<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 22, 1996
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 0-24788
MACHEEZMO MOUSE RESTAURANTS, INC.
(Exact name of small business issuer as specified in its charter)
OREGON 93-0929139
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1020 SW TAYLOR STREET, SUITE 685
PORTLAND, OREGON 97205
(Address of principal executive offices)
503-274-0001
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
--- ---
Number of shares of Common Stock outstanding at November 18, 1996: 3,985,630.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
MACHEEZMO MOUSE RESTAURANTS, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
------------------------------
PAGE
----
Item 1. Financial Statements
Balance Sheets - October 22, 1996 and July 2, 1996 2
Statements of Operations - Sixteen Weeks Ended
October 22, 1996 and October 17, 1995 3
Statements of Cash Flows - Sixteen Weeks Ended
October 22, 1996 and October 17, 1995 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
1
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MACHEEZMO MOUSE RESTAURANTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 22, 1996 JULY 2, 1996
---------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 651 $ 1,488
Short term investments in government securities 2,484 1,741
Inventories 121 142
Non-trade receivables 51 26
Other current assets 219 138
-------- --------
Total current assets 3,526 3,535
Property and equipment, net of accumulated
depreciation and amortization of $1,339 at
October 22, 1996 and $1,235 at July 2, 1996 1,638 1,694
Long term investments in government securities - 250
Other assets 67 45
-------- --------
$ 5,231 $ 5,524
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 363 $ 340
Accrued payroll and payroll related expenses 167 131
Accrued expenses and other current liabilities 42 58
Restructuring reserve 201 337
-------- --------
Total current liabilities 773 866
Other deferred liabilities
Deferred rent expense 151 157
Other liabilities 18 -
-------- --------
Total liabilities 942 1,023
Shareholders' equity
Preferred stock, undesignated, 5,000 shares
authorized, none issued
Common stock, no par value, 10,000 shares
authorized, 3,986 shares issued and outstanding
at October 22, 1996 and 3,920 shares issued
and outstanding at July 2, 1996 10,178 10,145
Accumulated deficit (5,889) (5,644)
-------- --------
Total shareholders' equity 4,289 4,501
-------- --------
$ 5,231 $ 5,524
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
--------------------------------
OCTOBER 22, OCTOBER 17,
1996 1995
----------- ------------
<S> <C> <C>
Sales, net $ 2,597 $ 3,338
-------- --------
Costs and expenses
Food, beverage and packaging costs 759 891
Restaurant labor 876 1,079
Other restaurant operating expenses 577 679
Depreciation and amortization 104 242
General and administrative expenses 585 590
-------- --------
Total operating costs and expenses 2,901 3,481
-------- --------
Operating loss (304) (143)
Other income (expense)
Interest income 60 85
Interest expense (1) -
-------- --------
Loss before income taxes (245) (58)
Benefit from income taxes - (20)
-------- --------
Net loss $ (245) $ (38)
-------- --------
-------- --------
Net loss per share $ (.06) $ (.01)
-------- --------
-------- --------
Shares used in per share calculations 3,966 3,915
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
-------------------------------------
OCTOBER 22, OCTOBER 17,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (245) $ (38)
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 104 242
Discount amortization on investments (6) (6)
Net changes in operating assets and liabilities:
Inventories 21 (18)
Non-trade receivables (25) (49)
Other current assets (81) (88)
Long term deferred assets - (27)
Accounts payable, accrued payroll and expenses,
deferred rent and other liabilities 55 (9)
Restructuring reserve (136) -
------- -------
Net cash (used in) provided by operating activities (313) 7
Cash flows from investing activities
Acquisition of property and equipment (48) (365)
Purchase of government securities (982) -
Proceeds from maturity of government securities 495 497
Increase in other assets (22) (6)
------- -------
Net cash (used in) provided by investing activities (557) 126
Cash flows from financing activities:
Proceeds from exercise of stock options 33 7
------- -------
Net cash provided by financing activities 33 7
------- -------
Net (decrease) increase in cash and cash equivalents (837) 140
Cash and cash equivalents at beginning of period 1,488 489
------- -------
Cash and cash equivalents at end of period $ 651 $ 629
------- -------
------- -------
Supplemental cash flow disclosure:
Cash paid for:
Interest $ 1 $ -
Income taxes $ - $ 25
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MACHEEZMO MOUSE RESTAURANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for sixteen week
periods ended October 22, 1996 and October 17,1995 have been prepared in
conformity with generally accepted accounting principles. The financial
information as of July 2, 1996 is derived from the Macheezmo Mouse Restaurants,
Inc.'s (the "Company") financial statements included in the Company's Annual
Report on Form 10-KSB for the year ended July 2, 1996. Certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited financial
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying unaudited financial statements should be
read in conjunction with the Company's audited financial statements for the year
ended July 2, 1996, as included in the Company's Annual Report on Form 10-KSB
for the year then ended.
