<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 13, 1998

                                          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 February 23, 1998: 3,985,630.

Transitional Small Business Disclosure Format: Yes     No  X  
                                                  ----   -----

<PAGE>

                          MACHEEZMO MOUSE RESTAURANTS, INC.
                                     FORM 10-QSB
                                        INDEX
<TABLE>
<CAPTION>
                            PART I - FINANCIAL INFORMATION

                                                                               PAGE
                                                                               ----

<S>       <C>                                                                  <C>
Item 1.   Financial Statements

          Balance Sheets - January 13, 1998 and July 1, 1997                      2

          Statements of Operations - Twelve Weeks and Twenty-Eight Weeks Ended 
          January 13, 1998 and January 14, 1997                                   3

          Statements of Cash Flows - Twenty-Eight Weeks Ended January 13, 1998
          and January 14, 1997                                                    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                     11

Item 6.   Exhibits and Reports on Form 8-K                                        12


</TABLE>
 

                                          1

<PAGE>


                          MACHEEZMO MOUSE RESTAURANTS, INC.
                                    BALANCE SHEETS
                                    (IN THOUSANDS)

<TABLE>
<CAPTION>
 

                                                          JANUARY 13, 1998        JULY 1, 1997
                                                          ----------------        -------------
                        ASSETS
<S>                                                       <C>                     <C>
Current assets     
  Cash and cash equivalents                                       $513              $1,306
   Short-term investments in marketable securities                 501                 498
   Inventories of food and paper                                    91                  98
   Non-trade receivables                                             8                  95
   Other current assets                                             76                  31
                                                               -------             -------
          Total current assets                                   1,189               2,028

Property and equipment, net of accumulated 
  depreciation and amortization of $664 at
  January 13, 1998 and $582 at July 1, 1997                        744                 926
Other assets                                                        33                  37
                                                               -------             -------
                                                                $1,966              $2,991
                                                               -------             -------
                                                               -------             -------
     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable                                               $148                $328
   Accrued payroll and payroll related expenses                     60                 144
   Accrued expenses and other current liabilities                  137                  67
   Restructuring reserve                                            10                 261
                                                               -------             -------
       Total current liabilities                                   355                 800

Other deferred liabilities
   Deferred rent expense                                            86                 108
   Other liabilities                                                44                  30
                                                               -------             -------
       Total liabilities                                           485                 938

Shareholders' equity
   Preferred stock, undesignated, 5,000 shares
      authorized, none issued                                        -                   -
   Common stock, 10,000 shares
       authorized, 3,986 shares issued and outstanding          10,178              10,178
   Accumulated deficit                                          (8,697)             (8,125)
                                                               -------             -------
       Total shareholders' equity                                1,481               2,053
                                                               -------             -------
                                                                $1,966              $2,991
                                                               -------             -------
                                                               -------             -------
</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>
 

                                                  TWELVE WEEKS ENDED         TWENTY-EIGHT WEEKS ENDED
                                               -------------------------    --------------------------
                                               JANUARY 13,    JANUARY 14,    JANUARY 13,   JANUARY 14, 
                                                  1998           1997           1998          1997
                                               ----------     ----------    -----------   -----------
<S>                                            <C>            <C>           <C>           <C>
 Sales, net                                     $ 1,324        $ 1,677        $ 3,237        $ 4,274
                                               --------       --------       --------       --------

 Costs and expenses
    Food, beverage and packaging costs              442            527          1,121          1,286
    Restaurant labor                                489            610          1,172          1,486
    Other restaurant operating expenses             313            440            734          1,017
    Depreciation and amortization                    46             83            108            187
    Retail division expenses                         25              -             25              -
    General and administrative expenses             264            606            686          1,191
                                               --------       --------       --------       --------
        Total operating costs and expenses        1,579          2,266          3,846          5,167
                                               --------       --------       --------       --------

 Operating loss                                    (255)          (589)          (609)          (893)

 Other income (expense)
    Interest income                                  12             34             37             94
    Interest expense                                  -              -              -             (1)
    Other expense                                     -            (11)             -            (11)
                                               --------       --------       --------       --------

 Net loss                                        $ (243)       $  (566)       $  (572)       $  (811)
                                               --------       --------       --------       --------
                                               --------       --------       --------       --------

 Basic and diluted loss per share                $(0.06)       $ (0.14)       $ (0.14)        $(0.20)
                                               --------       --------       --------       --------
                                               --------       --------       --------       --------

 Shares used in per share calculations
    Basic                                         3,986          3,986          3,986          3,974
                                               --------       --------       --------       --------
                                               --------       --------       --------       --------
    Diluted                                       3,986          3,986          3,986          3,974
                                               --------       --------       --------       --------
                                               --------       --------       --------       --------
</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>
 


