<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 January 14, 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
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Number of shares of Common Stock outstanding at January 14, 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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<TABLE>
<CAPTION>
PAGE
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Item 1. Financial Statements
Balance Sheets - January 14, 1997 and July 2, 1996 2
Statements of Operations - Twelve Weeks and Twenty-Eight
Weeks Ended January 14, 1997 and January 9, 1996 3
Statements of Cash Flows - Twenty-Eight Weeks Ended
January 14, 1997 and January 9, 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 10
</TABLE>
1
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MACHEEZMO MOUSE RESTAURANTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
JANUARY 14, JULY 2,
1997 1996
----------- --------
ASSETS
Current assets
Cash and cash equivalents $ 979 $ 1,488
Short-term investments in marketable securities 1,732 1,741
Inventories 130 142
Non-trade receivables 31 26
Other current assets 246 138
----------- ---------
Total current assets 3,118 3,535
Property and equipment, net of accumulated
depreciation and amortization of $1,406 at
January 14, 1997 and $1,235 at July 2, 1996 1,663 1,694
Long-term investments in marketable securities - 250
Other assets 52 45
----------- ---------
$ 4,833 $ 5,524
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----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 542 $ 340
Accrued payroll and payroll related expenses 160 131
Accrued expenses and other current liabilities 47 58
Restructuring reserve 181 337
----------- ---------
Total current liabilities 930 866
Other deferred liabilities
Deferred rent expense 147 157
Other liabilities 33 -
----------- ---------
Total liabilities 1,110 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 January 7, 1997 and 3,920 shares issued
and outstanding at July 2, 1996 10,178 10,145
Accumulated deficit (6,455) (5,644)
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Total shareholders' equity 3,723 4,501
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$ 4,833 $ 5,524
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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)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
----------------------- ------------------------
JANUARY 14, JANUARY 9, JANUARY 14, JANUARY 9,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales, net $1,677 $2,069 $4,274 $5,407
----------- ---------- ----------- ----------
Costs and expenses
Food, beverage and packaging costs 527 581 1,286 1,472
Restaurant labor 610 690 1,486 1,769
Other restaurant operating expenses 440 501 1,017 1,180
Depreciation and amortization 83 170 187 412
General and administrative expenses 606 524 1,191 1,114
----------- ---------- ----------- ----------
Total operating costs and expenses 2,266 2,466 5,167 5,947
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Operating loss (589) (397) (893) (540)
Other income (expense)
Interest income 34 55 94 140
Interest expense - - (1) -
Other expense (11) - (11) -
----------- ---------- ----------- ----------
Loss before income taxes (566) (342) (811) (400)
Provision for income taxes - 55 - 35
----------- ---------- ----------- ----------
Net loss $ (566) $ (397) $ (811) $ (435)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net loss per share $ (0.14) $ (0.10) $ (0.20) $ (0.11)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Shares used in per share calculations 3,986 3,917 3,974 3,916
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
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)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
--------------------------
JANUARY 14, JANUARY 9,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (811) $ (435)
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 187 412
Discount amortization on investments (11) (8)
Loss on disposal of equipment 11 -
Deferred tax assets - 28
Net changes in operating assets and liabilities:
Inventories 12 (12)
Non-trade receivables (4) (49)
Other current assets (109) (32)
Accounts payable, accrued payroll and
expenses, deferred rent and other liabilities 242 (189)
Restructuring reserve (155) -
---------- ----------
Net cash used in operating activities (638) (285)
Cash flows from investing activities
Acquisition of property and equipment (164) (542)
Purchase of marketable securities (1,225) (993)
Proceeds from maturity of marketable securities 1,495 1,439
Decrease in other assets (10) 9
---------- ----------
Net cash provided by (used in)
investing activities 96 (87)
Cash flows from financing activities:
Proceeds from exercise of stock options 33 13
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Net cash provided by financing activities 33 13
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Net decrease in cash and cash equivalents (509) (359)
Cash and cash equivalents at beginning of period 1,488 489
---------- ----------
Cash and cash equivalents at end of period $ 979 $ 130
---------- ----------
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Supplemental cash flow disclosure:
Cash paid for:
Interest $ - $ -
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 the twelve and
twenty-eight week periods ended January 14, 1997 and January 9, 1996 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 has 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 twelve and twenty-eight week periods ended
January 14, 1997 and January 9, 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 MARKETABLE SECURITIES
Cash equivalents consist of highly liquid investments purchased with original
maturities of three months or less; investments consist primarily of
commercial paper and government securities. The Company's investments in
marketable 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 January 14, 1997.
