UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2005
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ________________________
Commission file number 0-12919
PIZZA INN, INC.
401(K) SAVINGS PLAN
(Full title of plan)
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(name of the issuer of the securities held pursuant to the plan and the address
of its principal executive office)
PIZZA INN, INC.
401(K) SAVINGS PLAN
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
YEARS ENDED DECEMBER 31, 2005 AND 2004
PIZZA INN, INC.
401(K) SAVINGS PLAN
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
YEARS ENDED DECEMBER 31, 2005 AND 2004
PIZZA INN, INC. 401(K) SAVINGS PLAN
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 3
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits -
December 31, 2005 and 2004 4
Statement of Changes in Net Assets Available for Benefits-
Year Ended December 31, 2005 5
Notes to Financial Statements 6
SUPPLEMENTAL SCHEDULES
Schedule of Assets (Held at End of Year) 15
Schedule of Reportable Transactions 16
Note: Other schedules required by Section 2520.103 - 10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act ("ERISA") of 1974 have been omitted because they
are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator
Pizza Inn, Inc. 401(k) Savings Plan
The Colony, Texas
We have audited the accompanying statements of net assets available for benefits
of the Pizza Inn, Inc. 401(k) Savings Plan as of December 31, 2005 and 2004, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2005. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal controls over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Pizza Inn,
Inc. 401(k) Savings Plan as of December 31, 2005 and 2004, and the changes in
net assets available for benefits for the year ended December 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
Our audit was made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental Schedule of Assets and Reportable
Transactions at December 31, 2005 are presented for the purpose of additional
analysis and are not a required part of the basic financial statements, but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's Management. The supplemental schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements, and,
in our opinion, are fairly presented in all material respects in relation to the
basic financial statements taken as a whole.
/s/ BDO Seidman LLP
Dallas, Texas
June 15, 2006
PIZZA INN, INC. 401(K) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2005 2004
- ------------ ---- ----
ASSETS
Investments, at fair value:
Cash equivalents $ 302,467 $ -
Mutual funds 2,116,478 1,744,657
Common/collective fund - 280,916
Pizza Inn, Inc. common stock, at market value
(180,628 and 281,306 shares at December 31,
2005 and 2004, respectively) 522,015 677,526
Participant loans 158,973 133,329
---------- ---------
Total investments 3,099,933 2,836,428
Participant contributions receivable 7,296 -
Employer contributions receivable 35,323 -
---------- ---------
Total contributions receivable 42,619 -
NET ASSETS AVAILABLE FOR BENEFITS $ 3,142,552 $2,836,428
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PIZZA INN, INC. 401(K) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2005
- ----------------------- ----
ADDITIONS
Investment income:
Net appreciation in the fair value of investments $ 148,658
Interest and dividends 47,437
-------------
Total investment income 196,095
-------------
Contributions:
Participant contributions 274,205
Employer contributions 35,323
Rollover contributions 2,983
-------------
Total contributions 312,511
-------------
Total additions 508,606
-------------
DEDUCTIONS
Benefits paid to participants and other deductions 202,482
-------------
Total deductions 202,482
-------------
Net increase 306,124
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 2,836,428
-------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 3,142,552
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PIZZA INN, INC. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN
The following description of the Pizza Inn, Inc. 401(k) Savings Plan
"the Plan" provisions provide only general information. Participants should
refer to the Plan agreement for more complete information regarding the Plan's
definitions, benefits, eligibility and other matters.
General - The Plan was approved and adopted by the board of directors
-------
of Pizza Inn, Inc. (the "Company/Employer") on May 30, 1985 and was implemented
on July 1, 1985. The Plan is a defined contribution plan and is subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The
Plan is qualified under sections 401(a), 401(k) and 501(a) of the Internal
Revenue Code ("Code") and, accordingly, is exempt from federal income taxes. On
January 1, 2002, the Plan was amended to comply with the Economic Growth and Tax
Relief Reconciliation Act signed into law on June 8, 2001. The financial
statements are prepared with the assumption that the Plan has maintained its
exemption under the Code (see Note 3).