Operating results for the sixteen weeks ended October 22, 1996 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending July 1, 1997, or any portion thereof.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1996 financial
statements to conform with the fiscal 1997 presentation. These reclassifications
had no impact on previously reported results of operations or shareholders'
equity.
3. CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less; investments consist primarily of
government securities. The Company's investments in government securities are
classified as "held to maturity" under the definition contained in Statement of
Financial Accounting Standards No. 115. Accordingly, these securities are
carried at amortized cost, which is not materially different from cost at
October 22, 1996.
4. NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of outstanding
shares of common stock in the periods presented. Common equivalent shares from
stock options are excluded from the computation if their effect is antidilutive.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
The Company commenced operations in 1981 with the opening of its first
restaurant in Portland, Oregon. As of October 22, 1996 the Company owned and
operated 19 Macheezmo Mouse restaurants. There were two restaurants opened and
one restaurant closed in the sixteen weeks ended October 17, 1995 and no change
in the number of restaurants during the sixteen weeks ended October 22, 1996.
The change in number of restaurants operating affects the comparability of
results of operations from period to period. Sales volume for a new restaurant
generally is higher in the first three four-week periods after the restaurant is
opened than in subsequent periods, in part as the result of special promotional
efforts in the opening periods. In addition, new restaurants may have lower
restaurant operating income as a percentage of sales due to higher fixed costs
of operations.
The Company prepares statements of operations for 13 four-week periods each
year. The first fiscal quarter, generally comprised of the months of July
through mid-October, includes four periods (sixteen weeks), and each of the
following three quarters includes three such periods. Because of the longer
first fiscal quarter and the seasonality of its business, the Company's sales
and operating income are typically highest in the first fiscal quarter. The
Company's fiscal year ends on the Tuesday closest to June 30; July 1, 1997 for
fiscal 1997. The Company's fiscal year ending July 1, 1997 is a 52 week period
and its fiscal year ended July 2, 1996 was a 53 week period.
FORWARD-LOOKING INFORMATION
From time to time the Company may issue forward-looking statements that
involve a number of risks and uncertainties. The following are among the factors
that could cause actual results to differ materially from the forward-looking
statements: business conditions and growth in the restaurant industry and
general economy, both domestic and international; lower than expected same
restaurant sales; competitive factors, including increased competition, new
product offerings by competitors and price pressures; the availability of labor,
food ingredients and beverages at reasonable prices; changes in menu offerings;
and seasonal differences in sales volume. The forward-looking statements
contained in this document regarding menu development and introductions,
marketing and advertising plans, liquidity and future business activities,
including possible expansion, should be considered in light of these factors.
6
<PAGE>
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the 16 week
periods ended October 22, 1996 and October 17, 1995. The table sets forth the
percentage relationship to net sales, unless otherwise indicated, of certain
statement of operations data. The table also sets forth certain restaurant data
for the periods indicated.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA FOR THE SIXTEEN WEEKS ENDED
---------------------------------
OCTOBER 22, OCTOBER 17,
1996 1995
------------- -------------
<S> <C> <C>
Sales, net 100.0 % 100.0 %
Costs and expenses
Food, beverage and packaging 29.2 26.7
Restaurant labor 33.8 32.3
Other restaurant operating expenses 22.2 20.3
Depreciation and amortization 4.0 7.2
General and administrative expenses 22.5 17.7
--------- ---------
Total operating costs and expenses 111.7 104.2
--------- ---------
Operating loss (11.7) (4.2)
Other income (expense)
Interest income 2.3 2.5
Interest expense - -
--------- ---------
Loss before income taxes (9.4) (1.7)
Benefit from income taxes - (0.6)
--------- ---------
Net loss (9.4) % (1.1) %
--------- ---------
--------- ---------
RESTAURANT OPERATING DATA FOR THE SIXTEEN WEEKS ENDED
---------------------------------
OCTOBER 22, OCTOBER 17,
1996 1995
------------- -------------
Number of restaurants:
Open at beginning of period 19 21
Opened during the period - 2
Closed during the period - (1)
----- ------
Open at end of period 19 22
----- -----
----- -----
</TABLE>
7
<PAGE>
FIRST QUARTER OF FISCAL YEAR 1997 (SIXTEEN WEEKS ENDED OCTOBER 22, 1996)
COMPARED TO FIRST QUARTER OF FISCAL YEAR 1996 (SIXTEEN WEEKS ENDED OCTOBER 17,
1995)
SALES, NET. Restaurant sales decreased in the first quarter of fiscal 1997
to $2.6 million from $3.3 million in the first quarter of fiscal 1996. This
decrease was primarily attributable to the closure of one restaurant in October
1995 and three restaurants in June 1996, and a decline in same restaurant sales
of 16%. In the first quarter of fiscal 1997 the Company concentrated its efforts
on strategically repositioning itself, during which time limited advertising and
marketing was placed. Extensive research was done on concept viability,
awareness building and new menu development, from which long term market and
advertising plans were developed. The implementation of such plans will begin in
forthcoming quarters.
