##### Table of Contents



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 June 27, 2010
 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.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    13-4012902
(I.R.S. Employer
Identification No.)
 5660 Katella Avenue, Suite 100
Cypress, CA 90630
 (562)-346-1200
 Yes þ No o
 Yes o No o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
    
    Smaller Reporting Company o
 Yes
o No  þ




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##### 



Real Mex Restaurants, Inc.
 Index
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. (Removed and Reserved)
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23SIGNATURE
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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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 27, 2009. 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




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Real Mex Restaurants, Inc.
 
 Consolidated Balance Sheets

 (unaudited)
 (in thousands, except for share data)
 June 27,
    
    
    December 27,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,361
    
    
    $
    3,317Trade receivables, net
    
    
    9,793
    
    
    
    9,491Other receivables
    
    
    455
    
    
    
    603Inventories, net
    
    
    11,719
    
    
    
    10,834Prepaid expenses
    
    
    2,897
    
    
    
    3,206Current portion of favorable lease asset, net
    
    
    4,993
    
    
    
    5,418Other current assets
    
    
    234
    
    
    
    359Total current assets
    
    
    38,452
    
    
    
    33,228Property and equipment, net
    
    
    78,990
    
    
    
    84,524Goodwill
    
    
    43,812
    
    
    
    43,812Trademarks and other intangible assets
    
    
    55,700
    
    
    
    55,700Deferred charges
    
    
    5,926
    
    
    
    7,108Favorable lease asset, less current portion, net
    
    
    17,172
    
    
    
    19,599Other assets
    
    
    8,347
    
    
    
    8,390Total assets
    
    $
    248,399
    
    
    $
    252,361Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    17,872
    
    
    $
    16,785Accrued self-insurance reserves
    
    
    13,555
    
    
    
    14,790Accrued compensation and benefits
    
    
    12,741
    
    
    
    12,923Accrued interest
    
    
    10,187
    
    
    
    9,759Other accrued liabilities
    
    
    9,954
    
    
    
    11,966Current portion of long-term debt
    
    
    1,027
    
    
    
    657Current portion of capital lease obligations
    
    
    321
    
    
    
    402Total current liabilities
    
    
    65,657
    
    
    
    67,282Long-term debt, less current portion
    
    
    149,298
    
    
    
    145,271Capital lease obligations, less current portion
    
    
    642
    
    
    
    784Deferred tax liabilities
    
    
    26,059
    
    
    
    26,059Unfavorable lease liability, less current portion, net
    
    
    5,598
    
    
    
    6,415Other liabilities
    
    
    5,044
    
    
    
    4,230Total liabilities
    
    
    252,298
    
    
    
    250,041Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (deficit):Common stock, $.001 par value, 1,000 shares
authorized, issued and outstanding at June 27,
2010 and December 27, 2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    56,070
    
    
    
    56,021Accumulated deficit
    
    
    (59,969
    )
    
    
    (53,701
    )Total stockholders equity (deficit)
    
    
    (3,899
    )
    
    
    2,320Total liabilities and stockholders equity
    
    $
    248,399
    
    
    $
    252,361
   4




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##### Table of Contents



Real Mex Restaurants, Inc.
 
 Consolidated Statements of Operations

 (unaudited)
 (in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Restaurant revenues
    
    $
    119,282
    
    
    $
    124,408
    
    
    $
    229,417
    
    
    $
    241,821Manufacturing and distribution revenues
    
    
    9,428
    
    
    
    10,500
    
    
    
    18,875
    
    
    
    20,677Franchise and other revenues
    
    
    927
    
    
    
    1,016
    
    
    
    1,764
    
    
    
    1,918Total revenues
    
    
    129,637
    
    
    
    135,924
    
    
    
    250,056
    
    
    
    264,416Costs and expenses:Cost of sales
    
    
    31,470
    
    
    
    32,504
    
    
    
    60,574
    
    
    
    63,614Labor
    
    
    44,978
    
    
    
    49,958
    
    
    
    88,612
    
    
    
    97,574Direct operating and occupancy expense
    
    
    34,459
    
    
    
    34,516
    
    
    
    68,196
    
    
    
    69,215General and administrative expense
    
    
    5,485
    
    
    
    5,979
    
    
    
    11,078
    
    
    
    12,701Depreciation and amortization
    
    
    6,401
    
    
    
    8,108
    
    
    
    12,715
    
    
    
    16,245Impairment of property and equipment
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    216Operating income
    
    
    6,844
    
    
    
    4,643
    
    
    
    8,881
    
    
    
    4,851Other income (expense):Interest expense
    
    
    (7,643
    )
    
    
    (9,017
    )
    
    
    (15,306
    )
    
    
    (18,237
    )Other income, net
    
    
    
    
    
    
    239
    
    
    
    116
    
    
    
    310Total other expense, net
    
    
    (7,643
    )
    
    
    (8,778
    )
    
    
    (15,190
    )
    
    
    (17,927
    )Loss before income tax provision
    
    
    (799
    )
    
    
    (4,135
    )
    
    
    (6,309
    )
    
    
    (13,076
    )Income tax provision (benefit)
    
    
    (29
    )
    
    
    
    
    
    
    (41
    )
    
    
    6Net loss
    
    $
    (770
    )
    
    $
    (4,135
    )
    
    $
    (6,268
    )
    
    $
    (13,082
    )
   5




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##### Table of Contents



Real Mex Restaurants, Inc.
 
