##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-K/A
   þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended June 25, 2006
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from ___to ___
 Commission File Number 0-12919
 PIZZA INN, INC.
  Missouri
(State or jurisdiction of 
incorporation or organization)
    
    47-0654575
(I.R.S. Employer
Identification No.)3551 Plano ParkwayThe Colony, Texas
    
    75056(Address of principal executive offices)
    
    (Zip Code)
 (469) 384-5000
  Title of each classCommon stock, par value $0.01
    
    Name of each exchange on which registeredNASDAQ Capital Market
 None
 o þ
 o þ
 þ o
 o
  o o þ
 o þ




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TABLE OF CONTENTS  ITEM 1A. RISK FACTORSPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESRestated Articles of IncorporationAmended Charter of the Audit Committee of the Board of DirectorsRule 13a-14(a)/15d-14(a) Certification of Principal Executive OfficerRule 13a-14(a)/15d-14(a) Certification of Principal Financial OfficerSection 1350 Certification of Principal Executive OfficerSection 1350 Certification of Principal Financial Officer    Table of Contents  EXPLANATORY NOTE
    -
    
    Additional cautionary language pertaining to the expiration of the Wells
Fargo forbearance agreement on October 1, 2006 was added to the end of the second risk
factor.-
    
    Consolidated short-term payment obligations shown in the third risk factor
includes the approximately $2.8 million owed by the Company to Ronald W. Parker, the
Companys former President and Chief Executive Officer, pursuant to the settlement
agreement entered into between the parties.
  
 ITEM 1A. RISK FACTORS.
  Risks Associated with Ongoing Operations
 As a result of losses in recent quarters, our financial condition has been materially weakened
and our liquidity has decreased.
  2




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We are in default under our loan agreement, which has reduced available borrowing capacity
under our revolving credit line and resulted in diminished liquidity.
   Our substantial indebtedness could materially adversely affect our business and limit our
ability to plan for or respond to changes in our business.
  
    
    make it more difficult for us to satisfy our obligations with respect to our loan agreement;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    reduce the availability of our cash flow for other purposes;
    
    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
    
    limit, by the financial and other restrictive covenants in our loan agreement, our
ability to borrow additional funds.
 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.
  3




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If we do not prevail in litigation with a former beverage supplier, we could be liable for
significant monetary damages.
  We also face risks of litigation from customers, franchisees, employees and others in the
ordinary course of business, which diverts our financial and management resources. Any adverse
litigation or publicity may negatively impact our financial condition and results of operations.
   If we are not able to implement our growth strategy successfully, which includes opening new
domestic Buffet Units and reimaging existing restaurants, our ability to increase our revenues and
operating profits could be materially adversely affected.
    An increase in the cost of cheese or other commodities, including fuel and labor, could
adversely affect our profitability and operating results.
  4




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Shortages or interruptions in the delivery of food products could adversely affect our
operating results.
  If we are not able to continue purchasing our key pizza ingredients from our current suppliers
or find suitable replacement suppliers our financial results could be materially adversely
affected.
  We are subject to extensive government regulation, and any failure to comply with existing or
increased regulations could adversely affect our business and operating results.
  
    
    the preparation and sale of food;
    
    building and zoning requirements;
    
    minimum wage, citizenship, overtime and other labor requirements;
    
    compliance with the Americans with Disabilities Act; and
    
    working and safety conditions.
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Our earnings and business growth strategy depends on the success of our franchisees, and we
may be harmed by actions taken by our franchisees that are outside of our control.
  Loss of key personnel or our inability to attract and retain new qualified personnel could
hurt our business and inhibit our ability to operate and grow successfully.
  Our current insurance coverage may not be adequate, our insurance premiums may increase and we
may not be able to obtain insurance at acceptable rates, or at all.
  The Companys management has concluded that the Companys disclosure controls and procedures
are not effective, and that a material weakness in financial reporting existed at June 25, 2006 as
a result of recent turnover in its accounting staff and reassignment of responsibilities among
remaining staff, which may affect the Company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 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.
  6