                                                                   TWENTY-EIGHT WEEKS ENDED
                                                           --------------------------------------
                                                            JANUARY 13, 1998    JANUARY 14, 1997
                                                           ------------------   -----------------
<S>                                                        <C>                  <C>
Cash flows from operating activities:
   Net loss                                                     $ (572)           $   (811)
   Adjustments to reconcile net loss to 
     net cash used in operating activities:
         Depreciation and amortization                             108                 187
         Discount amortization on investments                        -                 (11)
         Loss on disposal of equipment                               -                  11
         Net changes in operating assets and liabilities:
            Inventories                                              7                  12
            Non-trade receivables                                   87                  (4)
            Other current assets                                   (45)               (109)
            Accounts payable, accrued payroll and expenses,
              deferred rent and other liabilities                 (202)                242
            Restructuring reserve                                 (137)               (155)
                                                             ---------           ---------
         Net cash used in operating activities                    (754)               (638)

Cash flows from investing activities
   Acquisition of property and equipment                           (40)               (164)
   Purchase of marketable securities                              (501)             (1,225)
   Proceeds from maturity of marketable securities                 498               1,495
   Increase (decrease) in other assets                               4                 (10)
                                                             ---------           ---------
         Net cash (used in) provided by investing activities       (39)                 96

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                         (793)               (509)

Cash and cash equivalents at beginning of period                 1,306               1,488
                                                             ---------           ---------

Cash and cash equivalents at end of period                      $  513               $ 979
                                                             ---------           ---------
                                                             ---------           ---------
</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 13, 1998 and January 14, 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 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 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
twenty-eight week periods ended January 13, 1998 and January 14, 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.

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. EARNINGS (LOSS) PER SHARE

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. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. This Statement requires restatement of all
prior-period EPS data presented.

                                          5
<PAGE>

The adoption on SFAS 128 had no effect on previously reported loss per share
amounts for the twelve weeks ended January 14, 1997 or the twenty-eight weeks
ended January 13, 1998 or January 14, 1997. In those periods, primary loss per
share was the same as basic loss per share and fully diluted loss per share was
the same as diluted loss per share. Losses were reported in all periods
presented, and accordingly the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding options to purchase
shares of the Company's common stock, because to do so would have been
anti-dilutive. Stock options for the purchase of 226,832 and 249,527 shares
outstanding at January 13, 1998 and January 14, 1997, respectively, were not
included in loss per share calculations, because to do so would have been
anti-dilutive.

4. RECENT ACCOUNTING PRONOUNCEMENTS

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 this pronouncement
will have a material impact on its financial statements.


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 13, 1998 the Company owned and
operated 14 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 closest 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 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.

OPERATING LOSSES 

The restaurant industry is highly competitive. The Company's competitors include
a large and diverse group of restaurant chains and individual restaurants. The
number of restaurants with operations generally similar to the Company's has
grown considerably in the last several years, and the Company believes
competition from these restaurants is increasing.  A number of competitors has
been in existence longer than the Company and have substantially greater
financial, marketing and other resources and wider geographical 



                                          6
<PAGE>

diversity than does the Company. In addition, the restaurant industry has few
nonecomonic barriers to entry and is affected by changes in consumer tastes and
market trends. The Company has incurred operating losses in fiscal 1996 and 1997
and to date in fiscal 1998, resulting in an accumulated deficit of $8.7 million
at January 13, 1998. During the same period of time, the Company closed nine
restaurants due to poor operating results. Operating losses are expected to
continue for the foreseeable future and until such time, if ever, as the Company
is able to attain sales levels  sufficient to support its operations. The
Company has also struggled in its transition from operating 23 restaurants with
relatively high per store average sales to 14 restaurants with reduced average
sales. The Company has reduced its operating losses to date in fiscal 1998 and
is continuing to work to reduce costs and maximize efficiencies. 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, which
expired on November 30, 1997. The line of credit has not been renewed or
replaced. By the end of fiscal 1998, the Company may require additional funds,
including new borrowing arrangements, to finance its operations. There is no
assurance that additional financing will be available on commercially reasonable
terms or at all.

FORWARD-LOOKING INFORMATION

The statements concerning expected future financing requirements, cost reduction
and retail activities and the Year 2000 issue constitute forward-looking
statements that are subject to risks and uncertainties. Factors that could
materially affect future financing requirements include, but are not limited to,
the ability to obtain additional 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),
unavailability of labor, food ingredients and beverages at reasonable prices,
unfavorable seasonal differences in sales volume, changes in menu 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 costs
associated with any required modifications to the Company's computer systems and
associated software.

