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 26, 2004.
--------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.

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.)

3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)

(469) 384-5000
(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 IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12 B-2 OF THE EXCHANGE ACT). YES [ ] NO [X]

AT NOVEMBER 5, 2004, AN AGGREGATE OF 10,108,639 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 26, 2004 and September 28, 2003 (unaudited) 3

Condensed Consolidated Statements of Comprehensive Income for the three
months ended September 26, 2004 and September 28, 2003 (unaudited) 3

Condensed Consolidated Balance Sheets at September 26, 2004 (unaudited)
and June 27, 2004 4

Condensed Consolidated Statements of Cash Flows for the three months ended
September 26, 2004 and September 28, 2003 (unaudited) 5

Notes to Condensed Consolidated Financial Statements (unaudited) 7

Item 2.
-------
Management's Discussion and Analysis of
-------------------------------------------
Financial Condition and Results of Operations 11
---------------------------------------------
Item 3.
- -------
Quantitative and Qualitative Disclosures about Market Risk 14

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

Item 4. Controls and Procedures 14
- -------- -------------------------

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 15
- -------- ------------------

Item 4. Submission of Matters to a Vote of Security Holders 16
- -------- -----------------------------------------------------------

Item 5. Other Information 16
- -------- ------------------

Item 6. Exhibits and Reports on Form 8-K 16
- -------- -------------------------------------

Signatures 17

PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED
--------------------
SEPTEMBER 26, SEPTEMBER 28,
REVENUES: 2004 2003
-------------------- --------------

Food and supply sales. . . . . . . . . . . . . . . . . . $ 12,822 $ 13,498
Franchise revenue. . . . . . . . . . . . . . . . . . . . 1,340 1,451
Restaurant sales . . . . . . . . . . . . . . . . . . . . 255 406
Other income . . . . . . . . . . . . . . . . . . . . . . 4 21
-------------------- --------------
14,421 15,376
-------------------- --------------

COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 12,193 12,597
Franchise expenses . . . . . . . . . . . . . . . . . . . 629 814
General and administrative expenses. . . . . . . . . . . 1,022 1,041
Interest expense . . . . . . . . . . . . . . . . . . . . 136 160
-------------------- --------------
13,980 14,612
-------------------- --------------

INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 441 764

Provision for income taxes . . . . . . . . . . . . . . . 156 260
-------------------- --------------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 285 $ 504
==================== ==============

BASIC EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . $ 0.03 $ 0.05
==================== ==============

DILUTED EARNINGS PER COMMON SHARE. . . . . . . . . . . . . $ 0.03 $ 0.05
==================== ==============

WEIGHTED AVERAGE COMMON SHARES . . . . . . . . . . . . . . 10,134 10,059
==================== ==============

WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES . . . . . . . . . . . . 10,169 10,086
==================== ==============

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

THREE MONTHS ENDED
------------------------
SEPTEMBER 26,. SEPTEMBER 28,
2004 2003
-------------------- --------------

Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 285 $ 504
Interest rate swap gain (loss) - (net of tax (expense)
benefit of $20 and ($63), respectively). . . . . . . . . (39) 122
-------------------- --------------
Comprehensive Income . . . . . . . . . . . . . . . . . . $ 246 $ 626
==================== ==============

<FN>

See accompanying Notes to Condensed Consolidated Financial Statements.

PIZZA INN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

SEPTEMBER 26, JUNE 27,
ASSETS 2004 2004
--------------- ----------

(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 231 $ 617
Accounts receivable, less allowance for doubtful
accounts of $298 and $310, respectively. . . . . . . . . . . 3,160 3,113
Accounts receivable - related parties. . . . . . . . . . . . . 890 912
Notes receivable, current portion, less allowance
for doubtful accounts of $62 and $59, respectively . . . . . 60 50
Notes receivable - related parties . . . . . . . . . . . . . . 54 54
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 1,912 1,713
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 203 183
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 384 415
--------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 6,894 7,057

