<PAGE>
 
================================================================================

                       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 June 15, 1997
                                                 -------------

                                       OR

                    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 001-10811
                                               ---------


                               SMART & FINAL INC.
             (Exact name of registrant as specified in its charter)


         Delaware                                    No. 95-4079584
(State or other jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)


                4700 South Boyle Ave.
                Los Angeles, California                   90058
            (Address of principal executive offices)    (zip code)


Registrant's telephone number, including area code:      (213) 589-1054


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 registrant had 22,184,639 shares of common stock outstanding as of JULY 24,
1997.

Number of Sequentially Numbered Pages:


Exhibit Index at Page:   15

================================================================================
<PAGE>
 
                              SMART & FINAL INC.
                                     INDEX

                                     PART I
                             FINANCIAL INFORMATION
<TABLE>
<CAPTION>
 
                                                                                              PAGE
<S>                                                                                            <C>
Item 1.    Financial Statements
           Unaudited Consolidated Balance Sheets                                                2
           Unaudited Consolidated Statements of Income                                          3
           Unaudited Consolidated Statements of Cash Flows                                      4
           Notes to Unaudited Consolidated Financial Statements                                 5

Item 2.    Management's Discussion and Analysis of Financial Condition                          7
           and Results of Operations
</TABLE> 
                                    PART II
                               OTHER INFORMATION
<TABLE> 
<S>                                                                                            <C> 
Item 1.   Legal Proceedings                                                                     12
     2.   Changes in Securities                                                                 12
     3.   Defaults upon Senior Securities                                                       12
     4.   Submission of Matters to a Vote of Security Holders                                   12
     5.   Other Information                                                                     13
     6.   Exhibits and Reports on Form 8-K                                                      13
</TABLE>

                                       1
<PAGE>
 
                         PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
                              SMART & FINAL INC.
                          CONSOLIDATED BALANCE SHEETS
               (dollars in thousands, except per share amounts)
<TABLE> 
<CAPTION> 
                                                            
                                                                   June 15,     December 29,
                                                                    1997            1996
ASSETS                                                            (Unaudited)
------                                                            ------------  -------------
<S>                                                                <C>             <C> 
Current assets:
   Cash & cash equivalents                                         $  18,733       $  16,795
   Trade notes and accounts receivable, less
      allowance for doubtful accounts of
      $2,893 in 1997 and $2,568 in 1996                               67,907          67,695
   Inventories                                                       124,010         125,721
   Prepaid expenses                                                    5,073           4,346
   Deferred tax asset                                                  6,134           6,134
                                                                   ---------       ---------
         Total current assets                                        221,857         220,691

Property, plant and equipment:
   Land                                                               39,079          39,079
   Buildings and improvements                                         34,364          34,364
   Leasehold improvements                                             63,185          60,943
   Fixtures and equipment                                            141,287         129,953
                                                                   ---------       ---------
                                                                     277,915         264,339
   Less - Accumulated depreciation and amortization                   87,163          77,156
                                                                   ---------       ---------
          Net property, plant and equipment                          190,752         187,183

Assets under capital leases, net                                       4,816             671
Goodwill                                                              15,006          10,162
Deferred tax asset                                                     5,814           4,157
Other assets                                                          19,325          18,560
                                                                   ---------       ---------
            Total Assets                                           $ 457,570       $ 441,424
                                                                   =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Current maturities of long term debt                            $  10,732       $  10,356
   Bank line of credit                                                23,000          17,000
   Accounts payable                                                   61,565          70,936
   Payable to Parent and affiliates                                   11,392           8,759
   Accrued salaries and wages                                          8,654           9,940
   Workers' compensation reserve                                       2,600           2,600
   Other accrued liabilities                                          22,898          21,855
                                                                   ---------       ---------
         Total current liabilities                                   140,841         141,446

Long term liabilities:
   Notes payable, net of current maturities                           36,507          37,063
   Bank debt                                                          45,000          45,000
   Obligations under capital leases                                    8,498             581
   Other long term liabilities                                         2,812               -
   Worker's compensation reserve, postretirement
      and postemployment benefits                                     20,023          20,000
                                                                   ---------       ---------
         Total long term liabilities                                 112,840         102,644

Minority interest                                                      1,795           1,679

