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~~June 2726, 2011


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. Yes þ No o

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). Yes o No o

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 Filer o		Accelerated Filer o		Non-Accelerated Filer þ		Smaller Reporting Company o

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

As of ~~April~~July 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			1415
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2023
Item 4. Controls and Procedures			2123
PART II OTHER INFORMATION			22
Item 1. Legal Proceedings			2224
Item 1A. Risk Factors			2224
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2237
Item 3. Defaults Upon Senior Securities			2237
Item 4. (Removed and Reserved)			2237
Item 5. Other Information			2237
Item 6. Exhibits			2338
SIGNATURE			2439
Exhibit 3.1
Exhibit 3.2
Exhibit 3.3
Exhibit 3.4
Exhibit 3.5
Exhibit 3.6
Exhibit 3.7
Exhibit 3.8
Exhibit 3.9
Exhibit 3.10
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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.

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,
	June 26,			December 26,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	12,~~732~~311		$	3,359
Trade receivables, net		98,~~515~~671			8,295
Other receivables		~~707~~577			621
Inventories, net		1312,~~181~~146			11,618
Prepaid expenses		23,~~080~~430			2,877
Current portion of favorable lease asset, net		3,~~355~~352			3,357
Other current assets		~~225~~229			248
Total current assets		30,~~795~~716			30,375
Property and equipment, net		6965,~~082~~977			72,730
Goodwill		~~113~~46,~~721~~000			113,721
Trademarks and other intangible assets		4238,~~100~~500			42,100
Deferred charges		43,~~091~~472			4,710
Favorable lease asset, less current portion, net		109,~~817~~982			11,655
Other assets		6,~~036~~253			6,154
Total assets	$	~~276~~200,~~642~~900		$	281,445
Liabilities and stockholder’s equity
Current liabilities:
Accounts payable	$	2315,~~583~~145		$	18,745
Accrued self-insurance reserves		109,~~584~~962			13,212
Accrued compensation and benefits		812,~~832~~139			12,091
Accrued interest		510,~~723~~362			10,188
Other accrued liabilities		109,~~738~~417			10,146
Current portion of long-term debt		4169,~~793~~234			507
Current portion of capital lease obligations		~~262~~257			269
Total current liabilities		64226,~~515~~516			65,158
Long-term debt, less current portion		~~161,993~~307			160,693
Capital lease obligations, less current portion		~~452~~385			514
Deferred tax liabilities		19,522			19,522
Unfavorable lease liability, less current portion, net		5,~~508~~152			5,870
Other liabilities		3,~~366~~234			2,211
Total liabilities		255,~~356~~116			253,968
Commitments and contingencies		—			—
Stockholder’s equity:
Stockholder’s equity (deficit):
Common stock, $.001 par value, 1,000 shares authorized, issued and outstanding at March 27, 2011 and December 26, 2010		—			—
Common stock, $.001 par value, 1,000 shares authorized, issued and outstanding at June 26, 2011 and December 26, 2010		—			—
Additional paid-in capital		45,~~301~~245			45,260
Accumulated deficit		(2499,~~015~~461	)		(17,783	)
Total stockholder’s equity		21,286			27,477
Total stockholder’s equity (deficit)		(54,216	)		27,477
Total liabilities and stockholder’s equity	$	276,642		$	281,445
Total liabilities and stockholder’s equity (deficit)	$	200,900		$	281,445

See notes to consolidated financial statements.

