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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                  FORM 10-KSB
 
            /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                    For the fiscal year ended June 30, 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)
 
<TABLE>
<S>                                          <C>
              OREGON                                     93-0929139
  (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                     Identification No.)
</TABLE>
 
                        1020 SW TAYLOR STREET, SUITE 685
                             PORTLAND, OREGON 97205
                    (Address of principal executive offices)
 
                                  503-274-0001
                          (Issuer's telephone number)
 
                            ------------------------
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK
 
    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 / /
 
    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
 
State issuer's revenues for its most recent fiscal year: $6,003,906
 
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 29, 1998: $747,306
 
Number of shares of Common Stock outstanding at September 29, 1998: 3,985,630
 
Documents Incorporated by Reference: The Proxy Statement for the 1998 Annual
Meeting of Shareholders is incorporated into Part III of this Form 10-KSB
 
Transitional Small Business Disclosure Format: Yes / / No /X/
 
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<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
                         1998 FORM 10-KSB ANNUAL REPORT
                               TABLE OF CONTENTS
 
                                     PART I
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                            -----------
<S>         <C>                                                                                             <C>
Item 1.     Description of Business.......................................................................           2
Item 2.     Description of Property.......................................................................           6
Item 3.     Legal Proceedings.............................................................................           6
Item 4.     Submission of Matters to a Vote of Security Holders...........................................           6
 
                                                        PART II
 
Item 5.     Market For Common Equity and Related Stockholder Matters......................................           6
Item 6.     Management's Discussion and Analysis or Plan of Operations....................................           7
Item 7.     Financial Statements..........................................................................          10
Item 8.     Changes in and Disagreements with Accountants on Accounting and Financial
              Disclosure..................................................................................          10
 
                                                       PART III
 
Item 9.     Directors, Executive Officers, Promoters and Control Persons; Compliance with
              Section 16(a) of the Exchange Act...........................................................          10
Item 10.    Executive Compensation........................................................................          10
Item 11.    Security Ownership of Certain Beneficial Owners and Management................................          10
Item 12.    Certain Relationships and Related Transactions................................................          10
Item 13.    Exhibits and Reports on Form 8-K..............................................................          11
</TABLE>
 
                                       1
<PAGE>
ITEM 1.  DESCRIPTION OF BUSINESS
 
GENERAL
 
    Macheezmo Mouse Restaurants, Inc. (the "Company") operates a chain of 13
quick service restaurants which offer fresh, high quality Mexican-style food.
The Company's operating philosophy is to provide customers with an alternative
to typical fast food restaurants by offering quick, made-to-order authentic
Mexican food and other non-Mexican style menu offerings that are "fresh, fit and
fast". Although not marketed as health food, many of the Company's menu items
are intended to meet or exceed the American Heart Association's guidelines for
fat, cholesterol and sodium content. The Company's restaurants offer dine-in and
take-out lunch and dinner service primarily in the Portland, Oregon metropolitan
area. The Company closed one restaurant in Washington and one restaurant in
Oregon in fiscal 1998.
 
    The Company's restaurants feature an extensive selection of specialty and
traditional Mexican-style dishes including burritos, salads, enchiladas,
quesadillas and tacos. These menu items can be ordered with a choice of grilled
chicken, grilled steak, grilled pork, or vegetarian. In fiscal 1998 the Company
introduced new burritos, enchiladas and tacos and brought back some of the past
Macheezmo Mouse favorite dishes. The Company uses fresh ingredients in its menu
items and prepares most food to order. The Company's variety of foods is
designed to appeal to a broad range of customers. The Company believes many
customers first dine at the restaurants because the food is fresh and tastes
good, and return because of the menu items' variety, consistency, taste and high
quality.
 
    The Company also launched its retail business, Macheezmo Foods, in fiscal
1998. Macheezmo Foods is directly focused on the fast growing Home Meal
Replacement (HMR) Market. The Company believes that they can leverage the strong
Macheezmo Mouse name as a competitive edge in these diversified markets. The
Company has an agreement with Costco Wholesale Stores to sell Mexican-style
fresh-deli products in 15 Costco Northwest locations. The Company also has an
agreement with Albertsons Grocery Stores to sell Frozen Burritos in 130
locations in the Northwest.
 
    The Company has entered into an agreement with Alaska Airlines to produce
breakfast and lunch burritos for various Northwest, Alaska and Southern
California based flights. Alaska customers receive a Macheezmo 5 oz. breakfast
burrito on morning flights and a 5.5 oz. Turkey & Bean Macheezmo burrito for
lunch flights.
 
FORWARD LOOKING STATEMENT
 
    All statements, other than statements of historical fact, included in this
Form 10-KSB are, or may be deemed to be "forward-looking statements" as defined
by the Securities Act of 1933 and the Securities Exchange Act of 1934. Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-KSB. Such potential risks
and uncertainties that could adversely affect the Company include, but are not
limited to, business conditions, growth in the restaurant industry, growth in
the retail industry, and the general economy.
 
CONCEPT AND OPERATING STRATEGY
 
    The Company's restaurants feature an authentic Mexican-style menu including
burritos, tacos, enchiladas, "Bowls", salads and appetizers available with
steak, chicken, pork and non-meat. A self-serve complementary salsa bar is
provided which is filled with fresh salsas and Mexican compliments.
 
    The Company has been an innovator in the Mexican food quick-service market
by emphasizing fresh Mexican food, and is now an innovator in the Home Meal
Replacement retail business. The Company believes that its retail business will
be an integral part of its future growth.
 
                                       2
<PAGE>
    The Company has reduced its corporate overhead by 56%. The focus of the
Company is on key strategic initiatives: continued cost management, revenue
enhancement and attracting superior people at the restaurant management level to
implement these goals. The Company is committed to building and leveraging the
Macheezmo name as a high quality, Mexican-style food brand and retailer in the
Northwest market.
 
QUALITY AND SUPPLY
 
    The ability of the Company to maintain a consistent quality of food
throughout its restaurants depends upon purchasing food products and related
items from reliable sources. The Company approves its suppliers and requires
them to adhere to product specifications as to freshness and quality for all
food products sold in its restaurants. The Company has multiple food supply
sources and regularly obtains competitive bids for its food products to help
insure that it is receiving the best value. Management believes that all of the
essential food and beverage products used in the Company's restaurants are
available from alternative qualified suppliers for prices comparable to current
prices.
 