                                          7
<PAGE>

RESULTS OF OPERATIONS

The following is a discussion of the results of operations for the 12 and 28
week periods ended January 13, 1998 and January 14, 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.

<TABLE>
<CAPTION>
 


STATEMENT OF OPERATIONS DATA                                     FOR THE 12 WEEKS ENDED        FOR THE 28 WEEKS ENDED
                                                              ---------------------------    --------------------------
                                                               JANUARY 13,    JANUARY 14,    JANUARY 13,    JANUARY 14, 
                                                                  1998           1997           1998          1997
                                                              ------------    -----------    ----------     -----------
<S>                                                           <C>             <C>           <C>            <C>
Sales, net                                                       100.0%         100.0%         100.0%         100.0%

Costs and expenses
  Food, beverage and packaging                                    33.4           31.4           34.6           30.1
  Restaurant labor                                                36.9           36.4           36.2           34.8
  Other restaurant operating expenses                             23.6           26.2           22.7           23.8
  Depreciation and amortization                                    3.5            5.0            3.3            4.4
  Retail division expense                                          1.9              -            0.8              -
  General and administrative expenses                             20.0           36.1           21.2           27.8
                                                              --------        -------       --------       --------
Total operating costs and expenses                               119.3          135.1          118.8          120.9
                                                              --------        -------       --------       --------

Operating loss                                                   (19.3)         (35.1)         (18.8)         (20.9)

Other income (expense)
  Interest income                                                  0.9            2.0            1.1            2.2
  Interest expense                                                   -              -              -              -
  Other expense                                                      -           (0.7)             -           (0.3)
                                                              --------        -------       --------       --------

Net loss                                                         (18.4)%        (33.8)%        (17.7)%        (19.0)%
                                                              --------        -------       --------       --------
                                                              --------        -------       --------       --------


</TABLE>
 


<TABLE>
<CAPTION>

RESTAURANT OPERATING DATA                     FOR THE TWENTY-EIGHT WEEKS ENDED
                                              -------------------------------
                                                  JANUARY 13,   JANUARY 14,
                                                     1998           1997
                                              ---------------   -------------
<S>                                           <C>               <C>
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
                                                -------        -------
                                                -------        -------


</TABLE>

                                          8
<PAGE>

TWELVE WEEKS (SECOND QUARTER) AND TWENTY-EIGHT WEEKS (FIRST HALF) ENDED JANUARY
13, 1998 COMPARED TO TWELVE WEEKS (SECOND QUARTER) AND TWENTY-EIGHT WEEKS (FIRST
HALF) ENDED JANUARY 14, 1997

SALES, NET. Restaurant sales decreased in the second quarter of fiscal 1998 to
$1.3 million from $1.7 million in the second quarter of fiscal 1997, and
decreased in the first half of fiscal 1998 to $3.2 million from $4.3     
million in the first half of fiscal 1997. There were 14 restaurants operating at
the end of the first half of fiscal 1998 compared to 19 restaurants operating at
the end of the first half of fiscal 1997. Same store restaurant sales decreased
7.0% in the second quarter of fiscal 1998 compared to the second quarter of
fiscal 1997 and decreased 8.8% in the first half of fiscal 1998 compared to the
first half of fiscal 1997, due to decreased customer counts in fiscal 1998. Same
store sales comparisons of the Company's restaurants located in food courts and
malls are more favorable than same store sales comparisons of restaurants
located in strip centers and street front locations.

COSTS AND EXPENSES.  

Food, beverage and packaging costs decreased to $442,000 in the second quarter
of fiscal 1998 from $527,000 in the second quarter of fiscal 1997, and increased
as a percentage of net sales to 33.4% from 31.4% in the same periods. Food,
beverage and packaging costs decreased to $1.1 million in the first half of
fiscal 1998 from $1.3 million in the first half of fiscal 1997, and increased as
a percentage of net sales to 34.6% from 30.1% 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.

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 $489,000 in the second quarter of fiscal
1998 from $610,000 in the second quarter of fiscal 1997, and increased as a
percentage of net sales to 36.9% from 36.4 % in the same periods. Restaurant
labor expense decreased to $1.2 million in the first half of fiscal 1998 from
$1.5 million in the first half of fiscal 1997, and increased as a percentage of
net sales to 36.2% from 34.8% in the same periods. The decreases were due to a
smaller number of operating restaurants in the fiscal 1998 periods than in the
fiscal 1997 periods. The increases, as a percentage of net sales, were primarily
attributable to an increase in labor costs. 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
decreased to $313,000 in the second quarter of fiscal 1998 from $440,000 in the
second 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 23.6% from 26.2% in the same periods.
Other restaurant operating expenses decreased to $734,000 in the first half of
fiscal 1998 from $1.0 million in the first half of fiscal 1997 primarily due to
the closure of five restaurants since the first quarter of fiscal 1997, and
efficiencies in operating systems and management. Other restaurant operating
expenses decreased as a percentage of net sales to 22.7% from 23.8% in the same
periods.

