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 20, 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
MACHEEZMOO MOUSE RESUARANTS, 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 October 20, 1998: 3,985,630
Transitional Small Business Disclosure Format: Yes __ No X
MACHEEZMO MOUSE RESTAURANTS, INC
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements
Balance Sheets - October 20, 1998 and June 30, 1998 2
Statements of Operations - Sixteen Weeks Ended
October 20, 1998 and October 21, 1997. 3
Statements of Cash Flows - Sixteen Weeks Ended
October 20, 1998 and October 21, 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 9
Item 6. Exhibits and Reports on Form 8 - K 10
1
MACHEEZMO MOUSE RESTAURANTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 20 JUNE 30,
1998 1998
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 136 $ 341
Short-term investments in marketable securities 511 511
Inventories of food and paper 153 109
Non-trade receivables 3 27
Trade receivables 143 -
Other current assets 53 40
----------- ---------
Total current assets 999 1,028
Property and equipment, net of accumulated
depreciation and amortization of $818 at
October 20, 1998 and $767 at June 30, 1998 658 680
Other assets 20 21
----------- ---------
$ 1,677 $ 1,729
----------- ---------
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 285 $ 173
Accrued payroll and payroll related expenses 95 127
Accrued expenses and other current liabilities 40 90
- -
----------- ---------
Total current liabilities 420 390
Other deferred liabilities
Deferred rent expense 75 79
Other liabilities 45 45
----------- ---------
Total liabilities 540 514
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 (9,041) (8,963)
----------- ---------
Total shareholders' equity 1,137 1,215
----------- ---------
$ 1,677 $ 1,729
----------- ---------
----------- ---------
The accompanying notes are an integral part of these financial statements.
2
MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIXTEEN WEEKS ENDED
--------------------------
October 20, October 21,
1998 1997
------------- ------------
Revenues:
Restaurant operations $ 1,672 $ 1,913
Retail operations $ 197 $ -
------------- ------------
$ 1,869 $ 1,913
Restaurant operating costs:
Food, beverage and packaging costs 488 679
Restaurant labor 593 683
Other restaurant operating expenses 404 421
Retail operating costs:
Food, beverage and packaging costs 89 -
Other operating expenses 12 -
Depreciation and amortization 51 62
General and administrative expenses 310 422
------------- ------------
Total operating costs and expenses 1,947 2,267
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Operating loss $ (78) $ (354)
Other income (expense)
Interest income - 25
Interest expense - -
Other - -
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Net loss $ (78) $ (329)
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------------- ------------
Basic and diluted loss per common share $ (0.02) $ (0.08)
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Basic and Diluted weighted average
number of Common shares outstanding 3,985 3,985
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The accompanying notes are an integral part of these financial statements.
3
MACHEEZMO MOUSE RESTAURANTS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
OCTOBER 20, OCTOBER 21,
1998 1997
(UNAUDITED)
------------- ------------
Cash flows from operating activities:
Net loss $ (78) $ (329)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 51 62
Net changes in operating assets and liabilities:
Inventories (44) 5
Non-trade receivables 24 70
Trade receivables (143) -
Other current assets (13) (46)
Accounts payable, accrued payroll and expenses,
deferred rent and other liabilities 30 (173)
Accrued restructuring expense - (131)
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Net cash used in operating activities (173) (542)
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Cash flows from investing activities:
Acquisition of property and equipment (29) (19)
Purchase of marketable securities (511)
Proceeds from maturity of marketable securities 509 249
Increase (decrease) in other assets (1) 4
------------- ------------
Net cash (used in) provided by investing activities (32) 234
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Cash flows from financing activities:
Net cash provided by financing activities - -
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Net decrease in cash and cash equivalents (205) (308)
Cash and cash equivalents at beginning of period 341 1,306
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Cash and cash equivalents at end of period $ 136 $ 998.00
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The accompanying notes are an integral part of these financial statements.
4
MACHEEZMO MOUSE RESTAURANTS, INC
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for the Sixteen weeks
ended October 20, 1998 and October 21, 1997 have been prepared in conformity
with generally accepted accounting principles. The financial information as of
June 30. 1998 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 June 30, 1998 (fiscal 1998). 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
1998, 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 20, 1998 and
October 21, 1997 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 1999 (fiscal 1999), 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 October 20, 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
29, 1999 for fiscal 1999. Fiscal 1998 was a 52-week period and fiscal 1999 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
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
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the 16 weeks
ended October 20, 1998 and October 21, 1997. The Statement of Operations table
sets forth the percentage relationship to net sales, unless otherwise indicated,
of certain statement of operations data. The table restaurant data for the
periods indicated.