Real Mex Restaurants, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands)

	Successor			Predecessor
	Three Months Ended						Six Months Ended
	Three months			Three months
	Successor			Predecessor			Successor			Predecessor
	ended			ended
	June 26,			June 27,			June 26,			June 27,
	March 27,			March 28,
	2011			2010			2011			2010
	2011			2010
Revenues:
Revenues:
Restaurant revenues	$	116,451		$	119,282		$	222,565		$	229,417
Restaurant revenues	$	106,114		$	110,135
Manufacturing and distribution revenues		9,864			9,428			19,248			18,875
Manufacturing and distribution revenues		9,384			9,447
Franchise and other revenues		865			927			1,600			1,764
Franchise and other revenues		735			837
Total revenues		127,180			129,637			243,413			250,056
Total revenues		116,233			120,419
Costs and expenses:
Costs and expenses:
Restaurant costs
Restaurant costs
Cost of sales		27,981			28,854			53,878			55,597
Cost of sales		25,897			26,743
Labor		41,772			41,429			79,694			82,153
Labor		37,922			40,724
Direct operating and occupancy expense		33,234			32,627			64,404			64,799
Direct operating and occupancy expense		31,170			32,172
Total restaurant costs		102,987			102,910			197,976			202,549
Total restaurant costs		94,989			99,639
Manufacturing and distribution costs		9,353			7,997			17,690			14,833
Manufacturing and distribution costs		8,337			6,836
General and administrative expense		6,322			5,485			12,826			11,078
General and administrative expense		6,504			5,593
Depreciation and amortization		5,516			6,401			11,037			12,715
Depreciation and amortization		5,521			6,314
Impairment of goodwill and intangible assets		71,321			—			71,321			—
Total costs and expenses		~~115~~195,~~351~~499			~~118~~122,~~382~~793			310,850			241,175
Operating income		882			2,037
Operating (loss) income		(68,319	)		6,844			(67,437	)		8,881
Other income (expense):
Interest expense		(7,~~019~~062	)		(7,~~663~~643	)		(14,081	)		(15,306	)
Other income (expense), net		(51	)		115
Other (expense) income, net		(65	)		—			(116	)		116
Total other expense, net		(7,~~070~~127	)		(7,~~548~~643	)		(14,197	)		(15,190	)
Loss before income tax provision		(6,188	)		(5,511	)
Loss before income tax (benefit) provision		(75,446	)		(799	)		(81,634	)		(6,309	)
Income tax provision (benefit)		44			(12	)
Income tax (benefit) provision		—			(29	)		44			(41	)
Net loss	$	(675,~~232~~446	)	$	(~~5,499~~770	)	$	(81,678	)	$	(6,268	)

See notes to consolidated financial statements.

Real Mex Restaurants, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Successor			Predecessor
	Three months			Three months
	Six months			Six months
	ended			ended
	March 27,			March 28,
	June 26,			June 27,
	2011			2010
Operating activities
Net loss	$	(681,~~232~~678	)	$	(56,~~499~~268	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		510,~~044~~082			510,~~435~~929
Amortization of:
Favorable lease asset and unfavorable lease liability, net		~~477~~955			~~879~~1,786
Debt discount		3265			~~929~~1,857
Deferred financing costs		~~619~~1,238			~~616~~1,244
Loss on disposal of property and equipment		8			10
Impairment of goodwill and intangible assets		71,321			—
Stock-based compensation expense		41			9
Loss on disposal of property and equipment		14			13
Stock-based compensation expense		(15	)		49
Changes in operating assets and liabilities:
Trade and other receivables		(~~1,306~~332	)		(~~463~~154	)
Inventories		(~~1,563~~528	)		~~303~~(885	)
Prepaid expenses and other current assets		~~820~~(534	)		~~(2,903~~434	)
Other assets		~~118~~(100	)		5866
Accounts payable and accrued liabilities		(34,~~551~~363	)		~~1,770~~205
Other liabilities		1,~~156~~024			~~898~~814
Net cash (used in) provided by operating activities		(42,~~337~~851	)		210,~~042~~090
Investing activities
Purchases of property and equipment		(13,~~485~~727	)		(15,~~982~~078	)
Net proceeds from disposal of property and equipment		—			2
Net cash used in investing activities		(13,~~485~~727	)		(15,~~980~~076	)
Financing activities
Net borrowings under revolving credit facility		45,~~600~~200			—
Payments on long-term debt agreements and capital lease obligations		(405	)		(487	)
Borrowing under long-term debt agreements		1,411			1,417
Payments of financing costs		—			(22	)
Payments on long-term debt agreements and capital lease obligations		(1,081	)		(1,312	)
Net cash provided by (used in) financing activities		4,195			(509	)
Payments of financing costs		—			(75	)
Net decrease in cash and cash equivalents		(1,627	)		(447	)
Net cash provided by financing activities		5,530			30
Net (decrease) increase in cash and cash equivalents		(1,048	)		5,044
Cash and cash equivalents at beginning of period		3,359			3,317
Cash and cash equivalents at end of period	$	12,~~732~~311		$	28,~~870~~361
Supplemental disclosure of cash flow information
Interest paid	$	9,~~542~~997		$	9,~~219~~564
Income taxes paid (refunded)	$	44		$	(1241	)
Supplemental disclosure of noncash investing and financing activities
In-kind interest on senior unsecured credit facility added to principal	$	12,~~290~~605		$	12,~~095~~212