Stockholders' equity:
   Preferred stock, $1 par value (authorized-
   10,000,000 shares; no shares issued)                                    -               -
   Common stock, $ .01 par value (authorized-
   100,000,000 shares; 22,115,403 shares issued
   and outstanding in 1997 and 21,976,406 in 1996)                       221             220
   Additional paid-in capital                                        137,198         140,371
   Cumulative translation loss                                          (835)           (835)
   Retained earnings                                                  65,510          55,899
                                                                   ---------       ---------
         Total stockholders' equity                                  202,094         195,655
                                                                   ---------       ---------
            Total liabilities and stockholders' equity             $ 457,570       $ 441,424
                                                                   =========       =========
</TABLE> 
The accompanying notes are an integral part of these consolidated balance
sheets.


                                       2



<PAGE>
 
                            SMART & FINAL INC                                
                     CONSOLIDATED STATEMENTS OF INCOME   
              (dollars in thousands, except per share amounts) 
 <TABLE>  
 <CAPTION>    
                                                       Twelve Weeks Ended                  Twenty-four Weeks Ended
                                                   ----------------------------          ---------------------------
                                                    June 15,          June 16,            June 15,         June 16,
                                                      1997              1996               1997             1996
                                                   ----------        ----------          -------          ----------
                                                            (Unaudited)                         (Unaudited)
<S>                                                <C>               <C>                 <C>              <C>  
Sales                                              $  334,948        $  307,408          $  641,932       $  589,742
Cost of sales, buying and occupancy                   285,250           260,726             547,647          502,630
                                                   ----------        ----------          ----------       ----------

Gross margin                                           49,698            46,682              94,285           87,112
Operating and administrative expenses                  37,177            36,020              72,004           68,617
                                                   ----------        ----------          ----------       ----------
   Income from operations                              12,521            10,662              22,281           18,495
                                                   ----------        ----------          ----------       ----------
Interest income and (expense):
   Interest income                                        120               109                 261              230
   Interest expense                                    (1,847)             (827)             (3,525)          (1,550)
                                                   ----------        ----------          ----------       ----------
                                                       (1,727)             (718)             (3,264)          (1,320)
Income before provision for income taxes
 and minority share of net income                      10,794             9,944              19,017           17,175
Provision for income taxes                              4,043             3,737               7,278            6,666
                                                   ----------        ----------          ----------       ----------
                                                        6,751             6,207              11,739           10,509
Minority share of net income                               10                48                 116              155
                                                   ----------        ----------          ----------       ----------
    Income from consolidated subsidiaries               6,741             6,159              11,623           10,354

Equity earnings in unconsolidated subsidiary              100               109                 200              109
                                                   ----------        ----------          ----------       ----------
Net income                                         $    6,841        $    6,268          $   11,823       $   10,463
                                                   ==========        ==========          ==========       ==========

Earnings per common share                          $     0.30        $     0.30          $     0.52       $     0.50
                                                   ==========        ==========          ==========       ==========

Dividend per common share                          $     0.05        $     0.05          $     0.10       $     0.10
                                                   ==========        ==========          ==========       ==========

Weighted average common shares and
 common share equivalents                          22,763,837        21,244,861          22,793,111       21,156,589
                                                   ==========        ==========          ==========       ==========
</TABLE> 

The accompanying notes are an integral part of these consolidated financial 
statements.

                                       3
<PAGE>
 
                              SMART & FINAL INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (dollars in thousands)
<TABLE> 
<CAPTION> 
                                                           Twenty-four Weeks Ended
                                                           -----------------------
                                                           June 15,      June 16,
                                                             1997          1996
                                                           ----------   ----------
                                                                 (Unaudited)
<S>                                                        <C>          <C> 
Cash Flows From Operating Activities:                            
  Net income                                                $  11,823    $  10,463
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    (Gain) loss on disposal of fixed assets                       (70)         (20)
    Depreciation and amortization                              11,400        8,697
    Minority share of net income                                  116          155
    Equity (earnings) loss in unconsolidated subsidiary          (200)        (109)
  (Increase) decrease in :
    Trade notes and accounts receivable                         1,357       (6,084)
    Inventories                                                 1,877         (929)
    Prepaid expenses and other                                   (727)        (434)
  Increase (decrease) in :
    Accounts payable                                           (9,768)       2,079
    Payable to Parent and affiliates                            2,633       (1,035)
    Accrued liabilities                                        (1,286)         502
    Other liabilities                                             951          119
                                                           ----------   ----------
       Net cash provided by operating activities               18,106       13,404
                                                           ----------   ----------

