<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 April 7, 1998
OR
[ ] TRANSITION RPEORT 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 April 07, 1998: 3,985,630
Transitional Small Business Disclosure Format: Yes __ No X
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MACHEEZMO MOUSE RESTAURANTS, INC
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Item 1. Financial Statements
Balance Sheets - April 7, 1998 and July 1, 1997 2
Statements of Operations - Twelve Weeks and Forty Weeks Ended
April 7, 1998 and April 08, 1997. 3
Statements of Cash Flows - Forty Weeks Ended April 7, 1998
and April 08, 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 5
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
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MACHEEZMO MOUSE RESTAURANTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 07, JULY 01,
1998 1997
(UNAUDITED) (UNAUDITED)
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 482 $ 1,306
Short-term investments in marketable securities 510 498
Inventories of food and paper 93 98
Non-trade receivables 15 95
Other current assets 86 31
----------- -----------
Total current assets 1,186 2,028
Property and equipment, net of accumulated
depreciation and amortization of $703 at
April 08, 1998 and $582 at July 01, 1997 690 926
Other assets 33 37
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$ 1,909 $ 2,991
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 302 $ 328
Accrued payroll and payroll related expenses 132 144
Accrued expenses and other current liabilities 56 67
Accrued restructuring expense 11 261
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Total current liabilities 501 800
Other deferred liabilities
Deferred rent expense 83 108
Other liabilities 45 30
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Total liabilities 629 938
Shareholders' equity
Preferred stock, undesignated, 5000 shares
authorized, none issued -
Common stock, 10,000 shares
authorized, 3,986 shares issued and outstanding 10,178 10,178
Accumulated deficit (8,898) (8,125)
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Total shareholders' equity 1,280 2,053
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$ 1,909 $ 2,991
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</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------------ ------------------------
April 07, April 08, April 07, April 08,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales, net $ 1,319 $ 1,616 $ 4,556 $ 5,890
Costs and expenses
Food, beverage and packaging costs 389 503 1,510 1,789
Restaurant labor 481 601 1,653 2,087
Other restaurant operating, expenses 295 419 1,029 1,436
Depreciation and amortization 22 49 130 236
Retail division expenses 71 - 96 -
General and administrative expenses 292 658 978 1,849
--------- --------- --------- ---------
Total operating costs and expenses 1,550 2,230 5,396 7,397
--------- --------- --------- ---------
Operating loss $ (231) $ (614) $ (840) $ (1,507)
Other income (expense)
Interest income 9 23 46 117
Interest expense - 1
Other 21 (43) 21 (54)
--------- --------- --------- ---------
Net loss $ (201) $ (633) $ (773) $ (1,444)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted loss per common share $ (0.05) $ (0.16) $ (0.19) $ (0.36)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and Diluted weighted average
number of Common shares outstanding 3,986 3,974 3,986 3,974
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
-----------------------
APRIL 07, APRIL 08,
1998 1997
(UNAUDITED) (UNAUDITED)
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (773) $ (1,444)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 149 270
Discount amortization on investments (15)
Loss on disposal of equipment 13 11
Net changes in operating assets and liabilities:
Inventories 5 38
Non-trade receivables 80 17
Other current assets (45) (87)
Accounts payable, accrued payroll and expenses,
deferred rent and other liabilities (60) 127
Accrued restructuring expense (136) (126)
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Net cash used in operating activities (767) (1,209)
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Cash flows from investing activities:
Acquisition of property and equipment (40) (183)
Purchase of marketable securities (510) (1,719)
Proceeds from maturity of marketable securities 498 2,482
Increase (decrease) in other assets (5) (10)
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Net cash (used in) provided by investing activities (57) 570
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Cash flows from financing activities:
Proceeds from exercise of stock options - 33
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Net cash provided by financing activities - 33
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Net decrease in cash and cash equivalents (824) (606)
Cash and cash equivalents at beginning of period 1,306 1,488
Cash and cash equivalents at end of period $ 482 882
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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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
forty week periods ended April 7, 1998 and April 08, 1997 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
(fiscal 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 unaudtied financial statements include all
adjustments necessary (which are of a normal and recurring nature) for the
fair presentations of the results of the interim period presented. The
accompanying unaudited financial statements should be read in conjunction
with the Company's audited financial statements for fiscal 1997, as included
in the Company's Annual Report on Form 10-KSB for the year then ended.