Property, plant and equipment, net . . . . . . . . . . . . . . . 12,823 12,756
Property under capital leases, net . . . . . . . . . . . . . . . 17 18
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 157 105
Long-term notes receivable, less allowance
for doubtful accounts of $0 and $3, respectively . . . . . . - -
Re-acquired development territory. . . . . . . . . . . . . . . . 768 866
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 95 104
--------------- ----------
$ 20,754 $ 20,906
=============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 2,138 $ 1,246
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 1,988 2,109
Current portion of long-term debt. . . . . . . . . . . . . . . 406 406
Current portion of capital lease obligations . . . . . . . . . 10 10
--------------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 4,542 3,771

LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 6,734 7,937
Long-term capital lease obligations. . . . . . . . . . . . . . 21 23
Other long-term liabilities. . . . . . . . . . . . . . . . . . 494 458
--------------- ----------
11,791 12,189
--------------- ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000 shares;
issued 15,031,319 and 15,031,319 shares, respectively;
outstanding 10,133,674 and 10,133,674 shares, respectively. 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,975 7,975
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 20,663 20,378
Accumulated other comprehensive loss . . . . . . . . . . . . . (341) (302)
Treasury stock at cost,
Shares in treasury: 4,897,645 and 4,897,645, respectively. . (19,484) (19,484)
--------------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . 8,963 8,717
--------------- ----------
$ 20,754 $ 20,906
=============== ==========

<FN>

See accompanying Notes to Condensed Consolidated Financial Statements.

PIZZA INN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

THREE MONTHS ENDED
--------------------
SEPTEMBER 26, SEPTEMBER 28,
2004 2003
-------------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285 $ 504
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 287 266
Provision for bad debt . . . . . . . . . . . . . . . . . . . . . . 15 15
Utilization of deferred taxes. . . . . . . . . . . . . . . . . . . (52) 323
Changes in assets and liabilities:
Notes and accounts receivable. . . . . . . . . . . . . . . . . . . (50) (565)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . (199) (56)
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . 892 449
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . (121) 171
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 69 (52)
-------------------- ---------------
CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . 1,126 1,055
-------------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (307) (146)
-------------------- ---------------
CASH USED FOR INVESTING ACTIVITIES . . . . . . . . . . . . . . . . (307) (146)
-------------------- ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of long-term bank debt and capital lease obligations, net (1,205) (1,143)
Officer loan payment . . . . . . . . . . . . . . . . . . . . . . . . - 2
Proceeds from exercise of stock options. . . . . . . . . . . . . . . - 20
-------------------- ---------------
CASH USED FOR FINANCING ACTIVITIES . . . . . . . . . . . . . . . . (1,205) (1,121)
-------------------- ---------------

Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . (386) (212)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 617 399
-------------------- ---------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 231 $ 187
==================== ===============

<FN>

See accompanying Notes to Condensed Consolidated Financial Statements.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)

THREE MONTHS ENDED
-------------------
SEPTEMBER 26, SEPTEMBER 28,
2004 2003
------------------- --------------

CASH PAYMENTS FOR:

Interest . . . . . . . . . . . . . $ 137 $ 166
Income taxes . . . . . . . . . . . 50 -

<FN>

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
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 condensed consolidated financial statements in its Form 10-K
for the fiscal year ended June 27, 2004. Certain prior year amounts have been
reclassified to conform with current year presentation.

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.

The Company elected to follow APB No. 25, and related Interpretations in
accounting for employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of our employee stock options equals or exceeds the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net income and earnings per share is required to
be determined as if the Company had accounted for its stock options granted
subsequent to June 25, 1995 under the fair value method of SFAS No. 123. For
purposes of pro forma disclosures, the estimated fair value of the stock options
is amortized over the option vesting periods. The Company's pro forma
information follows (in thousands, except for earnings per share information):

THREE MONTHS ENDED
-------------------
SEPTEMBER 26, SEPTEMBER 28,
2004 2003
------------------- --------------

Net income, as reported. . . . . . . . . . . $ 285 $ 504
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects. . . . . . . . . . . . - -
------------------- --------------

