##### 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 September 27, 2009
 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
    
    13-4012902(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 5660 Katella Avenue, Suite 100
Cypress, CA 90630
 (562) 346-1200
 þ 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
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25SIGNATURE
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
 This report includes forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended. 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 28, 2008. 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)
 September 27,
    
    
    December 28,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,679
    
    
    $
    2,099Trade receivables, net
    
    
    9,608
    
    
    
    9,102Other receivables
    
    
    251
    
    
    
    873Inventories
    
    
    11,274
    
    
    
    13,563Deferred compensation plan assets
    
    
    315
    
    
    
    1,848Prepaid expenses and other current assets
    
    
    3,168
    
    
    
    7,253Current portion of favorable lease asset, net
    
    
    5,683
    
    
    
    5,902Total current assets
    
    
    31,978
    
    
    
    40,640Property and equipment, net
    
    
    92,939
    
    
    
    110,505Goodwill, net
    
    
    43,730
    
    
    
    43,200Trademarks and other intangibles
    
    
    68,900
    
    
    
    68,900Deferred charges
    
    
    7,605
    
    
    
    1,404Favorable lease asset, less current portion, net
    
    
    21,175
    
    
    
    25,382Other assets
    
    
    8,429
    
    
    
    8,297Total assets
    
    $
    274,756
    
    
    $
    298,328Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    17,989
    
    
    $
    23,198Accrued self-insurance reserves
    
    
    14,980
    
    
    
    15,619Accrued compensation and benefits
    
    
    9,673
    
    
    
    16,216Other accrued liabilities
    
    
    17,699
    
    
    
    15,426Current portion of long-term debt
    
    
    1,799
    
    
    
    8,313Current portion of capital lease obligations
    
    
    425
    
    
    
    453Total current liabilities
    
    
    62,565
    
    
    
    79,225Long-term debt, less current portion
    
    
    143,389
    
    
    
    152,105Capital lease obligations, less current portion
    
    
    867
    
    
    
    942Deferred tax liabilities
    
    
    31,549
    
    
    
    31,549Unfavorable lease liability, less current portion, net
    
    
    6,870
    
    
    
    8,445Other liabilities
    
    
    4,188
    
    
    
    3,018Total liabilities
    
    
    249,428
    
    
    
    275,284Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, $.001 par value, 1,000 shares
authorized, issued and outstanding at September
27, 2009 and December 28, 2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    55,960
    
    
    
    27,147Accumulated deficit
    
    
    (30,632
    )
    
    
    (4,103
    )Total stockholders equity
    
    
    25,328
    
    
    
    23,044Total liabilities and stockholders equity
    
    $
    274,756
    
    
    $
    298,328
   4




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Real Mex Restaurants, Inc.
 
 Consolidated Statements of Operations (unaudited)
 (in thousands)
 Three Months Ended
    
    
    Nine Months EndedSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorSeptember 27,
    
    
    September 28,
    
    
    September 27,
    
    
    September 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Restaurant revenues
    
    $
    113,779
    
    
    $
    126,262
    
    
    $
    355,601
    
    
    $
    394,054Other revenues
    
    
    9,801
    
    
    
    10,446
    
    
    
    31,011
    
    
    
    31,152Franchise revenues
    
    
    631
    
    
    
    753
    
    
    
    2,016
    
    
    
    2,360Total revenues
    
    
    124,211
    
    
    
    137,461
    
    
    
    388,628
    
    
    
    427,566Costs and expenses:Cost of sales
    
    
    30,747
    
    
    
    34,607
    
    
    
    94,361
    
    
    
    106,339Labor
    
    
    45,932
    
    
    
    49,056
    
    
    
    143,507
    
    
    
    152,801Direct operating and occupancy expense
    
    
    35,299
    
    
    
    37,842
    
    
    
    104,514
    
    
    
    112,955General and administrative expense
    
    
    5,707
    
    
    
    6,923
    
    
    
    18,408
    
    
    
    22,652Depreciation and amortization
    
    
    7,991
    
    
    
    6,119
    
    
    
    24,236
    
    
    
