreement in form an substance acceptable to the Bank in its sole
discretion guaranteeing all the Obligations (the &#147;<U>Newcastle Guaranty</U>&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Newcastle shall have executed and delivered to the Bank a subordination agreement in form
and substance acceptable to the Bank in its sole discretion;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Borrower shall have paid any Swap Termination Payment owing to the Bank as a result of the
termination of the Swap Agreement pursuant to Section&nbsp;7 hereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;This Agreement must be fully executed by all parties hereto and the Bank must be in
possession of original signatures of each party hereto; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;The Borrower shall have paid all reasonable attorneys fees of the Bank and all other costs
of the Bank incurred in connection with the negotiation and preparation of this Agreement and in
connection with prior negotiations, matters, events and transactions related to the Loan Documents
for which Borrower has been provided with a written invoice prior to the Effective Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 6. <U>Newcastle Letter of Credit and the Newcastle Guaranty</U>. The Obligors and
Newcastle agree that if any Obligations shall remain outstanding on the Forbearance Termination
Date, the Bank shall be entitled to draw on the Newcastle Letter of Credit or enforce its rights
under the Newcastle Guaranty, as applicable, at any time following such Forbearance Termination
Date. If the amount drawn by the Bank under the Newcastle Letter of Credit exceeds the amount of
Obligations then outstanding (as determined by the Bank in its sole
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /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">discretion), the Bank shall promptly refund such excess amount to Newcastle. The Bank shall
promptly return the Newcastle Letter of Credit to Newcastle upon the payment in full of the
Obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 7. <U>Termination of the Swap Agreement</U>. The Obligors and the Bank agree that
the Interest Rate Swap Agreement dated as of February&nbsp;27, 2001 between the Borrower and the Bank
(as amended or otherwise modified from time to time, the &#147;<U>Swap Agreement</U>&#148;) is hereby
terminated without necessity of any further action or notice by any party. If any amounts are
owing from Borrower to the Bank as a result of such termination (a
&#147;<U>Borrower Swap Termination
Payment</U>&#148;), such amounts shall automatically become part of the Obligations and shall be
immediately due and payable. For avoidance of doubt, it is understood that the Forbearance Period
shall not begin until all Borrower Swap Termination Payments have paid. If any amounts are owing
from the Bank to Borrower as a result of the termination of the Swap Agreement, such amounts shall
be applied to the repayment of the Obligations in accordance with the Loan Documents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 8. <U>Additional Advances under the Loan Documents</U>. As a result of the Existing
Events of Default and the termination of the Revolving Credit Commitment, the Bank has no
obligation of any kind or type to make advances under the Loan Documents. Notwithstanding the
foregoing, during the Forbearance Period the Bank agrees to fund requests for additional Revolving
Credit Advances so long as the aggregate principal amount of all Revolving Credit Advances at any
time outstanding (without giving effect to any Letter of Credit Liabilities) does not exceed
$2,020,000. Any advances so made by the Bank shall be evidenced by the Revolving Credit Note and
shall become a part of the Obligations without necessity of any further action, and shall bear
interest as set forth in this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 9. <U>Outstanding Letter of Credit in Favor of Northwestern National Insurance
Company</U>. Pursuant to the Loan Agreement, the Bank has issued a Letter of Credit in favor of
Northwestern National Insurance Company (or its affiliate) in the amount of $230,000 which will
expire on November&nbsp;30, 2006. The Bank has notified Northwestern National Insurance Company that
the Bank does not intend to renew such Letter of Credit. In the event such Letter of Credit is
drawn upon, all disbursements made by the Bank in connection with such Letter of Credit shall
become a part of the Obligations and shall bear interest as set forth in this Agreement. For
avoidance of doubt, if the Letter of Credit issued in favor of Northwestern National Insurance
Company is drawn upon, the occurrence of such drawing shall not cause the Forbearance Period to
terminate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 10. <U>Remedies Upon Termination of the Forbearance Period</U>. Upon the occurrence
of the Forbearance Termination Date, the Forbearance Period shall terminate without further act or
action by the Bank, and the Bank shall be entitled immediately to institute Foreclosure Proceedings
(as defined below) against any collateral securing the Obligations and to exercise any and all of
the rights and remedies available to the Bank under the Loan Documents and this Agreement, at law,
in equity or otherwise, without further notice, demand, presentment, notice of dishonor, notice of
acceleration or notice of intent to accelerate (it being acknowledged that the Obligations have
been accelerated), notice of intent to foreclose, notice of sale, notice of protest or other
formalities or any kind, all of which are hereby expressly waived by the Borrower Parties.
