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Pizza Inn, Inc. Reports Results for the Fourth Quarter Fiscal Year 2006

PIZZA INN, INC. today reported a net loss per share for its fourth quarter ended June 25, 2006 of ($0.43) versus a net loss of ($0.01) per share for the same quarter last year. The quarter resulted in a net loss of ($4,421,000) versus a net loss of ($112,000) for the same quarter last year on revenues of $12.2 million and $13.7 million, respectively. For fiscal year 2006, net loss per share was ($0.59) versus a net income of $0.02 per share last year. Net loss for fiscal year 2006 was ($5,989,000) versus a net income of $204,000 last year on revenues of $50.6 million and $55.3 million, respectively.

  Fourth Quarter FY 2006 versus Fourth Quarter FY 2005 Results

   *  Comparable buffet restaurant sales decreased 3.3% for the quarter.
      Chain-wide comparable restaurant sales decreased 3.7% for the quarter.
   *  Total chain-wide restaurant sales decreased 8.3% for the quarter due
      the decrease in comparable restaurant sales and a net reduction in
      franchised restaurants.
   *  The Company's revenues decreased approximately 11%, or $1,526,000,
      primarily due lower chain-wide restaurant sales, as discussed above,
      and lower cheese prices.  The resulting reductions in food and supply
      sales and royalty revenue were partially offset by increased
      restaurant sales at our company-owned restaurants as a result of three
      additional company-owned buffet restaurants in fiscal year 2006.
   *  During the quarter the company incurred $180,000 of legal fees, as
      compared to $439,000 in the prior year, which is reflected in general
      and administrative expenses.
   *  General and administrative expenses in the quarter include non-cash
      stock compensation expense of $54,000 as compared to no expense in the
      prior year.
   *  During the fourth quarter of 2006 the Company incurred the following
      pre-tax items:
       -  Bad debt provision of $201,000 related to accounts receivable from
          franchisees.
       -  The Company accrued a $2,800,000 expense for the previously
          announced litigation settlement agreement with its former
          President and Chief Executive Officer.  The settlement payments
          will be made over the course of the next six months.
       -  A reduction in compensation expense of $126,000 due to a change in
          the estimate for the bonus accrual, the vast majority of which is
          reflected in general and administrative expenses.
       -  A reduction of state tax expense of $109,000 and its related
          accrual due to a change in estimated state taxes, which is
          reflected in general and administrative expenses.
       -  A charge of $125,000 for the write-off of capitalized software
          development expenses for an online-ordering system that has been
          abandoned by the Company due the recent decision to outsource
          certain distribution services.  The company also incurred an
          expense of $20,000 to terminate a service agreement related to the
          online-ordering system.  Both items are reflected in general and
          administrative expenses.
       -  An impairment of $1,319,000 to the goodwill, equipment, building
          and improvements related to two company-owned buffet restaurants
          in Houston, Texas and a closed company-owned delivery/carryout
          restaurant in Little Elm, Texas.

  FY 2006 versus FY 2005 Results

   *  Comparable buffet restaurant sales decreased 1.6% for the year.
      Chain-wide comparable restaurant sales decreased 2.2% for the year.
   *  Total chain-wide restaurant sales decreased 5.5% for the year due the
      decrease in comparable restaurant sales and a net reduction in
      franchised restaurants.
   *  The Company's revenues decreased approximately 8%, or $4,661,000,
      primarily due lower chain-wide restaurant sales, as discussed above,
      and lower cheese prices.  The resulting reductions in food and supply
      sales and royalty revenue were partially offset by increased
      restaurant sales at our company-owned restaurants as a result of three
      additional company-owned buffet restaurants in fiscal year 2006.
   *  During FY 2006 the company incurred $1,417,000 of legal fees, as
      compared to $1,257,000 in the prior year, which is reflected in
      general and administrative expenses.
   *  General and administrative expenses in FY 2006 include non-cash stock
      compensation expense of $341,000 as compared to no expense in the
      prior year.
   *  In addition, the net effect of the items incurred in the fourth
      quarter, as discussed above, also reduced the Company's earnings
      in FY 2006.