    18,432Pre-opening costs
    
    
    
    
    
    
    983
    
    
    
    
    
    
    
    2,318Goodwill impairment
    
    
    2,728
    
    
    
    
    
    
    
    2,728
    
    
    
    34,000Impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    1,623Operating income (loss)
    
    
    (4,193
    )
    
    
    1,931
    
    
    
    658
    
    
    
    (23,554
    )Other income (expense):Interest expense
    
    
    (20,140
    )
    
    
    (4,249
    )
    
    
    (38,378
    )
    
    
    (13,487
    )Other income (expense), net
    
    
    12
    
    
    
    1,271
    
    
    
    321
    
    
    
    1,970Total other expense, net
    
    
    (20,128
    )
    
    
    (2,978
    )
    
    
    (38,057
    )
    
    
    (11,517
    )Loss before extraordinary item
    
    
    (24,321
    )
    
    
    (1,047
    )
    
    
    (37,399
    )
    
    
    (35,071
    )Extraordinary item:Gain on extinguishment of debt
    
    
    10,875
    
    
    
    
    
    
    
    10,875
    
    
    
    Loss before income tax provision
    
    
    (13,446
    )
    
    
    (1,047
    )
    
    
    (26,524
    )
    
    
    (35,071
    )Income tax provision
    
    
    
    
    
    
    33
    
    
    
    5
    
    
    
    50Net loss
    
    $
    (13,446
    )
    
    $
    (1,080
    )
    
    $
    (26,529
    )
    
    $
    (35,121
    )
   5




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Real Mex Restaurants, Inc.
 
 Consolidated Statements of Cash Flows (unaudited)
 (in thousands)
 Nine Months EndedSuccessor
    
    
    PredecessorSeptember 27,
    
    
    September 28,2009
    
    
    2008Operating activitiesNet loss
    
    $
    (26,529
    )
    
    $
    (35,121
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    21,528
    
    
    
    16,771Amortization of:Favorable lease asset and unfavorable lease liability, net
    
    
    2,708
    
    
    
    1,661Debt discount/(premium)
    
    
    19,344
    
    
    
    (879
    )Deferred financing costs
    
    
    2,005
    
    
    
    966Goodwill impairment
    
    
    2,728
    
    
    
    34,000Gain on extinguishment of debt
    
    
    (10,875
    )
    
    
    Loss (gain) on disposal of property and equipment
    
    
    56
    
    
    
    (403
    )Gain on lease termination
    
    
    
    
    
    
    (600
    )Impairment of property and equipment
    
    
    216
    
    
    
    1,623Stock-based compensation expense
    
    
    199
    
    
    
    336Non-cash consulting expense
    
    
    950
    
    
    
    Changes in operating assets and liabilities:Trade and other receivables
    
    
    116
    
    
    
    680Inventories
    
    
    2,289
    
    
    
    (1,190
    )Deferred compensation plan assets
    
    
    1,533
    
    
    
    902Prepaid expenses and other current assets
    
    
    4,085
    
    
    
    608Related party receivable
    
    
    
    
    
    
    47Deferred charges, net
    
    
    
    
    
    
    29Other assets
    
    
    (298
    )
    
    
    (337
    )Accounts payable and accrued liabilities
    
    
    (9,480
    )
    
    
    4,917Other liabilities
    
    
    1,169
    
    
    
    4,139Net cash provided by operating activities
    
    
    11,744
    
    
    
    28,149Investing activitiesAdditions to property and equipment
    
    
    (4,764
    )
    
    
    (21,361
    )Proceeds on lease termination
    
    
    
    
    
    
    600Exchange transaction costs
    
    
    (393
    )
    
    
    Net proceeds from disposal of property
    
    
    65
    
    
    
    301Net cash used in investing activities
    
    
    (5,092
    )
    
    
    (20,460
    )Financing activitiesNet repayment under revolving credit facility
    
    
    (6,600
    )
    
    
    (10,650
    )Borrowings under long-term debt agreements
    
    
    114,447
    
    
    
    980Payments on long-term debt agreements and capital lease obligations
    
    
    (106,649
    )
    
