Real Mex Restaurants 10-Q 2011 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2011

Or

o 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 333-116310

REAL MEX RESTAURANTS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	13-4012902
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

5660 Katella Avenue, Suite 100
Cypress, CA 90630
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(562)-346-1200

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large Accelerated Filero Accelerated Filero Non-Accelerated Filerþ Smaller Reporting Companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ No

As of April 24, 2011, the registrant had outstanding 1,000 shares of Common Stock, par value $0.001 per share.

Real Mex Restaurants, Inc.

Index

PART I FINANCIAL INFORMATION	4
Item 1. Financial Statements (Unaudited)	4
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
Item 4. Controls and Procedures	21
PART II OTHER INFORMATION	22
Item 1. Legal Proceedings	22
Item 1A. Risk Factors	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3. Defaults Upon Senior Securities	22
Item 4. (Removed and Reserved)	22
Item 5. Other Information	22
Item 6. Exhibits	23
SIGNATURE	24
Exhibit 31.1
Exhibit 32.1

2

FORWARD-LOOKING STATEMENTS

This report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,” “should,” “may,” or “could” or words or phrases of similar meaning. They may relate to, among other things: our liquidity and capital resources; legal proceedings and regulatory matters involving our Company; food-borne illness incidents; increases in the cost of ingredients; our dependence upon frequent deliveries of food and other supplies; our vulnerability to changes in consumer preferences and economic conditions; our ability to compete successfully with other casual dining restaurants; our ability to expand; and anticipated growth in the restaurant industry and our markets.

These forward looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause actual results to differ materially from trends, plans or expectations set forth in the forward looking statements. These risks and uncertainties may include these factors and the risks and uncertainties described elsewhere in this report and other filings with the Securities and Exchange Commission, including the Item 1A. “Risk Factors” section of our annual report on Form 10-K for the year ended December 26, 2010. Given these risks and uncertainties, we urge you to read this report completely and with the understanding that actual future results may be materially different from what we plan or expect. All of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and we cannot assure you that the actual results or developments anticipated by our Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our Company or our business or operations. In addition, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward looking statements to reflect events or circumstances occurring after the date of this report.

Unless otherwise provided in this report, references to “we”, “us”, “our” and “Company” refer to Real Mex Restaurants, Inc. and its consolidated subsidiaries.

3

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

Real Mex Restaurants, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands, except for share data)

	March 27,			December 26,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	1,732		$	3,359
Trade receivables, net		9,515			8,295
Other receivables		707			621
Inventories, net		13,181			11,618
Prepaid expenses		2,080			2,877
Current portion of favorable lease asset, net		3,355			3,357
Other current assets		225			248
Total current assets		30,795			30,375
Property and equipment, net		69,082			72,730
Goodwill		113,721			113,721
Trademarks and other intangible assets		42,100			42,100
Deferred charges		4,091			4,710
Favorable lease asset, less current portion, net		10,817			11,655
Other assets		6,036			6,154
Total assets	$	276,642		$	281,445
Liabilities and stockholder’s equity
Current liabilities:
Accounts payable	$	23,583		$	18,745
Accrued self-insurance reserves		10,584			13,212
Accrued compensation and benefits		8,832			12,091
Accrued interest		5,723			10,188
Other accrued liabilities		10,738			10,146
Current portion of long-term debt		4,793			507
Current portion of capital lease obligations		262			269
Total current liabilities		64,515			65,158
Long-term debt, less current portion		161,993			160,693
Capital lease obligations, less current portion		452			514
Deferred tax liabilities		19,522			19,522
Unfavorable lease liability, less current portion, net		5,508			5,870
Other liabilities		3,366			2,211
Total liabilities		255,356			253,968
Commitments and contingencies		—			—
Stockholder’s equity:
Common stock, $.001 par value, 1,000 shares authorized, issued and outstanding at March 27, 2011 and December 26, 2010		—			—
Additional paid-in capital		45,301			45,260
Accumulated deficit		(24,015	)		(17,783	)
Total stockholder’s equity		21,286			27,477
Total liabilities and stockholder’s equity	$	276,642		$	281,445

See notes to consolidated financial statements.

4

Real Mex Restaurants, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands)

	Successor			Predecessor
	Three months			Three months
	ended			ended
	March 27,			March 28,
	2011			2010
Revenues:
Restaurant revenues	$	106,114		$	110,135
Manufacturing and distribution revenues		9,384			9,447
Franchise and other revenues		735			837
Total revenues		116,233			120,419
Costs and expenses:
Restaurant costs
Cost of sales		25,897			26,743
Labor		37,922			40,724
Direct operating and occupancy expense		31,170			32,172
Total restaurant costs		94,989			99,639
Manufacturing and distribution costs		8,337			6,836
General and administrative expense		6,504			5,593
Depreciation and amortization		5,521			6,314
Total costs and expenses		115,351			118,382
Operating income		882			2,037
Other income (expense):
Interest expense		(7,019	)		(7,663	)
Other income (expense), net		(51	)		115
Total other expense, net		(7,070	)		(7,548	)
Loss before income tax provision		(6,188	)		(5,511	)
Income tax provision (benefit)		44			(12	)
Net loss	$	(6,232	)	$	(5,499	)

See notes to consolidated financial statements.

5

Real Mex Restaurants, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Successor			Predecessor
	Three months			Three months
	ended			ended
	March 27,			March 28,
	2011			2010
Operating activities
Net loss	$	(6,232	)	$	(5,499	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		5,044			5,435
Amortization of:
Favorable lease asset and unfavorable lease liability, net		477			879
Debt discount		32			929
Deferred financing costs		619			616
Loss on disposal of property and equipment		8			10
Stock-based compensation expense		41			9
Changes in operating assets and liabilities:
Trade and other receivables		(1,306	)		(463	)
Inventories		(1,563	)		303
Prepaid expenses and other current assets		820			(2,903	)
Other assets		118			58
Accounts payable and accrued liabilities		(3,551	)		1,770
Other liabilities		1,156			898
Net cash (used in) provided by operating activities		(4,337	)		2,042
Investing activities
Purchases of property and equipment		(1,485	)		(1,982	)
Net proceeds from disposal of property and equipment		—			2
Net cash used in investing activities		(1,485	)		(1,980	)
Financing activities
Net borrowings under revolving credit facility		4,600			—
Payments on long-term debt agreements and capital lease obligations		(405	)		(487	)
Payments of financing costs		—			(22	)
Net cash provided by (used in) financing activities		4,195			(509	)
Net decrease in cash and cash equivalents		(1,627	)		(447	)
Cash and cash equivalents at beginning of period		3,359			3,317
Cash and cash equivalents at end of period	$	1,732		$	2,870
Supplemental disclosure of cash flow information
Interest paid	$	9,542		$	9,219
Income taxes paid (refunded)	$	44		$	(12	)
Supplemental disclosure of noncash investing and financing activities
In-kind interest on senior unsecured credit facility added to principal	$	1,290		$	1,095

See notes to consolidated financial statements.