The Company's President and CEO, Tim Taft, commented, "Although we were disappointed by the Company's recent operating performance, the performance was in line with our expectations. We are continuing to take the actions that we believe will improve the Company's performance in the future. A particularly important initiative is our recently announced agreements to outsource our distribution services, which will allow us to improve the store- level economics of our current and future franchisees through lower food and supply costs without negatively impacting the corporate bottom line. We also have a significant number of franchised restaurant remodels in the works and international expansion of franchised restaurants is gaining meaningful momentum. Furthermore, with the recent agreement to settle litigation with the Company's former CEO, we can direct more of our attention and resources to creating value for our shareholders and franchisees."

Certain statements in this press release, other than historical information, may be considered forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on Pizza Inn's operating results, performance or financial condition are its ability to implement its growth strategies, national, regional and local economic conditions affecting the restaurant/ entertainment industry, competition within each of the restaurant and entertainment industries, store sales cannibalization, success of its franchise operations, negative publicity, fluctuations in quarterly results of operations, including seasonality, government regulations, weather, commodity, insurance and labor costs.

Pizza Inn, Inc. (https://www.pizzainn.com/ ) is headquartered in The Colony, Texas, along with its distribution division, Norco Restaurant Services Company. Pizza Inn franchises approximately 371 restaurants and owns four restaurants with annual chainwide sales of approximately $156 million. Pizza Inn, Inc.

   For more information contact:
   Clinton J. Coleman
   Interim Chief Financial Officer
   (469) 384-5201



                             PIZZA INN, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share amounts)


                                                     Year Ended
                                           June 25,    June 26,    June 27,
                                             2006        2005        2004
  REVENUES:
    Food and supply sales                  $44,202     $49,161     $53,072
    Franchise revenue                        4,799       5,162       5,400
    Restaurant sales                         1,458         946       1,516
    Gain on sale of assets                     149         ---         ---
                                            50,608      55,269      59,988

  COSTS AND EXPENSES:
    Cost of sales                           43,762      46,617      49,023
    Franchise expenses                       3,126       2,791       3,175
    General and administrative expenses      5,531       4,882       3,758
    Impairment of long-lived assets and
     goodwill                                1,319         ---         ---
    Litigation settlement accrual            2,800         ---         ---
    Provision for (recovery of) bad
     debt                                      301          30        (229)
    Interest expense                           787         590         613
                                            57,626      54,910      56,340

  (LOSS) INCOME BEFORE INCOME TAXES         (7,018)        359       3,648

    Provision (benefit) for income
     taxes                                  (1,029)        155       1,405

  NET (LOSS) INCOME                        $(5,989)       $204      $2,243

  Basic (loss) earnings per common
   share                                    $(0.59)      $0.02       $0.22

  Diluted (loss) earnings per common
   share                                    $(0.59)      $0.02       $0.22

  Weighted average common shares
   outstanding                              10,123      10,105      10,076

  Weighted average common and
    potentially dilutive common shares
    outstanding                             10,123      10,142      10,117



                             PIZZA INN, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share amounts)


                                                        4th Quarter
                                                 June 25,          June 26,
                                                   2006              2005
  REVENUES:
    Food and supply sales                        $10,548           $12,180
    Franchise revenue                              1,220             1,278
    Restaurant sales                                 389               225
    Gain on sale of assets                           ---               ---
                                                  12,157            13,683

  COSTS AND EXPENSES:
    Cost of sales                                 10,311            11,492
    Franchise expenses                               742               747
    General and administrative expenses            1,170             1,415
    Impairment of long-lived assets and goodwill   1,319               ---
    Litigation settlement accrual                  2,800               ---
    Provision for (recovery of) bad debt             201               ---
    Interest expense                                 208               159
                                                  16,751            13,813

  (LOSS) INCOME BEFORE INCOME TAXES               (4,594)             (130)

    Provision (benefit) for income taxes            (173)              (18)

  NET (LOSS) INCOME                              $(4,421)            $(112)

  Basic (loss) earnings per common share          $(0.43)           $(0.01)

  Diluted (loss) earnings per common share        $(0.43)           $(0.01)

  Weighted average common shares outstanding      10,138            10,093

  Weighted average common and potentially
   dilutive common shares outstanding             10,138            10,093



                             PIZZA INN, INC.
                       CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share amounts)

                                                   June 25,         June 26,
  ASSETS                                             2006             2005