Pro forma net income . . . . . . . . . . . . $ 285 $ 504

Earnings per share
Basic-as reported. . . . . . . . . . . . . $ 0.03 $ 0.05
Basic-pro forma. . . . . . . . . . . . . . $ 0.03 $ 0.05

Diluted-as reported. . . . . . . . . . . . $ 0.03 $ 0.05
Diluted-pro forma. . . . . . . . . . . . . $ 0.03 $ 0.05

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts as the pro forma amounts above do not include the
impact of additional awards anticipated in future years.

(2) The Company entered into an agreement effective March 28, 2004 with its
current lender to provide a $4.0 million revolving credit line that will expire
October 1, 2005, replacing a $7.0 million line that was due to expire December
31, 2004. Interest on the revolving credit line is payable monthly. Interest is
provided for at a rate equal to prime less an interest rate margin from 1.0% to
0.5% or, at the Company's option, at the LIBOR rate plus 1.25% to 1.75%. The
interest rate margin is based on the Company's performance under certain
financial ratio tests. A 0.375% to 0.5% annual commitment fee is payable on any
unused portion of the revolving credit line. As of September 26, 2004 and
September 28, 2003, the variable interest rates were 4.5% and 2.62%, using a
prime and LIBOR rate basis, respectively. Amounts outstanding under the
revolving credit line as of September 26, 2004 and September 28, 2003 were
$99,000 and $1.8 million, respectively.

The Company entered into an agreement effective December 28, 2000, as amended,
with Wells Fargo to provide up to $8.125 million of financing for the
construction of the Company's new headquarters, training center and distribution
facility. The construction loan converted to a term loan effective January 31,
2002 with the unpaid principal balance to mature on December 28, 2007. This
term loan will amortize over a term of twenty years, with principal payments of
$34,000 due monthly. Interest on this term loan is also payable monthly.
Interest is provided for at a rate equal to prime less an interest rate margin
of 0.75% or, at the Company's option, to the LIBOR rate plus 1.5%. As of
September 26, 2004 and September 28, 2003, the LIBOR variable interest rates
used were 3.31 % and 2.61%, respectively. The Company, to fulfill bank
requirements, has caused the outstanding principal amount to be subject to a
fixed interest rate by utilizing an interest rate swap agreement as discussed
below. The $8.125 million term loan had an outstanding balance of $7.0 million
at September 26, 2004 and $7.4 million at September 28, 2003.

(3) The Company entered into an interest rate swap effective February 27,
2001, as amended, designated as a cash flow hedge, to manage interest rate risk
relating to the financing of the construction of the Company's headquarters and
to fulfill bank requirements. The swap agreement has a notional principal
amount of $8.125 million with a fixed pay rate of 5.84% which began November 1,
2001 and will end November 19, 2007. The swap's notional amount amortizes over
a term of twenty years to parallel the terms of the term loan. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" requires that for
cash flow hedges, which hedge the exposure to variable cash flow of a forecasted
transaction, the effective portion of the derivative's gain or loss be initially
reported as a component of other comprehensive income in the equity section of
the balance sheet and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any ineffective portion of the
derivative's gain or loss is reported in earnings immediately. At September 26,
2004 there was no hedge ineffectiveness. The Company's expectation is that the
hedging relationship will continue to be highly effective at achieving
offsetting changes in cash flows.

(4) On January 18, 2002, the Company was served with a lawsuit filed by
Blakely-Witt & Associates, Inc. alleging that the Company sent or caused to be
sent unsolicited facsimile advertisements. The Company has vigorously defended
its position in this litigation. In July 2004 the court preliminarily approved
a settlement agreement among all parties and certified the matter as a class
action for settlement purposes only. Under the settlement agreement the Company
would pay an amount that will not materially affect the Company's financial
performance. At a hearing on September 13, 2004 the court entered its final
order and judgment approving the settlement agreement and certifying the
settlement class. Pursuant to the settlement agreement the Company paid $90,000
in full and final settlement of all actual and potential claims of the members
and potential members of the certified settlement class. The final order
dismissed with prejudice all pending and potential claims against the Company.