6

Real Mex Restaurants, Inc.

Notes to Consolidated Financial Statements (unaudited)

March 27, 2011

(in thousands, except for share data)

1. Basis of Presentation

Real Mex Restaurants, Inc., a Delaware corporation, together with its subsidiaries (the “Company”), is engaged in the business of owning and operating restaurants, primarily through its major subsidiaries El Torito Restaurants, Inc. (“El Torito”), Chevys Restaurants, LLC (“Chevys”) and Acapulco Restaurants, Inc. (“Acapulco”). The Company operated 178 restaurants as of March 27, 2011, of which 149 were located in California and the remainder were located in 11 other states, primarily under the trade names El Torito Restaurant^®, Chevys Fresh Mex^® and Acapulco Mexican Restaurant Y Cantina^®. In addition, the Company franchised or licensed 32 restaurants in 11 states and two foreign countries as of March 27, 2011. The Company’s other major subsidiary, Real Mex Foods, Inc., provides internal production, purchasing and distribution services for the restaurant operations and also provides distribution services and manufactures specialty products for sale to outside customers. The Company is a wholly-owned subsidiary of RM Restaurant Holding Corp. (“Holdco”). The Company’s financial statements include stock options granted by Holdco for which the compensation expense has been pushed down to the Company. Holdco debt is not included in the Company’s financial statements.

The Company’s fiscal year consists of 52 or 53 weeks ending on the last Sunday in December which in 2011 is December 25, 2011 and in 2010 was December 26, 2010. Prior to June 28, 2010, the Company is referred to as the “Predecessor” and after June 27, 2010 is referred to as the “Successor”. The accompanying consolidated balance sheets present the Company’s financial position as of March 27, 2011 and December 26, 2010. The accompanying consolidated statements of operations and cash flows present the Successor three months ended March 27, 2011 and the Predecessor three months ended March 28, 2010. See further description of the successor and predecessor periods in Note 3.

The accompanying unaudited consolidated financial statements include the accounts of Real Mex Restaurants, Inc. and its wholly-owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Certain information and footnote disclosures normally included in consolidated financial statements in accordance with accounting principles generally accepted in the United States have been omitted pursuant to requirements of the Securities and Exchange Commission (“SEC”). A description of accounting policies and other financial information is included in the Company’s audited consolidated financial statements as filed with the SEC in its annual report on Form 10-K for the year ended December 26, 2010. The Company believes that the disclosures included in its accompanying interim consolidated financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with its consolidated financial statements and notes thereto included in its annual report on Form 10-K. The accompanying consolidated balance sheet as of December 26, 2010 has been derived from its audited financial statements.

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. Liquidity

The Company’s financial statements as of March 27, 2011 have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s principal liquidity requirements are to service debt and meet capital expenditure and working capital needs.

The Company’s ability to make principal and interest payments, fund planned capital expenditures and meet financial covenants will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the control of the Company. Although the Company had negative working capital as of March 27, 2011 (as has been the case for previous periods reported on), based on the current level of operations and the Company’s business plan, management believes the cash flow generated from operations, available cash and available borrowings under the Senior Secured Revolving Credit Facilities will be adequate to meet liquidity needs for the near future.

7

In addition, the Company’s debt agreements require compliance with specified financial covenants. These covenants could adversely affect the Company’s ability to finance future operations or capital needs and pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. Acceleration of other indebtedness could result in a default under the terms of the Indenture governing the Notes. In such an event, the Company may be required to refinance all or part of the then-existing debt (including the Notes), sell assets or borrow more money. The Company may not be able to accomplish any of the alternatives on acceptable terms, or at all. The failure to generate sufficient cash flow or to achieve any of these alternatives could significantly adversely affect the Company.

Based upon management’s projections, there is a possibility that certain financial covenants related to the Notes and Senior Secured Revolving Credit Facilities will not be met as of June 26, 2011. Management is in negotiations with the lenders to amend these covenants. As noted above, if negotiations are not successful, certain long-term debt balances may become current and subject to the remedies set forth above. (See definitions of certain capitalized terms in Note 6.)

3. Share Purchase — Successor

Effective June 28, 2010, immediately after a supplemental indenture was entered into (see Note 6), Sun Cantinas, LLC (“Sun Cantinas”), an affiliate of Sun Capital Partners (“Sun Capital”) that is an equityholder of Holdco, consummated the acquisition of 43,338 shares of common stock of Holdco (the “Share Purchase”) from Cocina Funding Corp., L.L.C. (“Cocina”), an existing equityholder of Holdco that is managed by Farallon Capital Management, LLC (“Farallon”). As a result, Sun Cantinas and SCSF Cantinas, LLC, another affiliate of Sun Capital, together own approximately 70% of the outstanding common stock of Holdco. Together they are entitled, under the cumulative voting provisions of Holdco’s Certificate of Incorporation, to elect not fewer than five members of the seven-member board of directors of Holdco and the Company, giving them the ability indirectly to control the Company through such shareholdings and board memberships. Following the Share Purchase, Cocina holds approximately 13% of the outstanding common stock of Holdco, and no longer has a representative on the board of directors of either Holdco or the Company.

The Share Purchase was accounted for by Holdco under the purchase method of accounting and push-down accounting was applied to the Company. The Company completed a valuation to determine the value of the assets acquired and the liabilities assumed based on their estimated fair market values at the date of the Share Purchase. The allocation of the purchase price is a preliminary estimate and may be adjusted in subsequent periods. The Company attributes the goodwill associated with the Share Purchase to the historical financial performance and the anticipated future performance of the Company’s operations. Since this was a non-cash transaction for the Company, it has been excluded from the consolidated statement of cash flows.

The following table presents the allocation to the assets acquired and liabilities assumed based on their estimated fair values as determined by the valuation of the Company (in thousands):

Cash and cash equivalents	$	8,361
Trade and other accounts receivable		10,248
Inventories		11,719
Other current assets		3,131
Property and equipment		78,990
Other assets		12,182
Trademarks and other intangibles		43,200
Favorable and unfavorable lease asset/liability, net		8,415
Goodwill		113,989
Total assets acquired		290,235
Accounts payable and accrued liabilities		62,532
Long-term debt		160,249
Deferred tax liability		20,045
Other liabilities		2,213
Total liabilities assumed		245,039
Net assets	$	45,196

As a result of the Share Purchase, prior to June 28, 2010, the Company is referred to as the “Predecessor” and after June 27, 2010 is referred to as the “Successor”.