 Consolidated Statements of Cash Flows

 (unaudited)
 (in thousands)
 Six Months EndedJune 27,
    
    
    June 28,2010
    
    
    2009Operating activitiesNet loss
    
    $
    (6,268
    )
    
    $
    (13,082
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    10,929
    
    
    
    14,440Amortization of:Favorable lease asset and unfavorable lease liability, net
    
    
    1,786
    
    
    
    1,805Debt discount
    
    
    1,857
    
    
    
    7,366Deferred financing costs
    
    
    1,244
    
    
    
    558Loss on disposal of property and equipment
    
    
    13
    
    
    
    18Impairment of property and equipment
    
    
    
    
    
    
    216Stock-based compensation expense
    
    
    49
    
    
    
    135Non-cash consulting expense
    
    
    
    
    
    
    760Changes in operating assets and liabilities:Trade and other receivables
    
    
    (154
    )
    
    
    127Inventories
    
    
    (885
    )
    
    
    939Prepaid expenses and other current assets
    
    
    434
    
    
    
    1,627Deferred charges
    
    
    
    
    
    
    (180
    )Other assets
    
    
    66
    
    
    
    (335
    )Accounts payable and accrued liabilities
    
    
    205
    
    
    
    (2,932
    )Other liabilities
    
    
    814
    
    
    
    1,136Net cash provided by operating activities
    
    
    10,090
    
    
    
    12,598Investing activitiesPurchases of property and equipment
    
    
    (5,078
    )
    
    
    (3,082
    )Exchange transaction costs
    
    
    
    
    
    
    (393
    )Net proceeds from disposal of property and equipment
    
    
    2
    
    
    
    65Net cash used in investing activities
    
    
    (5,076
    )
    
    
    (3,410
    )Financing activitiesNet payment under revolving credit facility
    
    
    
    
    
    
    (7,600
    )Borrowings under long-term debt agreements and capital lease obligations
    
    
    1,417
    
    
    
    1,572Payments on long-term debt agreements and capital lease obligations
    
    
    (1,312
    )
    
    
    (1,302
    )Payments of financing costs
    
    
    (75
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    30
    
    
    
    (7,330
    )Net increase in cash and cash equivalents
    
    
    5,044
    
    
    
    1,858Cash and cash equivalents at beginning of period
    
    
    3,317
    
    
    
    2,099Cash and cash equivalents at end of period
    
    $
    8,361
    
    
    $
    3,957Supplemental disclosure of cash flow informationInterest paid
    
    $
    9,564
    
    
    $
    9,064Income taxes (refunded) paid
    
    $
    (41
    )
    
    $
    6Supplemental disclosure of noncash investing and financing activitiesIn-kind interest on senior unsecured credit facility added to principal
    
    $
    2,212
    
    
    $
    
   6




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##### Table of Contents



Real Mex Restaurants, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements (unaudited)
 June 27, 2010
 (in thousands, except for share data)
 1. Basis of Presentation
 ® ® ®
     2. Exchange Agreement
  3. Intangible Assets
  June 27,
    
    
    December 27,2010
    
    
    2009Trademarks
    
    $
    46,800
    
    
    $
    46,800Franchise agreements
    
    
    8,900
    
    
    
    8,900$
    55,700
    
    
    $
    55,700
  7




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4. Long-Term Debt
  June 27,
    
    
    December 27,2010
    
    
    2009Senior Secured Notes due 2013
    
    $
    130,000
    
    
    $
    130,000Senior Secured Notes unamortized debt discount
    
    
    (9,286
    )
    
    
    (11,143
    )Senior Secured Revolving Credit Facility
    
    
    
    
    
    
    Senior Unsecured Credit Facility
    
    
    28,186
    
    
    
    25,974Mortgage
    
    
    480
    
    
    
    519Other
    
    
    945
    
    
    
    578150,325
    
    
    
    145,928Less current portion
    
    
    (1,027
    )
    
    
    (657
    )$
    149,298
    
    
    $
    145,271
 Senior Secured Notes due 2013
     8




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Senior Secured Revolving Credit Facilities
        9