(5)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).

INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------------- ------------- ----------

THREE MONTHS ENDED SEPTEMBER 26, 2004
BASIC EPS
Income Available to Common Shareholders . . . $ 285 10,134 $ 0.03
Effect of Dilutive Securities - Stock Options 35
--------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 285 10,169 $ 0.03
================= ============= ==========

THREE MONTHS ENDED SEPTEMBER 28, 2003
BASIC EPS
Income Available to Common Shareholders . . . $ 504 10,059 $ 0.05
Effect of Dilutive Securities - Stock Options 27
--------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 504 10,086 $ 0.05
================ ============= ==========

(6) Summarized in the following tables are net sales and operating revenues,
operating profit, and geographic information (revenues) for the Company's
reportable segments for the three months period ended September 26, 2004 and
September 28, 2003 (in thousands).

SEPTEMBER 26, SEPTEMBER 28,
2004 2003
------------------------- --------------------------

NET SALES AND OPERATING REVENUES:
Food and Equipment Distribution $12,822 $13,498
Franchise and Other 1,595 1,857
Intersegment revenues 85 147
------------------------- --------------------------
Combined 14,502 15,502
Other revenues 4 21
Less intersegment revenues (85) (147)
------------------------- --------------------------
Consolidated revenues $ 14,421 $ 15,376
========================= ==========================

OPERATING PROFIT:
Food and Equipment Distribution (1) $306 $694
Franchise and Other (1) 690 657
Intersegment profit 22 41
------------------------- --------------------------
Combined 1,018 1,392
Other profit 4 21
Less intersegment profit (22) (41)
Corporate administration and other (559) (608)
------------------------- --------------------------
Income before taxes $ 441 $ 764
========================= ==========================

GEOGRAPHIC INFORMATION (REVENUES):
United States $13,964 $14,941
Foreign countries 457 435
------------------------- --------------------------
Consolidated total $ 14,421 $ 15,376
========================= ==========================
<FN>

(1) Does not include full allocation of corporate administration

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis is based on the Company's
condensed consolidated financial statements and related footnotes contained
within this report. The Company's critical accounting policies used in the
preparation of those condensed consolidated financial statements are discussed
below.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates made by management include the
allowance for doubtful accounts, inventory valuation, deferred tax asset
valuation allowances, and legal accruals. Actual results could differ from
those estimates.

The Company's Norco division sells food, supplies and equipment to
franchisees on trade accounts under terms common in the industry. Revenue from
such sales is recognized upon shipment. Norco sales are reflected under the
caption "food and supply sales." Shipping and handling costs billed to customers
are recognized as revenue.

Franchise revenue consists of income from license fees, royalties, and
Territory sales. License fees are recognized as income when there has been
substantial performance of the agreement by both the franchisee and the Company,
generally at the time the unit is opened. Royalties are recognized as income
when earned.

Territory sales are the fees paid by selected experienced restaurant
operators to the Company for the right to develop Pizza Inn restaurants in
specific geographical territories. The Company recognizes the fee to the extent
its obligations are fulfilled and of cash received.

Inventories, which consist primarily of food, paper products, supplies and
equipment located at the Company's distribution center, are stated at the lower
of FIFO (first-in, first-out) cost or market. Provision is made for obsolete
inventories and is based upon management's assessment of the market conditions
for its products.

Accounts receivable consist primarily of receivables from food and supply
sales and franchise royalties. The Company records a provision for doubtful
receivables to allow for any amounts which may be unrecoverable and is based
upon an analysis of the Company's prior collection experience, customer
creditworthiness, and current economic trends.