8

4. Intangible Assets

Trademarks and other intangibles consist of the following indefinite-lived assets resulting from the Share Purchase:

	March 27,		December 26,
	2011		2010
Trademarks	$	37,000	$	37,000
Franchise agreements		5,100		5,100
	$	42,100	$	42,100

5. Self Insurance

The Company is self-insured for most workers’ compensation and general liability losses (collectively “casualty losses”). The Company maintains stop-loss coverage with third party insurers to limit its total exposure. The recorded liability associated with these programs is based on an actuarial estimate of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The actual ultimate liability for these claims may increase or decrease based on a number of assumptions and factors, such as historical and future trends, economic conditions, safety programs and back to work programs. The estimated liability is not discounted. If actual claims trends, including the severity or frequency of claims, differ from estimates, the financial results could be significantly impacted. During the first quarter of 2011, we engaged a new insurance broker with new actuarial specialists. Based upon the actuarial calculation and improvements in our risk management procedures and loss trends, management determined that an immediate reduction in the reserve in excess of $1,500 was appropriate, with an ending balance in the accrued self-insurance reserve of $10,584 at March 27, 2011. The portion of the adjustment related to workers’ compensation was recorded in labor and the portion related to general liability was recorded in direct operating and occupancy expense in the consolidated statements of operations,

6. Long-Term Debt

Long-term debt consists of the following:

	March 27,			December 26,
	2011			2010
Senior Secured Notes due 2013	$	130,000		$	130,000
Senior Secured Notes unamortized debt discount		(228	)		(260	)
Senior Secured Revolving Credit Facility		4,600			—
Senior Unsecured Credit Facility — Related Party		31,890			30,599
Mortgage		419			440
Other		105			421
		166,786			161,200
Less current portion		(4,793	)		(507	)
	$	161,993		$	160,693

Senior Secured Notes due 2013. On July 7, 2009 (the “Closing Date”), the Company completed an offering of $130,000 aggregate principal amount of 14.0% Senior Secured Notes due January 1, 2013 (the “Notes”), which are guaranteed (the “Guarantees”) by Holdco and all of the Company’s existing and future domestic restricted subsidiaries (together with Holdco, the “Guarantors”). The Notes were offered and sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), a limited number of institutional accredited investors in the United States, and outside the United States in reliance on Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated July 7, 2009 (the “Indenture”), by and among the Company, the Guarantors and Wells Fargo Bank, National Association, as trustee. The net proceeds from the issuance of the Notes were used to refinance a portion of the existing indebtedness, including repayment of the Company’s $105,000 senior secured notes due 2010 and to pay fees and expenses in connection therewith. Deferred debt fees of $6,596 were recorded related to the issuance of the Notes. The remaining deferred debt fees and unamortized debt discount related to the $105,000 senior secured notes due 2010 of $11,717 were recorded as interest expense on July 7, 2009.

Effective June 28, 2010, the Company entered into a Supplemental Indenture, which amended the Indenture to permit affiliates of Sun Capital to acquire a majority of the stock of Holdco without requiring the Company to make a change of control offer to repurchase the Notes that would otherwise have been required under the Indenture.

9

Prior to July 1, 2011, the Company may redeem up to 35% of the original aggregate principal amount of the Notes at a redemption price equal to 114% of the principal amount thereof, plus accrued and unpaid interest thereon, with the net proceeds of certain equity financings; provided that (i) at least 65% of the aggregate principal amount of Notes remains outstanding immediately after such redemption and (ii) the redemption occurs within 90 days of the date of the closing of such sale of our equity interests. Prior to July 1, 2012, the Company may also redeem some or all of the Notes at a premium ranging from 1-2% of the aggregate principal amount of the notes redeemed. On or after July 1, 2012, the Company may redeem some or all of the Notes at 100% of the Notes’ principal amount, plus accrued and unpaid interest up to the date of redemption.

Within 90 days of the end of each four fiscal quarter period ending on or near December 31, beginning in 2009, the Company must, subject to certain exceptions, offer to repay the Notes with 75% of the Excess Cash Flow (as defined in the Indenture) from the period, at 100% of the principal amount plus any accrued and unpaid interest and liquidated damages. If the excess cash flow offer is prohibited by the terms of the Company’s Second Amended and Restated Credit Facility, as amended, governing the Company’s Senior Secured Revolving Credit Facilities, the Company will deposit the amount that would have been used to fund the excess cash flow offer into an escrow account. Funds from the escrow account will be released to the Company only to repay borrowings under the Senior Secured Revolving Credit Facilities or to make an excess cash flow offer. No Excess Cash Flow Offer was required for 2010.

If the Company undergoes a change of control, the Company will be required to make an offer to each holder to repurchase all or a portion of their Notes at 101% of their principal amount, plus accrued and unpaid interest up to the date of purchase. If the Company sells assets outside the ordinary course of business and the Company does not use the net proceeds for specified purposes, the Company may be required to use such net proceeds to repurchase the Notes at 100% of their principal amount, together with accrued and unpaid interest up to the date of repurchase.

The terms of the Indenture generally limit the Company’s ability and the ability of the Company’s restricted subsidiaries to, among other things: (i) make certain investments or other restricted payments; (ii) incur additional debt and issue preferred stock; (iii) create or incur liens on assets to secure debt; (iv) incur dividends and other payment restrictions with regard to restricted subsidiaries; (v) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company’s assets; (vi) enter into transactions with affiliates; (vii) change the Company’s line of business; (viii) repay certain indebtedness prior to stated maturities; (ix) pay dividends or make other distributions on, redeem or repurchase, capital stock or subordinated indebtedness; (x) engage in sale and leaseback transactions; or (xi) issue stock of subsidiaries.

The Notes and the Guarantees are secured by a second-priority security interest in substantially all of the assets of the Company and the Guarantors, including the pledge of 100% of all outstanding equity interests of each of the Company’s domestic subsidiaries. On the Closing Date, the Company and the Guarantors entered into a registration rights agreement, pursuant to which the Company and the Guarantors agreed for the benefit of the holders of the Notes to file with the SEC and cause to become effective a registration statement with respect to a registered offer to exchange the Notes for an issue of the Company’s senior secured notes with terms identical to the Notes in all material respects. The registration statement was declared effective on October 8, 2009. A shelf registration statement covering resales of the Notes was declared effective by the SEC on December 1, 2009.

Senior Secured Revolving Credit Facilities. The Second Amended and Restated Revolving Credit Agreement with General Electric Capital Corporation, as amended, provides for a $15.0 million revolving credit facility and $25.0 million letter of credit facility, maturing on July 1, 2012 (collectively, the “Senior Secured Revolving Credit Facilities”). Under the Senior Secured Revolving Credit Facilities, the lenders agreed to make loans and issue letters of credit to and on behalf of the Company and its subsidiaries. Interest on the outstanding borrowings under the senior secured revolving credit facilities is based on either prime rate plus Applicable Margin or ninety-day LIBOR plus Applicable Margin, as defined in and subject to certain restrictions in the 2009 amendment, which extended the due date and modified certain covenants and fees on the letters of credit issued thereunder accrue at a rate of 4.5% per annum. Deferred debt fees of $1,562 were recorded in 2009 related to the amendment.