Cash Flows From Investing Activities:
  Acquisition of property, plant and equipment                (14,522)     (16,906)
  Proceeds from disposal of property, plant and equipment         184           50
  Proceeds from redemption of municipal bonds                       -          225
  Acquisition of municipal bonds                                    -         (325)
  Acquisition of business                                      (5,000)           -
  Other                                                        (1,216)      (2,517)
                                                           ----------   ----------
       Net cash used in investing activities                  (20,554)     (19,473)
                                                           ----------   ----------

Cash Flows From Financing Activities:
  Proceeds from issuance of common stock                        1,686          693
  Bank credit line                                              6,000        6,325
  Borrowings (payments) on notes payable                       (1,092)         144
  Quarterly dividend paid                                      (2,208)      (2,027)
                                                           ----------   ----------
       Net cash provided by financing activities                4,386        5,135
                                                           ----------   ----------

Increase (Decrease) in cash and cash equivalents                1,938         (934)
Cash and cash equivalents at beginning of period               16,795       15,415
                                                           ----------   ----------
Cash and cash equivalents at end of period                  $  18,733    $  14,481
                                                           ==========   ==========
</TABLE> 

The accompanying notes are an integral part of these consolidated financial
statements.

                                       4

<PAGE>
 
                              SMART & FINAL INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  BASIS OF PRESENTATION

     Smart & Final Inc. (the "Company") is a Delaware corporation and is a 56.1
percent owned subsidiary of Casino USA, Inc. (the "Parent").

     The consolidated balance sheet as of June 15, 1997, the consolidated
statements of income for the twelve and twenty-four weeks ended June 15, 1997,
and June 16, 1996, and cash flows for the twenty-four weeks ended June 15, 1997
and June 16, 1996 are unaudited.  In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included.  Such adjustments consisted only of normal recurring items.  Interim
results are not necessarily indicative of results for a full year.

     These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K statement for the year ended December 29, 1996.

(2)  EARNINGS PER COMMON SHARE

     Earnings per common share is based on weighted average outstanding common
shares which include the common stock equivalents related to employee stock
options and a stock purchase agreement.

     The Company will adopt SFAS No. 128, "Earnings per share", which is
effective for financial statements ending after December 15, 1997.  Basic
earnings per common share were computed by dividing net income by the weighted
average number of shares outstanding during the year.  The Pro forma below
illustrates the effects of financial reporting under the provision of SFAS No.
128:

<TABLE>
<CAPTION>
                                Twelve Weeks Ended                       Twenty-four Weeks Ended
                                ------------------                       -----------------------
 
                             June 15,         June 16,                   June 15,       June 16,
                               1997            1996                       1997            1996
                             --------         --------                   --------       --------
<S>                          <C>              <C>                        <C>            <C>
Per Share Amounts
-----------------
Primary EPS as reported         $0.30         $0.30                      $0.52          $0.50
Effect of SFAS No. 128          $0.01         $0.01                      $0.02          $0.02
                                -----         -----                      -----          -----
 
Pro forma basic EPS             $0.31         $0.31                      $0.54          $0.52
                                =====         =====                      =====          =====
 </TABLE>

                                       5
<PAGE>
 
(3)  FISCAL YEARS

     The Company's fiscal year ends on the Sunday closest to December 31.  Each
fiscal year consists of twelve week periods in the first, second and fourth
quarters and a sixteen week period in the third quarter.

(4)  DIVIDEND

     On  May 8, 1997, the Company declared a dividend of $0.05 per share to
stockholders of record at  July 4, 1997.  The dividend was paid on  July 25,
1997.

(5)  INCOME TAXES

     Tax sharing payments for state income taxes made by the Company to the
Parent were $1,328,000 and $1,375,000 in the twenty-four weeks ended June 15,
1997 and June 16, 1996, respectively.  The Company paid $1,375,000 and
$4,855,000 in federal income taxes in the twenty-four week period ended June 15,
1997 and June 16, 1996, respectively.

