##### 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 29, 2008
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 5660 Katella Avenue, Suite 100
Cypress, CA 90630
 (562)-346-1200
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
    
    Smaller Reporting Company o
 o 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
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21SIGNATURE
    
    
    23Exhibit 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 and Section 21E of the Securities Exchange Act of 1934 (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 in Item 1A Risk Factors of our annual
report on Form 10-K filed with the SEC on March 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)
 June 29,
    
    
    December 30,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,283
    
    
    $
    2,323Trade receivables, net
    
    
    10,690
    
    
    
    10,160Other receivables
    
    
    3,544
    
    
    
    2,594Related party receivables
    
    
    48
    
    
    
    Inventories
    
    
    13,848
    
    
    
    12,049Deferred compensation plan assets
    
    
    2,558
    
    
    
    3,115Prepaid expenses and other current assets
    
    
    6,793
    
    
    
    7,186Current portion of favorable lease asset, net
    
    
    3,211
    
    
    
    3,454Total current assets
    
    
    42,975
    
    
    
    40,881Property and equipment, net
    
    
    99,058
    
    
    
    96,179Goodwill, net
    
    
    239,621
    
    
    
    273,621Deferred charges
    
    
    2,555
    
    
    
    3,115Favorable lease asset, less current portion, net
    
    
    9,787
    
    
    
    11,313Other assets
    
    
    9,332
    
    
    
    9,346Total assets
    
    $
    403,328
    
    
    $
    434,455Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    28,854
    
    
    $
    22,692Accrued self-insurance reserves
    
    
    16,102
    
    
    
    15,479Accrued compensation and benefits
    
    
    17,417
    
    
    
    17,402Other accrued liabilities
    
    
    12,746
    
    
    
    14,014Related party payables
    
    
    
    
    
    
    2,505Current portion of long-term debt
    
    
    4,283
    
    
    
    12,579Current portion of capital lease obligations
    
    
    495
    
    
    
    433Total current liabilities
    
    
    79,897
    
    
    
    85,104Long-term debt, less current portion
    
    
    171,435
    
    
    
    172,057Capital lease obligations, less current portion
    
    
    1,146
    
    
    
    1,118Unfavorable lease liability, less current portion, net
    
    
    3,766
    
    
    
    4,394Other liabilities
    
    
    12,586
    
    
    
    8,669Total liabilities
    
    
    268,830
    
    
    
    271,342Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, $.001 par value, 1,000 shares
authorized, issued and outstanding at June 29,
2008 and December 30, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    207,132
    
    
    
    201,706Accumulated deficit
    
    
    (72,634
    )
    
    
    (38,593
    )Total stockholders equity
    
    
    134,498
    
    
    
    163,113Total liabilities and stockholders equity
    
    $
    403,328
    
    
    $
    434,455
   4




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Real Mex Restaurants, Inc.
 
 Consolidated Statements of Operations (unaudited)
 (in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007As Restated
    
    
    
    
    
    As Restated(Note 5)
    
    
    
    
    
    (Note 5)Revenues:Restaurant revenues
    
    $
    140,305
    
    
    $
    139,882
    
    
    $
    267,792
    
    
    $
    270,177Other revenues
    
    
    11,369
    
    
    
    8,675
    
    
    
    20,706
    
    
    
    15,876Royalty and franchise fees
    
    
    854
    
    
    
    1,018
    
    
    
    1,607
    
    
    
    2,033Total revenues
    
    
    152,528
    
    
    
    149,575
    
    
    
    290,105
    
    
    
    288,086Costs and expenses:Cost of sales
    
    
    37,672
    
    
    
    36,296
    
    
    
    71,732
    
    
    
    69,122Labor
    
    
    53,272
    
    
    
    52,230
    
    
    
    103,745
    
    
    
    101,906Direct operating and occupancy expense
    
    
    38,571
    
    
    
    38,322
    
    
    
    75,113
    
    
    
    74,573General and administrative expense
    
    
    7,886
    
    
    
    8,309
    
    
    
    15,729
    
    
    