MENU
 
    The Company's menu is designed to offer a wide variety of authentic
Mexican-style dishes to appeal to a broad customer base. Most ingredients are
prepared fresh daily at each location. No animal fats or tropical oils are
added. Because consumers are increasingly looking for fresh-Mex style dining
opportunities, the Company is placing great importance on fresh Mexican taste.
They have refocused their menu items on authentic Mexican cuisine and have
reintroduced some of the Macheezmo Mouse classics which include: "Boss Sauce"
burritos, "Baja Bowls", the Famous #5, and salads.
 
    New product development is emphasized through the use of "specials". The
Company's stores generally are open from lunch through dinner with the exception
of the Portland Airport which is open for breakfast. Most menu items are priced
at $4.25 or less.
 
RESTAURANTS IN OPERATION
 
    The Company operated twelve restaurants in Oregon and one in Washington as
of June 30th, 1998. The following tables provide certain information about those
restaurants. The Company closed two restaurants during fiscal 97/98; Overlake
restaurant, located in Redmond, Washington and the Hawthorne restaurant in
Portland, Oregon.
 
                                       3
<PAGE>
    The Company has developed two alternative distribution outlets (Carts)
located in the Portland Airport. The carts are located in remote airline wings
and offer breakfast, lunch and dinner burritos, assorted juices and sodas, and
cookies.
 
<TABLE>
<CAPTION>
NAME                   LOCATION            DATE OPENED         SQUARE FOOTAGE   FORMAT
---------------------  ------------------  ------------------  ---------------  --------------
<S>                    <C>                 <C>                 <C>              <C>
Hawthorne*             Portland, OR        April 1982                 1,000     Street Front
Salmon                 Portland, OR        August 1983                3,587     Street Front
Holladay               Portland, OR        July 1987                  1,562     Food Court
NW 23rd                Portland, OR        December 1987              1,500     Street Front
Beaverton              Beaverton, OR       July 1988                  1,925     Strip Center
Clackamas              Clackamas, OR       April 1989                 2,520     Strip Center
Pioneer Place          Portland, OR        March 1990                   600     Food Court
Macadam                Portland, OR        December 1993              2,200     Strip Center
Tanasbourne            Hillsboro, OR       October 1994               3,800     Strip Center
Capitol                Salem, OR           December 1994              2,325     Mall
Eugene                 Eugene, OR          February 1995              2,583     Strip Center
Washington Square      Tigard, OR          July 1995                    550     Food Court
Portland Airport       Portland, OR        October 1995                 566     Food Court
Vancouver              Vancouver, WA       August 1994                2,500     Strip Center
Overlake*              Redmond, WA         May 1994                   1,800     Strip Center
</TABLE>
 
------------------------
 
* Closed during fiscal 97/98
 
RESTAURANT OPERATIONS
 
    The Company's focus is to maintain high quality and consistent Mexican style
food in its restaurants. The Company has established strict criteria for
preparing and producing all of its products and streamlined its menu to simplify
operations and enhance service.
 
    The Company is committed to training and developing motivated business
managers that understand how to drive sales and control costs to the bottom
line. Both general managers and assistant managers receive incentive
compensation based on customer service, personnel development and profitability.
The Company is very active in working with all of their suppliers for better
quality products at a lower cost.
 
    The Company's restaurants are generally open seven days a week, from 11:00
a.m. to 10:00 p.m. The hours for food court restaurants are limited by the hours
operation of the facility in which the restaurants are located. The Company's
Portland Airport location is open for breakfast at 6:00 a.m.
 
    The Company believes its primary competition is within the quick-service and
casual dining segments of the restaurant industry. These restaurants offer
strong competition with either national name recognition or local convenient
locations. Some of the key competitive factors in the restaurant industry are
the quality and value of the food products offered, quality service,
cleanliness, name identification, restaurant location, price and attractiveness
of facilities.
 
RETAIL OPERATIONS
 
    As of June 30th, 1998, the Company is selling retail products in Costco
Wholesale and Albertsons Grocery stores in the Northwest market. In Costco, the
Company features fresh-deli products in a variety of traditional Mexican food
items. Entree selections currently range in price from $6.85 for burritos to
$7.95 for quesadillas. In Albertsons Groceries the Company features frozen
burritos in a variety of Mexican styles. Emphasis on all the retail products is
on high-quality products using only top grade ingredients.
 
    The Home Meal Replacement industry is intensely competitive in the
attraction of consumers and in the fight for shelf space. Some of the key
competitive factors that effect the Company in attracting
 
                                       4
<PAGE>
consumers are quality, value, ease of preparation, packaging attractiveness, and
comfort with brand. The Company also competes with other purveyors for shelf
space, shelf placement, promotions, and product demos.
 
    The Company believes that its products are distinguishable from its
competitors by (i) the Macheezmo name recognition, (ii) the high quality
association that consumers identify with the Macheezmo Foods name, (iii) the eye
catching colorful packaging that the Company created which merchandises well on
the shelf.
 
GOVERNMENT REGULATION
 
    The Company's business is subject to and affected by federal, state and
local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety, sanitation,
building construction, the sale of alcoholic beverages and fire prevention.
Difficulties in obtaining or the failure to obtain required licenses or
approvals could delay or prevent development of additional restaurants. The
Company has not experienced significant difficulties in obtaining licenses and
approvals to date.
 
    The Company may be subject in certain states to "dram shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance and has never been named as a
defendant in a lawsuit involving "dram shop" statutes.
 
    The Company's restaurants are subject to federal and state laws governing
wages, working conditions, citizenship requirements and overtime. Several
legislative proposals are under consideration by governmental authorities that
could, if enacted, have a material effect on the Company's business. During
1997, the minimum wage was increased. Although all of the Company's employees
are paid at or above federal and state established minimum wage levels, increase
in minimum wage levels have and may continue to increase the Company's labor
costs. There is no assurance that the Company would be able to pass such
increased costs on to its customers or that, if it were able to do so, it could
do so in a a short period of time.
 