Notes receivable primarily consist of notes from franchisees for the
purchase of area development and master license territories, trade receivables
and equipment purchases. These notes generally have terms ranging from one to
five years and interest rates of 6% to 12%. The Company records a provision for
doubtful receivables to allow for any amounts which may be unrecoverable and is
based upon an analysis of the Company's prior collection experience, customer
creditworthiness, and current economic trends.

The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized based upon the Company's
analysis of existing tax credits by jurisdiction and expectations of the
Company's ability to utilize these tax attributes through a review of estimated
future taxable income and establishment of tax strategies. These estimates
could be impacted by changes in future taxable income and the results of tax
strategies.

The Company assesses its exposures to loss contingencies including legal
and income tax matters based upon factors such as the current status of the
cases and consultations with external counsel and provides for an exposure if it
is judged to be probable and estimable. If the actual loss from a contingency
differs from management's estimate, operating results could be impacted.

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 26, 2004 COMPARED TO THE QUARTER ENDED SEPTEMBER 28,
2003.

Diluted earnings per share for the quarter were $0.03 versus $0.05 for the
same period last year. Net income for the quarter decreased 43% to $285,000
from $504,000 for the same quarter last year.

Food and supply sales by the Company's Norco division include food and
paper products, equipment, marketing material, and other distribution revenues.
Food and supply sales for the quarter decreased 5% or $676,000 to $12,822,000
from $13,498,000 compared to the same period last year primarily due to lower
sales prices on certain key ingredients.

Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
decreased 8% or $111,000 for the quarter compared to the same period last year.
This decrease is primarily due to lower international royalties, resulting from
the collection of previously unrecorded past due royalties in the prior year.

Restaurant sales, which consist of revenue generated by Company-owned
training stores decreased 37% or $151,000 for the quarter, compared to the same
period of the prior year. Last year included the operations of a Company-owned
buffet unit which was sold in February 2004. Additionally, comparable sales at
the other Company-owned buffet unit were lower.

Other income consists primarily of interest income, third party
commissions, and non-recurring revenue items. Other income decreased 81% or
$17,000 primarily due to lower interest income.

Cost of sales decreased 3% or $404,000 for the quarter primarily due to
staff reductions. Cost of sales, as a percentage of sales, increased to 93% from
91% for the same quarter last year. The percentage increase is due to overall
lower sales prices of certain key ingredients as described above.

Franchise expenses include selling, general and administrative expenses
directly related to the sale and continuing service of franchises and
Territories. These costs decreased 23% or $185,000 for the quarter compared to
the same period last year primarily due staff reductions.

General and administrative expenses decreased 2% or $19,000 for the quarter
compared to the same period last year. This is primarily the result of staff
reductions offset by higher legal and consulting fees.

Interest expense decreased 15% or $24,000 for the quarter compared to the
same period of the prior year due to lower debt balances.

Provision for income taxes decreased 40% or $104,000 in the current year
due to lower income as described above. The effective tax rate was 35% compared
to 34% in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities are generally the result of net
income, deferred taxes, depreciation and amortization, and changes in working
capital. In the first quarter of fiscal 2005, the company generated cash flows
of $1,126,000 from operating activities as compared to $1,055,000 in fiscal
2004. Cash provided by operations was utilized primarily to pay down debt and
acquire land for a new Company store.

Cash flows used in investing activities primarily reflect the Company's
capital expenditure strategy. In the first quarter of fiscal 2005, the Company
used cash of $307,000 for investing activities as compared to $146,000 in fiscal
2004. The cash flow used during fiscal 2005 was primarily used to acquire land
for a new Company store.

Cash flows used for financing activities generally reflect changes in the
Company's borrowings during the period, treasury stock transactions, and
exercise of stock options. Net cash used for financing activities was
$1,205,000 in the first quarter of fiscal 2005 as compared to cash used for
financing activities of $1,121,000 in fiscal 2004.

Management believes that future operations will generate sufficient taxable
income, along with the reversal of temporary differences, to fully realize the
deferred tax asset, net of a valuation allowance of $137,000 primarily related
to the potential expiration of certain foreign tax credit carryforwards.
Additionally, management believes that taxable income based on the Company's
existing franchise base should be more than sufficient to enable the Company to
realize its net deferred tax asset without reliance on material, non-routine
income.