    16,307Depreciation and amortization
    
    
    6,235
    
    
    
    6,138
    
    
    
    12,313
    
    
    
    11,916Pre-opening costs
    
    
    997
    
    
    
    466
    
    
    
    1,335
    
    
    
    856Goodwill impairment
    
    
    34,000
    
    
    
    
    
    
    
    34,000
    
    
    
    Impairment of property and equipment
    
    
    1,623
    
    
    
    
    
    
    
    1,623
    
    
    
    Operating (loss) income
    
    
    (27,728
    )
    
    
    7,814
    
    
    
    (25,485
    )
    
    
    13,406Other income (expense):Interest expense
    
    
    (4,621
    )
    
    
    (4,842
    )
    
    
    (9,238
    )
    
    
    (9,688
    )Other income, net
    
    
    510
    
    
    
    1,953
    
    
    
    699
    
    
    
    1,858Total other expense, net
    
    
    (4,111
    )
    
    
    (2,889
    )
    
    
    (8,539
    )
    
    
    (7,830
    )(Loss) income before income tax provision
    
    
    (31,839
    )
    
    
    4,925
    
    
    
    (34,024
    )
    
    
    5,576Income tax provision
    
    
    
    
    
    
    1,951
    
    
    
    17
    
    
    
    2,223Net (loss) income
    
    $
    (31,839
    )
    
    $
    2,974
    
    
    $
    (34,041
    )
    
    $
    3,353
   5




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Real Mex Restaurants, Inc.
 
 Consolidated Statements of Cash Flows (unaudited)
 (in thousands)
 Six Months EndedJune 29,
    
    
    July 1,2008
    
    
    2007As Restated(Note 5)Operating activitiesNet (loss) income
    
    $
    (34,041
    )
    
    $
    3,353Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization
    
    
    11,190
    
    
    
    11,455Amortization of:Favorable lease asset and unfavorable lease liability, net
    
    
    1,123
    
    
    
    461Debt premium
    
    
    (586
    )
    
    
    (977
    )Deferred financing costs
    
    
    641
    
    
    
    874Goodwill impairment
    
    
    34,000
    
    
    
    Gain on disposal of property and equipment
    
    
    (30
    )
    
    
    (681
    )Impairment of property and equipment
    
    
    1,623
    
    
    
    Stock-based compensation expense
    
    
    226
    
    
    
    456Deferred tax asset
    
    
    
    
    
    
    2,156Other
    
    
    
    
    
    
    232Changes in operating assets and liabilities:Trade and other receivables
    
    
    (1,480
    )
    
    
    (3,314
    )Inventories
    
    
    (1,799
    )
    
    
    (1,538
    )Deferred compensation plan assets
    
    
    557
    
    
    
    (429
    )Prepaid expenses and other current assets
    
    
    636
    
    
    
    (635
    )Related party receivable/payable
    
    
    85
    
    
    
    (1,783
    )Deferred charges, net
    
    
    19
    
    
    
    (168
    )Other assets
    
    
    (229
    )
    
    
    185Accounts payable and accrued liabilities
    
    
    3,878
    
    
    
    415Other liabilities
    
    
    3,935
    
    
    
    2,485Net cash provided by operating activities
    
    
    19,748
    
    
    
    12,547Investing activitiesAdditions to property and equipment
    
    
    (14,047
    )
    
    
    (17,890
    )Sale of Fuzio trademark
    
    
    
    
    
    
    1,200Net proceeds from disposal of property and equipment
    
    
    39
    
    
    
    4,682Net cash used in investing activities
    
    
    (14,008
    )
    
    
    (12,008
    )Financing activitiesNet repayment under revolving credit facility
    
    
    (9,000
    )
    
    
    (800
    )Borrowings under long-term debt agreements
    
    
    980
    
    
    
    981Payments on long-term debt agreements and capital lease obligations
    
    
    (222
    )
    
    
    (405
    )Payment of financing costs
    
    
    (100
    )
    
    
    (534
    )Capital contributions
    
    
    2,562
    
    
    
