Wednesday February 7, 6:34 pm ET
THE COLONY, Texas, Feb. 7 /PRNewswire-FirstCall/ — PIZZA INN, INC. (Nasdaq: PZZI – News) today reported a net income per share for its second fiscal quarter ended December 24, 2006 of $0.01 versus a net loss of ($0.06) per share for the same quarter last year. The quarter resulted in net income of $152,000 versus a net loss of ($601,000) for the same quarter last year on revenues of $12.4 million and $12.8 million, respectively.

     * Comparable buffet restaurant sales increased 0.6% for the quarter.

        Domestic chain-wide comparable restaurant sales decreased 1.3% for the

        quarter.

     * Total domestic chain-wide restaurant sales decreased 6% for the

        quarter due to the decrease in comparable restaurant sales and a net

        reduction in franchised restaurants.

     * Excluding the impact of gains on sale of assets and rental income, the

        Company's revenues decreased approximately 8%, or $1,028,000,

        primarily due to the Company's recent decision to reduce the prices of

        key food and supply products sold to franchisees through the Company's

        distribution division, lower chain-wide restaurant sales, as discussed

        above, lower cheese prices, and lower equipment sales. The resulting

        reductions in food and supply sales and royalty revenue were partially

        offset by increased restaurant sales at company-owned restaurants as a

        result of the opening of three company-owned buffet restaurants in

        fiscal year 2006.

     * During the quarter, the Company incurred $375,000 of legal fees, as

        compared to $442,000 in the prior year, which is reflected in general

        and administrative expenses.

     * During the quarter, the Company incurred non-cash stock compensation

        expense of $55,000 as compared to $94,000 in the prior year, which is

        reflected in general and administrative expenses.

     * During the quarter, the Company recognized a $108,000 benefit from the

        reduction to the provision for litigation costs due to the reduction

        of accounts payable to PepsiCo as a result of the Company's recent

        settlement with PepsiCo, which is broken out separately in the

        statement of operations.

The Company’s President and CEO, Tim Taft, commented, “Much has been accomplished in the pursuit of turning around this brand. Franchisees report being healthier than they have been in a long while and, with the recent hiring of Charlie Morrison (CFO) and Susan Gray (Training, HR), we have a complete management team capable of significantly affecting our positive momentum.”
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. (http://www.pizzainn.com ) is headquartered in The Colony, Texas, along with its distribution division, Norco Restaurant Services Company. Pizza Inn franchises approximately 282 domestic and 77 international restaurants and owns three restaurants with annual domestic and international chain-wide sales of approximately $145 million.

     For more information contact:

     Charlie Morrison

     Chief Financial Officer

     (469) 384-5203

                               PIZZA INN, INC.

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                   (In thousands, except per share amounts)

                                 (Unaudited)

                                Three Months Ended       Six Months Ended

                           December 24, December 25, December 24, December 25,

                              2006          2005         2006         2005

    REVENUES:

      Food and supply

       sales                 $10,232       $11,215      $20,620      $22,523

      Franchise revenue        1,118         1,199        2,307        2,379

      Restaurant sales           375           339          745          557

      Gain on sale of assets     554           ---          564          147

      Rental income              146           ---          179          ---

                              12,425        12,753       24,415       25,606

    COSTS AND EXPENSES:

      Cost of sales           10,207        11,060       20,385       22,153

      Franchise expenses         746           793        1,418        1,601

      General and

       administrative

       expenses                1,154         1,581        2,745        3,171

      Provision for

       litigation costs         (108)          ---          302          ---

      Interest expense           274           199          474          368

                              12,273        13,633       25,324       27,293

    INCOME (LOSS) BEFORE

     INCOME TAXES                152          (880)        (909)      (1,687)

      Credit for income taxes    ---          (279)         ---         (596)

    NET INCOME (LOSS)           $152         $(601)       $(909)     $(1,091)

    Basic income (loss)

     per common share          $0.01        $(0.06)      $(0.09)      $(0.11)

    Diluted income (loss)

     per common share          $0.01        $(0.06)      $(0.09)      $(0.11)

    Weighted average common

     shares outstanding       10,138        10,108       10,138       10,119

    Weighted average common

     and potential dilutive

     common shares

     outstanding              10,138        10,108       10,138       10,119

                               PIZZA INN, INC.