Administration - The Company is responsible for the administration and
--------------
operation of the Plan. BISYS Retirement Services, Inc. (the "Recordkeeper") has
been retained to provide recordkeeping services for the Plan. Frontier Trust
Company is responsible for the custody and management of the Plan's assets.
Participation - The Plan participation requirements allow employees
-------------
who have six months of service with the Company and who are 21 years of age or
older to participate in the Plan.
Participants can defer up to 30% of their salary toward Plan
contributions. Matching contributions can be made at the discretion of the
Company. Effective July 1, 2004, the Company elected to suspend matching the
participants' contributions. Effective July 1, 2005, the Company elected to
match contributions equal to 50% up to the first 4% of the participants'
contributions. The matching Company contribution is to be invested after the
Company's fiscal year end, June 25, 2006. In addition, at the election of the
board of directors, the Company may make discretionary contributions. There
were no additional discretionary contributions made for the year ended December
31, 2005. Rollover contributions from other qualified plans can be added to the
Plan by eligible participants.
For the plan year ended December 31, 2005, the Plan passed the average
deferral percentage discrimination testing.
Participant Accounts - Each participant's account is credited with the
--------------------
participant's contribution and an allocation of the Company's contribution and
plan earnings. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's vested accounts. Participants may
direct the investment of their account balances into various investment options
offered by the Plan. Currently, the Plan offers eleven mutual funds, one money
market trust fund and common stock of the Plan sponsor as investment options for
participants.
Vesting - Participant contributions, and the earnings thereon, are
-------
fully and immediately vested. Company contributions vest at the rate of 25% per
year over four years of service.
Forfeitures - For the year 2005, forfeitures of unvested Company
-----------
matching contributions by terminated employees were accumulated and applied to
administrative expenses. The unallocated forfeited, nonvested account balance
as of December 31, 2005 and 2004 was $0 and $1,286, respectively.
Participant Loans - Participants may obtain a loan from the Plan in an
-----------------
amount not to exceed 50% of their vested balance up to a maximum of $50,000.
The minimum loan available is $1,000. Loans bear interest at a rate of 2% over
prime and are collateralized by the participant's vested account balance. Loan
principal and interest is repaid ratably through monthly payroll deductions over
a maximum period of five years, except for the purchase of a principal
residence, which may be repaid over a reasonable period of time that may be
longer than five years.
Payment of Benefits - Terminated participants are entitled to receive
--------------------
100% of their contributions to the Plan and any income or loss thereon, as well
as their vested portion of the Company contributions and any income or loss
thereon. Generally, benefits attributable to employer contributions are not
payable prior to termination. However, hardship distributions of a portion of
the employee's contribution and employer's contribution, to the extent vested,
may be made to the participant in certain situations, as defined in the Plan.
Terminated employees may continue to participate in the Plan, and the
expenses related to their participation are paid by the Company.
Plan Termination - Although it has not expressed any intent to do so,
-----------------
the Company maintains the right to terminate the Plan at any time. In the event
that the Plan is terminated, the participants become 100% vested in their
accounts.
Administrative Expenses - The Company pays substantially all
------------------------
administrative expenses associated with the administration of the Plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The Plan's financial statements are presented
--------------------
using the accrual method of accounting in conformity with accounting principles
generally accepted in the United States of America.
Use of Estimates - The preparation of financial statements in
------------------
conformity with accounting principles generally accepted in the United States of
America requires Plan management to make significant estimates and assumptions
that affect the reported amounts of assets, liabilities, and changes therein,
and disclosure of contingent assets and liabilities. Actual results could
differ significantly from those estimates.
Investments and Investment Income - The Plan's investments are exposed
---------------------------------
to various risks, such as interest rate, market and credit risks. Due to the
level of risk associated with investments in mutual funds and stocks, it is at
least reasonably possible that changes in the values of such investments will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statements of net
assets available for benefits.
Mutual funds are valued at the net asset value (fair value) per unit
(share) of the fund or the portfolio. The fair value has been measured by
quoted market prices in an active market. Investments in the Company's common
stock are valued at the fair value as determined by the closing quoted market
price on December 31, 2005. Participant loans are valued at their outstanding
balances, which approximates their fair value. Purchases and sales of securities
are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date. Interest is recorded
on the accrual basis.