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##### Table of Contents



Risks Associated With Our Common Stock
 Even though our common stock is currently traded on the Nasdaq Capital Market, it has less
liquidity than the stock of many other companies quoted on the NASDAQ Stock Markets Global Market
or on a national securities exchange.
  The market price of our common stock may fluctuate in the future, and these fluctuations may
be unrelated to our performance.
  Risks Associated With Our Industry
 If we are not able to compete effectively, our business, sales and earnings could be
materially adversely affected.
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Changes in consumer preferences and perceptions could decrease the demand for our products,
which would reduce sales and harm our business.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  New Nominee Directors
 Steven M. Johnson
 James K. Zielke
 Current Directors
 Robert B. Page
 Ramon D. Phillips
 Steven J. Pully
 8




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Mark E. Schwarz
 Timothy P. Taft
 Security Ownership of Certain Beneficial Owners, Directors and Executive Officers
 EXECUTIVE OFFICERS
  ExecutiveOfficerName
    
    Age
    
    Position
    
    SinceTimothy P. Taft
    
    
    48
    
    
    President and Chief Executive Officer
    
    
    2005Clinton J. Coleman
    
    
    29
    
    
    Interim Chief Financial Officer
    
    
    2006Ward T. Olgreen
    
    
    47
    
    
    Senior Vice President of International Operations and Concept Development
    
    
    1995Darrell G. Smith
    
    
    51
    
    
    Vice President of Development
    
    
    2006Rod J. McDonald
    
    
    45
    
    
    Corporate Secretary and General Counsel
    
    
    2004Danny K. Meisenheimer
    
    
    46
    
    
    Vice President of Brand Management
    
    
    2003Jack A. Odachowski
    
    
    56
    
    
    Vice President of Supply Chain Management
    
    
    2005
 Biographies Of Non-Director Executive Officers
 Clinton J. Coleman
 Ward T. Olgreen
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Darrell G. Smith
 Rod J. McDonald
 Danny K. Meisenheimer
 Jack A. Odachowski
 AUDIT COMMITTEE
   10




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Audit Committee Financial Expert
  SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
  Code of Ethics
  
 Item 11. Executive Compensation.
  11




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Long Term CompensationAnnual Compensation
    
    
    Awards
    
    PayoutsOther
    
    
    
    
    
    
    Securities Under-Annual
    
    
    Restricted
    
    lying
    
    
    
    
    
    
    All OtherName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compen-
    
    
    Stock
    
    Options/
    
    LTIP
    
    
    Compensa-Principal
    
    
    
    
    
    
    Salary
    
    
    
    
    
    sation
    
    
    Award(s)
    
    SARs
    
    Payouts
    
    
    tionPosition
    
    Year
    
    
    ($)
    
    Bonus ($)
    
    ($)
    
    
    ($)
    
    (#)
    
    ($)
    
    
    ($)(a)
    
    (b)
    
    
    (c)
    
    (d)
    
    (e)
    
    
    (f)
    
    (g)
    
    (h)
    
    
    (i)Timothy P. Taft
    
    
    2006
    
    
    
    
    5,551
    
    
    
    50,000
    
    
    
    2,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    462(President and CEO)
    
    
    2005
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    5942004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ward T. Olgreen
    
    
    2006
    
    
    
    
    171,360
    
    
    
    15,000
    
    
    
    5,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594(Senior Vice President of
    
    
    2005
    
    
    
    
    168,000
    
    
    
    33,600
    
    
    
    8,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792International Development
    
    
    2004
    
    
    
    
    168,000
    
    
    
    33,600
    
    
    
    11,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792and Concept Development)Danny K.
Meisenheimer
    
    
    2006
    
    
    
    
    138,825
    
    
    
    10,000
    
    
    
    1,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594(Vice President of
    
    
    2005
    
    
    
    
    136,102
    
    
    
    15,000
    
    
    
    1,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792Brand Management)
    
    
    2004
    
    
    
    
    136,102
    
    
    
    27,000
    
    
    
    2,617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792Jack A. Odachowski
    
    
    2006
    
    
    
    
    150,847
    
    
    
    17,848
    
    
    
    28,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594(Vice President of
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Supply Chain Management)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Darrell G. Smith
    
    
    2006
    
    
    
    
    95,192
    
    
    
    17,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594(Vice President of
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former OfficersKevin A. Kleiner
    
    
    2006
    
    
    
    
    90,337
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Controller and
    
    
    2005
    
    
    
    
    89,931
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Principal
Financial Officer)
    
    
    2004
    
    
    
    
    85,553
    
    
    
    7,000
    
    
    