&#147;<U>Foreclosure Proceedings</U>&#148; shall mean (a)&nbsp;the commencement of
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /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">judicial proceedings for the collection of the Obligations or the foreclosure of liens against any
of the collateral securing the Obligations, (b)&nbsp;the nonjudicial foreclosure of any of the
collateral securing the Obligations in accordance with the terms of the applicable Loan Document
and the Uniform Commercial Code, as applicable, (c)&nbsp;a combination of (a)&nbsp;and (b), or (d)&nbsp;the
exercise of any other remedies under the Loan Documents, including any right of setoff.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 11. <U>Ratification, No Defenses</U>. The parties hereto acknowledge and agree that
the agreements and obligations of the Obligors under the Loan Documents are hereby brought forward,
renewed and extended until the indebtedness evidenced thereby shall have been fully paid and
discharged. The Obligors acknowledge and agree that the Loan Documents and all terms thereof are
valid and enforceable obligations of the Obligors and shall remain in full force and effect. The
Bank hereby preserves all of its rights against each of the Obligors, and each of the Obligors
hereby agree that all such rights are ratified and brought forward for the benefit of the Bank.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 12. <U>Representations and Warranties</U>. (a)&nbsp;Each of the Obligors represents and
warrants to the Bank that:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Except for the Existing Events of Default, no default or event of default
has occurred and is continuing under the Loan Documents;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) After giving effect to this Agreement, the representations and warranties
contained in the Loan Documents are true and correct in all material respects on
and as of the date hereof as though made on and as of the date hereof, except to
the extent such representations and warranties relate solely to an earlier date or
to the extent such representations and warranties are incorrect due to the Existing
Events of Default;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Except as set forth in <U>Schedule&nbsp;A</U> attached hereto, there is no
proceeding involving any Obligor pending or to the knowledge of any Obligor,
threatened, before any court or governmental authority, agency or arbitration
authority, except as disclosed to the Bank in writing and acknowledged by the Bank
prior to the date of this Agreement; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) There has been no change in the business or assets of any Obligor (when
compared to the financial statements of Borrower and the Obligor dated September
24, 2006 and delivered to the Bank) which would be materially adverse to Borrower
or any Obligor, any of their respective assets or properties, or operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Each of the Borrower Parties represents and warrants to the Bank that:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) This Agreement has been duly authorized, executed and delivered on behalf
of such Borrower Party and no consent or approval of any third party is required as
a condition to the execution, delivery or performance by of this Agreement by such
Borrower Party;
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /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; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) This Agreement is the legal, valid and binding obligation of such Borrower
Party, enforceable against each such Borrower Party in accordance with its terms,
except to the extent that the enforcement thereof may be limited by applicable
bankruptcy, insolvency or other similar laws relating to the enforcement of
creditors&#146; rights;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) There is no charter, bylaw, stock provision, partnership agreement or
other document pertaining to the power or authority of such Borrower Party and no
provision of any existing agreement, mortgage, indenture or contract binding upon
such Borrower Party or affecting the property of such Borrower Party which would
conflict with or in any way prevent the execution, delivery or performance of the
terms of this Agreement; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) To the best knowledge of such Borrower Party, all written information
furnished to the Bank by such Borrower Party in connection with this Agreement is
and will be accurate and complete on the date as of which such information is
delivered to the Bank and is not and will not be incomplete by the omission of any
material fact necessary to make such information not misleading.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 13. <U>No Course of Dealing</U>. This Agreement shall not create a course of dealing
among or between the parties hereto, constitute an accord or satisfaction of, or extend any
maturity dates for the Obligations, and no further obligation of any kind in excess of those