The Company entered into an agreement effective March 28, 2004 with its
current lender to provide a $4.0 million revolving credit line that will expire
October 1, 2005, replacing a $7.0 million line that was due to expire December
31, 2004. Interest on the revolving credit line is payable monthly. Interest
is provided for at a rate equal to prime less an interest rate margin from 1.0%
to 0.5% or, at the Company's option, at the LIBOR rate plus 1.25% to 1.75%. The
interest rate margin is based on the Company's performance under certain
financial ratio tests. A 0.375% to 0.5% annual commitment fee is payable on any
unused portion of the revolving credit line. As of September 26, 2004 and
September 28, 2003, the variable interest rates were 4.5% and 2.62%,
respectively, using a prime and LIBOR rate basis, respectively. Amounts
outstanding under the revolving credit line as of September 26, 2004 and
September 28, 2003 were $99,000 and $1.8 million, respectively.

On July 7, 2004, B. Keith Clark resigned as Senior Vice President-Corporate
Development, Secretary and General Counsel of the Company. Mr. Clark has
notified the Company that he has reserved his right to assert that the election
of Ramon D. Phillips and Robert B. Page to the board of directors of the Company
at the February 2004 annual meeting of shareholders constituted a "change of
control" under his employment agreement and/or that he was entitled to terminate
his contract for "good reason". Pursuant to the terms of the employment
agreement, the Company has initiated an arbitration proceeding to resolve this
dispute. The arbitration proceeding is in the preliminary stages and the
Company is unable to predict the outcome of the proceeding at this time. In the
event the Company is unsuccessful in this proceeding, the Company could be
liable to Mr. Clark for up to $762,000. The employment agreements of each of
Ronald W. Parker, Ward T. Olgreen and Shawn M. Preator contain similar
provisions and the potential amounts payable to each of them are as follows:
$5.4 million to Mr. Parker, $630,000 to Mr. Olgreen and $597,000 to Mr. Preator.
The aggregate of these payments for which the Company would be obligated is
approximately $7.4 million. The Company disagrees with Mr. Clark's claim that a
"change of control" has occurred under his employment agreement or that he is
entitled to terminate his contract for "good reason". The Board obtained a
written legal opinion that the "change of control" provision was not triggered
by the results of its February 2004 annual meeting. The Company plans to
vigorously defend our position in the matter; however, we cannot assure that we
will prevail in this matter and our defense could be costly and consume the time
of our management. We are unable to predict the outcome of this matter, and no
accrual has been made as of September 26, 2004. An adverse resolution of the
matter could materially affect our financial position and results of operations.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following chart summarizes all of the Company's material obligations
and commitments to make future payments under contracts such as debt and lease
agreements as of September 26, 2004 (in thousands):

Fiscal Year Fiscal Years Fiscal Years After Fiscal

Total . . 2005 2006 - 2007 2008 - 2009 Year 2009
- ----------------------------------- ------------ ------------- ------------- ------------- ---------
Long-term debt. . . . . . . . . . . $ 7,140 $ 406 $ 911 $ 5,823 $ -
Operating lease obligations . . . . 2,553 1,013 1,217 266 57
Capital lease obligations (1) . . . 31 10 21 - -
------------ ------------- ------------- ------------- ---
Total contractual cash obligations. $ 9,724 $ 1,429 $ 2,149 $ 6,089 $57
============ ============= ============= ============= ===

(1) Does not include amount representing interest.

FORWARD-LOOKING STATEMENT

This report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) relating to
the Company that are based on the beliefs of the management of the Company, as
well as assumptions and estimates made by and information currently available to
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
as well as its customers and suppliers, including as a result of competitive
factors and pricing pressures, shifts in market demand, general economic
conditions and other factors including but not limited to, changes in demand for
Pizza Inn products or franchises, the impact of competitors' actions, changes in
prices or supplies of food ingredients, and restrictions on international trade
and business. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions or estimates prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------

The Company has market risk exposure arising from changes in interest
rates. The Company's earnings are affected by changes in short-term interest
rates as a result of borrowings under its credit facilities which bear interest
based on floating rates.