    2,326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shawn M. Preator
    
    
    2006
    
    
    
    
    84,150
    
    
    
    15,000
    
    
    
    8,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,685(Chief
    
    
    2005
    
    
    
    
    150,000
    
    
    
    30,000
    
    
    
    9,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792Financial Officer)
    
    
    2004
    
    
    
    
    150,000
    
    
    
    30,000
    
    
    
    12,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792
 12




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(a)
    
    Mr. Odachowski was appointed Vice President of Supply Chain Management on September
6, 2005.Mr. Smith was appointed Vice President of Development on November 7, 2005.Mr. Kleiner served as the Companys principal financial officer from January 11, 2006
through his resignation on July 7, 2006.Mr. Preator was Chief Financial Officer of the Company through January 11, 2006.
Figures shown for fiscal 2006 are through January 11, 2006, Mr. Preators last date of
employment. Because of his termination of employment, Mr. Preator received severance
benefits described under Compensation Committee Report on Executive Compensation 
Executive Employment Agreements.(c)
    
    Mr. Taft was named President and Chief Executive Officer of the Company on March
31, 2005. Mr. Tafts Employment Agreement with the Company, dated March 31, 2005,
provides for a net salary of $1.00 for the first 12 months and for a bonus in the first
12 months to be set by the Board. No bonus was paid in fiscal year 2005. He was
granted options to purchase 500,000 shares of the Companys common stock pursuant to a
Non-Qualified Stock Option Agreement dated March 31, 2005. See Executive Employment Agreements and Equity Compensation
Plan Information below for more detail.(d)
    
    Amounts shown in this column for Mr. Olgreen and Mr. Preator include bonuses
described in Compensation Committee Report on Executive Compensation  Executive
Employment Agreements below, and for Mr. Taft described in Compensation Committee
Report on Executive Compensation  Chief Executive Officer and Executive Employment
Contracts below.Amounts shown in this column for other named executive officers include discretionary
bonus payments awarded by the Compensation Committee and the Board and described in
Compensation Committee Report on Executive Compensation below.The amount shown for Mr. Odachowski includes a discretionary bonus of $3,000 and hiring
and relocation bonus of $14,848, which included a tax gross-up payment of $3,361
reflected in column (e). See the perquisite detail table below.(e)
    
    For Mr. Preator and Mr. Kleiner, this column includes in 2004 reimbursement of
health insurance premiums in the amount of $481 each.
 13




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##### Table of Contents



This column also includes the perquisites outlined in the table below valued at the
incremental cost of providing such perquisites, as well as tax reimbursements where
applicable, for the named executive officers.
 PersonalAutomobile401(k)
    
    Usage/
    
    
    
    
    
    Temporary
    
    TaxTerm Life
    
    Company
    
    Automobile
    
    Relocation
    
    Living
    
    Reimburse-Name
    
    Insurance
    
    Match
    
    Allowance
    
    Expenses
    
    Expenses
    
    mentsTimothy P. Taft2006
    
    
    462
    
    
    
    
    
    
    
    2,549
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ward T. Olgreen2006
    
    
    594
    
    
    
    1,784
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    792
    
    
    
    1,784
    
    
    
    6,573
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    792
    
    
    
    3,215
    
    
    
    8,340
    
    
    
    
    
    
    
    
    
    
    
    Danny K. Meisenheimer2006
    
    
    594
    
    
    
    1,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    792
    
    
    
    1,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    792
    
    
    
    2,617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jack A. Odachowski2006
    
    
    594
    
    
    
    
    
    
    
    5,000
    
    
    
    15,634
    
    
    
    4,171
    
    
    
    3,3612005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Darrell G. Smith2006
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former OfficersKevin A. Kleiner2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    1,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shawn M. Preator2006
    
    
    
    
    
    
    2,130
    
    
    
    5,961
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    792
    
    
    
    2,130
    
    
    
    7,009
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    792
    
    
    
    3,000
    
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    
 The amounts in the 401(k) column above represent Company matching contributions. All
such amounts are within United States Internal Revenue Service limits for the applicable
plan years.(g)
    
    Mr. Taft was granted options to purchase 500,000 shares of the Companys
common stock pursuant to a Non-Qualified Stock Option Agreement dated March 31, 2005.
The exercise price is $2.50, the fair market value of the Common Stock on March 31,
2005, the date of the grant as defined in the Agreement. As of June 25, 2006, 150,000
of such options are vested. See Executive Employment Agreements and Equity
Compensation Plan Information below.
 14




