Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 13, 1996

Documents

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on November 13, 1996



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q
(Mark One)

X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
SEPTEMBER 29, 1996.

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.
(Exact name of registrant as specified in its charter)

MISSOURI 47-0654575
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5050 QUORUM DRIVE
SUITE 500
DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (972) 701-9955

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes x No

At September 29, 1996, an aggregate of 12,997,152 shares of the
registrant's Common Stock, par value of $.01 each (being the registrant's only
class of common stock), were outstanding.

PIZZA INN, INC.

Index


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements Page

Condensed Consolidated Statements of Operations
for the three months ended September 29, 1996
and September 24, 1995 . . . . . . . . . . . . . . . . . . . . . 3

Condensed Consolidated Balance Sheets at
September 29, 1996 and June 30, 1996 . . . . . . . . . . . . . . 4

Condensed Consolidated Statements of Cash Flows
for the three months ended September 29, 1996
and September 24, 1995 . . . . . . . . . . . . . . . . . . . . . 5

Notes to Condensed Consolidated Financial Statements . . . . . . 6


Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 7


PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 9

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 10




PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)







Three Months Ended
---------------------------------
September 29, September 24,
1996 1995
------------ ------------


REVENUES:
Food and supply sales $ 15,421 $ 13,575
Franchise revenue 1,600 1,783
Restaurant sales 685 725
Other income 28 69
------------ ------------
17,734 16,152
------------ ------------
COSTS AND EXPENSES:
Cost of sales 13,966 12,671
Franchise expenses 742 701
General and administrative
expenses 1,325 1,313
Interest expense 192 265
------------ ------------
16,225 14,950
------------ ------------

INCOME BEFORE INCOME TAXES 1,509 1,202
Provision for income taxes 513 409
------------ ------------
NET INCOME $ 996 $ 793
============ ============

NET INCOME PER COMMON SHARE $ 0.07 $ 0.06
============ ============


See accompanying Notes to Condensed Consolidated Financial Statements


PIZZA INN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)






September 29, June 30,
1996 1996
----------- --------
(Unaudited)


ASSETS
- ----------------------------------------------------

CURRENT ASSETS
Cash and cash equivalents $ 650 $ 653
Restricted cash and short-term investments,
(including $0 and $230, respectively,
pledged as collateral for certain
letters of credit) 210 360
Notes and accounts receivable, less allowance
for doubtful accounts of $907 and $900,
respectively 6,755 6,652
Inventories 2,148 1,919
Prepaid expenses and other 548 466
Net assets held for sale 65 70
--------- ---------
10,376 10,120
Total current assets

PROPERTY, PLANT AND EQUIPMENT, net 1,828 1,866

PROPERTY UNDER CAPITAL LEASES, net 1,063 1,107

DEFERRED TAXES, net 10,204 10,687

OTHER ASSETS
Long-term notes and accounts receivable, less
allowance for doubtful accounts of $59
and $63, respectively 316 149
Deposits and other 464 490
--------- ---------

$ 24,251 $ 24,419
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------

CURRENT LIABILITIES
Current portion of long-term debt $ 2,000 $ 2,000
Current portion of capital lease obligations 109 109
Accounts payable - trade 1,363 2,331
Accrued expenses 3,388 3,158
--------- ---------
Total current liabilities 6,860 7,598

LONG-TERM LIABILITIES
Long-term debt 6,410 6,910
Long-term capital lease obligations 966 992
Other long-term liabilities 794 813

SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 26,000,000
shares authorized; outstanding 12,997,152
and 12,876,801 shares, respectively (after
deducting shares in treasury:
September - 1,368,716; June - 1,360,567) 130 129
Additional paid-in capital 3,843 3,684
Retained earnings 5,248 4,293
--------- ---------
Total shareholders' equity 9,221 8,106
--------- ---------

$ 24,251 $ 24,419
========= =========


See accompanying Notes to Condensed Consolidated Financial Statements


PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)






Three Months Ended
------------------------------
September 29, September 24,
1996 1995
------------ ------------


CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 996 $ 793
Add non-cash items 656 531

Changes in assets and liabilities:
Accounts and notes receivable (270) (1,195)
Inventories (229) (158)
Accounts payable - trade (968) 831
Accrued expenses 211 630
Other - net 55 89
---------- ------------
Cash provided by operating activities 451 1,521
---------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property, plant and equipment (73) (133)
Proceeds from sales of assets - 83
---------- ------------
Cash used for investing activities (73) (50)
---------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of long-term debt and capital
lease obligations (500) (1,121)
Proceeds from exercise of stock options 162 208
Purchases of treasury stock (43) (778)
---------- ------------
Cash used for financing activities (381) (1,691)
---------- ------------

Net decrease in cash and cash equivalents (3) (220)
Cash and cash equivalents, beginning of period 653 1,672
---------- ------------
Cash and cash equivalents, end of period $ 650 $ 1,452
========== ============


- --------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAYMENTS FOR:
Interest $ 141 $ 274
Income taxes - -






See accompanying Notes to Condensed Consolidated Financial Statements







PIZZA INN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(1) The accompanying condensed consolidated financial statements of Pizza
Inn, Inc. (the "Company") have been prepared without audit pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to such rules and
regulations. The condensed consolidated financial statements should be read
in conjunction with the notes to the Company's audited consolidated financial
statements in its Form 10-K for the fiscal year ended June 30, 1996.