STATEMENT OF OPERATIONS DATA
SIXTEEN WEEKS ENDED
-----------------------------
October 20, October 21,
1998 1997
------------- -------------
Revenues:
Restaurant operations 89.5% 100.0%
Retail operations 10.5 0
------------- -------------
100.0 100.0
Restaurant operating costs:
Food, beverage and packaging costs 26.1 35.5
Restaurant labor 31.7 35.7
Other restaurant operating, expenses 21.6 22.0
Retail operating costs:
Food, beverage and packaging costs 4.8 -
Other operating expenses 0.7 -
Depreciation and amortization 2.7 3.2
General and administrative expenses 16.6 22.1
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Total operating costs and expenses 104.2 118.5
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Operating loss (4.2) (18.5)
Other income (expense)
Interest income - 1.3
Interest expense - -
Other expense - -
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Net loss (4.2) (17.2)
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RESTAURANT OPERATING DATA
FOR THE SIXTEEN WEEKS ENDED
----------------------------------
OCTOBER 20, OCTOBER 21,
1998 1997
---------------- --------------
Number of restaurants:
Open at the beginning of the period 13 15
Opened during the period - -
Closed during the period - (1)
---------------- -------------
Open at the end of period 13 14
---------------- -------------
7
SIXTEEN WEEKS ENDED OCTOBER 20, 1998 (FIRST QUARTER) COMPARED TO SIXTEEN WEEKS
ENDED OCTOBER 21, 1997 (FIRST QUARTER)
SALES, RESTAURANTS. Restaurant sales decreased in the first quarter of fiscal
1999 in comparison to first quarter of fiscal 1998 . There were 13 restaurants
operating at the end of the first quarter of 1999 compared to 14 restaurants
operating in the same fiscal period of 1998. The Company managed to halt the
precipitous same store sales decline that they had experienced in previous
quarters.
SALES, RETAIL. The retail division was newly formed in the 3rd quarter of fiscal
1998 and therefore no comparable sales are available.
RESTAURANTS OPERATING COSTS
Food, beverage and packaging costs decreased 9.4% in the first quarter of fiscal
1999 in comparison to same quarter in fiscal 1998. The Company is aggressively
managing its cost of sales and the purchasing relationships with our vendors.
This aggressive management has resulted in greatly improved COS numbers.
Restaurant labor expenses consists primarily of restaurant management and hourly
employee wages, payroll taxes, worker's compensation and group insurance. Labor
expenses decreased 4% in the first quarter of fiscal 1999 in comparison to same
quarter 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 improve 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 0.4% in the first quarter of fiscal 1999 compared to first quarter of
fiscal 1998 The decrease is primarily due to efficiencies in operating systems
and management.
RETAIL OPERATING COSTS
Food, beverage and packaging. . The retail division was newly formed in the 3rd
quarter of fiscal 1998 and therefore no comparable costs are available.
Other operating expenses. . The retail division was newly formed in the 3rd
quarter of fiscal 1998 and therefore no comparable costs are available.
The Company incurred expenses of approximately $25,000 in the second quarter of
fiscal 1998 related to the start-up of retail operations (Macheezmo Foods),
which primarily consisted of recipe development, packaging development, and
sales related activities. The Company, as originally planned, launched its
first retail contract in third quarter of fiscal 1998 by selling fresh deli
burrito's through local Costco's. In addition to Costco, the Company expanded
its' retail operations in fourth quarter of fiscal 1998 by entering into
contracts with Albertson's Groceries with frozen burritos and Alaska Airlines
with and bulk breakfast and lunch burritos.
8
OTHER COSTS
Depreciation and amortization expenses decreased 0.5% in the first quarter in
fiscal 1999 compared to first quarter ending in fiscal 1998. 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.
General and administrative expenses decreased 5.5% in the first quarter ending
in fiscal 1999 compared to fiscal 1998. 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 the current period. 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
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.
VOTES FOR VOTES WITHHELD
William S. Warren 3,508,091 77,575
Jack B. Schwartz 3,512,052 73,614
Dara Dejbakhsh 3,512,641 73,025
9
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 Date Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the sixteen weeks ended October
20, 1998.
10
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 08th, 1998
MACHEEZMO MOUSE RESTAURANTS, INC
By: /s/ WILLIAM S. WARREN
President
11