Form: 10-Q/A

Quarterly report pursuant to Section 13 or 15(d)

February 12, 1998

Documents

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

Published on February 12, 1998





SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q/A

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 1997.

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 IN ITS CHARTER)


MISSOURI 47-0654575
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)


5050 QUORUM DRIVE
SUITE 500
DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)


(972) 701-9955
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)

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 SECTIONS 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 DECEMBER 28, 1997, AN AGGREGATE OF 12,700,655 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 and six months ended December 28, 1997
and December 29, 1996 . . . . . . . . . . . . . . . . . . . . . 3

Condensed Consolidated Balance Sheets at
December 28, 1997 and June 29, 1997 . . . . . . . . . . . . . . 4

Condensed Consolidated Statements of Cash Flows
for the six months ended December 28, 1997
and December 29, 1996 . . . . . . . . . . . . . . . . . . . . 5

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


Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 9



PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 11


Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 11


Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 11

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 12




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 Six Months Ended
----------------------------- -------------------------------
December 28, December 29, December 28, December 29,
1997 1996 1997 1996
------------ ------------ -------------- ------------


REVENUES:
Food and supply sales $ 14,701 $ 15,146 $ 29,162 $ 30,567
Franchise revenue 1,571 1,739 3,365 3,339
Restaurant sales 747 645 1,444 1,330
Other income 51 29 149 57
------------ ------------- ------------ ------------
17,070 17,559 34,120 35,293
------------ ------------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales 13,259 13,714 26,313 27,680
Franchise expenses 755 680 1,658 1,422
General and administrative
expenses 1,142 1,232 2,442 2,557
Interest expense 118 168 258 360
------------ ------------ ------------ ------------
15,274 15,794 30,671 32,019
------------ ------------ ------------ ------------

INCOME BEFORE INCOME TAXES 1,796 1,765 3,449 3,274
Provision for income taxes 611 600 1,173 1,113
------------ ------------ ------------ ------------
NET INCOME $ 1,185 $ 1,165 $ 2,276 $ 2,161
============ ============ ============ ============

EARNINGS PER COMMON SHARE $ 0.09 $ 0.09 $ 0.18 $ 0.17
============ ============ ============ ============

EARNINGS PER COMMON SHARE -
ASSUMING DILUTION $ 0.09 $ 0.08 $ 0.17 $ 0.16
============ ============ ============ ============

DIVIDENDS PER COMMON SHARE $ 0.06 $ - $ 0.12 $ -
============ ============ ============ ============



See accompanying Notes to Condensed Consolidated Financial Statements


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






December 28, June 29,
1997 1997
----------- --------
(Unaudited)


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

CURRENT ASSETS
Cash and cash equivalents $ 270 $ 2,037
Restricted cash and short-term investments, 340 295
Accounts receivable, less allowance
for doubtful accounts of $766 and $939,
respectively 7,002 6,711
Notes receivable, less allowance
for doubtful accounts of $60
for both periods 570 593
Inventories 2,098 2,224
Prepaid expenses and other 580 452
--------- ---------

Total current assets 10,860 12,312

PROPERTY, PLANT AND EQUIPMENT, net 2,028 2,044

PROPERTY UNDER CAPITAL LEASES, net 848 934

DEFERRED TAXES, net 7,388 8,492

OTHER ASSETS
Long-term notes receivable, less
allowance for doubtful accounts
of $122 for both periods 575 149
Other long-term assets 1,233 379
--------- ---------

$ 22,932 $ 24,310
========= =========

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

CURRENT LIABILITIES
Current portion of capital lease obligations $ 120 $ 115
Accounts payable - trade 1,862 1,482
Accrued expenses 2,777 2,917
--------- ---------
Total current liabilities 4,759 4,514

LONG-TERM LIABILITIES
Long-term debt 5,513 6,910
Long-term capital lease obligations 818 879
Other long-term liabilities 776 786

SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; 26,000,000
shares authorized; outstanding 12,700,655
and 12,713,562 shares, respectively (after
deducting shares in treasury:
December - 2,070,016; June - 1,790,416) 127 127
Additional paid-in capital 4,367 4,061
Retained earnings 6,572 7,033
--------- ---------
Total shareholders' equity 11,066 11,221
--------- ---------

$ 22,932 $ 24,310
========= =========


See accompanying Notes to Condensed Consolidated Financial Statements

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






Three Months Ended
------------------------------
December 28, December 29,
1997 1996
------------ ------------


CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 2,276 $ 2,161
Add non-cash items 1,600 1,394