Obligations under the Senior Secured Revolving Credit Facilities are guaranteed by all of the Company’s subsidiaries as well as by Holdco, which wholly owns the Company and has made a first priority pledge of all of its equity interests in the Company as security for the obligations. The Senior Secured Revolving Credit Facilities are secured by, among other things, first priority pledges of all of the equity interests of the Company’s direct and indirect subsidiaries, and first priority security interests (subject to customary exceptions) in substantially all of the current and future property and assets of the Company and its direct and indirect subsidiaries, with certain limited exceptions. As of March 27, 2011, the Company had $8,393 available under the Senior Secured Letter of Credit Facility and $10,400 available under the Senior Secured Revolving Credit Facility that may also be utilized for the letters of credit.

10

On April 2, 2010, the Company entered into an amendment to the Second Amended and Restated Revolving Credit Agreement which modified certain definitions in order to allow the transfer of shares in Holdco within current stockholders of Holdco. No such amendment was required related to the Notes as a result of such transfer.

The Second Amended and Restated Revolving Credit Agreement, as amended, contains various affirmative and negative covenants and restrictions, which among other things, require the Company to meet certain financial tests (including certain leverage and cash flow ratios), and limits the Company and its subsidiaries’ ability to incur or guarantee additional indebtedness, make certain capital expenditures, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, engage in transactions with affiliates and effect a consolidation or merger. The agreement contains a cross-default provision wherein if the Company is in default on any other credit facilities, default on this facility is automatic. At March 27, 2011, the Company was in compliance with all specified financial and other covenants under the Second Amended and Restated Revolving Credit Agreement, as amended.

Senior Unsecured Credit Facility. In connection with the offering of the Notes, the Company entered into a Second Amended and Restated Credit Agreement, by and among the Company, Holdco, the lenders party thereto and Credit Suisse, Cayman Islands Branch (the “Senior Unsecured Credit Facility”), pursuant to which the principal balance of the existing unsecured loan owing by the Company under the existing senior unsecured credit facility, as amended, was reduced from $65,000 to $25,000 through (i) the assumption by Holdco of $25,000 of such unsecured debt and (ii) the exchange by a lender under the Senior Unsecured Credit Facility, as amended, of $15,000 of such unsecured debt for $4,583 aggregate principal amount of Notes (which were issued for $4,125), resulting in a gain on extinguishment of debt of $10,875. Deferred debt fees of $161 were recorded related to the Second Amended and Restated Credit Agreement. Interest accrues at an annual rate of 16.5% and is payable quarterly, provided that (i) such interest is payable in kind for the first four quarters following the Closing Date and (ii) thereafter will be payable in a combination of cash and in kind. The term of the Company’s credit facility was extended to July 1, 2013 and certain covenants were modified. Certain lenders to the Senior Unsecured Credit Facility are owners of Holdco, and as a result, the Senior Unsecured Credit Facility is held by related parties to the Company.

The Senior Unsecured Credit Facility, as amended, contains various affirmative and negative covenants which, among other things, require the Company to meet certain financial tests (including certain leverage and interest coverage ratios) and limits the Company’s and its subsidiaries’ ability to incur or guarantee additional indebtedness, grant certain liens, make certain restricted payments, make capital expenditures, engage in transactions with affiliates, make certain investments, sell its assets, make acquisitions, effect a consolidation or merger and amend or modify instruments governing certain indebtedness (including relating to the Company’s Notes and the Senior Secured Revolving Credit Facilities). At March 27, 2011, the Company was in compliance with all specified financial and other covenants under the Senior Unsecured Credit Facility, as amended.

Mortgage.In 2005, concurrent with an acquisition, the Company assumed an $816 mortgage secured by the building and improvements of one of the restaurants acquired in the transaction. The mortgage carries a fixed annual interest rate of 9.28% and requires equal monthly payments of principal and interest through April 2015. As of March 27, 2011, the principal amount outstanding on the mortgage was $419.

Interest rates for the Company’s long-term debt are shown in the following table:

	March 27,			December 26,
	2011			2010
Senior Secured Notes due 2013		14.00	%		14.00	%
Senior Secured Revolving Credit Facilities		9.25	%		9.25	%
Senior Unsecured Credit Facility — Related Party		16.50	%		16.50	%
Mortgage		9.28	%		9.28	%
Other		3.19 to 3.20	%		3.20 to 4.70	%

7. Capitalization

Common Stock

The Company is authorized to issue 1,000 shares of common stock. At March 27, 2011 and December 26, 2010, there were 1,000 shares of common stock authorized, issued and outstanding.

11

Stock Option Plans

In December 2006, the Board of Directors of Holdco (the “Board”), adopted a Non-Qualified Stock Option Plan (the “2006 Plan”). The 2006 Plan, as amended, reserves 1,000 shares of Holdco’s non-voting common stock for issuance upon exercise of stock options granted under the 2006 Plan. Options vest 20% per year according to the schedule specified in each option agreement. Accelerated vesting of all outstanding options is triggered upon a change of control of Holdco. The options have a life of 10 years, and can only be exercised upon the earliest of the following dates: (i) the 10 year anniversary of the effective date; (ii) the date of a change in control, as defined in the 2006 Plan; or (iii) date of employment termination, subject to certain exclusions.

When stock-based compensation is awarded, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the consolidated statement of operations over the period during which an employee is required to provide service in exchange for the award — the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee stock options is estimated using the Black-Scholes option pricing model. The Company utilizes comparable companies to estimate its price volatility and the simplified method to calculate option expected time to exercise. No options were granted during the three months ended March 27, 2010.

The following table summarizes the stock option activity as of and for the three months ended March 27, 2011:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at December 26, 2010		194	$	8,150
Granted		—		—
Exercised		—		—
Forfeited/expired		—		—
Outstanding at March 27, 2011		194	$	8,150
Vested and expected to vest at March 27, 2011		193	$	8,150
Exercisable at March 27, 2011		152	$	8,150

The Company recorded $41 and $9 of stock-based compensation expense during the Successor three months ended March 27, 2011 and the Predecessor three ended March 28, 2010, respectively. Stock-based compensation is included in general and administrative expense on the consolidated statements of operations. As of March 27, 2011, $68 of total unrecognized compensation costs related to non-vested stock-based awards is expected to be recognized through fiscal year 2012, and the weighted average remaining vesting period of those awards is approximately 0.5 years. At March 27, 2011, the aggregate intrinsic value of exercisable options was $0.

8. Fair Value of Financial Instruments

The Company’s financial instruments are primarily comprised of cash and cash equivalents, receivables, accounts payable, accrued liabilities and long-term debt. For cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short maturity of these instruments. The estimated fair value of the Senior Secured Notes due 2013 at March 27, 2011, based on quoted market prices, was $134,068. Management estimates that the carrying values of its other financial instruments approximate their fair values since their realization or satisfaction is expected to occur in the short term or have been renegotiated at a date close to quarter end.

9. Fair Value Measurement

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1: Quoted prices are available in active markets for identical assets or liabilities.

Level 2: Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable.

Level 3: Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.