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##### Table of Contents



(i)
    
    For Mr. Preator, for 2006 this column includes the severance payment of $112,685,
described under Executive Employment Agreements  Severance and Change of Control
Benefits- Mr. Olgreen and Mr. Preatorbelow.This column also includes the value of term life insurance premiums paid by the Company
for the benefit of the named executive officers. These values are shown in the
perquisite table above.
 Option Grants In Last Fiscal Year
  Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values
  Number of
    
    Value ofUnexercised
    
    Unexercised In-the-Options at Fiscal
    
    Money Options atShares
    
    
    
    
    
    Year End
    
    Fiscal Year EndAcquired on
    
    
    
    
    
    (Exercisable/
    
    (Exercisable/Name
    
    Exercise (#)
    
    Value Realized
    
    Unexercisable) (#)
    
    Unexercisable)Timothy P. Taft
    
    
    
    
    
    
    
    
    
    
    150,000
    (e)
    
    $
    55,500350,000
    (u)
    
    $
    129,500Ward T. Olgreen
    
    
    
    
    
    
    
    
    
    
    52,000
    (e)
    
    $
    26,100
    (u)
    
    
    Danny K. Meisenheimer
    
    
    
    
    
    
    
    
    
    
    
    (e)
    
    
    
    (u)
    
    
    Jack A. Odachowski
    
    
    
    
    
    
    
    
    
    
    
    (e)
    
    
    
    (u)
    
    
    Darrell G. Smith
    
    
    
    
    
    
    
    
    
    
    
    (e)
    
    
    
    (u)
    
    
    Former OfficersKevin A. Kleiner (a)
    
    
    
    
    
    
    
    
    
    
    
    (e)
    
    
    
    
    
    
    
    
    
    
    
    (u)
    
    
    Shawn M. Preator (b)
    
    
    30,000
    
    
    $
    26,400
    
    
    
    
    (e)
    
    
    
    (u)
    
    
    
 (e)
    
    Denotes exercisable options.(u)
    
    Denotes unexercisable options.(a)
    
    Mr. Kleiner served as the Companys Chief Financial Officer from January 11, 2006
through his resignation on July 7, 2006.(b)
    
    Mr. Preator was Chief Financial Officer of the Company until January 11, 2006, his
last date of employment.
 15




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##### Table of Contents



Number ofSharesUnderlying
    
    Exercise
    
    ExpirationName
    
    Grant Date
    
    Options
    
    Price ($)
    
    DateTimothy P. Taft
    
    
    3/31/2005
    
    
    
    500,000
    
    
    
    2.50
    
    
    
    3/15/2015Ward T. Olgreen
    
    
    7/15/1998
    
    
    
    12,000
    
    
    
    5.00
    
    
    
    7/15/200610/18/1999
    
    
    
    2,500
    
    
    
    3.63
    
    
    
    10/18/20067/3/2000
    
    
    
    7,500
    
    
    
    3.56
    
    
    
    7/3/20065/3/2001
    
    
    
    30,000
    
    
    
    2.00
    
    
    
    5/3/2007Danny K. Meisenheimer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jack A. Odachowski
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Darrell G. Smith
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 All options shown for Mr. Taft were granted pursuant to a Non-Qualified Stock Option
Agreement dated March 31, 2005. See Compensation Committee Report on Executive
Compensation  Executive Employment Agreements below.All options shown for other named executive officers were granted pursuant to the Companys
1993 Employee Stock Option Award Plan, which expired in September 2003.
 Compensation Committee Report On Executive Compensation
   Compensation Philosophy and Practice
  16




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##### Table of Contents



Tax Deductibility under Section 162(m)
  Chief Executive Officer
  Equity
Compensation Plan Information Executive Employment Agreements
  Other Executive Officers
  17




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Stock Options
   Director
Compensation
  Timing and Pricing of Option Awards
   18




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  EXECUTIVE EMPLOYMENT AGREEMENTS
 Severance and Change in Control Benefits
  Mr. Taft
   Termination Scenarios for Mr. Taft
  Salary and Bonus
    
    Stock Options, Expenses and OtherTermination by 
company for cause 
or voluntary 
termination by 
executive
    
    Unpaid salary
accrued through the
date of
termination.
Accrued and unpaid
bonus through the
date of
termination.
    