COSTS AND EXPENSES. Food, beverage and packaging increased as a percentage
of net sales to 29.2% in the first quarter of fiscal 1997 from 26.7% in the
first quarter of fiscal 1996, primarily as a result of increases in the costs of
food, primarily cheese and tortillas, and the introduction of new menu items and
recipe changes, along with shifts in sales mix.
Restaurant labor expense, which consists primarily of restaurant management
and hourly employee wages, payroll taxes, worker's compensation and group
insurance, increased as a percentage of net sales to 33.8% in the first quarter
of fiscal 1997 from 32.3% in the first quarter of fiscal 1996. The increase as a
percentage of net sales was attributable to increases in wages and employee
benefits, which were increased in order to remain competitive in the Company's
labor markets, and to the decline in same restaurant sales.
Other restaurant operating expenses increased as a percentage of net sales
to 22.2% in the first quarter of fiscal 1997 from 20.3% in the first quarter of
fiscal 1996. The increase as a percentage of net sales was primarily due to the
decline in same restaurant sales. Most of these expenses, such as rent,
utilities and miscellaneous supplies and services are substantially fixed in
nature. As restaurant sales decline, these expenses increase as a percentage of
net sales.
Depreciation and amortization expense decreased as a percentage of net
sales to 4.0% in the first quarter of fiscal 1997 from 7.2% in the first quarter
of fiscal year 1996, due primarily to the write down in the fourth quarter of
fiscal 1996 of closed and existing restaurant assets to their estimated fair
market values in accordance with the adoption of Statement of Financial
Accounting Standard No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (SFAS No. 121).
General and administrative expenses increased as a percentage of net sales
to 22.5% in the first quarter of fiscal 1997 from 17.7% in the first quarter of
fiscal 1996. This increase as a percentage of net sales was primarily
attributable to the decline in same restaurant sales.
BENEFIT FROM INCOME TAXES. As of October 22, 1996, the Company had net
operating loss carryforwards of approximately $1.3 million which expire in the
years through 2012. The Company will continue to provide a valuation allowance
for its deferred tax assets until it becomes more likely than not, in
management's assessment, that the Company's deferred tax assets will be
realized.
QUARTERLY VARIABILITY
The Company's restaurants have historically experienced higher average
weekly sales in the first and fourth fiscal quarters. Accordingly, operating
income margins and net income margins have been and are expected to continue to
be higher in each of those quarters than in the second and third quarters.
Furthermore, quarterly results have been, and are expected to be, substantially
affected by the timing of new restaurant openings, in part because of the
Company's policy of expensing pre-opening costs. In addition, the first quarter
includes 16 weeks of operations, compared with 12 weeks for each of the
remaining three quarters. Consequently, consecutive quarter-to-quarter
comparisons of the Company's results of operations may not be meaningful, and
results for any quarter are not necessarily indicative of the actual results for
a full fiscal year.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Over the past two fiscal years, the Company has financed its capital
requirements through cash flow from operations and the proceeds from its
initial public offering in September 1994.
Working capital at October 22, 1996 was $2.8 million, including $650,000 of
cash and cash equivalents and $2.5 million of short-term investments in
government securities.
Cash used in operating activities in the first quarter of fiscal 1997 was
$313,000. Cash balances, in excess of operating requirements, remained invested
in readily marketable U.S. government securities. Purchases of government
securities, net of proceeds from the sale of government securities was $487,000
in the first quarter of fiscal 1997.