12

As of March 27, 2011, the Company had no assets or liabilities that were measured at fair value on a recurring or non-recurring basis. In conjunction with the Share Purchase, the Company completed a valuation and recorded adjustments to fair value for the following assets and liabilities by level at June 28, 2010:

	Level 1		Level 2		Level 3
Assets:
Property and equipment	$	—	$	78,990	$	—
Liquor licenses		—		5,082		—
Goodwill		—		—		113,989
Trademarks and other intangible assets		—		—		43,200
Favorable lease asset		—		—		16,456
Liabilities:
Senior secured notes due 2013		129,675		—		—
Unfavorable lease liability		—		—		8,041

10. Related Party Transactions

As discussed in Note 6, the Senior Unsecured Credit Facility is held by related parties to the Company.

Certain funds managed by Farallon are indirect stockholders of Holdco. Certain funds managed by Farallon hold an indirect interest in a shopping center from which the Company leases property for the operation of an Acapulco restaurant. Total payments in connection with the lease during the Successor three months ended March 27, 2011 and the Predecessor three months ended March 28, 2010, were $69 and $82, respectively, of which up to approximately $17 and $31 are attributable to the Farallon funds’ indirect interest in the shopping center, respectively. Additionally, certain funds managed by Farallon hold approximately $13,000 aggregate principal amounts of the Notes.

The Company periodically makes payments to (subject to restricted payment covenants under the Indenture governing the Notes), from and on behalf of Holdco. No related party payables or receivables were outstanding at March 27, 2011 or December 26, 2010.

13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations contains forward looking statements within the meaning of the federal securities laws. See the discussion under the heading “Forward-Looking Statements” elsewhere in this report.

Overview

We are one of the largest full service, casual dining Mexican restaurant chain operators in the United States in terms of number of restaurants. As of March 27, 2011, we operated 178 restaurants, 149 of which are located in California, with additional restaurants in Arizona, Florida, Illinois, Maryland, Missouri, Nevada, New Jersey, New York, Oregon, Virginia and Washington. In addition, we franchised or licensed 32 restaurants in 11 states and two foreign countries as of March 27, 2011. Our four major subsidiaries are El Torito Restaurants, Inc., Acapulco Restaurants, Inc., Chevys Restaurants LLC, and a purchasing, distribution, and manufacturing subsidiary, Real Mex Foods.

El Torito, El Torito Grill (including Sinigual), Acapulco and Chevys, our primary restaurant concepts, each offer high quality Mexican food, a wide selection of alcoholic beverages and excellent guest service. In addition to the El Torito, El Torito Grill, Acapulco and Chevys concepts, we operate 8 additional restaurant locations, all of which are also full service Mexican formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; and Who·Song & Larry’s.

As a result of restrictions in our notes and the downturn in the economy, no new restaurants were opened during fiscal year 2010. We are in the early stages of relocating two restaurants, but do not have a definite date at this time.

Our fiscal year consists of 52 or 53 weeks ending on the last Sunday in December each year. The three months ended March 27, 2011 and March 28, 2010 consist of thirteen weeks. When calculating comparable store sales, we include a restaurant that has been open for more than 18 months and for the entirety of each comparable period. As of March 27, 2011, we had 178 restaurants that met this criterion.

Our revenues are comprised of restaurant sales, manufacturing and distribution revenues and franchise and other revenues. Restaurant revenues include sales of food and alcoholic and other beverages. Manufacturing and distribution revenues consist of sales by Real Mex Foods to outside customers of processed and packaged prepared foods and other merchandise items. Franchise and other revenues primarily includes franchise and royalty fees from our franchisees of our Chevys concept.

Cost of sales is comprised primarily of food and alcoholic beverage expenses. The components of cost of sales are variable and change with sales volume. In addition, the components of cost of sales are subject to increase or decrease based on fluctuations in commodity costs and depend in part on the success of controls we have in place to manage cost of sales in our restaurants. The cost, availability and quality of the ingredients we use to prepare our food and beverages are subject to a range of factors including, but not limited to, seasonality, political conditions, weather conditions, and ingredient shortages.

Labor costs are semi-variable and include direct hourly and management wages, operations management bonus, vacation pay, payroll taxes, workers’ compensation insurance and health insurance.

Direct operating and occupancy expense consists primarily of fixed costs and includes operating supplies, repairs and maintenance, advertising expenses, utilities, and other restaurant related operating expenses. This expense also includes all occupancy costs such as fixed rent, percentage rent, common area maintenance charges, real estate taxes and other related occupancy costs.

Manufacturing and distribution costs include cost of sales, labor and direct operating and occupancy expenses related to sales by Real Mex Foods to outside customers.

General and administrative expense includes all corporate and administrative functions that support our operations. Expenses within this category include executive management, supervisory and staff salaries, bonus and related employee benefits, travel and relocation costs, information systems, training, corporate rent and professional and other consulting fees.

Depreciation and amortization principally includes depreciation of capital expenditures for restaurants and Real Mex Foods and also includes amortization of favorable lease asset and unfavorable lease liability. Amortization of favorable lease asset and unfavorable lease liability represents the amortization of the asset in excess of the approximate fair market value and the liability in excess of the approximate fair market value of the leases assumed, which is revalued in purchase price accounting. The amounts are being amortized over the remaining primary terms of the underlying leases.

14

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to property and equipment, impairment of long-lived assets, valuation of goodwill and other intangible assets, self-insurance reserves, income taxes and revenue recognition. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust our judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates.

For further information regarding the critical accounting policies that affect our more significant judgments and estimates used in preparing our consolidated financial statements, see Note 3 of the Consolidated Financial Statements in our report on Form 10-K filed for the fiscal year ended December 26, 2010.

Results of Operations

As a result of the Share Purchase, periods prior to June 28, 2010 are referred to as “Predecessor” and periods after June 27, 2010 are referred to as “Successor”. The discussion of and the results of operations are based on the Successor three months ended March 27, 2011 and the Predecessor three months ended March 28, 2010.

Our operating results for the Successor three months ended March 27, 2011 and the Predecessor three months ended March 28, 2010 are expressed as a percentage of total revenues below:

	Successor			Predecessor
	Three months			Three months
	ended			ended
	March 27,			March 28,
	2011			2010
Total revenues		100.0	%		100.0	%
Restaurant costs:
Cost of sales		22.3			22.2
Labor		32.6			33.8
Direct operating and occupancy expense		26.8			26.7
Total restaurant costs		81.7			82.7
Manufacturing and distribution costs		7.2			5.7
General and administrative expense		5.6			4.6
Depreciation and amortization		4.7			5.2
Operating income		0.8			1.7
Interest expense		6.0			6.4
Loss before income tax provision		(5.3	)		(4.6	)
Net loss		(5.4	)		(4.6	)

Our restaurant and manufacturing and distribution operating results for the Successor three months ended March 27, 2011 and the Predecessor three months ended March 28, 2010 are expressed as a percentage of their respective revenues below:

	Successor			Predecessor
	Three months			Three months
	ended			ended
	March 27,			March 28,
	2011			2010
Restaurant revenues		100.0	%		100.0	%
Restaurant costs:
Cost of sales		24.2			24.1
Labor		35.5			36.7
Direct operating and occupancy expense		29.2			29.0
Total restaurant costs		88.9			89.8
Manufacturing and distribution revenues		100.0			100.0
Manufacturing and distribution costs		88.8			72.4

15

Three months ended March 27, 2011 compared to the three months ended March 28, 2010

Total Revenues. Total revenues decreased by $4.2 million, or 3.5%, to $116.2 million in the Successor first quarter of 2011 from $120.4 million in the Predecessor first quarter of 2010 due to a $4.0 million decrease in restaurant revenues, a $0.1 million decrease in manufacturing and distribution revenues and a $0.1 million decrease in franchise and other revenues. The decrease in restaurant revenues was primarily due to comparable store sales decreases of 1.6% in the Successor first quarter of 2011 as compared with the Predecessor first quarter of 2010. This decline is primarily attributable to a 3.8% reduction in check count, partially offset by a 2.3% increase in average check.