    
    (726
    )Payments of financing costs
    
    
    (8,349
    )
    
    
    (100
    )Capital contributions from Parent
    
    
    79
    
    
    
    2,536Net cash used in financing activities
    
    
    (7,072
    )
    
    
    (7,960
    )Net decrease in cash and cash equivalents
    
    
    (420
    )
    
    
    (271
    )Cash and cash equivalents at beginning of period
    
    
    2,099
    
    
    
    2,323Cash and cash equivalents at end of period
    
    $
    1,679
    
    
    $
    2,052Supplemental disclosure of cash flow informationInterest paid
    
    $
    15,345
    
    
    $
    10,777Income taxes paid
    
    $
    5
    
    
    $
    50
   6




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##### Table of Contents



Real Mex Restaurants, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements (unaudited)
 September 27, 2009
 (in thousands, except for share data)
 1. Basis of Presentation
     2. Acquisitions
 Exchange Agreement
    7




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Cash and cash equivalents
    
    $
    1,417Trade and other accounts receivable
    
    
    12,100Inventories
    
    
    12,938Other current assets
    
    
    5,692Property and equipment
    
    
    113,154Other assets
    
    
    41,841Trademark and other intangibles
    
    
    68,900Goodwill
    
    
    43,178Total assets acquired
    
    
    299,220Accounts payable and accrued liabilities
    
    
    60,616Long-term debt
    
    
    166,026Deferred tax liability
    
    
    31,549Other liabilities
    
    
    13,854Total liabilities assumed
    
    
    272,045Net assets acquired
    
    $
    27,175
  Merger Agreement
  3. Intangible Assets
  September 27,
    
    
    December 28,2009
    
    
    2008Trademarks
    
    $
    55,900
    
    
    $
    55,900Franchise agreements
    
    
    13,000
    
    
    
    13,000$
    68,900
    
    
    $
    68,900
 4. Long-Term Debt
  September 27,
    
    
    December 28,2009
    
    
    2008Senior Secured Notes due 2013
    
    $
    130,000
    
    
    $
    105,000Senior Secured Notes unamortized debt discount
    
    
    (12,071
    )
    
    
    (18,415
    )Senior Secured Revolving Credit Facility
    
    
    1,000
    
    
    
    7,600Senior Unsecured Credit Facility
    
    
    25,000
    
    
    
    65,000Mortgage
    
    
    537
    
    
    
    591Other
    
    
    722
    
    
    
    642145,188
    
    
    
    160,418Less current portion
    
    
    (1,799
    )
    
    
    (8,313
    )$
    143,389
    
    
    $
    152,105
 Senior Secured Notes due 2013
  8




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Senior Secured Revolving Credit Facilities
   9




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Senior Unsecured Credit Facility
   10




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Mortgage.
  September 27,
    
    
    December 28,2009
    
    
    2008Senior Secured Notes due 2013
    
    
    14.00
    %
    
    
    10.25
    %Senior Secured Revolving Credit Facilities
    
    
    7.42 to 9.25
    %
    
    
    7.11 to 7.94
    %Senior Unsecured Credit Facility
    
    
    16.50
    %
    
    
    12.50
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.59 to 4.70
    %
    
    
    3.98 to 4.70
    %
 5. Capitalization
 Common Stock
  Stock Option Plans
    11




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##### Table of Contents



WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 28, 2008
    
    
    330
    
    
    $
    8,150Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    
    
    
    
    Outstanding at September 27, 2009
    
    
    330
    
    
    $
    8,150Vested and expected to vest at September 27, 2009
    
    
    321
    
    
    $
    8,150Exercisable at September 27, 2009
    
    
    195
    
    
    $
    8,150
   12




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6. Fair Value of Financial Instruments
  7. Related Party Transactions
 Successor Transactions
     Predecessor Transactions
   13




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8. Impact of Recently Issued Accounting Principles
 Recently Adopted Accounting Standards
     FASB Accounting Standards Codification
 New Accounting Pronouncements
   14