(6)  LEGAL ACTIONS

     The Company has been named as defendant in various legal actions arising in
the normal conduct of its business.  In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.

(7)  LEASES

     Lease expense to third-party lessors is included in cost of sales and
buying and occupancy expense in the twelve and twenty-four week periods ended
June 15, 1997.  Previously disclosed lease expense to affiliates, for the twelve
and twenty-four week periods ended June 16, 1996, has been reclassified to cost
of sales and buying and occupancy expense for comparability because the
properties which had been owned by affiliates were purchased by the Company on
December 29, 1996.

     In conjunction with the real estate that was acquired at December 29, 1996,
from Casino USA and Casino Realty, the Company assumed certain capital and 
operating leases. During the second quarter, the Company recorded capital lease 
assets and related obligations at historical carryover basis of $4.4 million and
$8.5 million, respectively.

(8)  ACQUISITION
 
     On May 30, 1997, Port Stockton Food Distributors, Inc. acquired the assets
of the Davis Lay food service division of Mallard's Food Products, Inc., for
$5.0 million cash and a $0.5 million note.

                                       6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto and the
Company's Form 10-K statement for the year ended December 29, 1996.

SUMMARY.

     Smart & Final Inc. (the "Company") reported net income of $6.8 million for
the twelve weeks ended June 15, 1997, compared to net income of $6.3 million for
the twelve weeks ended June 16, 1996.

     For the twenty-four weeks ended June 15, 1997, the Company reported net
income of $11.8 million compared to a net income of $10.5 million for the
twenty-four weeks ended June 16, 1996.

     Growth in earnings for the second quarter and first half of 1997  reflects
strong operating results which were offset in part by a new "Sliced Price/Right
Price" program introduced in Smart & Final stores late in the first quarter of
1997.  The new price program reduced second quarter earnings per share by four
cents and earnings per share for the first half by six cents.

RESULTS OF OPERATIONS.

     The following table shows for the periods indicated, certain consolidated
income statement data, expressed as a percentage of total sales.
<TABLE>
<CAPTION>
                                                         TWELVE WEEKS ENDED          TWENTY-FOUR WEEKS ENDED
                                                       ---------------------        -------------------------
                                                        JUNE 15,    JUNE 16,          JUNE 15,      JUNE 16,
                                                         1997        1996               1997          1996
                                                         ----        ----               ----          ----
                                                             (UNAUDITED)                      (UNAUDITED)
 <S>                                                <C>           <C>                <C>           <C>  
  Sales:
    Store sales                                          74.5 %        78.0 %             73.7 %        76.5 %
    Foodservice distribution sales                       25.5          22.0               26.3          23.5
                                                    ---------     ---------          ---------     ---------
  Total Sales                                           100.0 %       100.0 %            100.0 %       100.0 %
 
  Cost of sales, buying and occupancy...........         85.2          84.8               85.3          85.2
                                                        -----         -----              -----         -----
  Gross Margin..................................         14.8          15.2               14.7          14.8
  Operating and administrative  expenses........         11.1          11.7               11.2          11.6
                                                        -----         -----              -----         -----
    Income from operations......................          3.7           3.5                3.5           3.1
 
  Interest expense, net of interest income......         (0.6)         (0.3)              (0.5)         (0.3)
                                                    ---------     ---------          ---------     ---------

  Income before provision for income tax, and
    minority share of net income................          3.2           3.2                3.0           2.9
  Provision for income taxes....................          1.2           1.2                1.1           1.1
                                                    ---------     ---------          ---------     ---------
                                                          2.0           2.0                1.8           1.8
  Minority share of net income..................            -             -                  -             -
                                                    ---------     ---------          ---------     ---------
    Income from consolidated subsidiaries.......          2.0           2.0                1.8           1.8
 
  Equity earnings in unconsolidated subsidiaries            -             -                  -             -
                                                    ---------     ---------          ---------     ---------
    Net income..................................          2.0 %         2.0 %              1.8 %         1.8 %
                                                    =========     =========          =========     =========
</TABLE>  
  *  Totals do not aggregate due to rounding.

                                       7
<PAGE>
 
BACKGROUND.

