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 for 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 [ ]

The number of shares outstanding of Common Stock, without par value, as of February 1, 2002, was 10,528,368.

See Notes to Condensed Financial Statements (Unaudited)

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Piccadilly Cafeterias, Inc.
December 31, 2001

The accompanying unaudited Condensed Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the interim periods have been included. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the financial statements and footnotes included in the Piccadilly Cafeterias, Inc. Annual Report on Form 10-K for the year ended June 30, 2001. Except for the adoption of SFAS 142, Goodwill and Other Intangible Assets, as discussed in Note 3 below, the accounting policies used in preparing these financial statements are the same as those described in the Piccadilly Cafeterias, Inc. Annual Report on Form 10-K.

Comparative results of operations by periods may be affected by the timing of the opening and closing of cafeterias. Interim results are additionally affected by seasonal fluctuations in guest traffic volume. Guest traffic volume at established cafeterias is generally higher in the second quarter ended December 31 and lower in the third quarter ending March 31 reflecting general seasonal retail activity.

On December 11, 2001, we completed a three-year, $20 million senior credit facility with Foothill Capital Corporation (the "Senior Credit Facility") that replaced a $14.4 million senior credit facility with commercial banks. Approximately $10.7 million of the Senior Credit Facility is used for outstanding commercial letters of credit, and the remainder is available for working capital and for other corporate purposes. The Senior Credit Facility matures in December 2004. We have no outstanding borrowings under the Senior Credit Facility. The quarter ending December 31, 2001 includes extraordinary charges of approximately $0.5 million for the unamortized financing costs of the replaced facility.

On December 11, 2001, we used available cash balances to repurchase approximately $3.7 million in face amount of our 12% Senior Secured Notes due fiscal 2007. Approximately $0.3 million of extraordinary charges were recorded to write-off unamortized financing costs.

On July 31, 2001, we completed a sale-leaseback of six of our owned properties. We received approximately $9.0 million in cash for the sale of the properties and simultaneously executed long-term leases to continue to operate cafeterias at the sites for a primary term of 20 years and optional renewal periods for up to 20 additional years. We used substantially all of the net sale proceeds to purchase $9.4 million in face amount of our 12% Senior Secured Notes due fiscal 2007. The net result of the sale-leaseback and note repurchase transactions is a reduction of annual expenses of $1.2 million. In the quarter ending September 30, 2001, we recorded an extraordinary charge of approximately $1.1 million to write-off unamortized deferred financing costs associated with the repurchased notes.

With the six properties sold in July 2001, we have entered into sale-leaseback transactions for a total of 18 properties. The purchaser of these 18 properties is an unrelated third-party who has, by their payment terms to us for the purchase of these properties, demonstrated initial and continuing investment in the properties acquired. We have no continuing involvement with the properties sold, other than a normal leaseback. There is no obligation on our part to repurchase the properties sold, and the purchaser does not have the ability to compel us to repurchase the property at any time in the future. We have made no guarantees of the purchaser's investment or a return on that investment for either a limited or extended period.

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment annually or more frequently if circumstances indicate potential impairment. Though not required until July 2002, we adopted SFAS 142 effective July 1, 2001. Accordingly, no goodwill amortization has been recorded during fiscal 2002. We completed a transitional goodwill impairment test within six months of adopting SFAS No. 142 as required and the test determined there is no goodwill impairment. The transitional impairment test required that fair value be tested as of the first day of our fiscal year and therefore the fair value of the reporting unit was determined using carrying amounts as of July 1, 2001. We performed the annual impairment test as of December 31, 2001 and the test determined there is no goodwill impairment. Interim testing will be performed when an event occurs or circumstances indicate that the carrying amount of goodwill may be impaired.

Goodwill amortization for the quarter and six months ended December 31, 2001 would have been $42,000 and $84,000, respectively. Amortization of goodwill for the quarter and six months ended December 31, 2000 was $0.1 million and $0.2 million, respectively. In the first quarter of last year, goodwill relating to cafeterias closed in fiscal 2001 was written-off in the amount of $0.3 million.

After December 31, 2001, we received federal income tax refunds relating to the 1993 and 1995 Morrison Restaurants, Inc. (Morrison) income tax returns in the amount of $1.1 million. A receivable relating to the refunds was not recorded in connection with the purchase of Morrison in 1998. Approximately $0.2 million of the refunds relates to interest earned subsequent to the Morrison purchase and is included in Other Income for the second quarter ended December 31, 2001. The remainder of the refund reduced the carrying value of goodwill by $0.8 million.

We own a one-eighth interest in Dallas Reinsurance Company, Ltd. (DallasRe). DallasRe is a group captive insurance company incorporated under the Companies Law of the Cayman Islands on July 11, 1980 and holds an Unrestricted Class "B" Insurers License under Section 4(2) of the Cayman Islands Insurance Law. DallasRe is engaged in the business of reinsurance of various non-life risks (primarily workers' compensation, general liability and automobile liability) of its shareholders from Old Republic Insurance Company (the "Ceding Insurer"). Our investment is recorded at cost of $450,000 and is included in Other Assets. Our investment is accounted for using the cost method and accordingly, the financial results of DallasRe are not consolidated with our results. Our investment in DallasRe dates to 1985. Each of the other seven shareholders has a one-eighth interest and has held their own investment in DallasRe at least as long as Piccadilly. DallasRe reinsures the Ceding Insurer for insured claims subject to a $250,000 deductible per claim. Our exposure to the claim losses of other shareholders along with other losses of DallasRe is limited to our investment in DallasRe. We have provided the Ceding Insurer and DallasRe a standby letter of credit for approximately $5.8 million securing our self-insured retentions and deferred premium obligations. The letter of credit can only be called if we are unable to pay our insurance commitments as they come due.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001. We expect to adopt FAS 144 as of July 1, 2002. We have not yet determined whether the adoption of the Statement will have a significant impact.

