Mouse Money -- Restaurant Hopes Stock Offering Will Serve Up Its Future

Walt Disney Productions brought fame to a diminutive mouse and made fortunes in the process. Microsoft made another type of mouse - and more fortunes. Can a small Portland restaurant company do the same?

Sometime in the next few weeks, investors will get to place their bets, as Macheezmo Mouse Restaurants Inc., which operates a chain of 13 Mexican fast-food restaurants in the Seattle and Portland areas, makes an initial public stock offering.

The company hopes to sell 1 million shares for $5.50 to $6 apiece, although the first price could vary depending on supply and demand.

Northwest investors have seen mixed results in the past from restaurant ventures, including Sea Galley (still in business but barely hanging on), Flakey Jake's (a Sea Galley spinoff that started with great fanfare but wound up in bankruptcy court) and Skipper's Inc. (which after several management changes was bought by a national restaurant company).

Founders of Macheezmo Mouse think their concept will be a winner, combining fast service, Mexican foods and a strong emphasis on fresh and healthy menus.

A prospectus for the initial stock offering paints a picture of a small company with limited geographic coverage, a failed venture in Northern California - and big ambitions for the future.

Macheezmo Mouse was created in 1981 by William "Tiger" Warren, a former Hollywood filmmaker who poured $5,000 into a former barbershop in Portland and turned it into a Mexican restaurant featuring what he once described as a "new breed of fast food for people who like to feel fit."

The company opened its first Seattle restaurant on Capitol Hill in 1988 and followed with an outlet in the Seafirst Columbia Center in 1992. Last year it converted a former International House of Pancakes near Seattle Center into a Macheezmo Mouse location. This year the company has opened restaurants in Lynnwood, Redmond and Wallingford.

The company has leased 2,000 square feet for an Issaquah outlet planned for next year. It plans to open six other restaurants in Washington and Oregon by the end of next June, including one in Vancouver.

Although all Macheezmo Mouse outlets are now in the Portland and Seattle areas, the prospectus says that in 1990 the company "sustained an aggregate loss of $2.2 million in connection with the closing of three unprofitable Macheezmo Mouse restaurants" in the San Francisco Bay area.

The prospectus attributes the failure to "poor location and high overhead costs" and "in part because the Macheezmo Mouse concept had not yet been refined to its present formulation."

Sales in the company's last fiscal year, ended June 28, were $6.8 million, up from $5 million the previous year. Macheezmo Mouse had operating profits of $789,000 in its most recent fiscal year, compared with an operating loss of $27 million the previous year.

However, the prospectus reports a net loss of 32 cents a share for fiscal 1994 because of required accounting entries related to mandatorily redeemable common stock.

The nine Macheezmo Mouse restaurants that were open during all of the most recent fiscal year had average sales of $603,000, and average operating profits were more than 25 percent of sales. The prospectus says that is "significantly greater than the average restaurant operating income for quick service restaurants."

To build the average Macheezmo Mouse that opened last year, the company invested $305,000 in buildings, equipment and pre-opening "soft" costs such as food and training.

The figures suggest the average new restaurant will repay the company's investment in operating profits in slightly more than two years.

Much of the proceeds from the initial stock offering will pay for continuing expansion, which the prospectus indicates will initially remain in Washington and Oregon.

Later, the company hopes to focus on "opening restaurants outside the Pacific Northwest, primarily by clustering" them in and around medium and large cities, although no specific locations are suggested.

Most initial public offering prospectuses contain plenty of negative information and suggestions of why a company could fail, and Macheezmo Mouse's is no exception.

Since its inception in 1981, the document says that Macheezmo Mouse operations "have resulted in negative retained earnings," and working capital is listed as a negative $640,000.

Because the company has never opened more than four restaurants a year, its ambitious plans for the current year could cause it to stumble. In addition, the small size of the company makes it particularly susceptible to a decline in sales or profits at any single outlet.

And although the company remains confident in its emphasis on inexpensive, healthy Mexican foods (the average customer check last fiscal year was $5.65, about the price of one share of Macheezmo Mouse stock), "The number of `healthy food' 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," the prospectus says.