  CURRENT ASSETS
    Cash and cash equivalents                        $184             $173
    Accounts receivable, less allowance
     for doubtful accounts of $324 and $360,
     respectively                                   2,627            3,419
    Accounts receivable - related parties             452              622
    Notes receivable, current portion,
     less allowance for doubtful accounts of $0
     and $11, respectively                             52              ---
    Inventories                                     1,772            1,918
    Property held for sale                            ---              301
    Current deferred income tax assets              1,145              193
    Prepaid expenses and other                        299              355
        Total current assets                        6,531            6,981

  LONG-TERM ASSETS
    Property, plant and equipment, net             11,921           12,148
    Property under capital leases, net                ---               12
    Non-current notes receivable                       20              ---
    Long-term receivable - related party              ---              314
    Re-acquired development territory, net            431              623
    Deposits and other                                 98              177
                                                  $19,001          $20,255
  LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES
    Accounts payable - trade                       $2,217           $1,962
    Accrued expenses                                4,791            1,374
    Current portion of long-term debt               8,044              406
    Current portion of capital lease
     obligations                                      ---               11
        Total current liabilities                  15,052            3,753

  LONG-TERM LIABILITIES
    Long-term debt                                    ---            7,297
    Long-term capital lease obligations               ---               13
    Deferred income tax liability                     ---                3
    Other long-term liabilities                       437              283
                                                   15,489           11,349

  COMMITMENTS AND CONTINGENCIES
  (See Notes D and I)

  SHAREHOLDERS' EQUITY
    Common stock, $.01 par value;
     authorized 26,000,000 shares;
     issued 15,090,319 and 15,046,319 shares,
     respectively; outstanding 10,138,494 and
     10,094,494 shares, respectively                  151              150
    Additional paid-in capital                      8,426            8,005
    Retained earnings                              14,593           20,582
    Accumulated other comprehensive loss              (14)            (187)
    Treasury stock at cost
      Shares in treasury: 4,951,825 and
      4,951,825, respectively                     (19,644)         (19,644)
        Total shareholders' equity                  3,512            8,906
                                                  $19,001          $20,255



                             PIZZA INN, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)

                                                      Year Ended
                                            June 25,    June 26,    June 27,
                                              2006        2005        2004

  CASH FLOWS FROM OPERATING ACTIVITIES:

    Net (loss) income                        $(5,989)      $204      $2,243
      Adjustments to reconcile net
       (loss) income to cash provided
        by operating activities:
        Impairment of goodwill and
         other assets                          1,443        ---         ---
        Gain on property held for sale          (149)       ---         ---
        Depreciation and amortization          1,214      1,143       1,133
        Stock compensation expense               341        ---         ---
        Non cash settlement of accounts
         receivable                              ---        ---        (281)
        Litigation settlement                  2,800        ---         ---
        Deferred revenue                         542        ---         ---
        Deferred rent                             56        ---         ---
        Provision for (recovery of) bad
          debt, net                              301         30        (229)
         Deferred income taxes                (1,029)        39         500
      Changes in operating assets and
       liabilities:
         Notes and accounts receivable           884       (256)       (270)
         Inventories                             145       (205)       (202)
         Accounts payable - trade                255        716          29
         Accrued expenses                          7       (711)        163
         Deferred franchise revenue              ---        (24)         (4)
         Prepaid expenses and other              414        152         430
         Cash provided by operating
          activities                           1,235      1,088       3,512

  CASH FLOWS FROM INVESTING ACTIVITIES:

      Proceeds from sale of assets               589        ---          38
      Capital expenditures                    (2,227)      (753)       (655)
      Re-acquisition of area development
       territory                                 ---        ---        (682)
         Cash used in investing
          activities                          (1,638)      (753)     (1,299)

  CASH FLOWS FROM FINANCING ACTIVITIES:

      Repayments of long-term bank debt
       and capital lease obligations            (414)      (415)     (1,534)
      Borrowings of long-term debt               ---        ---         ---
      Change in line of credit, net              747       (234)     (1,300)
      Proceeds from exercise of stock options     81         30         150
      Officer loan payment                       ---        ---         689
      Purchases of treasury stock                ---       (160)        ---
         Cash provided (used) in
          financing activities                   414       (779)     (1,995)

  Net increase (decrease) in cash and
   cash equivalents                               11       (444)        218
  Cash and cash equivalents, beginning
   of year                                       173        617         399
  Cash and cash equivalents, end of year        $184       $173        $617

SOURCE: Pizza Inn, Inc.

CONTACT: Clinton J. Coleman, Interim Chief Financial Officer of Pizza
Inn, Inc., +1-469-384-5201