In the fourth quarter of fiscal 1996 the Company developed a restructuring
plan to address the declining profitability and operating losses in each quarter
of fiscal 1996, and to help restore profitability. This restructuring plan
resulted in the recording of restructuring expense of $2.9 million in the fourth
quarter of fiscal 1996. The restructuring included the closing of three
restaurants and the partial write-down of fixed assets at existing restaurants
to their estimated fair market value. The Company based its analysis on SFAS No.
121 which establishes standards to identify and measure impairment of long-lived
assets. The restructuring charge consisted of a reserve of $337,000 for the
estimated costs associated with restaurant closures and the settlement of lease
obligations for those restaurants closed, and $669,000 and $1,889,000 of
non-cash charges for the write-down of closed and existing restaurant assets,
respectively, to their estimated fair market values. During the first quarter of
fiscal 1997, the Company used a portion of the restructuring reserve for the
settlement of lease obligations for two of the restaurants which closed in June
1996 and for certain other employee related costs associated with such closures.
At October 22, 1996, the restructuring reserve was $201,000.
At October 22, the Company had a $600,000 line of credit which bore
interest at rates ranging from the bank's prime rate to the bank's prime rate
plus 1/2 percent and which required the Company to maintain certain cash
balances. There were no borrowings outstanding under the line of credit at
October 22, 1996. This line of credit expired on October 31, 1996. In October
1996, the Company negotiated a new revolving line of credit which provides for
the borrowing of up to $600,000, at the bank's prime rate, secured by the
Company's investments in marketable securities, which expires on October 31,
1997.
In addition to the remaining restructuring reserve, the Company's future
capital requirements will consist of marketing campaigns, menu development and
signage changes. At October 22, 1996 the Company had no material commitments
for capital expenditures. The Company expects that current cash and short-term
investment balances, along with amounts available under its $600,000
line-of-credit, will be adequate to fund the Company's operations over the next
12 months.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on September 25, 1996.
The following matters were submitted to shareholders for their consideration:
1. The shareholders elected William S. Warren, Joseph W. Angel, David M.
Bennett, Diane G. Hall, Joseph P. Micatrotto and Jack B. Schwartz to the
Company's Board of Directors, by the votes indicated below, to serve for the
ensuing year.
SHARES SHARES AGAINST BROKER
NAME IN FAVOR OR WITHHELD ABSTENTIONS NON-VOTES
---- -------- ----------- ----------- ----------
William S. Warren 2,983,056 19,525 0 0
Joseph W. Angel 2,983,896 18,685 0 0
David M. Bennett 2,981,106 21,475 0 0
Diane G. Hall 2,983,996 18,585 0 0
Joseph P. Micatrotto 2,988,756 13,825 0 0
Jack B. Schwartz 2,985,546 17,035 0 0
2. The adoption of the Macheezmo Mouse Restaurants, Inc. 1996 Stock Incentive
Plan was ratified as follows: 1,872,060 shares were voted in favor, 78,108
shares were voted in opposition, 10,076 shares abstained and there were
1,042,337 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as part of this report is listed below:
EXHIBIT NO.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the sixteen week period ended
October 22, 1996.
10
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 20, 1996
MACHEEZMO MOUSE RESTAURANTS, INC.
By: /s/ DAVID M. BENNETT
David M. Bennett
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ ALICE E. PRICE
Alice E. Price
Vice President, Finance and Controller
(Principal Financial and Accounting
Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-QSB FOR THE
SIXTEEN WEEKS ENDED OCTOBER 22, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-01-1997
<PERIOD-START> JUL-03-1996
<PERIOD-END> OCT-22-1996
<CASH> 651
<SECURITIES> 2,484
<RECEIVABLES> 51
<ALLOWANCES> 0
<INVENTORY> 121
<CURRENT-ASSETS> 3,526
<PP&E> 2,977
<DEPRECIATION> 1,339
<TOTAL-ASSETS> 5,231
<CURRENT-LIABILITIES> 773
<BONDS> 0
0
0
<COMMON> 10,178
<OTHER-SE> (5,889)
<TOTAL-LIABILITY-AND-EQUITY> 5,231
<SALES> 2,597
<TOTAL-REVENUES> 2,597
<CGS> 0
<TOTAL-COSTS> 2,901
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (245)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (245)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