At September 26, 2004 the Company has approximately $7 million of variable
rate debt obligations outstanding with a weighted average interest rate of
3.03%. A hypothetical 10% change in the effective interest rate for these
borrowings, assuming debt levels at September 26, 2004, would change interest
expense by approximately $5,000 for the three months ended September 26, 2004.
As discussed previously, the Company has entered into an interest rate swap
designed to manage the interest rate risk relating to $7million of the variable
rate debt.

ITEM 4. CONTROLS AND PROCEDURES
- ------------------------------------

a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Our Chief Executive Officer and our Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this Quarterly Report, and they have concluded that
as of that date our disclosure controls and procedures were effective at
ensuring that required information will be disclosed on a timely basis in our
reports filed under the Exchange Act.

b) Changes in internal controls. There were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of their evaluation by our Chief
Executive Officer and our Chief Financial Officer.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
- ----------------------------

On January 18, 2002, the Company was served with a lawsuit filed by
Blakely-Witt & Associates, Inc. alleging that the Company sent or caused to be
sent unsolicited facsimile advertisements. The Company has vigorously defended
its position in this litigation. In July 2004 the court preliminarily approved
a settlement agreement among all parties and certified the matter as a class
action for settlement purposes only. Under the settlement agreement the Company
would pay an amount that will not materially affect the Company's financial
performance. At a hearing on September 13, 2004 the court entered its final
order and judgment approving the settlement agreement and certifying the
settlement class. Pursuant to the settlement agreement the Company paid $90,000
in full and final settlement of all actual and potential claims of the members
and potential members of the certified settlement class. The final order
dismissed with prejudice all pending and potential claims against the Company.

On October 5, 2004 the Company filed a lawsuit against the law firm Akin, Gump,
Strauss, Hauer & Feld, and J. Kenneth Menges, Jr., one of the firm's partners.
The Petition alleges that during the course of their representation of the
Company on matters pertaining to board of director and executive duties,
securities issues, and general corporate governance, the firm and Mr. Menges, as
the firm's partner in charge of its engagement with the Company, breached
certain fiduciary responsibilities to the Company by giving advice and taking
action to further the personal interests of certain of the Company's executive
officers to the detriment of the Company. Specifically, the Petition alleges
that the firm and Mr. Menges assisted in the creation and implementation of
so-called "golden parachute" agreements, which, in the opinion of the Company's
current counsel, provided for potential severance payments to those executives
in amounts that, if paid, could expose the Company to significant financial
liability and that could have a material adverse effect on the Company's
financial position. This matter is in its preliminary stages, and we are unable
to predict the outcome at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------

None

ITEM 5. OTHER INFORMATION
- ----------------------------

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------

(a) Exhibits:

3.1 Amended and Restated By-Laws as adopted by the Board of Directors on
February 11, 2004 (filed as Item 5 on 8-K on February 11, 2004 and incorporated
herein by reference).

3.2 Restated Articles of Incorporation as amended on January 30, 1999 (filed
as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended June 27, 1999 and incorporated herein by reference).

31.1 Certification of Chief Executive Officer as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

(b) Form 8-K

On September 29, 2004 the Company filed a report on Form 8-K, reporting a press
release with respect to earnings for the fourth quarter ended June 26, 2004.

On October 6, 2004 the Company filed a report on Form 8-K, reporting a press
release with respect to a complaint filed against the law firm of Akin Gump
Strauss Hauer & Feld, the company's former counsel, and J. Kenneth Menges, Jr.,
one of the firm's partners.

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
President and Chief Executive Officer

By: /s/Shawn M. Preator
---------------------
Shawn M. Preator
Chief Financial Officer

Dated: November 9, 2004