<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 21, 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 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 28, 1997: 3,985,630.
Transitional Small Business Disclosure Format: Yes No X
--- ---
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MACHEEZMO MOUSE RESTAURANTS, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Balance Sheets - October 21, 1997 and July 1, 1997 2
Statements of Operations - Sixteen Weeks Ended October 21, 1997
and October 22, 1996 3
Statements of Cash Flows - Sixteen Weeks Ended October 21, 1997
and October 22, 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
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MACHEEZMO MOUSE RESTAURANTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 21, JULY 1,
1997 1997
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 998 $ 1,306
Short term investments in marketable securities 249 498
Inventories of food and paper 93 98
Non-trade receivables 25 95
Other current assets 77 31
-------- --------
Total current assets 1,442 2,028
Equipment and leasehold improvements, net of
accumulated depreciation and amortization
of $618 at October 21, 1997 and $582 at July 1, 1997 769 926
Other assets 33 37
-------- --------
$ 2,244 $ 2,991
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 184 $ 328
Accrued payroll and payroll related expenses 133 144
Accrued expenses and other current liabilities 58 67
Restructuring reserve 16 261
-------- --------
Total current liabilities 391 800
Other deferred liabilities
Deferred rent expense 90 108
Other liabilities 39 30
-------- --------
Total liabilities 520 938
-------- --------
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 21, 1997 and July 1, 1997 10,178 10,178
Accumulated deficit (8,454) (8,125)
-------- --------
Total shareholders' equity 1,724 2,053
-------- --------
$ 2,244 $ 2,991
-------- --------
-------- --------
The accompanying notes are an integral part of these financial statements.
2
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MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIXTEEN WEEKS ENDED
------------------------
OCTOBER 21, OCTOBER 22,
1997 1996
----------- -----------
Sales, net $ 1,913 $ 2,597
-------- --------
Costs and expenses
Food, beverage and packaging costs 679 759
Restaurant labor 683 876
Other restaurant operating expenses 421 577
Depreciation and amortization 62 104
General and administrative expenses 422 585
-------- --------
Total operating costs and expenses 2,267 2,901
-------- --------
Operating loss (354) (304)
Other income (expense)
Interest income 25 60
Interest expense -- (1)
-------- --------
Net loss $ (329) $ (245)
-------- --------
-------- --------
Net loss per share $ (.08) $ (.06)
-------- --------
-------- --------
Shares used in per share calculations 3,985 3,966
-------- --------
-------- --------
The accompanying notes are an integral part of these financial statements.
3
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MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIXTEEN WEEKS ENDED
------------------------
OCTOBER 21, OCTOBER 22,
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $ (329) $ (245)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 62 104
Discount amortization on investments -- (6)
Net changes in operating assets and liabilities:
Inventories 5 21
Non-trade receivables 70 (25)
Other current assets (46) (81)
Accounts payable, accrued payroll and expenses,
deferred rent and other liabilities (173) 55
Restructuring reserve (131) (136)
-------- --------
Net cash used in operating activities (542) (313)
Cash flows from investing activities
Acquisition of property and equipment (19) (48)
Purchase of marketable securities -- (982)
Proceeds from maturity of marketable securities 249 495
Increase in other assets 4 (22)
-------- --------
Net cash provided by investing activities 234 (557)
Cash flows from financing activities:
Proceeds from exercise of stock options -- 33
-------- --------
Net cash provided by financing activities -- 33
-------- --------
Net decrease in cash and cash equivalents (308) (837)
Cash and cash equivalents at beginning of period 1,306 1,488
-------- --------
Cash and cash equivalents at end of period $ 998 $ 651
-------- --------
-------- --------
Supplemental cash flow disclosure:
Cash paid for interest $ -- $ 1
Supplemental disclosure on non-cash information:
Non-cash charge for write down of closed restaurant
assets $ 114 $ --
The accompanying notes are an integral part of these financial statements.
4
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MACHEEZMO MOUSE RESTAURANTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for sixteen weeks
ended October 21, 1997 and October 22, 1996 have been prepared in conformity
with generally accepted accounting principles. The financial information as of
July 1, 1997 is derived from the Macheezmo Mouse Restaurants, Inc. (the
"Company") financial statements included in the Company's Annual Report on Form
10-KSB for the year ended July 1, 1997. 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 1, 1997, 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 21, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending June 30, 1998, or any portion thereof.
2. CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents consist of cash on hand and on deposit and highly
liquid investments purchased with an original maturity of three months or less.
Marketable securities consist primarily of government and corporate securities.
The Company accounts for its marketable securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." The Company's marketable securities
are classified as "held to maturity" and are therefore recorded at amortized
cost.
3. 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.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). SFAS 128 changes the standards for computing and presenting earnings per
share (EPS) and supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." SFAS 128 simplifies the standards for computing earnings per share
and makes them comparable to international EPS standards. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes requirements
for disclosure of comprehensive income and is effective for the Company's fiscal
year ending May 1999. Reclassification of earlier financial statements for
comparative purposes is required.