    Unreimbursed expenses incurred
through the date of termination.
Rights granted pursuant to
executive benefit plan, in
accordance with the terms of any
such plan.Termination by 
company without 
cause
    
    Unpaid salary
accrued through the
date of
termination.
Accrued and unpaid
bonus through the
date of
termination. An
amount equal to 12
months of the
executives then
base salary,
payable at the
Companys election
in lump sum or
monthly increments.
    
    Unreimbursed expenses incurred
through the date of termination.
Rights granted pursuant to
executive benefit plan, in
accordance with the terms of any
such plan.Termination by
executive for good
reason within six
months following
change
of control
    
    Unpaid salary
accrued through the
date of
termination.
Accrued and unpaid
bonus through the
date of
termination. An
amount equal to 12
months of the
executives then
base salary,
payable at the
Companys election
in lump sum or
monthly increments.
    
    Unreimbursed expenses incurred
through the date of termination.
Rights granted pursuant to
executive benefit plan, in
accordance with the terms of any
such plan. All unvested stock
options immediately vest and
remain exercisable for 90 days
thereafter.
 The actual value ultimately realized by Mr. Taft under the equity-based compensation awards
set forth in the table will vary based upon, among other factors, the applicable
termination provision of the employment agreement, the Companys operating performance and
fluctuations in the stock price of the Common Stock.
 19




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##### Table of Contents



Mr. Olgreen and Mr. Preator
    PaymentUnpaid
    
    Accrued
    
    
    
    
    
    Tax Gross-
    
    TotalReason for Payment
    
    Salary1
    
    Bonus2
    
    Vacation3
    
    Total
    
    Up4
    
    PaymentsTermination by Mr. Preator
without reason
    
    $
    84,150
    
    
    $
    15,000
    
    
    $
    13,535
    
    
    $
    112,685
    
    
    
    
    
    
    $
    112,685
 1
    
    - Represents six months of severance pay and salary through January 11, 2006, Mr. Preators last date of employment2
    
    - Bonus amount accrued for the period from June 16, 2005 through December 31, 20053
    
    - 80 hours of vacation time plus 104 hours of additional paid time off4
    
     The termination payments were treated as a severance payment for tax purposes.Mr. Preator also realized a gain of $26,400 on the exercise of 30,000 vested stock options on December 29, 2005. See
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Valuestable above.
 20




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##### Table of Contents



Director Compensation
   Cash
    
    
    
    
    
    Committee
    
    EquityName
    
    Retainer 1
    
    Meeting Fees
    
    Meeting Fees
    
    Retainer
    
    All Other 2Mark E. Schwarz
    
    $
    23,000
    
    
    $
    4,000
    
    
    $
    500
    
    
    
    
    
    
    $
    10,847Ramon D. Phillips
    
    
    17,000
    
    
    
    4,000
    
    
    
    1,500
    
    
    
    
    
    
    
    Bobby L. Clairday3
    
    
    17,000
    
    
    
    3,000
    
    
    
    0
    
    
    
    
    
    
    
    1,675John D. Harkey, Jr.
    
    
    17,000
    
    
    
    4,000
    
    
    
    500
    
    
    
    
    
    
    
    Robert B. Page4
    
    
    17,000
    
    
    
    4,000
    
    
    
    1,000
    
    
    
    
    
    
    
    3,480Steven J. Pully
    
    
    17,000
    
    
    
    4,000
    
    
    
    750
    
    
    
    
    
    
    
    
 1
    
    Includes a $6,000 retainer for Mr. Schwarz for services as Chairman of the Board.2
    
    This column includes the value of reimbursed expenses incurred by directors in connection with attending Board meetings
or other activities directly related to the directors services as a Board member.3
    
    During fiscal 2006 the Company withheld $7,250 in fees otherwise due to Mr. Clairday and offset those amounts
against the Advance Foods Debt (defined below in Certain Relationships and Related
 21




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##### Table of Contents



Transactions). The Company and Mr.
Clairday reached an agreement in June 2006 regarding repayment of the debt (see Certain Relationships and Related
Transactions).4
    
    While serving as Acting CEO of the Company from January 4, 2005 through March
30, 2005, Mr. Page received no compensation for serving as a director, except that he,
like all Company directors, was eligible to receive reimbursement of expenses incurred
in attending Board and committee meetings.
  Equity Compensation Plan Information
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##### Table of Contents



