Pizza Inn, Inc.

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International Guild of Hospitality & Restaurant Managers

3551 Plano Parkway
The Colony, TX 75056

Phone: (469) 384-5000

www.pizzainn.com

Pizza Inn, Inc., incorporated in 1983, is the franchisor and food and supply distributor to a system of restaurants operating under the trade name Pizza Inn. On September 13, 2002 , the Pizza Inn system consisted of 427 units, including two Company-owned and -operated units, a third that the Company is in the process of relocating and 424 franchised units. The Company-operated units are used for product testing and franchisee training, in addition to serving customers. The domestic franchised units are comprised of 216 full-service units, 55 delivery/carry-out units, 15 self-serve buffet units and 78 franchised Express units. The international franchised units are comprised of 20 full-service units, 25 delivery/carry-out units and 15 Express units. Pizza Inn units are located in 20 states and 11 foreign countries. Domestic units are located predominantly in the southern half of the United States , with Texas , North Carolina and Mississippi accounting for approximately 32%, 16% and 8% of the total, respectively. Norco Restaurant Services ( Norco ), a division of the Company, distributes food products, equipment and other supplies to units in the United States and, to the extent feasible, in other countries.

The Company's full-service restaurants (Full Service) offer dine-in and carryout service and, in most cases, also offer delivery service. These restaurants serve pizza on three different crusts (Original Thin Crust, New York Pan and Italian Crust), with standard toppings and special combinations of toppings. They also offer pasta, salad, sandwiches, desserts and beverages, including beer and wine in some locations. They are generally located in freestanding buildings in close proximity to offices, shopping centers and residential areas. The current standard Full Service units are between 3,000 and 5,000 square feet in size and seat 120 to 185 customers. The interior decor is designed to promote a contemporary, family style atmosphere.

Restaurants that offer delivery and carryout service only (Delcos) are typically located in shopping centers or other in-line arrangements, occupy approximately 1,000 square feet and offer limited or no seating. Delcos generally offer the same menu as Full Service units, except for buffet. The decor of these units is designed to be bright and highly visible, featuring neon, lighted displays and awnings.

The Self Serve Buffet restaurant (Self Serve) offers items from the full dine-in menu, and features delivery, carryout and a self-serve buffet and beverage station. The Self Serve can be freestanding or located in a strip center. Slightly larger than a Delco, it ranges in size from 2,400 to 2,600 square feet and seats approximately 60 customers.

Express Serve units (Express) are typically located in a convenience store, college campus, airport terminal or other commercial facility. They have limited or no seating and offer quick carryout service of a limited menu of pizza and other foods and beverages. An Express unit typically occupies approximately 200 to 400 square feet and is commonly operated by the same person who owns the commercial facility or who is licensed at one or more locations within the facility.

The Company has adopted a franchising strategy that has three major components: continued development within existing Pizza Inn market areas, development of new domestic territories and continued growth in the international arena. As a cornerstone of this approach, the Company offers, to certain experienced restaurant operators, area developer rights in both new and existing domestic markets. An area developer pays a negotiated fee to purchase the right to operate or develop, along with the Company, Pizza Inn restaurants within a defined territory, typically for a term of 20 years plus renewal options for 10 years. The area developer agrees to a new store development schedule and assists the Company in local franchise service and quality control. In return, half of the franchise fees and royalties earned on all units within the territory are retained by the area developer during the term of the agreement. Similarly, the Company offers master franchise rights to develop Pizza Inn restaurants in certain foreign countries, with negotiated fees, development schedules and ongoing royalties.

The Company's Norco division offers substantially all of the food and paper products, equipment and other supplies necessary to operate a Pizza Inn restaurant. Franchisees are required to purchase from Norco certain food products that are proprietary to the Pizza Inn system. In addition, the vast majority of franchisees also purchase other supplies from Norco .

Norco operates its central distribution facility six days per week, and it delivers to all domestic units on a weekly basis, utilizing a fleet of refrigerated tractor-trailer units operated by Company drivers and independent owner-operators. Norco also ships products and equipment to its international franchisees. The food, equipment and other supplies distributed by Norco are generally available from several qualified sources, and the Company is not dependent upon any one supplier or limited group of suppliers. The Company contracts with established food processors for the production of its proprietary products.

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