     The expansion of the Company's stores in 1996 and 1997 is shown in the
following table:
<TABLE>
<CAPTION>
                                                               TWO                YEAR
                                  QUARTER ENDED           QUARTERS ENDED          ENDED
                               --------------------   ----------------------   -----------
                               JUNE 15,    JUNE 16,   JUNE 15,     JUNE 16,    DECEMBER 29,
                                 1997        1996       1997         1996         1996
                                 ----        ----       ----         ----         ----
<S>                            <C>         <C>        <C>          <C>         <C>
USA
  Store count beginning          167         159        168          155           155
  Stores opened:
   In new markets                  -           3          -            7            12
   In mature markets               1           -          2            -             1
                                ----        ----       ----         ----          ----
  Total                            1           3          2            7            13
  Relocations                      3           -          3            2             6
  Stores relocated/closed         (3)          -         (5)          (2)           (6)
                                ----        ----       ----         ----          ----
  Store count ending             168         162        168          162           168
 
MEXICO
  Store count beginning            5           3          5            3             3
  New stores opened                -           -          -            -             2
                                ----        ----       ----         ----          ----
  Store count ending               5           3          5            3             5
                                ----        ----       ----         ----          ----
  Grand Total                    173         165        173          165           173
                                ====        ====       ====         ====          ====
</TABLE>

     Mexico operations are not consolidated and are reported on the equity
basis.

     Although new stores are important to the Company's continued growth and
profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable.  In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.

     Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year and a sixteen week period
in the third quarter.


COMPARISON OF TWELVE WEEKS ENDED JUNE 15, 1997 WITH TWELVE WEEKS ENDED JUNE 16,
1996.

     Sales.  Second quarter 1997 sales were $334.9 million, up 9.0% from the
comparable 1996 period.  Smart & Final Stores Corporation ("Smart & Final")
store sales increased 4.0%.  Store sales increased as a result of the new store
openings and relocations in the United States which numbered nineteen in 1996
and five in the first half of 1997.

     Comparable store sales for the second quarter of 1997 increased 2.1% over
the prior year period.  Comparable customer transactions for the second quarter
increased 2.2% over the second quarter of 1996.  Average comparable transaction
size decreased slightly from $32.18 to $32.14.

     Foodservice distribution sales for the second quarter increased to $85.4
million, with strong growth at Port Stockton and moderate sales growth at Henry
Lee which has constrained distribution facilities.  As a percentage of total
sales, foodservice distribution sales increased from 22.0% in the second quarter
of 1996 to 25.5% in the second quarter of 1997.

                                       8
<PAGE>
 
     Cost of Sales, Buying and Occupancy.  These costs totaled $285.2 million in
the second quarter of 1997, up 9.4% from the second quarter of 1996.  Costs
increased at a higher rate than the increase in sales due to the introduction of
the Sliced Price/Right Price program late in the first quarter of 1997 and due
to an increased mix of foodservice distribution sales which generate lower gross
margins than store sales, offset by lower occupancy costs which declined by
approximately $1.2 million as a result of the acquisition of operating
properties from an affiliated company late in 1996 (the "Real Estate
Transaction"). As a percentage of sales, these costs increased from 84.8% in the
second quarter of 1996 to 85.2% in the second quarter of the current year.

     Gross Margin.  Gross margin increased 6.5% from $46.7 million in the second
quarter of 1996 to $49.7 million in the second quarter of 1997.  As a percentage
of sales, gross margin decreased from 15.2% of sales in the second quarter of
1996 to 14.8% of sales in the current quarter.  Major factors in the lower gross
margin percentage were the new price program which caused a 0.6% of sales
reduction and the increased foodservice distribution sales mix which accounted
for a 0.2% decline, offset by the benefits of the Real Estate Transaction which
reduced occupancy costs and increased gross margin by 0.4% of sales.

     Operating and Administrative Expenses.  Operating and administrative
expenses for the second quarter of 1997 were $37.2 million, up $1.2 million or
3.2% from the second quarter of 1996. As a percentage of sales, these expenses
declined from 11.7% in the second quarter of 1996 to 11.1% in the current year
quarter. Approximately 0.2% of the reduction resulted from higher foodservice
distribution sales mix which operates at lower expense levels than store sales,
0.2% from vendor marketing rebates in support of the Sliced Price/Right Price
program, and 0.2% from rigorous expense controls.

