THE COLONY, Texas — A Sept. 22 letter from Pizza Inn chief executive Tim Taft reflected growing shareholder and franchisee concerns over the future of the struggling 400-unit company.

Taft's letter, released as a regulatory filing, blamed the company's current condition on historically poor franchisee selection and treatment, as well as misguided attempts to generate new revenue at the company.

"We found and/or created ways to make money from (franchisees) in every way imaginable — from commissions on media to proprietary grocery items — from kitchen equipment to charging them to attend their own franchise convention," Taft wrote. "We did this because we were focused on the short-term and as a consequence we created a business model for our franchisees that was not as healthy as it could have been."

Taft warned that earnings, which took a beating in 2005 (read also '05 profits and revenue slide at Pizza Inn), may dip further as the company moves to correct its many problems. But while aggressive measures such as culling underperforming franchise units may reduce stock values in the near term, he believes it will allow the company to improve unit-level economics and "create systems and processes dedicated to providing relief on all P&L pressure points ... ."

The company also hopes a new prototype buffet restaurant will mark the beginning of a resurgence at the store level (read also Pizza Inn CEO betting new prototype will spur revival).

"We are dedicated to creating a new foundation for our future — a firm footing built on concrete versus sand," Taft wrote. "I believe we will be successful in creating long-term shareholder value because we are focused on doing what's best for Pizza Inn. In turn, our franchisees will have the best chance for short-term as well as long-term success."

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