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##### Table of Contents



Senior Unsecured Credit Facility
     10




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##### Table of Contents



Mortgage.
  June 27,
    
    
    December 27,2010
    
    
    2009Senior Secured Notes due 2013
    
    
    14.00
    %
    
    
    14.00
    %Senior Secured Revolving Credit Facilities
    
    
    9.25
    %
    
    
    7.42 to 9.25
    %Senior Unsecured Credit Facility
    
    
    16.50
    %
    
    
    16.50
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.19 to 3.20
    %
    
    
    3.20 to 4.70
    %
 5. Capitalization
 Common Stock
  Stock Option Plans
    11




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##### Table of Contents



WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 27, 2009
    
    
    330
    
    
    $
    8,150Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (110
    )
    
    
    8,150Outstanding at June 27, 2010
    
    
    220
    
    
    $
    8,150Vested and expected to vest at June 27, 2010
    
    
    217
    
    
    $
    8,150Exercisable at June 27, 2010
    
    
    131
    
    
    $
    8,150
  6. Fair Value of Financial Instruments
  7. Related Party Transactions
      12




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##### Table of Contents



8. Impact of Recently Issued Accounting Principles
  9. Subsequent Event
     13




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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
  ·
          14




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Critical Accounting Policies
   Results of Operations
   Three Months Ended
    
    
    Six Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    24.3
    
    
    
    23.9
    
    
    
    24.2
    
    
    
    24.1Labor
    
    
    34.7
    
    
    
    36.8
    
    
    
    35.4
    
    
    
    36.9Direct operating and occupancy expense
    
    
    26.6
    
    
    
    25.4
    
    
    
    27.3
    
    
    
    26.2Total operating costs
    
    
    85.6
    
    
    
    86.1
    
    
    
    86.9
    
    
    
    87.1General and administrative expense
    
    
    4.2
    
    
    
    4.4
    
    
    
    4.4
    
    
    
    4.8Depreciation and amortization
    
    
    4.9
    
    
    
    6.0
    
    
    
    5.1
    
    
    
    6.1Goodwill impairment
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.1Operating income
    
    
    5.3
    
    
    
    3.4
    
    
    
    3.6
    
    
    
    1.8Interest expense
    
    
    5.9
    
    
    
    6.6
    
    
    
    6.1
    
    
    
    6.9Loss before tax provision
    
    
    (0.6
    )
    
    
    (3.0
    )
    
    
    (2.5
    )
    
    
    (4.9
    )Net loss
    
    
    (0.6
    )
    
    
    (3.0
    )
    
    
    (2.5
    )
    
    
    (4.9
    )
 Three months ended June 27, 2010 compared to the three months ended June 28, 2009
 Total Revenues
 Cost of Sales
 Labor
 Direct Operating and Occupancy Expense
  15




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##### Table of Contents



General and Administrative Expense
 Depreciation and Amortization
 Interest Expense
 Income Tax Provision/(Benefit).
 Six months ended June 27, 2010 compared to the six months ended June 28, 2009
 Total Revenues
 Cost of Sales
 Labor
 Direct Operating and Occupancy Expense
  16




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General and Administrative Expense
 Depreciation and amortization
 Interest Expense
 Income Tax Provision/(Benefit).
 Liquidity and Capital Resources
  Working Capital and Cash Flows
  Operating Activities
  17




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Investing Activities
  Financing Activities
 Debt and Other Obligations
       18




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##### Table of Contents



Senior Secured Revolving Credit Facilities
     Senior Unsecured Credit Facility
  19




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##### Table of Contents



Mortgage.
  June 27,
    
    
    December 27,2010
    
    
    2009Senior Secured Notes due 2013
    
    
    14.00
    %
    
    
    14.00
    %Senior Secured Revolving Credit Facilities
    
    
    9.25
    %
    
    
    7.42 to 9.25
    %Senior Unsecured Credit Facility
    
    
    16.50
    %
    
    
    16.50
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.19 to 3.20
    %
    
    
    3.20 to 4.70
    %
 Capital Leases
 Inflation
    20




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes In Internal Controls Over Financial Reporting
   21




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PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
  
 Item 5. Other Information
   22




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Item 6. Exhibits
 Exhibit No.
    
    Description31.1*
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934 of the Chief Executive
Officer.31.2*
    
    Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934 of the Chief 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 Chief Executive Officer.32.2*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
the Chief Financial Officer.
 *
    
    Filed herewith  23




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##### Table of Contents



SIGNATURE
  REAL MEX RESTAURANTS, INC.Dated: August 11, 2010
    By:
    /s/ Richard E. RiveraRichard E. RiveraPresident, Chief Executive
Officer and Chairman
(Principal Executive Officer)Dated: August 11, 2010
    By:
    /s/ Richard P. DutkiewiczRichard P. DutkiewiczChief Financial Officer
(Principal Financial Officer
and Accounting Officer)  24