     Income from Operations.  Income from operations was $12.5 million for the
second quarter of 1997, up 17.4% from $10.7 million in the second quarter of
1996. The increase is due to higher sales and gross margins accompanied by
moderate growth in expenses.

     Interest Income and (Expense).  Interest income and expense increased from
$0.7 million of expense in the second quarter of 1996 to $1.7 million of expense
in the second quarter of 1997.  The increase is due to interest charges on the
$38.0 million of debt issued late in 1996 in connection with the Real Estate
Transaction and also due to higher levels of bank debt related to business
growth.

COMPARISON OF TWENTY-FOUR WEEKS ENDED JUNE 15, 1997 WITH TWENTY-FOUR WEEKS ENDED
JUNE 16, 1996.

     Sales.  First half 1997 sales were $641.9 million, up 8.8% from the
comparable 1996 period.  Smart & Final store sales increased 4.9%.  Store sales
increased as result of the twenty-four new and relocated stores opened since
1995.  Comparable store sales increased 2.0% in the first half of 1997.  Average
comparable transaction size declined slightly from $31.94 in the first half of
1996 to $31.85 in the first half of 1997.

     Foodservice sales increased 21.5% to $168.6 million with strong sales
growth at Port Stockton and moderate growth at Henry Lee which has constrained
distribution capability.  As a percentage of overall sales mix, foodservice
distribution sales accounted for 26.3% of total sales in the first half of 1997,
up from 23.5% of sales in the first half of 1996.

     Cost of Sales, Buying and Occupancy.  These costs totaled $547.6 million in
the first half of 1997, up 9.0% from the first half of 1996.  Costs increased at
a higher rate than the increase in sales due to the introduction of the Sliced
Price/Right Price program late in the first quarter of 1997 and due to an
increased mix of foodservice distribution sales which generate lower gross
margins than store sales, offset by lower occupancy costs which declined by
approximately $2.5 million as a result of the acquisition of operating
properties from an affiliated company late in 1996.  As a percentage of sales,
these costs increased from 85.2% in the first half of 1996 to 85.3% in the first
half of the current year.

      Gross Margin.  Gross margin increased 8.2% from $87.1 million in the first
half of 1996 to $94.3 million in the first half of 1997.  As a percentage of
sales, gross margin decreased from 14.8% of sales in the first half of 1996 to
14.7% of sales in the first half of the current year.  Major factors in the
lower gross margin percentage were the new price program which caused a 0.3% of
sales reduction and the increased foodservice distribution sales mix

                                       9
<PAGE>
 
which accounted for a 0.2% decline, offset by the benefits of the Real Estate
Transaction which reduced occupancy costs and increased gross margin by 0.4% of
sales.

     Operating and Administrative Expenses.  Operating and administrative
expenses for the first half of 1997 were $72.0 million, up $3.4 million or 4.9%
from the first half of 1996.  As a percentage of sales, these expenses declined
from 11.6% in the first half of 1996 to 11.2% in the first half of the current
year.  Approximately 0.2% of the reduction resulted from higher foodservice
distribution sales mix which operates at lower expense levels than store sales,
0.1% from vendor marketing rebates in support of the new price program, and 0.2%
from rigorous expense controls.

     Income from Operations.  Income from operations was $22.3 million for the
first half of 1997, up 20.5% from $18.5 million in the first half of 1996.  The
increase is due to higher sales and gross margins accompanied by moderate growth
in expenses.

     Interest Income and (Expense).  Interest income and expense increased from
$1.3 million of expense in the first half of 1996 to $3.3 million of expense in
the first half of 1997. The increase is due to interest charges on the $38.0
million of debt issued late in 1996 in connection with the Real Estate
Transaction and also due to higher levels of bank debt related to business
growth.


FINANCIAL CONDITION.


     Cash and cash equivalents increased from $16.8 million at December 29,
1996, to $18.7 million at June 15, 1997.  Cash provided by operating activities
for the twenty-four weeks ended June 15, 1997 was $18.1 million.  Of the cash
used for investing activities, $14.5 million was spent on capital expenditures
for property, plant, and equipment and $5.0 million was spent by Port Stockton
to acquire the assets of  a small produce distribution company in Northern
California. Cash used for payment of dividends was $2.2 million.   Additional
cash was provided by a net increase of $4.9 million of borrowings under the
Company's bank credit line and $1.7 million of proceeds from issuance of common
stock.