Determination of Unrealized Appreciation/Depreciation and Gain or Loss
----------------------------------------------------------------------
on Investments - The Plan presents in the Statement of Changes in Net Assets
- ---------------
Available for Benefits the net appreciation (depreciation) in the fair value of
its investments, which consists of the realized gains or losses, and the
unrealized appreciation (depreciation) on those investments.
Unrealized appreciation or depreciation in the fair value of
investments held at year-end and gain or loss on sale of investments during the
year are determined using the fair value at the beginning of the year or
purchase price if acquired during the year.
Participant Loans - Participant loans are valued at original loan
------------------
value, plus accrued interest, less principal repayments, which approximates fair
value. Interest rates on the loans range from 6.00% to 10.25% at December 31,
2005.
Payment of Benefits - Benefits are recorded when paid.
-------------------
3. TAX STATUS OF PLAN
Management believes that the Plan is qualified under section 401(a) of
the Internal Revenue Code and therefore, the Plan is exempt from taxation under
section 501(a). The Internal Revenue Service ("IRS") granted a favorable letter
of determination to the Plan in 1986. During 1997 and 2001, the Company
received favorable letters of determination from the IRS for amendments to the
Plan. Generally, contributions to a qualified plan are deductible by the Company
when made. Earnings of the Plan are tax deferred and participants are not taxed
on their benefits until withdrawn from the Plan.
Management is unaware of any variations in the operation of the Plan
from the terms of the Plan documents, as amended. Management believes the
Plan is qualified under the applicable sections of the Code and the Employee
Retirement Income Security Act of 1974.
4. INVESTMENTS
The following presents investments that represent 5% or more of the
Plan's net assets:
December 31, 2005 2004
- ------------ ----- ----
Pizza Inn, Inc. common stock $522,015 $ 677,526
Wells Fargo Stable Return EBT Fund - 280,916
Janus Fund - 305,956
Franklin Small-Cap Growth Fund - 208,024
Fidelity Advisors High Yield Fund - 166,005
MFS Total Return A - 188,359
Wells Fargo Index - 167,307
American Century Equity Income - 168,441
Strong Small Cap Value - 203,161
ML Retirement Preservation Trust 302,467 -
Hotchkis and Wiley Large Cap Value R 192,438 -
ML Large Cap Growth Fund R 384,926 -
Goldman Sachs Mid Cap Value 221,541 -
Franklin Small Cap Value R 272,639 -
John Hancock Small Cap Equity Fund R 242,399 -
ML S&P 500 Index Class A 160,883 -
Delaware Diversified Income Fund Class R 158,316 -
Participant Loans 158,973 -
---------- ---------
Total investments greater than 5% 2,616,597 2,365,695
Total investments less than 5% 483,336 470,733
---------- ---------
Total investments $ 3,099,933 $ 2,836,428
- --------------------------------------------------------------------------------
During 2005, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated in
value by $148,658 as follows:
Year ended December 31, 2005
- ---------------------- ----
Mutual funds $ 157,061
Pizza Inn, Inc. common stock (8,403)
------------
$ 148,658
- --------------------------------------------------------------------------------
5. NON-PARTICIPANT-DIRECTED INVESTMENTS
Employer contributions are automatically invested in Pizza Inn, Inc.
common stock. Employees also have the option of investing their contribution,
or a portion thereof, in Pizza Inn, Inc. common stock. Effective July 8, 2003,
the Plan was amended to allow participants to move Employer contributions from
employer common stock to other investment options provided by the Plan. Since
the activity of the nonparticipant-directed and participant-directed investments
are combined, the entire investment option is considered nonparticipant-directed
for purposes of this disclosure. Information about the net assets and the
significant components of the changes in net assets relating to
nonparticipant-directed investments is as follows:
December 31, 2005 2004
- ----------- ---- ----
NET ASSETS
Pizza Inn, Inc. common stock $ 522,015 $ 677,526
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
- ---------------------- ----
CHANGES IN NET ASSETS
Contributions $ 8,213
Interest income 140
Net depreciation ( 8,403)
Benefits paid to participants (36,989)
Transfers to participant-directed investments (118,472)
----------
$ (155,511)
- --------------------------------------------------------------------------------
6. PARTY-IN-INTEREST TRANSACTIONS
One of the Plan's investment options is in shares of Pizza Inn, Inc.
common stock. Pizza Inn, Inc. sponsors the Plan; therefore, the related
transactions are deemed party-in-interest transactions. The Plan recorded
purchases of $9,460 and sales of $156,991 of the Company's stock during the year
ended December 31, 2005.