Depreciation and amortization expense decreased to $46,000 in the second quarter
of fiscal 1998 from $83,000  in the second quarter of fiscal 1997, and decreased
as a percentage of net sales to 3.5% from 5.0% in same periods. Depreciation and
amortization expense decreased to $108,000 in the first half of fiscal 1998 from
$187,000 in the first half of fiscal 1997, and decreased as a percentage of net
sales to 3.3% from 4.4% in same periods. 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),
thereby decreasing the amount of related depreciation expense.

                                          9
<PAGE>

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. In December 1997,
the Company commenced retail operations under which it plans to supply the
Company's products to wholesale and retail grocery vendors under the "Macheezmo
Foods" name. The Company anticipates that these products, including burritos,
enchiladas and quesadillas, will begin to be sold in the third quarter of fiscal
1998. Additionally, the Company plans to begin to supply burritos to Oregon and
Washington school lunch programs, beginning with the Beaverton, Oregon school
district in the third 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. 

General and administrative expenses decreased 56% to $264,000 in the second
quarter of fiscal 1998 from $606,000 in the second quarter of fiscal 1997, and 
decreased as a percentage of net sales to 20.0% from 36.1% in the same periods.
General and administrative expenses decreased to $686,000 in the first half of
fiscal 1998 from $1.2 million in the first half of fiscal 1997, and  decreased
as a percentage of net sales to     21.2% from 27.8% in the same periods. The
decreases were primarily attributable to the reduction in the number of general
and administrative employees, reductions in corporate spending and increased
corporate operating efficiencies. 
     
INCOME TAXES. The Company is in a net deferred tax asset position and has
generated net operating losses in fiscal 1998. 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 January 13, 1998 was $834,000, including $513,000 of cash and
cash equivalents and $501,000 of short-term investments in marketable
securities.

Cash used in operating activities in the first half of fiscal 1998 was $754,000,
primarily resulting from a net loss of $572,000, and decreases of $202,000 in
short term liabilities due to timing of expenses and payments, and $137,000 in
the restructuring reserve.

Cash used in investing activities in the first half of fiscal 1998 was $39,000,
primarily resulting from the acquisition of property and equipment.

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 revolving line of credit expired on
November 30, 1997. The line of credit has not been renewed or replaced.

In connection with a lease agreement for one of the Company's  food court
restaurants, a minimum annual guarantee payment, adjusted annually, is required.
This obligation, approximately $40,000, is guaranteed by a Concessionaire Bond
that expires October 31, 1998 and which may be renewed for two additional one
year periods at the option of the Bond's surety. 

The balance in the restructuring reserve of $10,000 at January 13, 1998
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 half 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 $137,000 net decrease to the restructuring reserve
consisting of 

                                          10
<PAGE>

estimated costs associated with restaurant closures net of the settlement of
lease obligations for restaurants closed in fiscal 1997.    

Although the Company has not analyzed the impact of the Year 2000 issue on its
information systems and software, the Company believes its  main information
system accommodates the Year 2000 date without any significant changes.
Accordingly, the Company expects the Year 2000 issue will not have a material
financial impact on the Company. The Company intends to evaluate its information
systems and software in connection with the Year 2000 issue, but anticipates any
potential modification to its systems and software will not affect the Company's
future financial results.

The Company's future capital requirements are expected to consist primarily of
operational expenses. At January 13, 1998, the Company had no material
commitments for capital expenditures. The Company has from time to time
evaluated opportunities for acquisitions and expansion and intends to continue
to consider strategic alternatives for future growth. By the end of fiscal 1998,
the Company may require additional funds, including new borrowing arrangements,
to finance its operations. 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, which expired on November 30, 1997, and
has not been renewed or replaced. There is no assurance that additional
financing will be available on commercially reasonable terms or at all.


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 the Nasdaq listing requirements, or in what are
commonly referred to as the "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 the Company's Board of Directors, by the votes indicated
     below, to serve for the 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>
                                          11
<PAGE>

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 weeks ended
January 13, 1998.

                                          12
<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: February 24, 1998


                              MACHEEZMO MOUSE RESTAURANTS, INC.

                              By: /s/ WILLIAM S. WARREN          
                                  ----------------------------------------
                              William S. Warren
                              President, Chief Executive Officer
                              Chairman of the Board of Directors and Secretary
                              (Principal Executive Officer)
                              (Principal Accounting and Financial Officer)

                                          13