Changes in assets and liabilities:
Accounts and notes receivable (719) (1,861)
Inventories 126 114
Accounts payable - trade 380 (313)
Accrued expenses (695) (251)
Deferred income (210) 62
Other - net (170) 127
---------- ------------
Cash provided by operating activities 2,588 1,433
---------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property, plant and equipment (250) (148)
Reacquisition of area development territory (986) -
---------- ------------
Cash used for investing activities (1,236) (148)
---------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Net repayments of long-term bank debt and
capital lease obligations (1,453) (1,052)
Dividends paid (765) -
Proceeds from exercise of stock options 405 273
Purchases of treasury stock (1,306) (627)
---------- ------------
Cash used for financing activities (3,119) (1,406)
---------- ------------

Net decrease in cash and cash equivalents (1,767) (121)
Cash and cash equivalents, beginning of period 2,037 653
---------- ------------
Cash and cash equivalents, end of period $ 270 $ 532
========== ============

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

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAYMENTS FOR:
Interest $ 279 $ 315
Income taxes 80 70






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 29, 1997.

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) In July 1997, the Company reacquired the area development rights for
the majority of Tennessee and portions of Kentucky. The Company paid $986,000
in cash for these rights, and recorded a long-term asset for the same amount.
Restaurants operating or developed in the reacquired Territory now pay all
royalties and franchise fees directly to Pizza Inn, Inc. The asset will be
amortized over approximately five years, based on the expected cash flow from
the Territory.

(3) In December 1997, the Company's Board of Directors declared a
quarterly dividend of $0.06 per share on the Company's common stock, payable
January 23, 1998 to shareholders of record on January 9, 1998. The Company's
balance sheet as of December 28, 1997 includes a current liability of $765,000
for dividends declared but not yet paid.

(4) In August 1997, the Company signed a new agreement (the "New Loan
Agreement") with its current lender, Wells Fargo, to refinance its existing
debt under a new revolving credit facility. The new $9.5 million revolving
credit line combines the Company's existing $6.9 million term loan with its $1
million revolving credit line, plus an additional $1.6 million revolving
credit commitment. The new revolving credit note matures in August 1999 and
is secured by essentially all of the Company's assets.

Interest on the revolving credit line is payable monthly. Interest is
provided for at a rate equal to prime plus an interest margin from -1.0% to
0.0% or, at the Company's option, at the Eurodollar rate plus 1.25% to 2.25%.
The interest rate margin is based on the Company's performance under certain
financial ratio tests. A 0.5% annual commitment fee is payable on any unused
portion of the revolving credit line.

The New Loan Agreement contains covenants which, among other things,
require the Company to satisfy certain financial ratios and restrict
additional debt.

The Company also entered into a separate cash management agreement with
Wells Fargo, under which excess cash in the Company's bank accounts is applied
against its revolving credit advance on a daily basis. For the six months
ended December 28, 1997, net payments against the advance were $1.4 million.

(5) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128"), which is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Effective December 28,
1997, the Company adopted SFAS 128, which establishes standards for computing
and presenting earnings per share ("EPS"). The statement requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation, to the numerator and
denominator of the diluted EPS calculation. Basic EPS excludes the effect of
potentially dilutive securities while diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue common
stock were exercised, converted into or resulted in the issuance of common
stock that then shared in the earnings of the entity. The following table
shows the reconciliation of the numerator and denominator of the basic EPS
calculation to the numerator and denominator of the diluted EPS calculation
(in thousands, except per share amounts).






Three Months Ended Three Months Ended
December 28, 1997 December 29, 1996
---------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------------------

BASIC EPS
Income Available to
Common Shareholders $ 1,185 12,713 $ 0.09 $ 1,165 12,950 $ 0.09

EFFECT OF DILUTIVE
SECURITIES
Stock Options 1,155 930

DILUTED EPS
Income Available to
Common Shareholders
and Assumed Conversions $ 1,185 13,868 $ 0.09 $ 1,165 13,880 $ 0.08
======= ====== ====== ======= ====== ======





Six Months Ended Six Months Ended
December 28, 1997 December 29, 1996
---------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------------------

BASIC EPS
Income Available to
Common Shareholders $ 2,276 12,696 $ 0.18 $ 2,161 12,936 $ 0.17

EFFECT OF DILUTIVE
SECURITIES
Stock Options 883 840

DILUTED EPS
Income Available to
Common Shareholders
and Assumed Conversions $ 2,276 13,579 $ 0.17 $ 2,161 13,776 $ 0.16
======= ====== ====== ======= ====== ======


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

Quarter and six months ended December 28, 1997 compared to the quarter and six
months ended December 29, 1996.