    Net cash used in financing activities
    
    
    (5,780
    )
    
    
    (758
    )Net decrease in cash and cash equivalents
    
    
    (40
    )
    
    
    (219
    )Cash and cash equivalents at beginning of period
    
    
    2,323
    
    
    
    2,710Cash and cash equivalents at end of period
    
    $
    2,283
    
    
    $
    2,491Supplemental disclosure of cash flow informationInterest paid
    
    $
    9,213
    
    
    $
    10,092Income taxes paid
    
    $
    17
    
    
    $
    133
   6




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Real Mex Restaurants, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements (unaudited)
 June 29, 2008
 (in thousands, except for share data)
 1. Basis of Presentation
  ® ® ®
     2. Impairment of Goodwill
   7




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3. Impairment of Long-Lived Assets
  4. Long-Term Debt
  June 29,
    
    
    December 30,2008
    
    
    2007Senior Secured Notes due 2010
    
    $
    105,000
    
    
    $
    105,000Senior Secured Notes unamortized debt premium
    
    
    2,051
    
    
    
    2,637Senior Secured Revolving Credit Facility
    
    
    2,000
    
    
    
    11,000Senior Unsecured Credit Facility
    
    
    65,000
    
    
    
    65,000Mortgage
    
    
    624
    
    
    
    656Other
    
    
    1,043
    
    
    
    343175,718
    
    
    
    184,636Less current portion
    
    
    (4,283
    )
    
    
    (12,579
    )$
    171,435
    
    
    $
    172,057
 Senior Secured Notes due 2010
   8




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Senior Secured Revolving Credit Facilities
       9




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##### Table of Contents



Senior Unsecured Credit Facility
  Mortgage.
  June 29,
    
    
    December 30,2008
    
    
    2007Senior Secured Notes due 2010
    
    
    10.25
    %
    
    
    10.00
    %Senior Secured Revolving Credit Facilities
    
    
    5.21 to 6.25
    %
    
    
    7.02 to 8.00
    %Senior Unsecured Credit Facility
    
    
    7.48
    %
    
    
    9.83
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.98
    %
    
    
    6.45 to 7.75
    %
 5. Capitalization
 Common Stock
  Stock Option Plans
    10




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##### Table of Contents



Weighted average fair value of grants
    
    $
    39.43Risk-free interest rate
    
    
    4.52
    %Expected volatility
    
    
    42.28
    %Expected life in years
    
    
    6.15
  WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 30, 2007
    
    
    79,850
    
    
    $
    81.50Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/expired
    
    
    (13,650
    )
    
    
    81.50Outstanding at June 29, 2008
    
    
    66,200
    
    
    
    81.50Vested and expected to vest at June 29, 2008
    
    
    61,949
    
    
    
    81.50Exercisable at June 29, 2008
    
    
    12,900
    
    
    
    81.50
   Three months ended April 1, 2007
    
    
    Three months ended July 1, 2007Previously
    
    
    Effect of
    
    
    
    
    
    
    Previously
    
    
    Effect ofReported
    
    
    Restatement
    
    
    Restated
    
    
    Reported
    
    
    Restatement
    
    
    RestatedGeneral and administrative expense
    
    $
    7,769
    
    
    $
    228
    
    
    $
    7,997
    
    
    $
    8,057
    
    
    $
    228
    
    
    $
    8,285Operating income
    
    
    5,821
    
    
    
    (228
    )
    
    
    5,593
    
    
    
    8,041
    
    
    
    (228
    )
    
    
    7,813Income before income tax provision
    
    
    881
    
    
    
    (228
    )
    
    
    653
    
    
    
    5,151
    
    
    
    (228
    )
    
    
    4,923Income tax provision
    
    
    368
    
    
    
    (95
    )
    
    
    273
    
    
    
    2,040
    
    
    
    (90
    )
    
    
    1,950Net income
    
    
    513
    
    
    
    (133
    )
    
    
    380
    
    
    
    3,111
    
    
    
    (138
    )
    