                    CONDENSED CONSOLIDATED BALANCE SHEETS

                     (In thousands, except share amounts)

                                                   December 24,       June 25,

    ASSETS                                            2006              2006

                                                   (unaudited)

    CURRENT ASSETS

      Cash and cash equivalents                        $287             $184

      Accounts receivable, less allowance

       for doubtful accounts of $331 and

       $324, respectively                             2,625            2,627

      Accounts receivable -- related parties            364              452

      Notes receivable, current portion,

       less allowance                                    28               52

      Inventories                                     1,560            1,772

      Assets held for sale                              383              ---

      Current deferred income tax asset               1,138            1,145

      Prepaid expenses and other                        411              299

        Total current assets                          6,796            6,531

    LONG-TERM ASSETS

      Property, plant and equipment, net              1,008           11,921

      Non-current notes receivable                       16               20

      Re-acquired development territory, net            335              431

      Deposits and other                                305               98

                                                     $8,460          $19,001

    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES

      Accounts payable -- trade                      $2,843           $2,217

      Accrued litigation expenses                       410            2,800

      Other accrued expenses                          1,839            1,991

      Current portion of long-term debt                 ---            8,044

        Total current liabilities                     5,092           15,052

    LONG-TERM LIABILITIES

      Other long-term liabilities                       654              437

                                                      5,746           15,489

    COMMITMENTS AND CONTINGENCIES

    SHAREHOLDERS' EQUITY

      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                                     151              151

      Additional paid-in capital                      8,523            8,426

      Retained earnings                              13,684           14,593

      Accumulated other comprehensive loss              ---              (14)

      Treasury stock at cost

        Shares in treasury: 4,951,825 and

         4,951,825, respectively                    (19,644)         (19,644)

           Total shareholders' equity                 2,714            3,512

                                                     $8,460          $19,001

                               PIZZA INN, INC.

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (In thousands)

                                 (Unaudited)

                                                       Six Months Ended

                                                 December 24,     December 25,

                                                     2006             2005

    CASH FLOWS FROM OPERATING ACTIVITIES:

      Net loss                                       $(909)          $(1,091)

      Adjustments to reconcile net loss to

        cash used in operating activities:

        Depreciation and amortization                  448               568

        Deferred rent expense                            3                31

        Stock compensation expense                      97               197

        Litigation expense accrual                     302               ---

        Gain on sale of assets                        (564)             (147)

        Deferred revenue                               196               ---

      Changes in operating assets and liabilities:

        Notes and accounts receivable                  118               195

        Inventories                                    212              (425)

        Accounts payable -- trade                      626               645

        Accrued expenses                            (3,096)             (385)

        Prepaid expenses and other                    (331)               70

        Cash used in operating activities           (2,898)             (342)

    CASH FLOWS FROM INVESTING ACTIVITIES:

      Proceeds from sale of assets                  11,319               474

      Capital expenditures                            (248)           (1,315)

        Cash provided by (used for)

         investing activities                       11,071              (841)

    CASH FLOWS FROM FINANCING ACTIVITIES:

      Deferred financing costs                         (26)              ---

      Change in line of credit, net                    ---             1,381

      Repayments of long-term bank debt             (8,044)             (209)

      Proceeds from exercise of stock options          ---                22

        Cash (used for) provided by

         financing activities                       (8,070)            1,194

    Net increase in cash and cash equivalents          103                11

    Cash and cash equivalents, beginning

     of period                                         184               173

    Cash and cash equivalents, end of period          $287              $184