TRADEMARKS
 
    The Company believes its rights in its trademarks and service marks are
important to its marketing efforts and valuable part of its business. The
Company has registered the "MACHEEZMO MOUSE", "MOUSE" and "FRESHFIT FAST" marks
for restaurant services and its logo on Principal Register of the United States
Patent and Trademark Office. The registrations of each mark and the logo will be
renewed prior to their respective expiration dates and may continue to be
renewed in perpetuity. The Company may seek registration of certain other marks
for various food items and restaurant services.
 
EMPLOYEES
 
    As of June 30th, 1998, the Company employed approximately 180 persons, of
whom 75 were restaurant employees, 35 were restaurant management and supervisory
personnel and 10 were corporate personnel. Restaurant employees include both
full-time and part-time employees. None of the Company's employees are covered
by collective bargaining agreements.
 
YEAR 2K DISCLOSURE
 
    The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operations. The Company has not completed
its assessment, but currently believes that costs of addressing this issue will
not have a material adverse impact on the Company's financial position.
 
                                       5
<PAGE>
However, if the Company and third parties upon which it relies are unable to
address this issue on a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in timely manner.
 
ITEM 2.  DESCRIPTION OF PROPERTY
 
    All of the Company's restaurants are located in leased space. The initial
term of most of the Company's leases is five years, with options to renew for at
least one five-year period. Two of the leases have a minimum monthly lease
payment and require an additional yearly payment based on a percentage of
restaurant revenues over a certain level. Generally the leases are net leases
that require the Company to pay its pro rata share of all taxes, insurance and
maintenance costs. A number of the leases provide the Company with early
termination options, wherein if a restaurant does not meet certain sales
requirements, the Company may elect to terminate its lease pursuant to such
options.
 
    The Company's corporate offices are located in an approximately 4,700 square
foot leased facility in Portland, Oregon. The lease expires in September 2000.
In June 1997 the Company sublets approximately 1,000 square feet of this space
through September 2000.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    None
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this Report.
 
                                    PART II
 
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's common stock is quoted on the Nasdaq over the counter under
the symbol "MMRI". The following table sets forth the high and low sale prices
as reported on the Nasdaq over the counter for the periods indicated in the last
two fiscal years.
 
<TABLE>
<CAPTION>
                                                                                  LOW       HIGH
                                                                               ---------  ---------
<S>                                                                            <C>        <C>
FISCAL 1997
First Quarter................................................................  $    2.25       3.25
Second Quarter...............................................................       1.13       2.50
Third Quarter................................................................        .63       1.50
Fourth Quarter...............................................................        .47        .94
 
FISCAL 1998
First Quarter................................................................  $     .43        .94
Second Quarter...............................................................        .31        .63
Third Quarter................................................................        .20        .43
Fourth Quarter...............................................................        .30        .62
</TABLE>
 
    The Company has not paid cash dividends on its common stock and presently
intends to continue this policy in order to retain its earnings for development
of the Company's business. As of September 29, 1998, there were 316 shareholders
of record and approximately 3,300 beneficial shareholders.
 
                                       6
<PAGE>
ITEM 6.  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 June 30, 1998 the Company owned and
operated 13 restaurants. Four restaurants were closed in fiscal 1997 and two
restaurants were closed in fiscal 1998. The closing of restaurants affects the
comparability of results of operations from period to period.
 
    The company prepares statements of operations for 13 periods each year. The
first fiscal quarter, generally 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 and fiscal 1998 were both 52-week periods.
 
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-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.
 
RESULTS OF OPERATIONS
 
    The following is a discussion of the results of operations for fiscal 1998
and fiscal 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.
 
                                       7
<PAGE>
                          STATEMENT OF OPERATIONS DATA
 
<TABLE>
<CAPTION>
                                                                                                       YEAR ENDED
                                                                                                ------------------------
                                                                                                 JUNE 30,     JULY 01,
                                                                                                   1998         1997
                                                                                                -----------  -----------
<S>                                                                                             <C>          <C>
Sales
  Restaurant sales............................................................................          98%         100%
  Retail sales................................................................................           2%
                                                                                                     -----        -----
                                                                                                       100%         100%
Restaurant operating costs:
  Food, beverage and packaging costs..........................................................        32.2         30.8
  Restaurant labor............................................................................        35.4         35.3
  Other restaurant operating, expenses........................................................        20.2         24.3
 
Retail operating costs:
  Food, beverage and packaging costs..........................................................         1.5       --
  Other operating expenses....................................................................         3.1       --
  Depreciation and amortization...............................................................         3.6          4.9
  General and administrative and restructuring expenses.......................................        21.1         38.4
                                                                                                     -----        -----
    Total operating costs and expenses........................................................       115.5        133.7
                                                                                                     -----        -----
Operating loss................................................................................       (15.5)       (33.7)
Other income (expense)
  Interest income.............................................................................         0.8          1.9
  Interest expense............................................................................      --           --
  Other expense...............................................................................         0.7         (1.0)
                                                                                                     -----        -----
Net loss......................................................................................       (14.0)       (32.8)
                                                                                                     -----        -----
                                                                                                     -----        -----
</TABLE>
 
                           RESTAURANT OPERATING DATA
 
<TABLE>
<CAPTION>
                                                                                                   FISCAL YEAR ENDED
                                                                                                ------------------------
                                                                                                 JUNE 30,     JULY 01,
                                                                                                   1998         1997
                                                                                                -----------  -----------
<S>                                                                                             <C>          <C>
Number of restaurants:
  Open at the beginning of the period.........................................................          15           19
  Opened during the period....................................................................      --           --
  Closed during the period....................................................................          (2)          (4)
                                                                                                       ---          ---
  Open at the end of period...................................................................          13           15
                                                                                                       ---          ---
                                                                                                       ---          ---
</TABLE>
 
FISCAL 1998 COMPARED TO FISCAL 1997
 
    SALES, RESTAURANTS.  Net restaurant sales decreased 22% to $5.9 million in
fiscal 1998 from $7.6 million in fiscal 1997. There were 13 restaurants
operating at the end of fiscal 1998 compared to 15 restaurants operating in
fiscal 1997. Same store sales decreased 20.66% in fiscal 1998, compared to
fiscal 1997. In fiscal 1998 the Company closed two restaurants in the state of
Washington and Oregon due to slowing sales.
 