The Company does not expect these pronouncements will have a material impact on
its financial statements.
5
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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 21, 1997 the Company owned and
operated 14 restaurants. Four restaurants were closed in fiscal 1997 and four
restaurants were closed in fiscal 1996. The Company closed one additional
restaurant in the first quarter of fiscal 1998. The closing of restaurants
affects the comparability of results of operations from period to period.
The Company prepares statements of operations for 13 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 (twelve or thirteen weeks). 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; June
30, 1998 for fiscal 1998. The Company's fiscal year ending July 1, 1997 was a
52-week period and its fiscal year ending June 30, 1998 will also be a 52-week
period.
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 fiscal quarters.
In addition, the first quarter includes 16 weeks of operations, compared with 12
or 13 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.
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; 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; seasonal differences in sales
volume; and availability of financing. The forward-looking statements contained
in this document regarding menu development and introductions, marketing and
advertising plans, availability of financing, liquidity and future business
activities, including possible acquisitions or expansion, should be considered
in light of these factors.
6
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RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the 16 weeks
ended October 21, 1997 and October 22, 1996. The table sets forth the percentage
relationship to net sales of certain statement of operations data. The table
also sets forth certain restaurant data for the periods indicated.
STATEMENT OF OPERATIONS DATA FOR THE SIXTEEN WEEKS ENDED
---------------------------
OCTOBER 21, OCTOBER 22,
1997 1996
----------- -----------
Sales, net 100.0 % 100.0 %
-------- --------
Costs and expenses
Food, beverage and packaging 35.5 29.2
Restaurant labor 35.7 33.8
Other restaurant operating expenses 22.0 22.2
Depreciation and amortization 3.2 4.0
General and administrative expenses 22.1 22.5
-------- --------
Total operating costs and expenses 118.5 111.7
-------- --------
Operating loss (18.5) (11.7)
Other income (expense), net 1.3 2.3
-------- --------
Net loss (17.2) % (9.4) %
-------- --------
-------- --------
RESTAURANT DATA FOR THE SIXTEEN WEEKS ENDED
---------------------------
OCTOBER 21, OCTOBER 22,
1997 1996
----------- -----------
Number of restaurants:
Open at beginning of period 15 19
Opened during the period -- --
Closed during the period (1) --
-------- --------
Open at end of period 14 19
-------- --------
-------- --------
FIRST QUARTER OF FISCAL YEAR 1998 (SIXTEEN WEEKS ENDED OCTOBER 21, 1997)
COMPARED TO FIRST QUARTER OF FISCAL YEAR 1997 (SIXTEEN WEEKS ENDED OCTOBER 22,
1996)
SALES, NET. Restaurant sales decreased in the first quarter of fiscal 1998 to
$1.9 million from $2.6 million in the first quarter of fiscal 1997. There were
14 restaurants operating at the end of the first quarter of fiscal 1998 compared
to 19 restaurants operating at the end of the first quarter of fiscal 1997. Same
store restaurant sales decreased 10% in the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997, due to decreased customer counts
in the first quarter of fiscal 1998.
COSTS AND EXPENSES. Food, beverage and packaging costs decreased to $679,000 in
the first quarter of fiscal 1998 from $759,000 in the first quarter of fiscal
1997, and increased as a percentage of net sales to 35.5% from 29.2% in the same
periods. In the fourth quarter of fiscal 1997 the Company introduced new menu
items, including grilled steak, chicken and pork, which have higher food costs
than items previously on the menu.
7
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Restaurant labor expense consists primarily of restaurant management and hourly
employee wages, payroll taxes, worker's compensation and group insurance.
Restaurant labor expense decreased to $683,000 in the first quarter of fiscal
1998 from $876,000 in the first quarter of fiscal 1997, and increased as a
percentage of net sales to 35.7% from 33.8% in the same periods. The increase,
as a percentage of sales, was primarily attributable to the development and
training related to the introduction of a new menu.
Other restaurant operating expenses consist primarily of rent, utilities and
miscellaneous supplies and services. Other restaurant operating expenses
decreased to $421,000 in the first quarter of fiscal 1998 from $577,000 in the
first quarter of fiscal 1997 primarily due to the closure of five restaurants
since the first quarter of fiscal 1997. Other restaurant operating expenses
decreased as a percentage of net sales to 22.0% from 22.2% in the same periods.
Depreciation and amortization expense decreased to $62,000 in the first quarter
of fiscal 1998 from $104,000 in the first quarter of fiscal 1997, and decreased
as a percentage of net sales to 3.2% in the first quarter of fiscal 1998 from
4.0% in the first quarter of fiscal year 1997. In the fourth quarter of both
fiscal 1997 and 1996 the Company wrote down 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 decreased to $422,000 in the first quarter
of fiscal 1998 from $585,000 in the first quarter of fiscal 1997, and decreased
as a percentage of net sales to 22.1% from 22.5% in the same periods. The
decrease was primarily attributable to the reduction in the number of general
and administrative employees and reductions in corporate spending.