Statements contained in this report that are not statements of historical fact may be forward-looking statements. Generally, forward-looking statements contain terms such as "expect", "forecast", "will", "may", or "believe." Forward-looking statements regarding management's present plans or expectations regarding its credit facilities, cash flows, liquidity, capital expenditures, sales-building and cost-saving strategies, advertising expenditures, determinations of impairments of long-lived assets, and the disposition of closed cafeterias and surplus properties involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding management's present expectations for operating results involve risks and uncertainties relative to these and other factors, such as advertising effectiveness and the ability to achieve cost reductions, which also would cause actual results to differ from present plans. Such differences could be material. Management does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements speak only as the date hereof.

Net Sales. Total net sales for the quarter ended December 31, 2001, were $98.3 million, an 11.6% reduction from last year's net sales of $111.2 million. Closing 27 cafeterias since October 1, 2000, accounted for $6.7 million of the total decline in net sales. The remaining decline of $6.3 million is attributable to lower same-store net sales. The following table reconciles total cafeteria net sales to same-store cafeteria net sales for the quarters ended December 31, 2001, and 2000. Same-store cafeterias are cafeterias that were open for three full months in both quarters.

The net decrease of 6.0% reflects a decline in same-store customer traffic of 9.6%, which was partially offset by a check average increase of 3.9%. The check average increase is primarily due to a price increase implemented during the last week of December 2000. We have experienced sustained declines in same-store guest traffic since 1997. We believe that the declines are due to various factors including intense competition and market saturation within the restaurant industry. After September 11, 2001, we experienced a steeper decline in our net same-store sales.

On November 1, 2001, we began a two-month marketing and advertising campaign designed to increase guest traffic. The core message of the campaign informs consumers about the return of our popular "Dilly" meal by using the tagline, "The Dilly is Back." We believe the campaign was partially responsible for improving guest traffic trends to pre-September 11 levels by mid-December. Winter storms in late December 2001 adversely impacted our sales. We are developing our marketing and advertising campaign for the remainder of the fiscal year and expect to spend approximately $4.2 million in that period.

The following table illustrates cost of sales, other operating expenses, general and administrative expenses, and other expenses (income) as a percent of net sales for the comparative periods.

Cafeteria-Level Income. During the second quarters of fiscal 2002 and 2001, cafeteria-level income (net sales less cost of sales and other operating expenses) as a percent of net sales was 5.8% and 4.2%, respectively.

Cost of Sales. Cost of sales as a percent of net sales decreased 2.8%. That decline is a combination of a 1.0% decrease in food costs as a percent of net sales and a 1.8% decrease in labor costs as a percent of net sales.

The decrease in food costs, as a percent of net sales, is due to the December 2000 price increase. The improvement in labor costs, as a percent of net sales, is due primarily to savings realized from reduced labor hours combined with the December 2000 price increase. On average, labor hours, primarily in the kitchen production area, are 25 to 27 hours per day per cafeteria lower than a year ago. This reduction in labor hours is due to lower sales levels, staff reductions, and scheduling efficiencies.

Other Operating Expenses. Other operating expenses increased 1.2% as a percent of net sales. Rent expense increased 1.1% as a percent of net sales primarily because of the sale-leaseback transactions completed in March and July 2001. Employee benefits costs increased 1.4% as a percent of net sales due to inflation in health claims costs and increases in pension expense. These increases were partially offset by a 1.0% decline in advertising-related expenses as a percent of net sales and a 0.3% decline in utilities expense as a percent of net sales. We have restructured our employee health insurance program and frozen our defined benefit pension plan effective January 1, 2002. The employees that were formerly eligible for benefits under the defined benefit pension plan are now eligible for benefits in our 401(K) plan.

General and Administrative Expenses. General and administrative expenses declined $0.6 million and as a percent of net sales decreased 0.3%. The decline is attributable to a restructuring plan implemented in the fourth quarter of fiscal 2001 that resulted in the elimination of 25 middle-management positions.

Interest Expense. Interest expense for the second quarter was down $0.3 million compared to the same quarter last year because debt levels are lower. Amortization of financing costs and original issue discount, included in interest expense, was $0.4 million in both periods.

Other expense (income). The second quarter ended December 31, 2001 includes interest income related to the IRS refund discussed in Note 3 in the amount of $0.2 million. Last year's second quarter includes a gain in the amount of $0.3 million from the sale of a piece of land in Shawnee Mission, Kansas.

Provision for Income Taxes. During the quarter ended March 31, 2001, we established a valuation allowance for the portion of deferred tax assets that was not supported by future reversals of existing temporary differences. During the quarter ended December 31, 2001, changes in the valuation allowance for deferred tax assets offset the provision for income taxes, reducing the net provision for income taxes to zero.

Net Sales. Total net sales for the six months ended December 31, 2001, were $195.4 million, an 11.5% reduction from last year's net sales of $220.8 million. Closing 27 cafeterias since July 1, 2000, accounted for $14.0 million of the total decline in net sales. The remaining decline of $11.3 million is attributable to lower same-store net sales. The following table reconciles total cafeteria net sales to same-store cafeteria net sales for the six-month periods ended December 31, 2001, and 2000. Same-store cafeterias are cafeterias that were open for six full months in both periods.