    SALES RETAIL.  The retail division was newly formed in the 3rd quarter of
fiscal 1998 and therefore no comparable sales are available. However, the net
sales for retail were $108,000, 2% of total sales.
 
                                       8
<PAGE>
COSTS AND EXPENSES.
 
RESTAURANT OPERATING COSTS.
 
    Food, beverage and packaging costs decreased 19% to $1.9 million in fiscal
1998 from $2.3 million in fiscal 1997, and increased as a percentage of net
sales to 32% in fiscal 1998 from 31% in fiscal 1997. These costs decreased as a
result of decreased sales due to fewer stores open in fiscal 1998, but increased
as a percentage of sales as a result of higher food cost for the new items added
to Company's menu.
 
    Restaurant labor expenses consist primarily of restaurant management and
hourly employee wages, payroll taxes, worker's compensation and group insurance.
Labor expenses decreased 22% to $2.1 million in fiscal 1998 from $2.7 million in
fiscal 1997. The decreases were due to efficiencies in operations and improved
staff management. 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 35% to $1.2 million in fiscal 1998 from $1.8 million in fiscal 1997,
and decreased as a percentage of net sales to 20.2% in fiscal 1998 from 24.3% in
fiscal 1997. The decrease is primarily due to efficiencies in operating systems
and management. The Company is aggressively managing store level expenses while
at the same time improving the level of customer service to our patrons.
 
RETAIL OPERATING COSTS
 
    Food, beverage and packaging. The retail division was newly formed in the
3rd quarter of the 1998 fiscal year and therefore no comparable costs are
available. However, the food, beverage and packaging costs for retail were
$90,257, 83% of total retail sales. These high percentages of costs are
primarily due to launching the retail division in fiscal 1998.
 
    Other operating expenses. The retail division was newly formed in the 3rd
quarter of the 1998 fiscal year and therefore no comparable costs are available.
However, other operating expenses for retail were $183,335, 169% of total retail
sales. This high percentage of costs is primarily due to one-time set-up
expenses of retail division that was launched in fiscal 1998.
 
    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
Brand Retail products in the third quarter of fiscal 1998. Additionally the
Company began to supply burritos to Oregon school lunch program beginning with
the Beaverton, Oregon school district. The Company expanded 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
 
OTHER COSTS
 
    Depreciation and amortization expenses decreased 42% to $215,932 in fiscal
1998 from $374,000 in fiscal 1997, and decrease as a percentage of net sales to
3.6% in fiscal 1998 from 4.9% in fiscal 1997. In the fourth quarter of fiscal
1997 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 future related depreciation expense.
 
    General and administrative expenses decreased 45% to $1.3 million in fiscal
1998 from $2.3 million in fiscal 1997, a decrease as a percentage of sales to
21.1% in fiscal 1998 from 30.6% in fiscal 1997. The
 
                                       9
<PAGE>
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 a net
operating loss in fiscal 1998. Accordingly, no provision for 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.
 
ITEM 7.  FINANCIAL STATEMENTS
 
    The financial statements required by this item are included on pages F-1 to
F-13 of this report.
 
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None.
 
                                    PART III
 
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
 
    Information with respect to directors, executive officers, promoters and
control persons is included under "Election of Directors" and "Executive
Officers of the Registrant" in the Company's definitive proxy statement for its
1997 annual meeting of shareholders to be filed not later than 120 days after
the end of the fiscal year covered by this Report and IS INCORPORATED HEREIN by
reference.
 
    Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is included under "Section 16 (a) Beneficial Ownership
Reporting Compliance" in the Company's definitive proxy statement for its 1997
annual meeting of shareholders and is incorporated herein by reference.
 
ITEM 10.  EXECUTIVE COMPENSATION
 
    Information with respect to executive compensation is included under
"Executive Compensation" in the Company's definitive proxy statement for its
1997 annual meeting of shareholders to be filed not later than 120 days after
the end of the fiscal year covered by this Report and is incorporated herein by
reference.
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Information with respect to security ownership of certain beneficial owners
and management is included under "Social Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for its 1997 annual
meeting of shareholders to be filed not later than 120 days after the end of the
fiscal year covered by this Report and is incorporated herein by reference.
 
ITEM 12.  CERAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    None
 
                                       10
<PAGE>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
 
    (a) Exhibits
 
<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER   DESCRIPTION
-----------  ----------------------------------------------------------------------------------------------
<C>          <S>
       3.1   Third Restated Articles of Incorporation(3)
 
       3.2   Bylaws(2)
 
         4   See Article II of Exhibit 3.1 and Articles I and IV of Exhibit 3.2
 
      10.1   Amended and Restated 1986 Stock Incentive Plan(2)*
 
      10.2   Forms of Incentive Stock Options Agreement(2)*
 
      10.3   Forms of Nonqualified Stock Option Agreement(2)*
 
      10.4   1996 Stock Incentive Plan(4)*
 
      10.5   Form of Incentive Stock Option Agreement(2)*
 
      10.6   Forms of Nonqualified Stock Option Agreement(2)*
 
      10.7   Employment Agreement between the Company and Scott Fisher(2)*
 
        23   Consent of PricewaterhouseCoopers LLP(1)
 
        27   Financial Data Schedule(1)
</TABLE>
 
------------------------
 
*   Denotes management contract or compensatory plan or arrangement.
 
(1) Filed herewith.
 
(2) Incorporated by reference to Exhibits to Registrant's Registration Statement
    of Form SB-2, as amended, effective September 15, 1994 (Commission
    Registration No. 33-82566).
 
(3) Incorporated by reference to Exhibits to Registrant's Form 10-KSB for the
    fiscal year ended June 27, 1995.
 
(4) Incorporated by reference to Exhibit to the Proxy Statement for the
    Company's 1996 Annual Meeting.
 