Operating results for the twelve and Forty week periods ended April 7, 1998
and April 08, 1997 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 1998 (fiscal 1998), or
any portion thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
INTRODUCTION
The Company commenced operations in 1981 with the opening of the first
restaurant in Portland, Oregon. As of April 07, 1998 the Company owned and
operated 13 restaurants. Four restaurants were closed in Fiscal 1997 and one
restaurant was closed in the first quarter of fiscal 1998. In February 1998
the Company closed one additional restaurant in Portland, Oregon. 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 consisting 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
closet to June 30: June 30, 1998 for fiscal 1998. Fiscal 1997 was a 52-week
period and fiscal 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 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-
5
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quarters. Consequently, consecutive quarter-to-quarter comparisons of the
company's results of operations may not be meaningful and results of any
quarter are not necessarily indicative of the actual results for a full
fiscal year.
FORWARD - LOOKING INFORMATION.
The statements concerning expected future financing requirements, cost
reduction and retail activities and the Year 2000 issue constitutes forward
- -looking statements that are subject to risks and uncertainties. Factors that
could materially affect future financing in the event of lower than expected
retail and restaurant sales, increased competitive factors ( including
increased competition, new product offerings by competitors and price
pressures), in sales volume, changes in menu offerings, a longer than
expected period to achieve market acceptance of any new menu or retail
offerings, a longer than expected period to achieve market acceptance of any
new menu or retail offerings and difficulties implementing new menu and
retail offerings, as well as unfavorable business conditions and disruptions
in the restaurant industry and general economy. Factors that could adversely
affect cost reduction and retail activities include, but are not limited to,
the industry factors and general business conditions noted above. Factors
that could materially impact the Year 2000 issue include, but are not limited
to, unanticipated cost associated with any required modification to the
Company's computer systems and associated software.
6
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RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the 12 and 40
week periods ended April 07, 1998 and April 08, 1997. The Statement of
Operations table sets forth the percentage relationship to net sales, unless
otherwise indicated, of certain statement of operations data. The Restaurant
Operating Data table sets forth certain restaurant data for the periods
indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------------ ------------------------
April 07, April 08, April 07, April 08,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales, net 100% 100% 100% 100%
Costs and expenses
Food, beverage and packaging costs 29.5 31.1 33.1 30.4
Restaurant labor 36.5 37.1 36.3 35.4
Other restaurant operating, expenses 22.4 25.9 22.6 24.3
Depreciation and amortization 1.7 3.0 2.9 4.0
Retail division expenses 5.4 - 2.1 -
General and administrative expenses 22.1 40.7 21.5 31.3
--------- --------- --------- ---------
Total operating costs and expenses 117.6 137.8 118.5 125.4
--------- --------- --------- ---------
Operating loss (17.6) $ (37.8) (18.5) $ (25.4)
Other income (expense)
Interest income 0.8 15.0 1.0 2.0
Interest expense - -
Other expense 1.6 (2.7) 0.5 (0.9)
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Net loss (15.2) (25.5) (17) (24.3)
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</TABLE>
RESTAURANT OPERATING DATA
<TABLE>
<CAPTION>
FOR THE FORTY WEEKS ENDED
-------------------------
APRIL 07, APRIL 08,
1998 1997
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<S> <C> <C>
Number of restaurants:
Open at the beginning of the period 14 19
Opened during the period - -
Closed during the period (1) (1)
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Open at the end of period 13 18
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</TABLE>
7
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TWELVE WEEKS (THIRD QUARTER) AND FORTY WEEKS (THREE QUARTERS) ENDED APRIL 07,
1998 COMPARED TO TWELVE WEEKS (THIRD QUARTER) AND FORTY WEEKS (THREE QUARTERS)
ENDED APRIL 08, 1997.
SALES, NET. Restaurant sales decreased in the third quarter of fiscal 1998
and three quarters ending in fiscal 1998 in comparison to third quarter of
fiscal 1997 and three quarters ending in fiscal 1997. There were 13
Restaurants operating at the end of the three-quarters ending in fiscal year
of 1998 compared to 19 restaurants operating in the same fiscal period of
1997. Same store sales comparisons of the Company's restaurants are more
favorable in third quarter fiscal 1998 than same period in fiscal 1997. The
Company managed to halt the precipitous same store sales decline that they
had experienced in previous quarters.
COSTS AND EXPENSES.
Food, beverage and packaging costs decreased in the third quarter of fiscal
1998 in comparison to same quarter in fiscal 1997. These costs were also
decreased for three-quarters ending in fiscal 1998 compared to three quarters
ending in fiscal 1997. The Company is aggressively managing its cost of
sales and purchasing relationships with our vendors. This aggressive
management has resulted in greatly improved COS numbers. In the fourth
quarter of 1997 the company introduced new menu items, including grilled
steaks, chicken and pork, which have higher food costs than items previously
on the menu.