STOCK PERFORMANCE GRAPH
  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 *
    
    100 invested on 6/24/01 in stock or index-incuding reinvestment of dividends.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
  §
    
    Holders of more than 5% of the Companys Common Stock;§
    
    Company directors and each of the named executive officers set forth in the
Summary Compensation Table set forth below; and§
    
    Company directors and executive officers as a group (seven directors and six executive
officers).
   23




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##### Table of Contents



SharesName of
    
    Beneficially
    
    PercentBeneficial Owner
    
    Owned
    
    of ClassBeneficial owners of more than 5%Newcastle Partners, L.P.(a)
Newcastle Capital
Management, L.P.
Newcastle Capital Group, L.L.C.
300 Crescent Court, Ste. 1110
Dallas, TX 75201
    
    
    4,139,990
    
    
    
    40.80
    %Hoak Public Equities, L.P.(b)
Hoak Fund Management, L.P.
500 Crescent Court, Ste. 220
Dallas, TX 75201
    
    
    525,000
    
    
    
    5.18
    %Current directors and named executive officersMark E. Schwarz (a)(c)
    
    
    4,184,990
    
    
    
    41.30
    %Robert B. Page
    
    
    0
    
    
    
    0Bobby L. Clairday (d)
    
    
    7,336
    
    
    
    *Ramon D. Phillips (e)
    
    
    16,923
    
    
    
    *Steven J. Pully (a)(c)
    
    
    26,787
    
    
    
    *John D. Harkey, Jr. (c)
    
    
    30,000
    
    
    
    *Timothy P. Taft (c)
    
    
    331,205
    
    
    
    3.27
    %Ward T. Olgreen (c)
    
    
    114,156
    
    
    
    1.13
    %Darrell G. Smith
    
    
    0
    
    
    
    0Danny K. Meisenheimer
    
    
    922
    *Jack A. Odachowski
    
    
    1,000
    *New nominee directorsSteven M. Johnson
    
    
    0
    
    
    
    0James K. Zielke
    
    
    0
    
    
    
    0All directors, nominees and executive officers
as a group
    
    
    4,592,655
    
    
    
    45.30
    %
 *
    
    Represents holdings of less than one percent.(a)
    
    Newcastle Capital Management, L.P. is the general partner of Newcastle Partners, L.P.,
Newcastle Capital Group, L.L.C. is the general partner of Newcastle Capital Management,
L.P., and Mark E. Schwarz is the managing member of Newcastle Capital Group, L.L.C.
Accordingly, each of Newcastle Capital Management, L.P., Newcastle Capital Group, L.L.C. and
Mr. Schwarz may be deemed to beneficially own the shares of Common Stock beneficially owned
by Newcastle Partners, L.P. In addition, Newcastle Partners, L.P., Newcastle Capital
Management, L.P., Newcastle Capital Group, L.L.C., Mr. Schwarz and Mr. Pully are members of
a Section 13d reporting group and may be deemed to beneficially own shares of Common Stock
owned by the other members of the group. Newcastle Partners, L.P., Mr. Schwarz and Mr.
Pully also directly own shares of Common Stock. Mr. Pully disclaims beneficial ownership of
the shares of Common Stock beneficially owned by Newcastle Partners, L.P. Mr. Schwarz
directly owns 15,000 shares of Common Stock, including options to acquire 30,000 shares of
Common Stock.
 24




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##### Table of Contents



(b)
    
    Hoak Fund Management, L.P. is the general partner of Hoak Public Equities, L.P., James M.
Hoak & Co. is the general partner of Hoak Fund Management, L.P., and J. Hale Hoak is the
President of James M. Hoak & Co. Accordingly, each of Hoak Fund Management, L.P., Hoak
Public Equities, L.P, James M. Hoak & Co., and Mr. Hoak may be deemed to own the shares of
Common Stock beneficially owned by Hoak Public Equities, L.P. Dorothy Tyson Hoak, the
spouse of J. Hale Hoak, beneficially owns 5,000 shares of Common Stock as to which
beneficial ownership is disclaimed by Hoak Public Equities, L.P.(c)
    