Net income for the second quarter of the current fiscal year rose 2% to
$1,185,000 or $0.09 per share (also $0.09 per share assuming dilution)
compared to $1,165,000 or $0.09 per share ($0.08 per share assuming dilution)
for the same quarter last year. For the six months ended December 28, 1997,
net income increased 5% to $2,276,000 or $0.18 per share ($0.17 per share
assuming dilution), from $2,161,000 or $0.17 per share ($0.16 per share
assuming dilution) for the same period last year.

Food and supply sales decreased 3% for the quarter, compared to the same
period last year. This was primarily due to higher international food and
supply sales last year as the result of a large initial shipment to a new
international location. For the six month period, food and supply sales
decreased 5%. During the first quarter, sales decreased due to slightly lower
domestic retail sales, decreases in the market price of certain commodities,
and lower international food and supply sales due to a large initial shipment
in the prior year.

Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
decreased 10% for the quarter and increased 1% for the six month period. The
decrease in the quarter was primarily due to lower income recognized from
Territory sales. For the six month period, this decrease was offset by higher
Territory sales during the first quarter. The timing and amount of proceeds
from Territory sales may vary significantly from year to year and during the
year. Current year sales include partial recognition of proceeds from the
sale of Territory rights for Korea, the Palestinian Territories, Brazil, South
Carolina and Virginia. Royalties increased slightly during the current
quarter due to the reacquisition of an area development Territory during the
first quarter of the current year. Royalties from all restaurants operating
in this Territory, including the portion of royalties formerly retained by the
area developer, are now paid to the Company.

Other income consists primarily of interest and non-recurring revenue
items. The current year includes a gain on the sale of a liquor license in
New Mexico during the first quarter.

Cost of sales decreased 3% and 5% for the quarter and six month periods,
respectively, reflecting the decrease in food and supply sales. As a
percentage of food and supply sales, the cost of sales was slightly lower
during both current year periods due to increased purchasing efficiencies.

Franchise expenses increased 11% for the quarter and 17% for the six
month period, compared to the same periods last year. This reflects increases
in expenditures for sales, marketing, training and field service personnel.
Franchise expenses for the current year also include the amortization of a
reacquired area development Territory.

General and administrative expenses decreased 7% and 5% for the quarter
and six months, respectively, compared to the same periods last year. Due to
the Company's settlement of a lawsuit with a former international master
licensee, amounts accrued during the previous year to cover further litigation
costs in this matter were reversed. This credit was the primary cause of the
decrease in general and administrative expenses.

Interest expense decreased 30% and 28% for the three and six month
periods, respectively, as a result of lower average debt balances and lower
interest rates.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $2,588,000 for the first six months
of fiscal 1998, 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's agreement with its
bank provides that excess cash will be applied against any outstanding
revolving credit advance. For the six months ended December 28, 1997, net
cash applied against the advance was $1.4 million. The Company currently has
$4 million available under its revolving line of credit. The Company also
utilized cash to reacquire an area development Territory for $986,000, to pay
dividends of $765,000 on the Company's common stock, and to repurchase 270,300
shares of its own common stock for $1,306,000.

During the six month period, the Company signed an agreement for the sale
of an area development Territory covering certain counties in Virginia and
South Carolina to an existing area developer for a cash price of $240,000.
This area development agreement, along with other agreements signed during the
last four years, contain development commitments for additional unit growth
over the next five years. The occurrence of any additional area development
sales, which cannot be predicted with any certainty, may also provide
significant infusions of cash. Growth in royalties and distribution sales are
expected to provide adequate working capital. 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 (which currently total $17.1 million
and expire in 2005) 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 ($7.4 million
as of December 28, 1997). Taxable income in future years at the same level as
fiscal 1997 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.

"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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Shareholders on December 11, 1997, the
Company's shareholders elected all three nominees to the Board of Directors.
The results of the voting were as follows:

NOMINEE VOTES FOR VOTES WITHHELD

C. Jeffrey Rogers 10,663,450 105,109
F. Jay Taylor 10,663,450 105,109
Steve A. Ungerman 10,663,450 105,109


The shareholders also approved the proposed amendment of the Company's
1993 Stock Award Plan. The results of the voting were as follows:


FOR AGAINST ABSTAIN TOTAL SHARES

9,329,195 826,596 472,984 10,628,775


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/Ronald W. Parker
Ronald W. Parker
Executive Vice President and
Principal Financial Officer





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







Dated: February 12, 1998