Certain Plan investments are shares of mutual funds managed by Merrill
Lynch or its affiliates. This institution serves as investment advisor to the
Plan and, therefore, these investments are deemed party-in-interest
transactions. In addition, the Plan has a program to provide loans to
participants and therefore these also are deemed party-in-interest transactions.
SUPPLEMENTAL SCHEDULES
PIZZA INN, INC. 401(K) SAVINGS PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
EIN: 47-0654575
Plan Number: 005
----------------
December 31, 2005 Schedule I
- ----------------- ----------
(c)
(b) Description of investment,
Identity of issuer, including maturity date, rate (e)
borrower lessor or, of interest, collateral, par or (d) Current
(a) similar party maturity value Cost value
- --- ----------------------- ----------------------------------- --- ----
* ML Retirement Preservation Trust Cash Equivalent ** $ 302,467
* ML S&P 500 Index Class A Mutual Fund ** 160,883
Franklin Small Cap Value R Mutual Fund ** 272,639
* ML Large Cap Growth Fund R Mutual Fund ** 384,926
Goldman Sachs Mid Cap Value Mutual Fund ** 221,541
* ML Global Allocation Fund Cl R Mutual Fund ** 120,576
Federated Kaufmann Fund Class K Mutual Fund ** 115,157
* ML US High Yield Fund R Mutual Fund ** 154,559
Hotchkis and Wiley Large Cap Value R Mutual Fund ** 192,438
John Hancock Small Cap Equity Fund R Mutual Fund ** 242,399
Goldman Sachs Govt Income Fund Class S Mutual Fund ** 93,044
Delaware Diversified Income Fund Class R Mutual Fund ** 158,316
Pizza Inn, Inc. Common Stock ** 522,015
* Participant loans General purpose loans
maturing from 2006-2010;
bearing interest at 6.00% to 10.25% ** 158,973
----------
Total assets held for investment purposes $3,099,933
- --------------------------------------------------------------------------------
* - Party-in interest
** - Cost not required for participant-directed investments.
See accompanying Report of Independent Registered Public Accounting Firm.
Pizza Inn, Inc. 401(k) Savings Plan
Schedule of Reportable Transactions
EIN: 47-0654575
Plan Number: 005
----------------
Year Ended December 31, 2005 Schedule II
(I)
(a) (b) ( c) (d) (g) Net Gain
Identity of Party Description of Asset Purchase Price Selling Price Cost of Asset or (Loss)
- ------------------ --------------------- --------------- -------------- -------------- ---------
Series of transactions within the plan year with respect to securities of the same issue that , when
aggregated, involve more than 5% of the current value of plan assets:
Pizza Inn, Inc Common Stock 9,460 - 9,460 -
Pizza Inn, Inc Common Stock 156,991 168,274 (11,283)
- ------------------ --------------------- --------------- -------------- -------------- ---------
See accompanying Report of Independent Registered Public Accounting Firm
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrator has duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Administrative Committee for the
Pizza Inn, Inc. 401(k) Savings Plan
DATE June 29, 2006 By:/s/ Susan Milliman
Susan Milliman
Member of the Pizza Inn, Inc.
401(k) Savings Plan
Administrative Committee
CONSENT OF REGISTERED INDEPENDENT ACCOUNTING FIRM Pizza Inn, Inc. 401(k) Savings Plan The Colony, Texas We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-56590) of our report dated June 15, 2006 relating to the financial statements and schedules of the Pizza Inn, Inc. 401(k) Savings Plan appearing on this Form 11-K for the year ended December 31, 2005. /s/ BDO Seidman, LLP Dallas, Texas June 29, 2006