     Goodwill increased by $4.8 million as a result of the produce distributor
acquisition.  Accounts payable declined by $9.3 million due to a $1.7 million
reduction in inventories, and due to normal timing differences in payment
cycles.  Payable to Parent and affiliates increased as a result of cash advances
to the Company.

     Stockholders' equity increased by $6.4 million from $195.7 million at
December 29, 1996 to $202.1 million at June 15, 1997 as a result of the $6.8
million net income for the first twenty-four weeks of 1997, and the $1.7 million
proceeds from the issuance of common stock, net of the quarterly cash dividends
of $2.2 million declared in the first two quarters of 1997.


LIQUIDITY AND CAPITAL RESOURCES.


     The Company's primary source of liquidity is cash flow from operations and
retained earnings.  Cash provided by operating activities was $18.1 million in
the first half of 1997, up from $13.4 million in the comparable 1996 period.

     At June 15, 1997, the Company had cash of $18.7 million, $202.1 million of
stockholders' equity, and $114.6 million of debt.  The Company has $5.0 million
of availability under its $50.0 million bank credit line.

     From time to time Smart & Final may publish forward-looking statements
about anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.  In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change because
they reflect preliminary information and management assumptions, and that a
variety of factors could cause the Company's actual results and experience

                                       10
<PAGE>
 
to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The factors which could
cause actual results or outcomes to differ from such expectation include the
extent of the Company's success in (i) changing market conditions, (ii)
unforeseen costs and expenses, (iii) ability to attract new customers and retain
existing customers, and (iv) gain or losses from sales along with the
uncertainties and other factors, including unusually adverse weather conditions,
described from time to time in the Company's SEC filings and reports. This
report includes "forward-looking statements" including, without limitation,
statements as to the Company's liquidity and availability of capital resources.

     The Company expects to be able to fund future acquisitions and other cash
requirements by a combination of available cash, cash from operations, lease
financing and other borrowings and proceeds from the issuance of equity
securities.  The amount budgeted for capital expenditures is approximately $30.0
million for fiscal 1997.

                                       11
<PAGE>
 
                          PART II - OTHER INFORMATION


ITEM 1 LEGAL PROCEEDINGS

       Not applicable.

ITEM 2 CHANGES IN SECURITIES

       Not applicable.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

       Not applicable

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        The Annual Meeting of stockholders of the Company was held on May 9,
1997.  At the meeting stockholders (1) elected four (4) directors of the
Company, (2) approved an amendment to the Company's Stock Incentive Plan to
increase the number of shares of the Company's common stock for which options
may be granted from 2,250,000 shares to 2,450,000 shares, (3) approved the
adoption of the Company's Long Term Equity Compensation Plan, and (4) ratified
the selection of Arthur Andersen LLP, independent public accountants, as
auditors for the Company for the year ending January 4, 1998.

     The four (4) directors elected at the meeting are Robert J. Emmons, Antoine
Guichard, James S. Gold, and Christian P. Couvreux.  The directors whose term of
office as a director continued after the meeting are Pierre B. Bouchut, Tim F.
Crull, Martin A. Lynch, Georges Plassat, Roger M. Laverty, III, David J.
McLaughlin, Ross E. Roeder, and Thomas G. Plaskett.

     The votes cast for, against, or withheld, as well as the number of
abstention and broker non-votes for each nominee for office as a director were
as follows:
<TABLE>
<CAPTION>
 
                                         VOTES
                              ____________________________                  Broker
Name of Nominee               For       Against   Withheld   Abstentions   Non-Votes
---------------               ---       -------   --------   -----------   ---------
<S>                        <C>             <C>     <C>          <C>           <C>
Robert J. Emmons           20,506,603      -       278,262       -             -
Antoine Guichard           19,931,512      -       853,353       -             -
James S. Gold              20,507,753      -       277,112       -             -
Christian P. Couvreux      20,505,509      -       279,356       -             -
</TABLE>