See notes to consolidated financial statements.

Real Mex Restaurants, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~March~~June 2726, 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~~June 2726, 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 3230 restaurants in 1110 states and two foreign countries as of ~~March~~June 2726, 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~~June 2726, 2011 and December 26, 2010. The accompanying consolidated statements of operations and cash flows present the Successor ~~three~~six months ended ~~March~~June 2726, 2011 and the Predecessor ~~three months~~six months ended ~~March~~June 2827, 2010. See further description of the ~~successor~~Successor and ~~predecessor~~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~~principal ~~statements~~liquidity asrequirements ofare ~~March 27,~~to ~~2011~~service ~~have~~debt ~~been~~and ~~presented~~meet oncapital expenditure ~~the~~and ~~basis~~working ~~that it~~capital isneeds. aThe ~~going~~Company’s ~~concern,~~ability ~~which~~to ~~contemplates~~make ~~the~~principal ~~realization~~and ofinterest payments, ~~assets~~fund planned capital expenditures and ~~the~~meet ~~satisfaction~~financial ofcovenants will depend on the ability ~~liabilities~~to generate cash in the ~~normal~~future, ~~course~~which, ofto ~~business.~~a ~~The~~certain ~~Company’s~~extent, ~~principal~~is ~~liquidity~~subject ~~requirements~~to ~~are~~general toeconomic, ~~service~~financial, ~~debt~~competitive, legislative, regulatory and ~~meet~~other ~~capital~~factors ~~expenditure~~that ~~and~~are ~~working~~beyond ~~capital~~the ~~needs~~control of the Company.

The Company’s ~~ability~~debt toagreements ~~make~~require ~~principal~~compliance ~~and~~with ~~interest~~specified ~~payments,~~financial ~~fund~~covenants. ~~planned~~These covenants could adversely affect the Company’s ability to finance future operations or capital ~~expenditures~~needs and ~~meet~~pursue ~~financial~~available ~~covenants~~business ~~will~~opportunities. ~~depend~~A onbreach ~~the~~of ~~ability~~any toof ~~generate~~these ~~cash~~covenants could result in a default in respect of the ~~future,~~ ~~which,~~related toindebtedness. If a ~~certain~~default ~~extent~~occurs, isthe ~~subject~~relevant lenders could elect to ~~general~~declare ~~economic,~~the ~~financial~~indebtedness, ~~competitive~~together with accrued interest and other fees, to be ~~legislative,~~immediately ~~regulatory~~due and ~~other~~payable ~~factors~~and ~~that~~proceed ~~are~~against ~~beyond~~any ~~the~~collateral ~~control~~securing that indebtedness. Acceleration of other indebtedness could result in a default under the ~~Company.~~terms ~~Although~~of the Indenture ~~Company~~governing ~~had~~the ~~negative~~Notes. ~~working~~In ~~capital~~such asan ~~of March 27~~event, ~~2011~~the ~~(as~~Company ~~has~~may ~~been~~be ~~the~~required ~~case~~to ~~for~~refinance ~~previous periods~~all ~~reported~~or ~~on),~~part ~~based~~of onthe then-existing debt (including the ~~current~~Notes), ~~level~~sell ofassets ~~operations~~or ~~and~~borrow ~~the~~more money. The Company’s ~~business~~may ~~plan,~~not be ~~management~~able ~~believes~~to ~~the~~accomplish ~~cash~~any ~~flow~~of ~~generated~~the ~~from~~alternatives ~~operations~~on acceptable terms, ~~available~~or ~~cash~~at ~~and~~all. ~~available borrowings~~The ~~under~~failure ~~the~~to ~~Senior~~generate sufficient ~~Secured~~cash ~~Revolving~~flow ~~Credit~~or ~~Facilities~~to ~~will~~achieve beany ~~adequate~~of tothese ~~meet~~alternatives ~~liquidity needs~~could ~~for~~significantly adversely affect the ~~near future~~Company.