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##### Table of Contents



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
             15




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##### Table of Contents



Critical Accounting Policies
   Results of Operations
   Three Months Ended
    
    
    Nine Months EndedSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorSeptember 27,
    
    
    September 28,
    
    
    September 27,
    
    
    September 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    24.8
    
    
    
    25.2
    
    
    
    24.3
    
    
    
    24.9Labor
    
    
    37.0
    
    
    
    35.7
    
    
    
    36.9
    
    
    
    35.7Direct operating and occupancy expense
    
    
    28.4
    
    
    
    27.5
    
    
    
    26.9
    
    
    
    26.4Total operating costs
    
    
    90.2
    
    
    
    88.4
    
    
    
    88.1
    
    
    
    87.0General and administrative expense
    
    
    4.6
    
    
    
    5.0
    
    
    
    4.7
    
    
    
    5.3Depreciation and amortization
    
    
    6.4
    
    
    
    4.5
    
    
    
    6.2
    
    
    
    4.3Pre-opening costs
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.5Goodwill impairment
    
    
    2.2
    
    
    
    
    
    
    
    0.7
    
    
    
    8.0Operating (loss) income
    
    
    (3.4
    )
    
    
    1.4
    
    
    
    0.2
    
    
    
    (5.5
    )Interest expense
    
    
    16.2
    
    
    
    3.1
    
    
    
    9.9
    
    
    
    3.2Loss before extraordinary item
    
    
    (19.6
    )
    
    
    (0.8
    )
    
    
    (9.6
    )
    
    
    (8.2
    )Gain on extinguishment of debt
    
    
    8.8
    
    
    
    
    
    
    
    2.8
    
    
    
    Loss before income tax provision
    
    
    (10.8
    )
    
    
    (0.8
    )
    
    
    (6.8
    )
    
    
    (8.2
    )Net loss
    
    
    (10.8
    )
    
    
    (0.8
    )
    
    
    (6.8
    )
    
    
    (8.2
    )
 Three months ended September 27, 2009 compared to the three months ended September 28, 2008
 Total Revenues
 Cost of Sales
  16




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Labor
 Direct Operating and Occupancy Expense
 General and Administrative Expense
 Depreciation and Amortization
 Goodwill Impairment.
 Interest Expense
 Gain on Extinguishment of Debt.
 Income tax provision.
 Nine months ended September 27, 2009 compared to the nine months ended September 28, 2008
 Total Revenues
 Cost of Sales
  17




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Labor
 Direct Operating and Occupancy Expense
 General and Administrative Expense
 Depreciation and Amortization
 Goodwill Impairment.
 Interest Expense.
 Gain on Extinguishment of Debt.
 Income tax provision
 Liquidity and Capital Resources
   18




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Working Capital and Cash Flows
  Operating Activities
 Investing Activities
  Financing Activities
  19




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##### Table of Contents



Debt and Other Obligations
        20




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##### Table of Contents



Senior Secured Revolving Credit Facilities
    Senior Unsecured Credit Facility
      21




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Mortgage.
  September 27,
    
    
    December 28,2009
    
    
    2008Senior Secured Notes due 2013
    
    
    14.00
    %
    
    
    10.25
    %Senior Secured Revolving Credit Facilities
    
    
    7.42 to 9.25
    %
    
    
    7.11 to 7.94
    %Senior Unsecured Credit Facility
    
    
    16.50
    %
    
    
    12.50
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.59 to 4.70
    %
    
    
    3.98 to 4.70
    %
 Capital Leases
 Inflation
   
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
      22




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Item 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures
  Changes In Internal Controls Over Financial Reporting
   23




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##### Table of Contents



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.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
   24




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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  25




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##### Table of Contents



SIGNATURE
  REAL MEX RESTAURANTS, INC.Dated: November 12, 2009
    By:
    /s/ Richard E. RiveraRichard E. RiveraPresident & Chief Executive Officer and Chairman
(Principal Executive Officer)Dated: November 12, 2009
    By:
    /s/ Steven TannerSteven TannerChief Financial Officer 
(Principal Financial Officer and Accounting Officer)  26




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##### Table of Contents



EXHIBIT INDEX
 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  27