    (b) Reports on Form 8-L
 
        No reports on Form 8-K were filed by the Company during the quarter
    ended June 30, 1998.
 
                                       11
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 12th day of
October 1998.
 
<TABLE>
<S>                             <C>  <C>
                                MACHEEZMO MOUSE RESTAURANTS, INC.
 
                                By:            /s/ WILLIAM S. WARREN
                                     -----------------------------------------
                                                 William S. Warren
                                        PRESIDENT, CHIEF EXECUTIVE OFFICER,
                                       CHAIRMAN OF THE BOARD OF DIRECTORS AND
                                                     SECRETARY
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the following capacities on the 12th day of October 1998.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                                   TITLE
------------------------------------------------------  ---------------------------------------------------------
 
<C>                                                     <S>
                                                        President, Chief Executive Officer
                /s/ WILLIAM S. WARREN                   Chairman of the Board of Directors and Secretary
     -------------------------------------------        (Principal Executive Officer)
                  William S. Warren                     (Principal Financial and Accounting Officer)
 
                  /s/ DARA DEJBAKHSH
     -------------------------------------------        Director
                    Dara Dejbakhsh
 
                 /s/ JACK B. SCHWARTZ
     -------------------------------------------        Director
                   Jack B. Schwartz
</TABLE>
 
                                       12
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                              FINANCIAL STATEMENTS
 
                                 JUNE 30, 1998
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
The Board of Directors
Macheezmo Mouse Restaurants, Inc.
 
    We have audited the accompanying balance sheet of Macheezmo Mouse
Restaurants, Inc. as of June 30, 1998, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Macheezmo Mouse Restaurants,
Inc. as of June 30, 1998 and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
 
                                             CACCIAMATTA ACCOUNTANCY CORPORATION
 
Irvine, California
August 21, 1998
 
                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Shareholders of
Macheezmo Mouse Restaurants, Inc.
 
    In our opinion, the accompanying statements of operations, of shareholders'
equity and of cash flows present fairly, in all material respects, the results
of its operations and its cash flows of Macheezmo Mouse Restaurants, Inc. for
the year ended July 1, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Macheezmo Mouse
Restaurants, Inc. for any period subsequent to July 1, 1997.
 
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
 
Portland, Oregon
September 15, 1997
 
                                      F-2
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                                 BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                                                                     JUNE 30, 1998
                                                                                                     -------------
<S>                                                                                                  <C>
                                                      ASSETS
 
CURRENT ASSETS:
  Cash and cash equivalents........................................................................  $     341,363
  Short term investments in marketable securities..................................................        511,107
  Inventories......................................................................................        108,700
  Other............................................................................................         67,034
                                                                                                     -------------
    TOTAL CURRENT ASSETS...........................................................................      1,028,204
 
EQUIPMENT AND LEASEHOLD IMPROVEMENTS...............................................................        680,322
 
OTHER..............................................................................................         20,644
                                                                                                     -------------
                                                                                                     $   1,729,170
                                                                                                     -------------
                                                                                                     -------------
 
                                       LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
  Accounts payable.................................................................................  $     234,845
  Accrued wages and related expenses...............................................................        130,346
  Other accrued expenses...........................................................................         24,836
                                                                                                     -------------
    TOTAL CURRENT LIABILITIES......................................................................        390,027
 
DEFERRED RENT EXPENSE..............................................................................         79,654
 
OTHER..............................................................................................         45,000
                                                                                                     -------------
    TOTAL LIABILITIES..............................................................................        514,681
                                                                                                     -------------
 
COMMITMENTS AND CONTINGENCIES......................................................................       --
 
SHAREHOLDERS' EQUITY:
  Preferred stock--undesignated, 5,000,000 shares authorized, none issued and outstanding..........       --
  Common stock--no par value, 10,000,000 shares authorized, 3,985,630 shares issued and
    outstanding....................................................................................     10,177,756
  Accumulated deficit..............................................................................     (8,963,267)
                                                                                                     -------------
    TOTAL SHAREHOLDERS' EQUITY.....................................................................      1,214,489
                                                                                                     -------------
                                                                                                     $   1,729,170
                                                                                                     -------------
                                                                                                     -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-3
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                                      ----------------------------
                                                                                      JUNE 30, 1998  JULY 1, 1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
REVENUES:
  Restaurant operations.............................................................   $ 5,895,488   $   7,567,000
  Retail operations.................................................................       108,418        --
                                                                                      -------------  -------------
                                                                                         6,003,906       7,567,000
                                                                                      -------------  -------------
 
RESTAURANT OPERATING COSTS:
  Food, beverage and packaging......................................................     1,899,076       2,331,000
  Restaurant labor..................................................................     2,089,230       2,672,000
  Other restaurant operating expenses...............................................     1,193,302       1,836,000
                                                                                      -------------  -------------
                                                                                         5,181,608       6,839,000
                                                                                      -------------  -------------
 
RETAIL OPERATING COSTS:
  Food, beverage and packaging......................................................        90,257        --
  Other operating expenses..........................................................       183,335        --
                                                                                      -------------  -------------
                                                                                           273,592        --
                                                                                      -------------  -------------
 
DEPRECIATION AND AMORTIZATION.......................................................       215,932         374,000
 
GENERAL AND ADMINISTRATIVE..........................................................     1,265,212       2,314,000
 
RESTRUCTURING EXPENSE...............................................................       --              593,000
                                                                                      -------------  -------------
                                                                                         6,936,344      10,120,000
                                                                                      -------------  -------------
 
LOSS FROM OPERATIONS................................................................      (932,438)     (2,553,000)
                                                                                      -------------  -------------
 
OTHER INCOME (EXPENSE):
  Interest..........................................................................        50,588         144,000
  Other.............................................................................        43,290         (72,000)
                                                                                      -------------  -------------
                                                                                            93,878          72,000
                                                                                      -------------  -------------
 
NET LOSS............................................................................   $  (838,560)  $  (2,481,000)
                                                                                      -------------  -------------
                                                                                      -------------  -------------
 
BASIC AND DILUTED NET LOSS PER COMMON SHARE.........................................   $     (0.21)  $       (0.62)
                                                                                      -------------  -------------
                                                                                      -------------  -------------
 