InThe ~~addition, the~~ Company’s ~~debt~~was ~~agreements~~in ~~require~~violation ~~compliance~~of ~~with~~various ~~specified financial~~ covenants. ~~These~~as ~~covenants~~of ~~could~~June 26, ~~adversely~~2011. ~~affect~~On ~~the~~July 27, 2011, the Company’s ~~ability~~entered tointo ~~finance~~a ~~future operations~~series orof ~~capital~~Limited ~~needs~~Waivers and ~~pursue~~Amendments ~~available~~with ~~business opportunities.~~the ACompany’s ~~breach~~various oflenders and ~~any~~noteholders ofthat ~~these~~waived ~~covenants~~a ~~could~~series ~~result~~of indefaults aon ~~default~~financial incovenants. ~~respect~~These ofagreements ~~the~~require ~~related~~the ~~indebtedness.~~Company Ifto submit a ~~default~~reasonably ~~occurs,~~detailed proposal to restructure the ~~relevant~~Company’s ~~lenders~~material ~~could~~debt agreements ~~elect~~on toor ~~declare~~prior ~~the indebtedness~~to September 15, ~~together~~2011 ~~with~~and ~~accrued~~negotiate ~~interest~~ and ~~other~~execute ~~fees,~~a tobinding berestructuring ~~immediately~~term sheet, ~~due~~plan ~~and~~support ~~payable~~agreement, ~~and proceed~~lock-up ~~against~~agreement ~~any~~or ~~collateral~~similar ~~securing~~agreement ~~that~~containing ~~indebtedness.~~the ~~Acceleration~~substance of such ~~other~~proposal ~~indebtedness~~or ~~could result~~another inrestructuring aplan ~~default~~with ~~under~~respect to the ~~terms~~Company’s ofmaterial ~~the~~debt arrangements ~~Indenture~~on ~~governing~~or ~~the~~prior ~~Notes~~to October 31, 2011. InThe ~~such~~process anof ~~event,~~providing ~~the Company~~a ~~may~~reasonably bedetailed proposal ~~required~~by toSeptember 15, ~~refinance~~2011 ~~all~~involves orthe ~~part~~use of ~~the~~several ~~then-existing~~professional ~~debt~~firms (including ~~the Notes)~~financial, ~~sell~~real ~~assets~~estate orand ~~borrow~~legal ~~more money~~advisors. ~~The~~While ~~Company~~management ~~may~~believes ~~not~~these bevarious ~~able~~resources toand ~~accomplish~~their ~~any~~efforts will ofprovide the ~~alternatives on~~Company ~~acceptable~~a ~~terms,~~viable orcapital atstructure ~~all.~~by ~~The~~October 31, ~~failure~~2011, tothere ~~generate~~can ~~sufficient~~be ~~cash~~no ~~flow~~assurance that orthese toefforts ~~achieve~~will ~~any~~be ~~of these~~successful ~~alternatives~~or ~~could~~that ~~significantly~~all ~~adversely~~parties ~~affect~~will agree with the ~~Company~~proposed solutions.