INCOME TAXES. The Company is in a net deferred tax asset position and has
generated net operating losses in the current period. Accordingly, no provision
for or benefit from income taxes has been recorded in the accompanying
statements of operations. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its capital requirements through cash flow
from operations and the proceeds from its initial public offering in September
1994.
Working capital at October 21, 1997 was $1.1 million, including $1.0 million of
cash and cash equivalents and $249,000 of short-term investments in marketable
securities.
Cash used in operating activities in the first quarter of fiscal 1998 was
$542,000, primarily resulting from a net loss for the quarter of $329,000, and
decreases of $173,000 in short term liabilities and $131,000 in the
restructuring reserve.
Cash provided by investing activities in the first quarter of fiscal 1998 was
$234,000, primarily resulting from proceeds from maturity of short term
investments in marketable securities of $249,000. Cash balances in excess of
operating requirements are invested in readily marketable commercial paper and
U.S. government securities.
The balance in the restructuring reserve of $16,000 at October 21, 1997
represents the remaining estimated costs associated with restaurant closures and
the settlement of lease obligations for restaurants closed as part of the
Company's restructuring plans in fiscal 1997. The change in the restructuring
reserve during the first quarter of fiscal 1998 consisted of $114,000 of
non-cash charges for the write-down of closed restaurant assets to their
estimated fair market values, and a $131,000 net decrease to the restructuring
reserve
8
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consisting of estimated costs associated with restaurant closures net of the
settlement of lease obligations for restaurants closed in fiscal 1997.
The Company had a revolving line of credit which provided for the borrowing of
up to 80% of the Company's marketable securities, secured by such marketable
securities, at the bank's prime rate. The line of credit also provided for
letters of credit of up to $200,000. No borrowings were outstanding under the
line of credit at October 21, 1997. A letter of credit of approximately $40,000
was outstanding at October 21, 1997. The revolving line of credit expired on
November 30, 1997. The Company is currently negotiating with its bank to renew
its line of credit agreement, at substantially the same borrowing level.
In addition to the remaining restructuring reserve, the Company's future capital
requirements are expected to consist primarily of menu development, signage
changes and local store marketing campaigns. At October 21, 1997, the Company
had no material commitments for capital expenditures. The Company expects that
current cash, cash equivalents and short-term investment balances and cash from
operations will be adequate to fund the Company's operations over the next 12
months. The Company has from time to time evaluated opportunities for
acquisitions and expansion and intends to continue to consider strategic
alternatives for future growth.
NASDAQ MATTERS
On October 1, 1997, the Company's Common Stock was deleted from listing on the
Nasdaq National Market System ("Nasdaq NMS") for failure to maintain the minimum
bid price requirement for continued listing of $1.00 per share.
After October 1, 1997, trading, if any, in the Company's Common Stock will be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq listing requirements, or
in what are commonly referred to as the "pink sheets." As a result, an investor
will likely find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's Common Stock than was the case when
the Company's Common Stock was listed on the Nasdaq NMS. In addition, after
October 1, 1997, the Company's Common Stock will be subject to "penny stock"
rules that impose additional sales practice requirements on broker-dealers who
sell such securities. Consequently, the delisting of the Company's Common Stock
from Nasdaq NMS could adversely affect the ability or willingness of
broker-dealers to sell the Company's Common Stock and the ability of purchasers
of the Company's Common Stock to sell their securities in the secondary market.
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 weeks ended
October 21, 1997.
9
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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: December 3, 1997
MACHEEZMO MOUSE RESTAURANTS, INC.
By: /s/ WILLIAM S. WARREN
---------------------
William S. Warren
President, Chief Executive Officer
Chairman of the Board of Directors and Secretary
10
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements found in the Company's Form 10-QSB for the sixteen weeks
ended October 21, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-02-1997
<PERIOD-END> OCT-21-1997
<CASH> 998
<SECURITIES> 249
<RECEIVABLES> 25
<ALLOWANCES> 0
<INVENTORY> 93
<CURRENT-ASSETS> 1,442
<PP&E> 1,387
<DEPRECIATION> 618
<TOTAL-ASSETS> 2,244
<CURRENT-LIABILITIES> 391
<BONDS> 0
0
0
<COMMON> 10,178
<OTHER-SE> (8,454)
<TOTAL-LIABILITY-AND-EQUITY> 2,244
<SALES> 1,913
<TOTAL-REVENUES> 1,913
<CGS> 0
<TOTAL-COSTS> 2,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (329)
<INCOME-TAX> 0
<INCOME-CONTINUING> (329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