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING..............     3,985,630       3,979,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-4
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                COMMON STOCK
                                                          -------------------------   ACCUMULATED
                                                            SHARES       AMOUNT         DEFICIT         TOTAL
                                                          ----------  -------------  -------------  -------------
<S>                                                       <C>         <C>            <C>            <C>
BALANCE, JULY 2, 1996...................................   3,920,479  $  10,145,180  $  (5,643,707) $   4,501,473
 
STOCK OPTIONS EXERCISED.................................      65,151         32,576       --               32,576
 
NET LOSS................................................      --           --           (2,481,000)    (2,481,000)
                                                          ----------  -------------  -------------  -------------
 
BALANCE, JULY 1, 1997...................................   3,985,630     10,177,756     (8,124,707)     2,053,049
 
NET LOSS................................................      --           --             (838,560)      (838,560)
                                                          ----------  -------------  -------------  -------------
 
BALANCE, JUNE 30, 1998..................................   3,985,630  $  10,177,756  $  (8,963,267) $   1,214,489
                                                          ----------  -------------  -------------  -------------
                                                          ----------  -------------  -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-5
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                                      ----------------------------
                                                                                      JUNE 30, 1998  JULY 1, 1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..........................................................................   $  (838,560)  $  (2,481,000)
  Adjustments to reconcile net loss to net cash used by operating activities:
    Restructuring expense...........................................................       --              614,000
    Depreciation and amortization...................................................       215,932         374,000
    Loss on disposal of equipment...................................................       --               71,000
    Discount amortization on investments............................................       --              (15,000)
    (Increase) decrease in assets:
      Inventories...................................................................       (10,700)         44,000
      Non-trade receivables.........................................................       --              (69,000)
      Other current assets..........................................................        58,966         107,000
    Increase (decrease) in liabilities:
      Accounts payable..............................................................       (93,595)        (12,000)
      Accrued expenses..............................................................       (55,818)         22,000
      Deferred rent.................................................................       (14,352)        (49,000)
      Other liabilities.............................................................        15,000          30,000
      Restructuring reserve.........................................................      (153,997)        (76,000)
                                                                                      -------------  -------------
    Net cash used by operating activities...........................................      (877,124)     (1,440,000)
                                                                                      -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment.............................................       (88,677)       (291,000)
  Purchase of marketable securities.................................................      (513,192)     (1,967,000)
  Sale of marketable securities.....................................................       498,000       3,475,000
  Decrease in other assets..........................................................        16,356           8,000
                                                                                      -------------  -------------
    Net cash (used) provided by investing activities................................       (87,513)      1,225,000
                                                                                      -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of stock options...........................................       --               33,000
                                                                                      -------------  -------------
    Net cash provided by financing activities.......................................       --               33,000
                                                                                      -------------  -------------
Net decrease in cash................................................................      (964,637)       (182,000)
Cash and cash equivalents, beginning of year........................................     1,306,000       1,488,000
                                                                                      -------------  -------------
Cash and cash equivalents, end of year..............................................   $   341,363   $   1,306,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-6
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                                 JUNE 30, 1998
 
NOTE 1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    DESCRIPTION OF BUSINESS
 
    Macheezmo Mouse Restaurants, Inc. (the "Company") operates a quick service
Mexican-style restaurant chain in Oregon and Washington. The Company's fiscal
year ends on the Tuesday nearest June 30th and comprises fifty-two or
fifty-three weeks. Fiscal years 1998 and 1997 were both fifty-two week periods.
During fiscal 1998, the Company began retail operations, offering fresh and
frozen Mexican-style products for retail and wholesale stores in the Northwest.
 
    USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
 
    CASH AND CASH EQUIVALENTS
 
    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.
Balances in bank accounts may, from time to time, exceed federally insured
limits.
 
    SHORT-TERM INVESTMENTS IN MARKETABLE SECURITIES
 
    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 "available for sale" at June 30, 1998.
 
    INVENTORIES
 
    Inventories consist of food, beverages and paper supplies and are stated at
the lower of cost (determined on the first-in-first-out method) or market.
 
    EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Equipment and leasehold improvements are recorded at cost and depreciated
over their estimated useful lives, generally five to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser of
the estimated useful life of the related asset or the respective lease term. All
of the Company's long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount may not be recovered.
If the sum of the expected future cash flows is less than the carrying amount of
the asset, a loss is recognized.
 
    DEFERRED RENT
 
    Rent expense on operating leases with scheduled rent increases is expensed
on the straight-line basis over the lease terms. Deferred rent represents the
difference between rent charged to expense and the rent payable under the lease
agreements.
 
                                      F-7
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
    INCOME TAXES
 
    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." Under
the asset and liability method of SFAS 109, deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted statutory
rates applicable to future years to the difference between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
 
    PRE-OPENING EXPENSES
 
    Costs incurred in connection with the opening of new restaurants are
expensed as incurred.
 
    ADVERTISING COSTS
 
    Advertising costs are deferred and expensed the first time the advertisement
takes place. Advertising expense was $42,339 in 1998 and $487,843 in 1997.
 
    STOCK-BASED COMPENSATION
 
    The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in accordance
with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB
25 requires compensation costs for stock based compensation plans to be
recognized based on the difference, if any, between the fair market value of the
stock on the date of the grant and the option exercise price. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 123, Accounting for Stock-Based Compensation ("SFAS 123").
SFAS 123 established a fair value-based method of accounting for compensation
costs related to stock options and other forms of stock-based compensation
plans. However, SFAS 123 allows an entity to continue to measure compensation
costs using the principles of APB 25 if certain pro forma disclosures are made.
Options granted to non-employees are recognized at their estimated fair value at
the date of grant.
 
    BASIC AND DILUTED NET LOSS PER SHARE
 
    Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings per Share ("SFAS 128"), which superseded
Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share for all
periods presented has been restated to reflect the adoption of SFAS 128. Basic
net loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
 
                                      F-8
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
    RECLASSIFICATIONS
 
    Reclassifications of certain prior period balances have been made to conform
with the current presentation.
 