~~Based~~The ~~upon~~accompanying ~~management’s~~financial ~~projections,~~statements ~~there~~have isbeen aprepared ~~possibility~~assuming that ~~certain~~the ~~financial~~Company ~~covenants~~will ~~related~~continue toas a going concern; however, if the ~~Notes~~restructuring ~~and~~efforts ~~Senior~~noted ~~Secured~~above ~~Revolving~~are ~~Credit~~not ~~Facilities~~successful, it ~~will~~would raise substantial doubt about the Company’s ability to do so. The financial statements do not beinclude ~~met~~any asadjustments ofto ~~June 26,~~reflect the possible future effects on the recoverability and ~~2011.~~classification ~~Management~~of isassets inor ~~negotiations~~the ~~with~~amounts and classifications of liabilities that may result should the ~~lenders~~Company be unable to ~~amend~~continue ~~these~~as ~~covenants~~a going concern. AsIn addition, because the waivers noted above do not extend for a full year, ~~if negotiations~~and ~~are~~because management projections indicate that the Company will not ~~successful,~~meet certain covenants absent the completion of such a restructuring, the Company is required to reclassify related long- term debt balances ~~may~~as ~~become~~ current ~~and~~liabilities ~~subject~~in toaccordance with FASB ~~the~~Accounting ~~remedies~~Standards ~~set~~Codification ~~forth~~470, ~~above~~“Debt”. ~~(See~~As ~~definitions~~a ofresult, ~~certain~~the ~~capitalized~~Notes ~~terms~~and Senior Unsecured Credit Facility have been reclassified to current portion of long-term debt in ~~Note~~the 6Consolidated Balance Sheets at June 26, 2011.)

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 indirectly 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~~attributed 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”.

4.As ~~Intangible~~a ~~Assets~~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”.

4. Goodwill and Other Intangible Assets

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The fair value is determined based upon a combination of two valuation techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

Factors that could change the result of our goodwill impairment test include, but are not limited to, different assumptions used to forecast future revenues, expenses, capital expenditures and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flows is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair values. A variance in the discount rate could have a significant impact on the valuation of the goodwill for purposes of the impairment test. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions made in response to the economic environment on our customer base or a material negative change in relationships with our customers.

Management forecasts for 2011 were revised as a result of current operating results and growth projections. As a result, the Company identified impairment of goodwill of $67,721, impairment of trademarks of $2,000 and impairment of franchise agreements of $1,600. As a result, a non-cash impairment charge of $71,321 was recorded in the Consolidated Statements of Operations for the three months ended June 26, 2011.

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

	March 27,		December 26,
	June 26,		December 26,
	2011		2010
Trademarks	$	3735,000	$	37,000
Franchise agreements		53,~~100~~500		5,100
	$	4238,~~100~~500	$	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, wethe Company engaged a new insurance broker with new actuarial specialists. Based upon the actuarial calculation and improvements in ~~our~~the Company’s 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~~appropriate. 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. The accrued self-insurance reserve was $9,962 and $13,212 at June 26, 2011 and December 26, 2010 respectively.

6. Long-Term Debt

Long-term debt consists of the following:

	March 27,			December 26,
	June 26,			December 26,
	2011			2010
Senior Secured Notes due 2013	$	130,000		$	130,000
Senior Secured Notes unamortized debt discount		(~~228~~195	)		(260	)
Senior Secured Revolving Credit Facility		45,~~600~~200			—
Senior Unsecured Credit Facility — Related Party		31,890			30,599
Senior Unsecured Credit Facility		33,205			30,599
Mortgage		~~419~~398			440
Other		~~105~~933			421
		166,786			161,200
		169,541			161,200
Less current portion		(4169,~~793~~234	)		(507	)
	$	~~161,993~~307		$	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.