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to fairly
present the Company's financial position and results of operations for the
interim periods. All adjustments contained herein are of a normal recurring
nature.

(2) For the three months ended September 29, 1996 and September 24, 1995,
common stock equivalents were 798,795 and 705,701, respectively, and the total
weighted average number of shares considered to be outstanding were 13,721,024
and 14,149,231, respectively.

(3) In July 1996, in order to reduce future administrative costs related
to small shareholder accounts, the Company implemented an odd lot buy-back
program to purchase its own common stock for $5.25 per share from shareholders
who own less than 100 shares. During the three months ended September 29,
1996, the Company purchased 8,149 shares under this program.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Quarter ended September 29, 1996 compared to the quarter ended September 24,
1995.

Net income for the current quarter increased 26% to $996,000 or $0.07 per
share, from $793,000 or $0.06 per share for the same quarter last year.
Revenues rose 10% to $17.7 million from $16.2 million last year.

Food and supply sales from the Company's distribution division increased
14% in the current year. The increase is due to growth in chainwide domestic
retail sales, as well as increased market share on sales of non-proprietary
food and equipment to both international and domestic franchisees. Increases
in the market price of certain commodities also contributed to the sales
increase.

Franchise revenue, which includes income from royalties, license fees and
area development ("A.D.") sales, decreased 10% compared to the prior year
quarter. This was primarily due to lower income recognized from A.D. sales in
the current year. The timing and amount of proceeds from A.D. sales may vary
significantly from year to year. Current year sales include partial
recognition of proceeds from the sale of area development rights for Korea.

Restaurant sales, which are comprised of sales from Company operated
units, decreased 6% compared to the same quarter last year. This is primarily
the result of the closing during fiscal 1996 of one of the units that was not
required for training or other purposes.

Other income consists primarily of interest and non-recurring revenue
items. The current year includes less interest on long-term notes receivable
because of lower balances in asset purchase notes.

Cost of sales increased 10% for the quarter as a result of the growth in
food and supply sales to the Company's franchisees. As a percentage of food
and supply sales, the cost of sales is slightly lower during the current
quarter, as a result of cost efficiencies achieved through fleet modernization
and routing efficiencies, increased labor productivity and improved buying
power through volume purchasing. Variations in the seasonal cost patterns of
key commodities from year to year have also impacted the comparable cost of
sales percentages.

Franchise expenses increased 6% compared to the same quarter last year,
reflecting increases in expenditures for sales, training and field service
personnel.

General and administrative expenses increased less than 1% during the
quarter, as the Company continues to hold down costs not directly related to
the franchise and distribution areas of the business.

Interest expense decreased 28% in the current quarter as a result of
lower average debt balances and lower interest rates.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $451,000 for the first quarter of
fiscal 1997, and consisted primarily of net income plus the benefit of the
Company's net operating loss carryforwards which significantly reduce the
amount of federal income tax actually paid. The Company utilized cash
primarily to pay down debt, making a $500,000 scheduled principal payment
during the quarter.

In September 1996, the Company signed an agreement for the sale of
exclusive operating and franchising rights in Korea, for a total cash price of
$800,000 ($687,000 net of certain expenses). This agreement, along with other
area development agreements signed during the last four years, contain
development commitments for significant unit growth over the next five years.
Related growth in royalties and distribution sales are expected to provide
adequate working capital. The occurrence of any additional area development
sales, which cannot be predicted with any certainty, may also provide
significant infusions of cash. External sources of cash are not expected to
be required in the foreseeable future.

The Company continues to realize substantial benefit from the utilization
of its net operating loss carryforwards to reduce its federal tax liability
from the 34% tax reflected on its statement of operations to an actual payment
of approximately 2% of taxable income. Management believes that future
operations will generate sufficient taxable income, along with the reversal of
temporary differences, to fully realize its net deferred tax asset balance
($10.2 million as of September 29, 1996). Taxable income in future years at
the same level as fiscal 1996 would be sufficient for full realization of the
net tax asset. Management believes that, based on recent growth trends and
future projections, maintaining current levels of taxable income is achievable
and that the Company will be able to realize its net deferred tax asset
without reliance on material, non-routine income.

Historically, the differences between pre-tax earnings for financial
reporting purposes and taxable income for tax purposes have consisted of
temporary differences arising from the timing of depreciation, deductions for
accrued expenses and deferred revenues, as well as permanent differences as a
result of goodwill amortization deducted for financial reporting purposes but
not for income tax purposes.

The following summarizes, as of September 29, 1996, the annual amounts of
net operating loss carryforwards for income tax purposes that expire by year:

Net Operating Loss
Carryforwards
(In Thousands) Expires in Year
------------------- -----------------
$800 2004
24,600 2005
-------
$25,400
=======


"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contains certain projections and other forward-looking
statements that are not historical facts and are subject to various risks and
uncertainties, including but not limited to: changes in demand for Pizza Inn
products and franchises; the impact of competitors' actions; changes in prices
or supplies of food ingredients; and restrictions on international trade and
business.


PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

There are no exhibits filed with this report. No reports on Form 8-K
were filed in the quarter for which this report is filed.



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


PIZZA INN, INC.
Registrant




By: /s/C. Jeffrey Rogers
--------------------
C. Jeffrey Rogers
President and
Principal Executive Officer





By: /s/Elizabeth D. Reimer
----------------------
Elizabeth D. Reimer
Controller and
Principal Accounting Officer







Dated: November 12, 1996