expressly set forth herein shall be inferred from this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 14. <U>Release and Covenant Not to Sue</U>. EACH OF THE BORROWER PARTIES (EACH IN
ITS OWN RIGHT AND ON BEHALF OF ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT
CONTRACTORS, ATTORNEYS AND AGENTS) (EACH IN THEIR OWN RIGHT AND ON BEHALF OF THEIR RESPECTIVE
ATTORNEYS AND AGENTS) (THE &#147;<U>RELEASING PARTIES</U>&#148;) JOINTLY AND SEVERALLY RELEASE, ACQUIT, AND
FOREVER DISCHARGE THE BANK AND ITS DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS,
ATTORNEYS AND AGENTS, AND ATTORNEYS (THE &#147;<U>RELEASED PARTIES</U>&#148;), TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE STATE AND FEDERAL LAW, FROM ANY AND ALL ACTS AND OMISSIONS OF THE RELEASED
PARTIES, AND FROM ANY AND ALL CLAIMS, CAUSES OF ACTION, COUNTERCLAIMS, DEMANDS, CONTROVERSIES,
COSTS, DEBTS, SUMS OF MONEY, ACCOUNTS, RECKONINGS, BONDS, BILLS, DAMAGES, OBLIGATIONS, LIABILITIES,
OBJECTIONS, AND EXECUTIONS OF ANY NATURE, TYPE, OR DESCRIPTION WHICH THE RELEASING PARTIES HAVE
AGAINST THE RELEASED PARTIES, INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE, GROSS NEGLIGENCE, USURY,
FRAUD, DECEIT, MISREPRESENTATION, CONSPIRACY, UNCONSCIONABILITY, DURESS, ECONOMIC DURESS,
DEFAMATION, CONTROL, INTERFERENCE WITH CONTRACTUAL AND BUSINESS RELATIONSHIPS, CONFLICTS OF
INTEREST, MISUSE OF INSIDER INFORMATION, CONCEALMENT, DISCLOSURE, SECRECY, MISUSE OF COLLATERAL,
WRONGFUL RELEASE OF COLLATERAL, FAILURE TO INSPECT, ENVIRONMENTAL DUE DILIGENCE, NEGLIGENT LOAN
PROCESSING AND ADMINISTRATION, WRONGFUL SETOFF, VIOLATIONS OF STATUTES AND
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /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">REGULATIONS OF GOVERNMENTAL ENTITIES, INSTRUMENTALITIES AND AGENCIES (BOTH CIVIL AND CRIMINAL),
RACKETEERING ACTIVITIES, SECURITIES AND ANTITRUST LAWS VIOLATIONS, TYING ARRANGEMENTS, DECEPTIVE
TRADE PRACTICES, BREACH OR ABUSE OF ANY ALLEGED FIDUCIARY DUTY, BREACH OF ANY ALLEGED SPECIAL
RELATIONSHIP, COURSE OF CONDUCT OR DEALING, ALLEGED OBLIGATION OF FAIR DEALING, ALLEGED OBLIGATION
OF GOOD FAITH, AND ALLEGED OBLIGATION OF GOOD FAITH AND FAIR DEALING, WHETHER OR NOT IN CONNECTION
WITH OR RELATED TO THE LOAN DOCUMENTS AND THIS AGREEMENT, AT LAW OR IN EQUITY, IN CONTRACT IN TORT,
OR OTHERWISE, KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED UP TO AND INCLUDING THE DATE OF THIS
AGREEMENT (THE &#147;<U>RELEASED CLAIMS</U>&#148;) (IT BEING UNDERSTOOD THAT WITH RESPECT TO NEWCASTLE, THE
RELEASED CLAIMS SHALL BE LIMITED TO THOSE ARISING OUT OF OR IN CONNECTION WITH THE OBLIGORS, THE
LOAN DOCUMENTS, THIS AGREEMENT, THE NEWCASTLE LETTER OF CREDIT, THE NEWCASTLE GUARANTY AND ANY
TRANSACTIONS CONNECTED WITH OR RELATED TO THE FOREGOING). THE RELEASING PARTIES FURTHER AGREE TO
LIMIT ANY DAMAGES THEY MAY SEEK IN CONNECTION WITH ANY CLAIM OR CAUSE OF ACTION, IF ANY, TO EXCLUDE
ALL PUNITIVE AND EXEMPLARY DAMAGES, DAMAGES ATTRIBUTABLE TO LOST PROFITS OR OPPORTUNITY, DAMAGES
ATTRIBUTABLE TO MENTAL ANGUISH, AND DAMAGES ATTRIBUTABLE TO PAIN AND SUFFERING, AND THE RELEASING
PARTIES DO HEREBY WAIVE AND RELEASE ALL SUCH DAMAGES WITH RESPECT TO ANY AND ALL CLAIMS OR CAUSES
OF ACTION WHICH MAY ARISE AT ANY TIME AGAINST ANY OF THE RELEASED PARTIES. THE RELEASING PARTIES
REPRESENT AND WARRANT THAT NO FACTS EXIST WHICH COULD PRESENTLY OR IN THE FUTURE COULD SUPPORT THE
ASSERTION OF ANY OF THE RELEASED CLAIMS AGAINST THE RELEASED PARTIES. THE RELEASING PARTIES
FURTHER COVENANT NOT TO SUE THE RELEASED PARTIES ON ACCOUNT OF ANY OF THE RELEASED CLAIMS, AND
EXPRESSLY WAIVE ANY AND ALL DEFENSES THEY MAY HAVE IN CONNECTION WITH THEIR DEBTS AND OBLIGATIONS
UNDER THE LOAN DOCUMENTS AND THIS AGREEMENT. THE PARAGRAPH IS IN ADDITION TO AND SHALL NOT IN ANY
WAY LIMIT ANY OTHER RELEASE, COVENANT NOT TO SUE, OR WAIVER BY THE RELEASING PARTIES IN FAVOR OF
THE RELEASED PARTIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 15. <U>WAIVER OF JURY TRIAL</U>. THE BORROWER PARTIES HEREBY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 16. <U>Arbitration</U>. The provisions of Section&nbsp;14.16 (Arbitration) of the Loan
Agreement will apply to this Agreement and any controversies or claims between or among the parties
hereto relating to this Agreement, and the provisions of Section&nbsp;14.16 (Arbitration) of the Loan
Agreement are incorporated herein by reference for all purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 17. <U>Agreement Controlling</U>. This Agreement constitutes a Loan Document. In
the event of a conflict between the terms and provision of this Agreement and the terms and
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /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">provisions of the other Loan Documents, the terms and provisions of this Agreement shall control.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 18. <U>Address for Notices</U>. All notices and other communications provided for
herein and in the Loan Documents shall be given or made in writing by personal delivery, reputable