Restaurant Cost of Sales. Total restaurant cost of sales of $25.9 million in the Successor first quarter of 2011 decreased $0.8 million, or 3.2%, as compared to the Predecessor first quarter of 2010, primarily due to the decrease in restaurant revenue. As a percentage of restaurant revenues, restaurant cost of sales increased to 24.2% in the Successor first quarter of 2011 from 24.1% in the Predecessor first quarter of 2010.

Restaurant Labor. Restaurant labor costs of $37.9 million in the Successor first quarter of 2011 decreased by $2.8 million, or 6.9%, as compared to the Predecessor first quarter of 2010, primarily due to adjustments in staffing and wages as a result of the decrease in restaurant revenue combined with a non-recurring adjustment to workers’ compensation insurance expense due to a change in the actuarial estimate for self-insurance reserves. As a percentage of restaurant revenues, restaurant labor costs decreased to 35.5% in the Successor first quarter of 2011 from 36.7% in the Predecessor first quarter of 2010. Payroll and benefits remain subject to inflation and government regulation, especially wage rates currently at or near the minimum wage and expenses for health insurance.

Restaurant Direct Operating and Occupancy Expense. Restaurant direct operating and occupancy expense of $31.2 million in the Successor first quarter of 2011 decreased $1.0 million, or 3.1%, as compared to the Predecessor first quarter of 2010, primarily due to lower liability and property insurance expense combined with lower advertising expense and utilities expense as a result of management’s focus on decreasing costs to minimize the impact of lower restaurant revenues. As a percentage of restaurant revenues, restaurant direct operating and occupancy expense increased to 29.2% in the Successor first quarter of 2011 from 29.0% in the Predecessor first quarter of 2010. The increase as a percent of restaurant revenues was primarily due to the comparable store sales decline, since a significant portion of these costs are fixed in nature.

Manufacturing and Distribution Costs. Manufacturing and distribution expense of $8.3 million in the Successor first quarter of 2011 increased $1.5 million, or 22.0%, as compared to the Predecessor first quarter of 2010, primarily due to higher produce and groceries expense combined with higher labor and non-recurring consulting expense. As a percentage of manufacturing and distribution revenues, manufacturing and distribution expense increased to 88.8% in the Successor first quarter of 2011 from 72.4% in the Predecessor first quarter of 2010.

General and Administrative Expense. General and administrative expense of $6.5 million in the Successor first quarter of 2011 increased by $0.9 million, or 16.3%, as compared to the Predecessor first quarter of 2010, primarily due to higher labor expense as a result of a reinstatement of wage rates which were reduced in the Predecessor first quarter of 2010, higher legal costs and higher consulting expense. General and administrative expense as a percentage of total revenues increased to 5.6% in the Successor first quarter of 2011 from 4.6% in the Predecessor first quarter of 2010.

Depreciation and amortization. Depreciation and amortization expense of $5.5 million in the Successor first quarter of 2011 decreased $0.8 million, or 12.6%, as compared to the Predecessor first quarter of 2010, primarily due to assets which became fully depreciated during 2010. As a percentage of total revenues, depreciation and amortization decreased to 4.7% in the Successor first quarter of 2011 from 5.2% in the Predecessor first quarter of 2010.

Interest Expense. Interest expense of $7.0 million in the Successor first quarter of 2011 decreased $0.6 million, or 8.4%, as compared to the Predecessor first quarter of 2010. This decrease was primarily due to the share purchase by Sun Capital in June 2010, as a result of which we adjusted our notes to fair value under purchase accounting, resulting in a decrease in the amortization of the debt discount of $0.9 million. This was partially offset by an increase in interest expense on the senior unsecured credit facility of $0.2 million. As a percentage of total revenues, interest expense decreased to 6.0% in the Successor first quarter of 2011 from 6.4% in the Predecessor first quarter of 2010.

Income tax provision.We have recorded a full valuation allowance against our deferred tax assets. The provision recorded of less than $0.1 million during the Successor first quarter of 2011 represents various state taxes incurred. The benefit recorded of less than $0.1 million during the Predecessor first quarter of 2010 represents refunds received offset by various state taxes incurred.

16

Liquidity and Capital Resources

Our principal liquidity requirements are to service our debt and meet our capital expenditure and working capital needs. Our indebtedness at March 27, 2011, including obligations under capital leases and unamortized debt discount, was $167.5 million, and we had $10.4 million of revolving credit availability under our $15.0 million senior secured revolving credit facility. As discussed below, in July 2009, we refinanced our notes, amended the credit agreement relating to our senior secured revolving credit facilities and amended and restated the credit agreement relating to our senior unsecured credit facility. Our ability to make principal and interest payments and to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our senior secured revolving credit facility will be adequate to meet our liquidity needs for the near future. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured revolving credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

In addition, our debt agreements require compliance with specified financial covenants. These covenants could adversely affect our ability to finance future operations or capital needs and pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. Acceleration of other indebtedness could result in a default under the terms of the indenture governing the notes. In such an event, we may be required to refinance all or part of the then-existing debt (including the notes), sell assets or borrow more money. We may not be able to accomplish any of the alternatives on acceptable terms, or at all. The failure to generate sufficient cash flow or to achieve any of these alternatives could significantly adversely affect us.

Based upon management’s projections, there is a possibility that certain financial covenants related to the notes and senior secured revolving credit facilities will not be met as of June 26, 2011. Management is in negotiations with the lenders to amend these covenants. As noted above, if negotiations are not successful, certain long-term debt balances may become current and subject to the remedies set forth above.

Working Capital and Cash Flows

We presently have and anticipate continuing to have negative working capital balances. The working capital deficit principally is the result of accounts payable and accrued liabilities exceeding current asset levels. The largest components of our accrued liabilities include reserves for our self-insured workers’ compensation and general liability insurance, accrued payroll and related employee benefits costs and gift card liabilities. We do not have significant receivables and we receive trade credit based upon negotiated terms in purchasing food and supplies. Funds in excess of our normal operating requirements have been used for capital expenditures and/or debt service payments under our existing indebtedness.