NOTE 2.  SHORT-TERM INVESTMENTS IN MARKETABLE SECURITIES
 
<TABLE>
<CAPTION>
                                                                                 JUNE 30, 1998
                                                                                 -------------
<S>                                                                              <C>
Fair market value..............................................................   $   511,107
                                                                                 -------------
                                                                                 -------------
Cost:
  Money market account.........................................................   $    13,592
  Mutual funds.................................................................       500,000
                                                                                 -------------
                                                                                  $   513,592
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
NOTE 3.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
<TABLE>
<CAPTION>
                                                                                 JUNE 30, 1998
                                                                                 -------------
<S>                                                                              <C>
Equipment......................................................................   $   693,179
Leasehold improvements.........................................................       753,913
                                                                                 -------------
                                                                                    1,447,092
Less accumulated depreciation and amortization.................................      (766,770)
                                                                                 -------------
                                                                                  $   680,322
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
NOTE 4.  COMMITMENTS
 
    The Company leases restaurant and office facilities under several operating
leases expiring through 2006. Most leases contain renewal options of five years.
As of June 30, 1998, future minimum payments under non-cancelable operating
leases with terms in excess of one year are as follows:
 
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------------------
<S>                                                                               <C>
1999............................................................................  $    588,253
2000............................................................................       476,177
2001............................................................................       415,425
2002............................................................................       394,361
2003............................................................................       361,227
Thereafter......................................................................       416,813
                                                                                  ------------
                                                                                  $  2,652,256
                                                                                  ------------
                                                                                  ------------
</TABLE>
 
    Minimum rent expense under operating leases aggregated $592,000 and $724,000
in fiscal 1998 and 1997, respectively, not including contingent rentals
determined as a percentage of food and beverage sales
 
                                      F-9
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 4.  COMMITMENTS (CONTINUED)
approximating $166,000 and $155,000 for fiscal 1998 and 1997, respectively.
Total rent expense is included in other restaurant operating expenses in the
accompanying statements of operations.
 
NOTE 5.  INCOME TAXES
 
    Net deferred tax assets consist of:
 
<TABLE>
<CAPTION>
                                                                                 JUNE 30, 1998
                                                                                 -------------
<S>                                                                              <C>
Net operating loss carryforward................................................  $   1,512,000
Deferred rent..................................................................         28,000
Alternative minimum tax credit carryforward....................................         71,000
Depreciation...................................................................        691,000
Tax credits....................................................................          9,000
                                                                                 -------------
                                                                                     2,311,000
Deferred tax asset valuation allowance.........................................     (2,311,000)
                                                                                 -------------
Net deferred tax assets........................................................  $    --
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
    A valuation allowance has been recognized for 1998 to offset the related
deferred tax assets due to the uncertainty of realizing any benefit therefrom.
During 1998, no changes occurred in the conclusions regarding the need for a
100% valuation allowance in all tax jurisdictions.
 
    At June 30, 1998, the Company had available net operating loss carryforwards
for federal tax purposes of approximately $4,450,000 which, if unused to offset
future taxable income, will expire in the years through 2013. Additionally, the
Company has available an alternative minimum tax credit carryforward of
approximately $71,000 which is available to reduce future federal income taxes.
 
    A reconciliation between the actual income tax benefit and federal statutory
rate follows:
 
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED
                                                                              ------------------------------
                                                                               JUNE 30, 1998   JULY 1, 1997
                                                                              ---------------  -------------
<S>                                                                           <C>              <C>
Statutory federal tax rate..................................................         (34.0)%         (34.0)%
State taxes.................................................................          (4.4)%          (4.4)%
Net operating losses........................................................          38.8%           34.8%
Other.......................................................................           0.0%            3.6%
                                                                                     -----           -----
                                                                                       0.0%            0.0%
                                                                                     -----           -----
                                                                                     -----           -----
</TABLE>
 
NOTE 6.  RESTRUCTURING EXPENSE
 
    In 1997, after an analysis of the sales potential and operating economics of
each of its restaurants, the Company developed a restructuring plan to help
restore profitability. Under the plan, the company closed four of its
restaurants and recorded a partial write-down of operating restaurant assets to
their estimated fair market value. The Company based its analysis on Statement
of Financial Accounting Standards
 
                                      F-10
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 6.  RESTRUCTURING EXPENSE (CONTINUED)
No. 121, (SFAS 121) "Accounting for the Impairment of Long-Lived Asset and for
Long-Lived Assets to be Disposed Of" which established standards to identify and
measure impairment of long-lived assets.
 
    In fiscal 1997 the Company recorded a $614,000 non-cash charge for the
write-down of restaurant assets to fair market value. Fair market value for the
write-down of assets was estimated based on the appraised value of impaired
long-lived assets and the present value of expected future cash flows.
 
    The following sets forth the components of the Company's restructuring
expenses:
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                                                                     JULY 1,
                                                                                      1997
                                                                                   -----------
<S>                                                                                <C>
Restaurant closures:
  Write down of restaurant assets to estimated fair market value.................   $ 189,000
  Estimated costs associated with restaurant closures and settlement of lease
    obligations..................................................................     114,000
  Recovery of lease obligation costs.............................................    (135,000)
                                                                                   -----------
                                                                                      168,000
Operating restaurants:
  Write-down of assets to estimated fair market value............................     425,000
                                                                                   -----------
                                                                                    $ 593,000
                                                                                   -----------
                                                                                   -----------
</TABLE>
 
    For fiscal 1997 the four closed restaurants had sales of $1,232,000 and
expenses of $1,341,000 for a net operating loss of $109,000.
 
    In fiscal 1998 the Company closed two additional restaurants, when each
restaurant reached the end of its lease. No additional write downs of restaurant
assets to fair value or restructuring expenses were necessary. For fiscal 1998,
these restaurants had sales of $83,000 and expenses of $126,000 for a net
operating loss of $43,000.
 