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 as their effect is
antidilutive.
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 January 14, 1997 the Company owned and
operated 19 Macheezmo Mouse restaurants. There were two restaurants opened
and one restaurant closed in the 28 weeks ended January 9, 1996 and no change
in the number of restaurants during the 28 weeks ended January 14, 1997. 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 (twelve weeks). Because
of the longer first fiscal quarter, 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.
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 half 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 January 14, 1997,
the restructuring reserve was $181,000.
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 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 12 and
28 week periods ended January 14, 1997 and January 9, 1996. 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.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FOR THE 12 WEEKS ENDED FOR THE 28 WEEKS ENDED
----------------------- -----------------------
JANUARY 14, JANUARY 9, JANUARY 14, JANUARY 9
1997 1996 1997 1996
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Sales, net 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Food, beverage and packaging 31.4 28.1 30.1 27.2
Restaurant labor 36.4 33.4 34.8 32.7
Other restaurant operating expenses 26.2 24.2 23.8 21.8
Depreciation and amortization 5.0 8.2 4.4 7.6
General and administrative expenses 36.1 25.3 27.8 20.6
------ ------ ------ ------
Total operating costs and expenses 135.1 119.2 120.9 109.9
------ ------ ------ ------
Operating loss (35.1) (19.2) (20.9) (9.9)
Other income (expense)
Interest income 2.0 2.7 2.2 2.6
Interest expense - - - -
Other expense (0.7) - (0.3) -
------ ------ ------ ------
Loss before income taxes (33.8) (16.5) (19.0) (7.3)
Provision for income taxes - 2.7 - 0.7
------ ------ ------ ------
Net loss (33.8)% (19.2)% (19.0)% (8.0)%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
RESTAURANT OPERATING DATA
FOR THE TWENTY-EIGHT WEEKS ENDED
-----------------------------------
JANUARY 14, JANUARY 9,
1997 1996
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Number of restaurants:
Open at beginning of period 19 21
Opened during the period - 2
Closed during the period - (1)
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Open at end of period 19 22
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7
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TWELVE WEEKS (SECOND QUARTER) AND TWENTY-EIGHT WEEKS (FIRST HALF) ENDED
JANUARY 14, 1997 COMPARED TO TWELVE WEEKS (SECOND QUARTER) AND TWENTY-EIGHT
WEEKS (FIRST HALF) ENDED JANUARY 9, 1996
SALES, NET. Restaurant sales decreased in the second quarter of fiscal 1997
to $1.7 million from $2.1 million in the second quarter of fiscal 1996, and
decreased in the first half of fiscal 1997 to $4.3 million from $5.4
million in the first half of fiscal 1996. Net sales were based on 19 and 22
operating restaurants in the first half of fiscal 1997 and 1996,
respectively. Same restaurant sales decreased 14% in the second quarter of
fiscal 1997 and 15% in the second half of fiscal 1997, compared to the same
periods in fiscal 1996. Historically, the second quarter is the weakest
quarter of the fiscal year. Holiday closings and winter weather are the
significant negative factors driving second quarter results. In the second
quarter, the Company was closed for holidays (Thanksgiving, Christmas and New
Years Day) which represented 57 operating days company-wide. In addition, the
Company was negatively affected by losing 43 restaurant operating days
company-wide due to inclement weather during the quarter. 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 marketing and advertising
plans were developed.
COSTS AND EXPENSES.
Food, beverage and packaging costs increased as a percentage of net sales to
31.4% in the second quarter of fiscal 1997 from 28.1% in the second quarter
of fiscal 1996, and increased as a percentage of net sales to 30.1% in the
first half of fiscal 1997 from 27.2% in the first half of fiscal 1996. The
increases, as a percentage of net sales, were primarily the result of new
and more expensive menu items and decreased net sales in the same periods.