overnight courier service, telecopy or registered or certified, first class mail, return receipt
requested. Any communication sent by personal delivery or telecopy shall be deemed received upon
such personal delivery or dispatch of such telecopy, any communication sent by U.S. mail in the
manner specified above shall be deemed received three (3)&nbsp;days following deposit in the mail, and
any communication sent by courier shall be deemed received on the next business day following
delivery to the courier service. All communications shall be addressed to the intended recipient
at the address specified below or at such other address as shall be designated by such party in a
notice to each other party in the manner specified herein.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To the Bank:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wells Fargo Bank, National Association.</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">1000 Louisiana Street, 4<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Floor</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">Houston, Texas 77002</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">Attn: Danny Oliver</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">Telefax No. (713)&nbsp;739-1076</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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To the Obligors:
</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">Attn: Rod McDonald, Esq. &#150; General Counsel</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">Attn: Clinton J. Coleman &#150; Interim CFO</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">Telefax No. (469)&nbsp;574-4452</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>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To Newcastle:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Steven J. Pully</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">Newcastle Partners, L.P.</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">300 Crescent Court, Suite&nbsp;1110</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">Dallas, Texas 75201</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">Attn: Steven J. Pully</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">Telefax No. (214)&nbsp;661-7475</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 19. <U>Further Assurances, Expenses</U>. The Borrower Parties agree to execute and
deliver to the Bank, promptly upon request from the Bank, such other and further documents as may
be reasonably necessary or appropriate to consummate the terms of this Agreement. Each Obligor
agrees to execute and deliver to the Bank, promptly upon request from the Bank such other and
further documents as may be reasonably necessary or appropriate to prefect and/or renew and extend
any liens or security interests granted by Obligors as security for the Obligations. Borrower
agrees to promptly reimburse the Bank for all reasonable expenses incurred by the Bank in
connection with the preparation and execution of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 20. <U>Miscellaneous Provisions</U>. This Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The headings herein shall be accorded no significance in interpreting
this Agreement. In case any one or more of the provisions contained in this
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /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">Agreement should be invalid or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way be affected or
impaired thereby. This Agreement may be amended only by a written agreement executed by each of
the parties hereto. This Agreement shall be binding upon and inure to the benefit of the Borrower
Parties and the Bank and their respective successors and assigns; <I>provided, however, </I>that the
Borrower Parties may not transfer their respective rights under this Agreement to any person or
entity without the prior written consent of the Bank, and any such assignment not in accordance
with this provision shall be null and void and of no effect. The Borrower Parties acknowledge that
the Bank may assign this Agreement in accordance with the Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 21. <U>Governing Law</U>. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and applicable federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 22. <U>FINAL AGREEMENT OF THE PARTIES</U>. <B>THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS CONSTITUTE A &#147;LOAN AGREEMENT&#148; AS DEFINED IN SECTION 26.</B><B>02(a)</B><B> OF THE TEXAS BUSINESS
AND COMMERCE CODE AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 23. <U>Consent and Agreement with Respect to Certain Matters</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Sale of Certain Assets</U>. Notwithstanding the Existing Events of Default, the
Borrower may sell (i)&nbsp;the assets described on <U>Schedule&nbsp;B</U> attached hereto to Sygma Network,
Inc. so long as such assets are not sold for less than the fair market value thereof and (ii)
terminate any leases with respect to trailer equipment leased by Borrower and sell at not less than