     The votes cast for, against, or withheld, as well as the number of
abstentions and broker non-votes for each matter voted upon in addition to the
election of directors were as follows:
<TABLE>
<CAPTION>
 
                                Votes         Votes          Votes                              Broker
Matter                           For         Against        Withheld       Abstentions         Non-Votes
------                          -----        -------        --------       -----------         ---------         
<S>                           <C>            <C>              <C>            <C>               <C>
1. Amendment
of the Company's
Stock Incentive
Plan to increase              19,509,154     325,325            -             17,318             933,068
the number of
shares subject
thereto from
2,250,000 to
2,450,000
</TABLE> 
                                      12
<PAGE>

<TABLE> 
<CAPTION> 
 
                                Votes           Votes          Votes                            Broker
Matter                           For           Against        Withheld       Abstentions       Non-Votes
------                          -----          -------        --------       -----------       ---------
<S>                          <C>               <C>              <C>             <C>              <C>  
2. Adoption of the
Company's Long
Term Equity                  18,861,405        970,190            -             20,202           933,068
Compensation
Plan
 
3. Ratification
of Arthur
Andersen LLP,
as auditor for the           20,769,203          1,704            -             11,259             2,699
Company for the
year ending
January 4, 1998
</TABLE> 
 
ITEM 5 OTHER INFORMATION
 
       Not applicable.
 
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

       (a)  Exhibits
<TABLE> 
<CAPTION> 
                                                                                     Sequentially
Exhibit                                                                              Numbered    
Number      Description of Exhibit                                                   Pages       
-------     ----------------------                                                   -----        
<S>         <C>                                                                       <C> 
10.58       Omnibus Amendment, Direction and Consent No. 4 dated April 30, 1997
 
10.71       Participation Agreement dated as of April 7, 1997
 
10.72       Agency Agreement dated as of April 7, 1997
 
10.73       Lease Agreement dated as of April 7, 1997
 
10.74       Loan Agreement dated as of April 7, 1997
 
10.75       First Amendment and Restatement dated as of June 20, 1997, 
            to Participation Agreement dated December 15, 1994
 
10.76       First Amendment and Restatement dated as of June 20, 1997 to Agency         
            Agreement dated December 15, 1994
 
10.77       First Amendment and Restatement dated as of June 20, 1997 to Lease          
            Agreement dated December 15, 1994
 
10.78       First Amendment and Restatement dated as of June 20, 1997 to Loan           
            Agreement dated December 15, 1994
 
10.79       Asset Purchase Agreement dated as of May 30, 1997

27          Financial Data Schedule
</TABLE> 
       (b)  Reports on Form 8-K
 
            None

                                      13
<PAGE>
 
                                  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.



                                     SMART & FINAL INC.


                                     By:



Date:  July 28, 1997                       /s/ MARTIN A. LYNCH
                                     ______________________________________
 
                                                  Martin A. Lynch
                                              Executive Vice President,
                                          Principal Financial Officer, and
                                     Principal Accounting Officer of the Company

                                       14
<PAGE>

 
                              SMART & FINAL INC.
                                 EXHIBIT INDEX
                                  
<TABLE> 
<CAPTION> 
                                                                                    Sequentially
Exhibit                                                                             Numbered
Number    Description of Exhibit                                                    Pages
------    ----------------------                                                    -----
<S>       <C> 
10.58     Omnibus Amendment, Direction and Consent No. 4 dated April 30, 1997

10.71     Participation Agreement dated as of April 7, 1997

10.72     Agency Agreement dated as of April 7, 1997

10.73     Lease Agreement dated as of April 7, 1997

10.74     Loan Agreement dated as of April 7, 1997

10.75     First Amendment and Restatement dated as of June 20, 1997, to
          Participation Agreement dated December 15, 1994
 
10.76     First Amendment and Restatement dated as of June 20, 1997 to Agency
          Agreement dated December 15, 1994

10.77     First Amendment and Restatement dated as of June 20, 1997 to Lease
          Agreement dated December 15, 1994

10.78     First Amendment and Restatement dated as of June 20, 1997 to Loan
          Agreement dated December 15, 1994

10.79     Asset Purchase Agreement dated as of May 30, 1997

27        Financial Data Schedule
</TABLE> 

                                       15