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 36.4% in the second
quarter of fiscal 1997 from 33.4% in the second quarter of fiscal 1996, and
increased as a percentage of net sales to 34.8% in the first half of fiscal
1997 from 32.7% in the first half of fiscal 1996. The increases, as a
percentage of net sales, were attributable to increases in the minimum wage,
increases in wages and employee benefits in order to remain competitive in
the Company's labor markets, and decreased net sales in the same periods.
Other restaurant operating expenses increased as a percentage of net sales
to 26.2% in the second quarter of fiscal 1997 from 24.2% in the second
quarter of fiscal 1996, and increased as a percentage of net sales to 23.8%
in the first half of fiscal 1997 from 21.8% in the first half of fiscal
1996. The increases, as a percentage of net sales, were 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 decrease, these expenses increase as a
percentage of net sales.
Depreciation and amortization expense decreased as a percentage of net sales
to 5.0% in the second quarter of fiscal 1997 from 8.2% in the second quarter
of fiscal 1996, and decreased to 4.4% in the first half of fiscal 1997 from
7.6% in the first half of fiscal 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 36.1% in the second quarter of fiscal 1997 from 25.3% in the second
quarter of fiscal 1996, and increased to 27.8% in the first half of fiscal
1997 from 20.6% in the first half of fiscal 1996. The increase, as a
percentage of net sales, in the second quarter of fiscal 1997 was primarily
attributable to increased advertising spending and expenses related to menu
development and the roll out of new menu items. The increase, as a
percentage of net sales, in the second half of fiscal 1997 was attributable
to these factors and to the decline in same restaurant sales.
8
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INCOME TAXES. The Company is in a net deferred tax asset position and has
generated net operating losses in the current year. 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.
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 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.
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 January 14, 1997 was $2.2 million, including $1.0
million of cash and cash equivalents and $1.7 million of short-term
investments in commercial paper and government securities.
Cash used in operating activities in the first half of fiscal 1997 was
$638,000, primarily resulting from a net loss for the period, adjustments for
depreciation and amortization; and an increase in accounts payable, accrued
payroll and expenses, deferred rent and other liabilities, principally the
result of timing.
Cash provided by investing activities in the first half of fiscal 1997 was
$96,000. Cash balances, in excess of operating requirements, remained
invested in readily marketable commercial paper and U.S. government
securities. Purchases of short-term investments was $1.2 million, and
proceeds from maturity of short term investments was $1.5 million in the
first half of fiscal 1997.
Cash provided by financing activities in the first half of fiscal 1997 was
$33,000, consisting of proceeds for the exercise of stock options.
The Company has a revolving line of credit which provides for the borrowing
of up to $600,000, (limited to 80% of the Company's marketable securities,
and secured by such marketable securities), at the bank's prime rate (8.25%
at January 14, 1997), which expires on October 31, 1997. No borrowings were
outstanding under the line of credit at January 14, 1997. Amounts available
under the line of credit can be used to support letters of credit of up to
$200,000; of which approximately $40,000 was outstanding at January 14, 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 January 14, 1997 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, and cash from operations, will be adequate to fund
the Company's operations over the next 12 months.
9
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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 twelve week period ended
January 14, 1997.
10
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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: February 28, 1997
MACHEEZMO MOUSE RESTAURANTS, INC.
By: /s/ WILLIAM S. WARREN
---------------------
William S. Warren
Chairman of the Board of Directors
(Principal Executive Officer)
(Principal Accounting and Financial Officer)
11
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<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
twenty-eight week period ended January 14, 1997, 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> JAN-14-1997
<CASH> 979
<SECURITIES> 1,732
<RECEIVABLES> 31
<ALLOWANCES> 0
<INVENTORY> 130
<CURRENT-ASSETS> 3,118
<PP&E> 3,069
<DEPRECIATION> 1,406
<TOTAL-ASSETS> 4,833
<CURRENT-LIABILITIES> 930
<BONDS> 0
0
0
<COMMON> 10,178
<OTHER-SE> (6,455)
<TOTAL-LIABILITY-AND-EQUITY> 4,833
<SALES> 4,274
<TOTAL-REVENUES> 4,274
<CGS> 0
<TOTAL-COSTS> 5,167
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (811)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