fair market value any trailer equipment owned by Borrower which is no longer useful in its
operations. Any proceeds from such sale shall be paid to the Bank to be applied against the
outstanding Revolving Credit Advances. For avoidance of doubt, no event of default shall have
occurred under the Loan Documents if the termination of such leases results in a violation of the
Capital Expenditure limit set forth in Section&nbsp;12.4 of the Loan Agreement or the limitation on
operating lease payments set forth in Section&nbsp;12.5 of the Loan Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Sale and Leaseback of Real Property</U>. Notwithstanding Section&nbsp;11.9 of the Loan
Agreement, the Bank hereby consents to the execution by Borrower of an agreement for the sale and
leaseback of the Real Property, it being understood, however, that notwithstanding the execution by
Borrower of such sale and leaseback agreement, until all Obligations have been paid in full no sale
or other transfer of the Real Property shall be permitted and the Bank&#146;s security interest in the
real property shall not be released. Upon the termination of the Forbearance Period, nothing in
this Agreement shall be deemed to prevent the Bank from posting the Real Property for foreclosure,
foreclosing upon the Real Property or otherwise exercising any of its rights or remedies under the
Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Security Interest in Favor of Newcastle</U>. Provided that the Forbearance Conditions
have been satisfied, the Bank hereby agrees that (i)&nbsp;Borrower may incur reimbursement obligations
to Newcastle with respect to amounts required to be paid by
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /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">Newcastle in respect of the Newcastle Letter of Credit or the Newcastle Guaranty, as applicable,
(ii)&nbsp;Borrower may grant to Newcastle a security interest in Borrower&#146;s property as security for
such obligations, and (iii)&nbsp;Newcastle may file financing statements to perfect such security
interests. It is understood that in accordance with the subordination agreement referenced in
Section&nbsp;5(b), all such obligations and security interests granted to Newcastle shall be subordinate
to any and all obligations and security interests of the Bank.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Parker Settlement</U>. The Bank agrees that no event of default shall have occurred
under the Loan Documents solely by reason of the incurrence by Borrower of payment obligations to
Ronald W. Parker in the principal amount of $2,800,000 (together with interest thereon at five
percent (5.00%) per annum) in connection with the Compromise and Settlement Agreement regarding the
Matter of Arbitration between Borrower and Ronald W. Parker before the American Arbitration
Association, case number 71 166 00025 05, provided that such payment obligations shall be unsecured
and shall be subordinate to the Obligations. During the Forbearance Period, the Bank consents to
the payment of $450,000 (plus accrued interest thereon) by Borrower as scheduled principal
repayments of such obligations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Pepsico Settlement</U>. The Bank agrees that no event of default shall occur under
the Loan Documents solely by reason of the incurrence by the Borrower of aggregate payment
obligations to Pepsico of $410,000, of which $250,000 may be evidenced by a promissory note, in
connection with the settlement of certain disputes between the Borrower and Pepsico, provided that
such payment obligations shall be unsecured and shall be subordinate to the Obligations. The
Borrower shall make no payments on such obligations until the Obligations shall have been paid in
full.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Other Matters</U>. The Bank agrees that (i)&nbsp;based on the information provided to the
Bank as of the Effective Date, the Bank is not aware that any representation or warranty made by
Borrower pursuant to Section&nbsp;9.13 of the Loan Agreement has been false, misleading or erroneous in
any material respect, (ii)&nbsp;no event of default shall occur with respect to Section&nbsp;9.15 of the Loan
Agreement solely by reason of the transactions described in this Section&nbsp;23, (iii)&nbsp;no event of
default under the Loan Documents currently exists with respect to the failure by the Bank to
approve any leases of the Real Property previously submitted in writing to the Bank and (iv)&nbsp;no
event of default has occurred under clause (ii)&nbsp;of Section&nbsp;11.1(f) of the Construction Loan
Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION 24. <U>Expiration</U>. This Agreement shall be null and void, and of no effect,
unless all conditions precedent to its effectiveness are satisfied on or before 12:00&nbsp;p.m. CST on
November&nbsp;13, 2006.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#091;SIGNATURE PAGES FOLLOW&#093;</B>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective
duly authorized officers to be effective as of the date first written above.