Operating Activities. We had net cash used in operating activities of $4.3 million for the Successor quarter ended March 27, 2011 compared to net cash provided by operating activities of $2.0 million for the Predecessor quarter ended March 28, 2010. The decrease in cash provided by operating activities of $6.3 million was primarily attributable to the decrease in revenues combined with changes in working capital, primarily due to increases in purchases of inventory related to Real Mex Foods related to some larger buys on protein items in anticipation of price increases.

Investing Activities. We had net cash used in investing activities of $1.5 million for the Successor quarter ended March 27, 2011 compared to $2.0 million for the Predecessor quarter ended March 28, 2010. The decrease in net cash used in investing activities of $0.5 million was primarily the result of a decrease in additions to property and equipment related to routine maintenance of our restaurants.

We expect to make capital expenditures totaling approximately $10.0 million in fiscal year 2011 comprised of approximately $0.8 million for information technology, approximately $0.5 million for Real Mex Foods and approximately $8.7 million for restaurant maintenance and other capital expenditures related to our restaurants. These and other similar costs may be higher in the future due to inflation and other factors. We expect to fund the capital expenditures described above from cash flow from operations, available cash, available borrowings under our senior credit facility and trade financing received from trade suppliers. We are in the early stages of relocating two restaurants, but do not have a definite date at this time.

17

Financing Activities. We had net cash provided by financing activities of $4.2 million for the Successor quarter ended March 27, 2011 compared to net cash used in financing activities of $0.5 million for the Predecessor quarter ended March 28, 2010. The increase in cash provided by financing activities of $4.7 million was primarily the result of a net draw on our senior secured revolving credit facility during the current quarter of $4.6 million, for which there was no outstanding balance at March 28, 2010.

Debt and Other Obligations

On July 7, 2009, we completed an offering of $130.0 million aggregate principal amount of 14.0% senior secured notes due January 1, 2013, which are guaranteed by RM Restaurant Holding Corp. (“Holdco”), our parent company, and all of our existing and future domestic restricted subsidiaries, or the guarantors. The notes were offered and sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, a limited number of institutional accredited investors in the United States, and outside the United States in reliance on Regulation S under the Securities Act. The notes were issued pursuant to an indenture, dated July 7, 2009, by and among the Company, the guarantors and Wells Fargo Bank, National Association, as trustee. The net proceeds from the issuance of the notes was used to refinance a portion of the existing indebtedness, including repayment of our existing $105.0 million senior secured notes due 2010 and to pay fees and expenses in connection therewith. Deferred debt fees of $6.5 million were recorded related to the issuance of the notes. The remaining deferred debt fees and unamortized debt discount related to the $105.0 million senior secured notes due 2010 of $11.7 million were recorded as interest expense on July 7, 2009.

Effective June 28, 2010, we entered into a supplemental indenture, which amended the indenture to permit affiliates of Sun Capital to acquire a majority of the stock of Holdco without requiring us to make a change of control offer to repurchase the notes that would otherwise have been required under the original indenture, as described below.

Prior to July 1, 2011, we may redeem up to 35% of the original aggregate principal amount of the notes at a redemption price equal to 114% of the principal amount thereof, plus accrued and unpaid interest thereon, with the net proceeds of certain equity financings; provided that (i) at least 65% of the aggregate principal amount of notes remains outstanding immediately after such redemption and (ii) the redemption occurs within 90 days of the date of the closing of such sale of our equity interests. Prior to July 1, 2012, we may also redeem some or all of the notes at a premium ranging from 1-2% of the aggregate principal amount of the notes redeemed. On or after July 1, 2012, we may redeem some or all of the notes at 100% of the notes’ principal amount, plus accrued and unpaid interest up to the date of redemption.

Within 90 days of the end of each four fiscal quarter period ending on or near December 31, beginning in 2009, we must, subject to certain exceptions, offer to repay the notes with 75% of the Excess Cash Flow (as defined in the indenture) from the period, at 100% of the principal amount plus any accrued and unpaid interest and liquidated damages. If the excess cash flow offer is prohibited by the terms of the Second Amended and Restated Credit Agreement entered into in connection with the senior secured revolving credit facilities, as described below, we will deposit the amount that would have been used to fund the excess cash flow offer into an escrow account. Funds from the escrow account will only be released to us to repay borrowings under the senior secured revolving credit facilities or to make an excess cash flow offer. No Excess Cash Flow Offer was required for 2010 or 2009.

If we undergo a change of control, we will be required to make an offer to each holder to repurchase all or a portion of their notes at 101% of their principal amount, plus accrued and unpaid interest up to the date of purchase. If we sell assets outside the ordinary course of business and we do not use the net proceeds for specified purposes, we may be required to use such net proceeds to repurchase the notes at 100% of their principal amount, together with accrued and unpaid interest up to the date of repurchase.

The terms of the indenture generally limit our ability and the ability of our restricted subsidiaries to, among other things: (i) make certain investments or other restricted payments; (ii) incur additional debt and issue preferred stock; (iii) create or incur liens on assets to secure debt; (iv) incur dividends and other payment restrictions with regard to restricted subsidiaries; (v) transfer, sell or consummate a merger or consolidation of all, or substantially all, of our assets; (vi) enter into transactions with affiliates; (vii) change our line of business; (viii) repay certain indebtedness prior to stated maturities; (ix) pay dividends or make other distributions on, redeem or repurchase, capital stock or subordinated indebtedness; (x) engage in sale and leaseback transactions; or (xi) issue stock of subsidiaries.

The notes and the guarantees are secured by a second-priority security interest in substantially all of our assets and the assets of the guarantors, including the pledge of 100% of all outstanding equity interests of each of our domestic subsidiaries. On the closing date of the issuance of the notes, the Company and the guarantors entered into a registration rights agreement, pursuant to which we agreed to file with the SEC, and cause to become effective, a registration statement with respect to a registered offer to exchange the notes for an issue of our senior secured notes with terms identical to the notes in all material respects. The registration statement was declared effective on October 8, 2009. A shelf registration statement covering resales of the notes was declared effective by the SEC on December 1, 2009.

18

Senior Secured Revolving Credit Facilities. Our Second Amended and Restated Revolving Credit Agreement with General Electric Capital Corporation, as amended, provides for a $15.0 million revolving credit facility and $25.0 million letter of credit facility, maturing on July 1, 2012, collectively, the senior secured revolving credit facilities. Under the senior secured revolving credit facilities, the lenders agreed to make loans and issue letters of credit to and on behalf of the Company and our subsidiaries. Interest on the outstanding borrowings under the senior secured revolving credit facilities is based on either prime rate plus Applicable Margin or ninety-day LIBOR plus Applicable Margin, as defined in and subject to certain restrictions in the 2009 amendment, which extended the due date and modified certain covenants, and fees on the letters of credit issued thereunder accrue at a rate of 4.5% per annum. Deferred debt fees of $1.6 million were recorded in 2009 related to the amendment.