9Effective July 27, 2011, the Company entered into a Second Supplemental Indenture which provides for amendments to the existing Indenture. The Second Supplemental Indenture includes waivers and an amendment relating to a breach of the Consolidated Cash Flow covenant, as defined in the Indenture, for the period ended June 26, 2011, an amendment to provide that through October 31, 2011, the consent of the holders of at least 35% in aggregate principal amount of the then outstanding Notes will be required to declare all of the Notes to be due and payable upon an event of default, an amendment to provide that through October 31, 2011, in order for any noteholder to pursue a remedy with respect to the Indenture or the Notes, holders of at least 35% in aggregate principal amount of the then outstanding Notes will be required to make a written request to the trustee under the Indenture, waivers of certain breaches of the Indenture in connection with the Company’s failure to provide certain notices and timely set a special record date and payment date for the interest payment made on the Notes on July 28, 2011, and waivers of certain breaches and cross-defaults under the Company’s other significant debt agreements.

~~Table~~Prior to July 1, 2012, the Company may redeem some or all of ~~Contents~~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 GECC Credit Agreement, 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.

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, (the “GECC Credit Agreement”) provides for a $15~~.0 million~~ ,000 revolving credit facility and $25~~.0 million~~,000 letter of credit facility, maturing on July 1, 2012 (collectively, the “Senior Secured Revolving Credit Facilities”). Under the Senior ~~Secured~~ 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~~Senior ~~revolving~~Secured ~~credit~~Revolving ~~facilities~~Credit Facilities is based on either prime rate plus Applicable Margin or or ninety-day LIBOR plus Applicable Margin, as defined in and subject to certain restrictions in ~~the~~ the 2009 amendment, which extended the due date and modified certain covenants and fees on the ~~letters~~ 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~~June 2726, 2011, the Company had $85,~~393~~893 available under the ~~Senior~~letter ~~Secured Letter~~ of ~~Credit~~credit ~~Facility~~facility and $109,~~400~~800 available under the ~~Senior~~revolving ~~Secured~~credit ~~Revolving~~facility ~~Credit Facility~~ that may also be utilized for the letters of credit.

10On April 2, 2010, the Company entered into an amendment to the GECC 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.

On July 27, 2011, the Company entered into a Limited Waiver and Amendment No. 6 (“Amendment No. 6”) to the GECC Credit Agreement including waivers of certain breaches of the Leverage Ratio, Adjusted Leverage Ratio, Interest Coverage Ratio and Consolidated Cash Flow financial covenants for the period ended June 26, 2011, as defined in the GECC Credit Agreement, an amendment which provides that no default will be deemed to have occurred prior to November 15, 2011 solely by reason of any breach or violation of the financial covenants in the GECC Credit Agreement for the period ending September 25, 2011, and waivers of certain breaches and cross-defaults under the Company’s other significant debt agreements. In connection with Amendment No. 6, Sun Cantinas Finance, LLC, an entity affiliated with Sun Cantinas by common ownership (“Sun Finance”), purchased a $5,000 participation interest in the $15,000 revolving credit facility under the GECC Credit Agreement. Sun Finance has an option to purchase up to an additional $2,500 participation interest in the revolving credit facility. To the extent Sun Finance exercises its option to purchase such additional participation interest, the maximum amount the Company may borrow under the revolving credit facility will increase, and the maximum amount the Company may borrow under the letter of credit facility will decrease, each by an amount equal to the additional participation by Sun Finance. As a result of the Sun Finance participation in the GECC Credit Agreement, the Senior Secured Revolving Credit Facilities are held by related parties to the Company effective July 27, 2011.

The GECC 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 June 26, 2011, the Company was in compliance with all specified financial and other covenants under the GECC Credit Agreement, as amended.