    Includes vested options and options vesting as of January 4, 2007 (60 days after November
5, 2006) under the Companys stock option plans, as follows: 30,000 shares for Mr. Schwarz;
17,858 shares for Mr. Pully; 150,000 shares for Mr. Taft; 20,000 shares for Mr. Harkey; and
52,000 shares for Mr. Olgreen.(d)
    
    Mr. Clairday shares voting and investment power for these shares with his wife, Iva Clairday.(e)
    
    Mr. Phillips shares voting and investment power for 5,333 shares with the other
shareholders of Wholesale Software International, Inc.
 Equity Compensation Plan Information
  Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    Weighted-average
    
    equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options,
    
    securities reflected inPlan Category
    
    warrants and rights (a)
    
    warrants and rights
    
    column (a)) (b)Equity compensation
plans approved by
security holders
    
    
    200,858
    
    
    $
    3.13
    
    
    
    1,437,758Equity compensation
plans not approved
by security holders
(c)
    
    
    500,000
    
    
    $
    2.50
    
    
    
    0Total
    
    
    700,858
    
    
    $
    2.68
    
    
    
    1,437,758
 (a)
    
    In fiscal year 2006, stock options for 20,000 shares were granted to Mr.
Harkey at an exercise price of $2.74 per share. Such options were granted
pursuant to the 2005 Non-Employee Director Stock Option Award Plan. No options
have been granted pursuant to the 2005 Plan. As of June 25, 2006, there were
138,000 vested and unexercised stock options outstanding under the 1993
Employee Stock Award Plan and the 1993 Outside Directors Stock Award Plan, at
various exercise prices. The 1993 Employee Stock Award Plan and the 1993
Outside Directors Stock Award Plan expired in September 2003 and no further
options may be granted under either plan.(b)
    
    Under the 2005 Plan 1,000,000 shares are authorized and available for
future option grants. Under the 2005 Non-Employee Director Stock Option Award
Plan 500,000 shares were authorized and 437,758 are available for future option
grants as of June 25, 2006. There are no shares available for grant under the
1993 Employee Stock Award Plan and the 1993 Outside Directors Stock Award Plan,
both of which expired in September 2003.(c)
    
    Reflects shares granted to Mr. Taft in March 2005 pursuant to a
Nonqualified Stock Option Agreement described in Compensation Committee Report
on Executive Compensation  Executive Employment Agreements above.
 25




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions
       26




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##### Table of Contents



Item 14. Principal Accounting Fees and Services.
  BDO Seidman2005
    
    2006Audit Fees
    
    $
    82,980
    
    
    $
    175,194Audit-Related Fees
    
    
    21,350
    
    
    
    15,149Tax Fees
    
    
    7,575
    
    
    
    7,950All Other Fees
    
    
    
    
    
    
    Total
    
    $
    111,905
    
    
    $
    198,293
 Audit Fees
 Audit-Related Fees
 Tax Fees
 All Other Fees
  Policy of the Audit Committee for Pre-Approval of Audit and Permissible Non-Audit Services of the
Independent Auditor
  27




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##### Table of Contents



ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 3.2
    
    Restated Articles of Incorporation15.1
    
    Charter of the Audit Committee of the Board of Directors, as amended on October 18, 200631.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.32.1
    
    Section 1350 Certification of Principal Executive Officer.32.2
    
    Section 1350 Certification of Principal Financial Officer.
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##### Table of Contents



SIGNATURES
  Date:
November 29, 2006
    
    By:
    
    /s/ Clinton J. Coleman

Clinton J. ColemanInterim Chief Financial Officer Treasurer
(Principal Accounting Officer)
(Principal Financial Officer)
  Name and Position
    
    Date/s/Mark E. Schwarz

Mark E. Schwarz
Director and Chairman of the Board
    
    November 29, 2006/s/Ramon D. Phillips

Ramon D. Phillips
Director and Vice Chairman of the Board
    
    November 29, 2006/s/ Bobby L. Clairday

Bobby L. Clairday
Director
    
    November 29, 2006/s/ John D. Harkey, Jr.

John D. Harkey, Jr.
Director
    
    November 29, 2006/s/Robert B. Page

Robert B. Page
Director
    
    November 29, 2006/s/ Steven J. Pully

Steven J. Pully
Director
    
    November 29, 2006/s/ Timothy P. Taft
    
    November 29, 2006Timothy P. Taft
President and Chief Executive Officer
(Principal Executive Officer)
Director
 29