    
    2,973
 6. Related Party Transactions
   11




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7. Impact of Recently Issued Accounting Principles
     12




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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
              13




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Critical Accounting Policies
   Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    24.7
    
    
    
    24.3
    
    
    
    24.7
    
    
    
    24.0Labor
    
    
    34.9
    
    
    
    34.9
    
    
    
    35.8
    
    
    
    35.4Direct operating and occupancy expense
    
    
    25.3
    
    
    
    25.6
    
    
    
    25.9
    
    
    
    25.9Total operating costs
    
    
    84.9
    
    
    
    84.8
    
    
    
    86.4
    
    
    
    85.3General and administrative expense
    
    
    5.2
    
    
    
    5.6
    
    
    
    5.4
    
    
    
    5.7Depreciation and amortization
    
    
    4.1
    
    
    
    4.1
    
    
    
    4.2
    
    
    
    4.1Pre-opening costs
    
    
    0.7
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.3Operating (loss) income
    
    
    (18.2
    )
    
    
    5.2
    
    
    
    (8.8
    )
    
    
    4.7Interest expense
    
    
    3.0
    
    
    
    3.2
    
    
    
    3.2
    
    
    
    3.4(Loss) income before tax provision
    
    
    (20.9
    )
    
    
    3.3
    
    
    
    (11.7
    )
    
    
    1.9Net (loss) income
    
    
    (20.9
    )
    
    
    2.0
    
    
    
    (11.7
    )
    
    
    1.2
 Three months ended June 29, 2008 compared to the three months ended July 1, 2007
 Total Revenues
 Cost of Sales
  14




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Labor
 Direct Operating and Occupancy Expense
 General and Administrative Expense
 Depreciation and amortization
 Goodwill Impairment.
 Interest Expense
 Income tax provision.
 Six months ended June 29, 2008 compared to the six months ended July 1, 2007
 Total Revenues
 Cost of Sales
 Labor
  15




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Direct Operating and Occupancy Expense
 General and Administrative Expense
 Depreciation and amortization
 Goodwill Impairment.
 Interest Expense.
 Income tax provision
 Liquidity and Capital Resources
  Working Capital and Cash Flows
   16




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Operating Activities
 Investing Activities
  Financing Activities
 Debt and Other Obligations
 Senior Secured Notes due 2010
   17




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Senior Secured Revolving Credit Facilities
      Senior Unsecured Credit Facility
  18




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Mortgage.
  June 29,
    
    
    December 30,2008
    
    
    2007Senior Secured Notes due 2010
    
    
    10.25
    %
    
    
    10.00
    %Senior Secured Revolving Credit Facilities
    
    
    5.21 to 6.25
    %
    
    
    7.02 to 8.00
    %Senior Unsecured Credit Facility
    
    
    7.48
    %
    
    
    9.83
    %Mortgage
    
    
    9.28
    %
    
    
    9.28
    %Other
    
    
    3.98
    %
    
    
    6.45 to 7.75
    %
 Capital Leases
 Inflation
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    19




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Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes In Internal Controls Over Financial Reporting
   20




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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
   21




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Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Amendment No. 2 to Credit Agreement dated April 17, 2008.
(Filed with the Securities and Exchange Commission as Exhibit
10.1 to the Companys Current Report on Form 8-K dated April
23, 2008 and incorporated by reference herewith.)31.1*
    
    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  22




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##### Table of Contents



SIGNATURE
  REAL MEX RESTAURANTS, INC.Dated: August 12, 2008
    By:
    /s/ Frederick F. WolfeFrederick F. WolfePresident & Chief Executive
Officer and Director
(Principal Executive Officer)Dated: August 12, 2008
    By:
    /s/ Steven TannerSteven TannerChief Financial Officer
(Principal Financial Officer
and Accounting Officer)  23




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Amendment No. 2 to Credit Agreement dated April 17, 2008.
(Filed with the Securities and Exchange Commission as Exhibit
10.1 to the Companys Current Report on Form 8-K dated April
23, 2008 and incorporated by reference herewith.)31.1*
    
    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  24