On April 2, 2010, we amended the Second Amended and Restated Revolving Credit Agreement which modified certain definitions in order to allow the transfer of shares in Holdco within current stockholders of Holdco. No such amendment was required related to our senior secured notes due 2013 as a result of such transfer.

Obligations under the senior secured revolving credit facilities are guaranteed by all of our subsidiaries, as well as by Holdco, which has made a first priority pledge of all of its equity interests in the Company as security for the obligations. The senior secured revolving credit facilities are secured by, among other things, first priority pledges of all of the equity interests of our direct and indirect subsidiaries, and first priority security interests (subject to customary exceptions) in substantially all of our current and future property and assets and our direct and indirect subsidiaries, with certain limited exceptions. As of March 27, 2011, we had $8.4 million available under the $25.0 million letter of credit facility and $10.4 million available under the $15.0 million revolving credit facility that may also be utilized for the letters of credit.

The Second Amended and Restated Revolving Credit Agreement, as amended, contains various affirmative and negative covenants and restrictions, which among other things, require us to meet certain financial tests (including certain leverage and cash flow ratios), and limits the Company and our subsidiaries’ ability to incur or guarantee additional indebtedness, make certain capital expenditures, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, engage in transactions with affiliates and effect a consolidation or merger. The agreement contains a cross-default provision wherein if we are in default on any other credit facilities, default on this facility is automatic. At March 27, 2011, we were in compliance with all specified financial and other covenants under the Second Amended and Restated Credit Agreement, as amended.

Senior Unsecured Credit Facility. In connection with the offering of the notes, we entered into a Second Amended and Restated Credit Agreement, by and among the Company, Holdco, the lenders party thereto and Credit Suisse, Cayman Islands Branch, pursuant to which the principal balance of the existing unsecured loan owing by the Company under the existing senior unsecured credit facility, as amended, was reduced from $65.0 million to $25.0 million through (i) the assumption by Holdco of $25.0 million of such unsecured debt and (ii) the exchange by a lender under the senior unsecured credit facility, as amended, of $15.0 million of such unsecured debt for $4.6 million aggregate principal amount of notes, subject to an original issue discount of 10%. As a result, we recorded a gain on extinguishment of debt of $10.9 million. Deferred debt fees of $0.2 million were recorded related to the Second Amended and Restated Credit Agreement. Interest accrues at an annual rate of 16.5% and is payable quarterly; provided that (i) such interest is payable in kind for the first four quarters following the closing date of the issuance of the notes and (ii) thereafter will be payable in a combination of cash and in kind. The term of the senior unsecured credit facility was extended to July 1, 2013 and certain covenants were modified. Certain lenders to the senior unsecured credit facility are owners of Holdco, and as a result, the senior unsecured credit facility is held by related parties to the Company.

The senior unsecured credit facility, as amended, contains various affirmative and negative covenants which, among other things, require us to meet certain financial tests (including certain leverage and interest coverage ratios) and limits the Company and our subsidiaries’ ability to incur or guarantee additional indebtedness, grant certain liens, make certain restricted payments, make capital expenditures, engage in transactions with affiliates, make certain investments, sell our assets, make acquisitions, effect a consolidation or merger and amend or modify instruments governing certain indebtedness (including relating to the notes and the senior secured revolving credit facilities). At March 27, 2011, we were in compliance with all specified financial and other covenants under the senior unsecured credit facility, as amended.

Mortgage.In 2005, concurrent with an acquisition, we assumed a $0.8 million mortgage secured by the building and improvements of one of the restaurants acquired in the transaction. The mortgage carries a fixed annual interest rate of 9.28% and requires equal monthly payments of principal and interest through April 2015. As of March 27, 2011, the principal amount outstanding on the mortgage was $0.4 million.

19

Interest rates for our long-term debt are shown in the following table:

	March 27,			December 26,
	2011			2010
Senior Secured Notes due 2013		14.00	%		14.00	%
Senior Secured Revolving Credit Facilities		9.25	%		9.25	%
Senior Unsecured Credit Facility — Related Party		16.50	%		16.50	%
Mortgage		9.28	%		9.28	%
Other		3.19 to 3.20	%		3.20 to 4.70	%

Capital Leases. We lease certain leasehold improvements and equipment under agreements that are classified as capital leases. The capital lease obligations have a weighted-average interest rate of 8.6%. As of March 27, 2011, the principal amount due relating to capital lease obligations was $0.7 million. Principal and interest payments on the capital lease obligations are due monthly and range from $3 to $4 per month. The capital lease obligations mature between 2011 and 2025.

Inflation

The impact of inflation on labor, food and occupancy costs could, in the future, significantly affect our operations. We pay many of our employees hourly rates related to the federal or applicable state minimum wage. Our workers’ compensation and health insurance costs have been and are subject to continued inflationary pressures. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which may be subject to inflationary increases.

Management continually seeks ways to mitigate the impact of inflation on our business. We believe that our current practice of maintaining operating margins through a combination of periodic menu price increases, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices is our most effective tool for dealing with inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in foreign exchange rates and interest rates.

We consider the U.S. dollar to be the functional currency for all of our entities. All of our net sales and our expenses in 2011 and 2010 were denominated in U.S. dollars. Therefore, foreign currency fluctuations did not materially affect our financial results in those periods.

We are also subject to market risk from exposure to changes in interest rates based on our financing activities. This exposure relates to borrowings under our senior secured credit facilities that are payable at floating rates of interest. As of April 24, 2011, we had borrowings of $5.4 million outstanding under our senior secured revolving credit facilities. A hypothetical 10% fluctuation in interest rates as of April 24, 2011 would have a net after tax impact of less than $0.1 million on our earnings in 2011, in addition to its effect on cash flows.

Many of the food products purchased by us are affected by changes in weather, production, availability, seasonality and other factors outside our control. In an effort to control some of this risk, we have entered into certain fixed price purchase agreements with varying terms of generally no more than one year duration. In addition, we believe that almost all of our food and supplies are available from several sources, which helps to control food commodity risks.

20

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

Changes In Internal Controls Over Financial Reporting

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

21

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

We are periodically a defendant in cases involving personal injury, labor and employment and other matters incidental to our business. While any pending or threatened litigation has an element of uncertainty, we believe that the outcome of these lawsuits or claims, individually or combined, will not materially adversely affect our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

There were no material changes from the risk factors disclosed in Item 1A of our report on Form 10-K for the fiscal year ended December 26, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Not applicable.

Item 5. Other Information

None.

22

Item 6. Exhibits

Exhibit No.			Description
	31.1	*	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Principal Executive and Financial Officer.
	32.1	*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive and Financial Officer.

* Filed herewith

23

SIGNATURE

Pursuant to the requirements 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.

	REAL MEX RESTAURANTS, INC.
Dated: May 6, 2011	By:	/s/ Richard P. Dutkiewicz
		Richard P. Dutkiewicz
		Interim Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)

24