</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="58%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&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"><U>BORROWER:</U></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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">PIZZA INN, INC., a Missouri corporation</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>
</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>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Rod J. McDonald</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" 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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rod J. McDonald</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><U>GUARANTORS:</U></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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">BARKO REALTY, INC., a Texas corporation</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>
</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>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Rod J. McDonald</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" 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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rod J. McDonald</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">R-CHECK, INC., a Texas corporation</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>
</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>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Rod J. McDonald</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" 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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rod J. McDonald</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">PIZZA INN OF DELAWARE, INC., a Delaware corporation</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>
</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>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Rod J. McDonald</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" 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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rod J. McDonald</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Signature Page to Supplemental Forbearance Agreement
</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">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&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"><U>NEWCASTLE</U>:</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">NEWCASTLE PARTNERS, LP, a Texas limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">partnership</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By: Newcastle Capital Management, L.P., a</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Texas limited partnership, its general partner</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By: Newcastle Capital Group L.L.C., a Texas</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;limited liability company, its general partner</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>
</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;By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Mark Schwarz</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" 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;&nbsp;&nbsp;&nbsp;&nbsp;Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mark Schwarz</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;Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Member</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="58%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&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"><U>BANK</U>:</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>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">WELLS FARGO BANK, NATIONAL ASSOCIATION</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>
</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>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Danny Oliver</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" 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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Danny Oliver</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Schedule&nbsp;A &#151; Pending or Threatened Litigation<BR>
Schedule&nbsp;B &#151; Sale of Certain Assets

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Signature Page to Supplemental Forbearance Agreement
</DIV>



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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>d41082exv31w1.htm
<DESCRIPTION>RULE 13A-14(A)/15D-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&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Timothy 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 quarterly report on Form 10-Q 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="7%" 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="7%" 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="7%" 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="7%" 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="7%" 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:&nbsp;November 8, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Timothy P. Taft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Timothy P. Taft&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>d41082exv31w2.htm
<DESCRIPTION>RULE 13A-14(A)/15D-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">


<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>

</TABLE>

<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 FINANCIAL 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 quarterly report on Form 10-Q 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="7%" 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="7%" 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="7%" 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="7%" 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="7%" 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:&nbsp;November 8, 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&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>d41082exv32w1.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">


<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>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Exhibit&nbsp;32.1</B></U>
</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; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Quarterly Report on Form 10-Q for the quarter ended September&nbsp;25, 2005 (the
&#147;Form 10-Q&#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-Q 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-Q.
</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:&nbsp;November 8, 2006&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Timothy P. Taft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Timothy P. Taft&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chief Executive 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">The foregoing certification is being furnished as an exhibit to the Form 10-Q 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-Q 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 -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>7
<FILENAME>d41082exv32w2.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"><U><B>Exhibit&nbsp;32.2</B></U>
</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; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Quarterly Report on Form 10-Q for the quarter ended September&nbsp;25, 2005 (the
&#147;Form 10-Q&#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-Q 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-Q.
</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:&nbsp;November 8, 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&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The foregoing certification is being furnished as an exhibit to the Form 10-Q 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-Q 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 -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