NOTE 7.  STOCK OPTIONS
 
    In September 1996, the shareholders of the Company approved the 1996 Stock
Incentive Plan (the 1996 Plan) which provides for the award of incentive stock
options to key employees and the award of non-qualified stock options, stock
appreciation rights (SAR's), cash bonus rights, performance units and other
incentive grants to employees, independent contractors and consultants. A total
of 250,000 were reserved for issuance under the 1996 Plan. The exercise price
and term for non-statutory stock options may be established by the Board of
Directors at the date of grant but in no case will the exercise price be less
than 85% of the fair market value. To date, all options have been granted at the
fair market value of the underlying stock at the date of grant. Options
generally vest over a five year period. The 1996 Plan provides for automatic
option grants to non-employee directors of the company of 25,000 shares of the
Company's common stock at the time first elected to the board.
 
    The 1996 Plan will continue in effect until all shares available for
issuance under the 1996 Plan have been issued and all restrictions on such
shares have lapsed. The board of Directors of the Company may suspend or
terminated the 1996 Plan at any time except with respect to options, stock
appreciation rights, performance units and shares subject to restrictions then
outstanding under the 1996 Plan. As of June 30,
 
                                      F-11
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 7.  STOCK OPTIONS (CONTINUED)
1998, no SAR's, stock bonus awards, cash bonus rights, performance units or
restricted stock awards had been granted by the Company under the 1996 Plan.
 
    A summary of stock option activity under the Company's stock incentive plan
follows:
 
<TABLE>
<CAPTION>
                                                   WEIGHTED
                                     NUMBER OF   AVERAGE PRICE
                                      SHARES       PER SHARE
                                     ---------  ---------------
<S>                                  <C>        <C>
Balance at July 2, 1996............    202,353       $1.85
  Granted..........................    295,000        1.32
  Exercised........................    (65,151)       0.51
  Canceled.........................   (236,970)       2.40
                                     ---------       -----
Balance at July 1, 1997............    195,232        0.88
  Granted..........................     57,000        0.50
  Exercised........................     --          --
  Canceled.........................    (25,400)       1.39
                                     ---------       -----
Balance at June 30, 1998...........    226,832       $0.75
                                     ---------       -----
                                     ---------       -----
Options exercisable at June 30,
  1998.............................    188,091       $0.73
                                     ---------       -----
                                     ---------       -----
</TABLE>
 
    The following table summarizes information about stock options outstanding
at June 30, 1998:
 
<TABLE>
<CAPTION>
                        OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
               -------------------------------------   ----------------------
                               WEIGHTED
                               AVERAGE      WEIGHTED                 WEIGHTED
                              REMAINING     AVERAGE                  AVERAGE
   EXERCISE      NUMBER      CONTRACTUAL    EXERCISE     NUMBER      EXERCISE
     PRICE     OUTSTANDING   LIFE (YEARS)    PRICE     EXERCISABLE    PRICE
  -----------  -----------   ------------   --------   -----------   --------
  <S>          <C>           <C>            <C>        <C>           <C>
  $.50 - $.75    192,000          1.3        $0.51       153,916      $0.60
     1.25         25,000          1.7         1.25        25,000       1.25
     2.00          6,832          0.5         2.00         6,832       2.00
     3.50          3,000          2.3         3.50         2,343       3.50
               -----------        ---       --------   -----------   --------
                 226,832          1.5        $0.75       188,091      $0.73
               -----------        ---       --------   -----------   --------
               -----------        ---       --------   -----------   --------
</TABLE>
 
    SFAS 123 encourages, but does not require, companies to record compensation
cost for stock-based compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock; however, the Company has computed, for pro forma
purposes, the value of all stock options granted during fiscal
 
                                      F-12
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 7.  STOCK OPTIONS (CONTINUED)
years 1998 and 1997 using the Black-Scholes option pricing model as prescribed
by SFAS 123 using the following weighted average assumptions:
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                                 -----------------------------
<S>                                                              <C>            <C>
                                                                 JUNE 30, 1998   JULY 1, 1997
                                                                 -------------  --------------
Risk-free interest rate........................................      6.00%        5.9 - 6.7%
Expected dividend yield........................................       0%              0%
Expected lives.................................................     3 years        3 years
Expected volatility............................................       70%        71.0 - 79.6%
</TABLE>
 
    Using the Black-Scholes methodology, the total value of stock options
granted during fiscal years 1998 and 1997 were determined to have an immaterial
effect on the results of operations for fiscal 1998 and 1997.
 
NOTE 8.  BASIC AND DILUTED NET LOSS PER SHARE
 
    The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
 
<TABLE>
<CAPTION>
                                                                       1998          1997
                                                                   ------------  -------------
<S>                                                                <C>           <C>
BASIC AND DILUTED EARNINGS PER SHARE:
  NUMERATOR
      Net loss...................................................  $   (838,560) $  (2,481,000)
                                                                   ------------  -------------
                                                                   ------------  -------------
  DENOMINATOR
    Basic weighted average number of common shares outstanding
      during the period..........................................     3,985,630      3,979,000
                                                                   ------------  -------------
Basic net loss per share.........................................  $      (0.21) $       (0.62)
                                                                   ------------  -------------
                                                                   ------------  -------------
Incremental common shares (not included in denominator of diluted
  earnings per share calculation due to their antidilutive
  nature) attributable to exercise of:
    Outstanding options..........................................       188,091        195,232
                                                                   ------------  -------------
                                                                   ------------  -------------
</TABLE>
 
NOTE 9.  RECENT PRONOUNCEMENTS
 
    In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income",
which established standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). SFAS 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 requires an enterprise to (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for fiscal
 
                                      F-13
<PAGE>
                       MACHEEZMO MOUSE RESTAURANTS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                                 JUNE 30, 1998
 
NOTE 9.  RECENT PRONOUNCEMENTS (CONTINUED)
years beginning after December 15, 1997. Management has determined that the
adoption of SFAS 130 will not have a material impact on the Company's financial
position or results of operations.
 
    In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which established standards for public
business enterprises to report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 requires,
among other items, that a public business enterprise report a measure of segment
profit or loss, certain specific revenue and expense items, segment assets,
information about the revenues derived from the enterprise's products or
services and major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is required to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management has determined that the adoption of SFAS 131 will not
have a material impact on the Company's financial reporting.
 
                                      F-14