Restaurant labor expenses consist primarily of restaurant management and
hourly employee wages, payroll taxes, worker's compensation and group
insurance. Labor expenses decreased in both third and three quarters ending
in fiscal 1998. The decreases were due to efficiencies in operations and
salary and hourly management. As reflected in the management of COS, the
Company is aggressively managing store level labor costs while at the same
time improving the level of customer service for our patrons. The Company's
current stores are located in the Portland, Oregon metropolitan area where
unemployment is low, which has the effect of increasing wage levels required
to attract and retain qualified employees.
Other restaurant operating expenses consist primarily of rent, utilities and
miscellaneous supplies and services. Other restaurant operating expenses have
decreased in the third quarter of fiscal 1998 compared to third quarter of
fiscal 1997. These expenses also decreased for three-quarters ending in
fiscal 1998 compared to same period in fiscal 1997. The decrease is
primarily due to efficiencies in operating systems and management.
Depreciation and amortization expenses decreased in the third quarter and
three quarters ending in fiscal 1998 compared to third quarter and three
quarters ending in fiscal 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 Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS TO BE DISPOSED OF" (SFAS No. 121), thereby decreasing the
amount of related Depreciation expenses.
The Company incurred expenses of approximately $25,000 in the second quarter
of fiscal 1998 related to the start-up of retail operations, which primarily
consisted of recipe development and sales related activities. The Company,
as originally planned, launched its first retail contract in third quarter of
fiscal 1998. The Company initially supplied local Costco's with the Company's
branded retail products in the third quarter of fiscal 1998. Additionally the
Company began to supply burritos to Oregon school lunch programs; it began
with the Beaverton, Oregon school district. The Company plans to expand its
retail operation in fourth quarter of fiscal 1998. There is no assurance that
the Company will be successful in attaining or sustaining a level of retail
sales sufficient to cover the expenses related to such sales.
8
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General and administrative expenses decreased in the third and three quarters
ending in fiscal 1998 compared to fiscal 1997. The decreases were primarily
attributable to the reduction in the number of general and administrative
employees, reduction in corporate spending and increased corporate operating
efficiencies.
INCOME TAXES
The Company is in a net deferred tax position and has generated 100% net
operating losses in fiscal 1998. Accordingly, no provision for benefit from
income taxes has been recorded in the accompanying statements of operations.
The Company will continue to provide a valuation allowance for it's deferred
tax assets until it becomes more likely than not, in management's assessment,
that the Company's deferred tax assets will be realized.
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.
Since October 1, 1997 trading in the Company's Common Stock has been
conducted in the over the counter market on an electronic bulletin board
established for securities that do not meet Nasdaq requirements, or in what
are commonly referred to as "Pink Sheets". As a result, an investor may
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 is subject to "Penny Stock" rules
that impose additional sales practice requirements on broker-dealers who sell
such securities. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 6, 1997 at the Company's annual meeting, the holders of the
Company's outstanding common stock took the action described below. At the
Company's annual meeting, 3,985,630 shares of common stock were eligible to
vote.
1. The shareholders elected each of William S. Warren, Jack B. Schwartz
and Dara Dejbakhsh to Company's board of directors, by the votes
indicated below, to serve for ensuing year. There were no abstentions
or broker non-votes.
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
<S> <C> <C>
William S. Warren 3,508,091 77,575
Jack B. Schwartz 3,512,052 73,614
Dara Dejbakhsh 3,512,641 73,025
</TABLE>
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.
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27 Financial Date Schedule
(b) Reports on Form 8-K:
Change of independent auditors from Price Waterhouse LLP to
Cacciamatta Accountancy Corporation.
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: May 26th, 1998
MACHEEZMO MOUSE RESTAURANTS, INC
By: /s/ SCOTT FISHER
Vice President
11
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THE UNAUDITED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S 10QSB FOR THE
FORTY WEEK PERIOD ENDED APRIL 07, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-02-1997
<PERIOD-END> APR-07-1998
<CASH> 482
<SECURITIES> 510
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 93
<CURRENT-ASSETS> 1,186
<PP&E> 1,393
<DEPRECIATION> 703
<TOTAL-ASSETS> 1,909
<CURRENT-LIABILITIES> 501
<BONDS> 0
0
0
<COMMON> 10,178
<OTHER-SE> (8,898)
<TOTAL-LIABILITY-AND-EQUITY> 1,909
<SALES> 4,556
<TOTAL-REVENUES> 4,556
<CGS> 0
<TOTAL-COSTS> 5,396
<OTHER-EXPENSES> 67
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (773)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