OnSenior ~~April 2,~~Unsecured ~~2010,~~Credit ~~the~~Facility. ~~Company~~In ~~entered~~connection ~~into~~with anthe ~~amendment~~offering toof the Notes, the Company entered into a Second Amended and Restated ~~Revolving~~ 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 ~~modified~~the ~~certain~~principal ~~definitions~~balance inof ~~order~~the existing unsecured loan owed by the Company under the existing senior unsecured credit facility, as amended, was reduced from $65,000 to ~~allow~~$25,000 through (i) the ~~transfer~~assumption by Holdco of $25,000 of such unsecured debt and (ii) the ~~shares~~exchange by a lender under the existing 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 ~~Holdco~~a ~~within~~gain ~~current~~on ~~stockholders~~extinguishment of ~~Holdco~~debt of $10,875. NoDeferred ~~such~~debt ~~amendment~~fees ~~was~~of ~~required~~$161 were recorded related to the Senior Unsecure Credit Facility. Interest accrues at an annual rate of 16.5% and is payable quarterly, provided that (i) such interest is payable in kind for the ~~Notes~~first asfour quarters following the Closing Date and (ii) thereafter will be payable in a ~~result~~combination of ~~such~~cash ~~transfer~~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~~On ~~Second Amended and Restated Revolving Credit Agreement~~July 27, ~~as amended~~2011, ~~contains various affirmative and negative covenants and restrictions, which among other things, require~~ the Company to ~~meet~~entered ~~certain~~into ~~financial~~a ~~tests~~Limited ~~(including~~Waiver ~~certain leverage~~ and ~~cash~~First ~~flow~~Amendment ~~ratios),~~to ~~and limits~~ the ~~Company~~ ~~and its subsidiaries’ ability to incur or guarantee additional indebtedness, make certain~~Senior ~~capital~~Unsecured ~~expenditures,~~Credit ~~pay~~Facility ~~dividends~~which orincludes ~~make~~waivers ~~other~~of ~~equity distributions, purchase or redeem capital stock, make~~ certain ~~investments,~~breaches ~~sell assets, engage in transactions with affiliates~~ and ~~effect a consolidation or merger. The agreement contains a~~ cross-~~default~~defaults ~~provision~~under ~~wherein if~~ the ~~Company is~~ ~~in default on any other credit facilities, default on this facility is automatic. At March 27, 2011, the~~ Company’s ~~was in compliance with all specified financial and~~ other ~~covenants~~significant ~~under~~debt ~~the Second Amended and Restated Revolving Credit Agreement, as amended~~agreements.

The Senior Unsecured Credit Facility., Inas ~~connection with the offering of the Notes~~amended, ~~the~~contains ~~Company entered~~various ~~into~~affirmative ~~a Second Amended~~ and ~~Restated~~negative covenants ~~Credit Agreement~~which, ~~by and~~ among ~~the~~other ~~Company~~things, ~~Holdco,~~limits the ~~lenders~~ ~~party~~Company’s ~~thereto~~ and ~~Credit~~its ~~Suisse,~~subsidiaries’ ~~Cayman~~ability ~~Islands Branch (the “Senior Unsecured Credit Facility”), pursuant~~ to ~~which~~incur ~~the principal balance of the existing unsecured loan owing by the~~or ~~Company~~guarantee ~~under~~additional ~~the existing senior unsecured credit facility~~indebtedness, asgrant ~~amended,~~certain ~~was reduced from $65~~liens,~~000 to~~ ~~$25,000~~make ~~through~~certain ~~(i) the~~restricted ~~assumption by Holdco of $25~~payments,~~000~~ ~~of such unsecured debt and (ii) the~~make ~~exchange~~capital byexpenditures, aengage ~~lender~~in ~~under~~transactions ~~the~~with ~~Senior Unsecured Credit Facility~~affiliates, asmake ~~amended,~~certain ~~of $15~~investments,~~000~~ ofsell ~~such~~its ~~unsecured debt for $4~~assets,~~583~~ ~~aggregate~~make ~~principal amount of Notes (which were issued for $4~~acquisitions,~~125), resulting~~ ineffect a ~~gain~~consolidation onor ~~extinguishment~~merger ~~of debt of $10,875. Deferred debt fees of $161 were recorded related to the Second Amended~~ and ~~Restated~~amend ~~Credit~~or ~~Agreement.~~modify ~~Interest accrues at an annual rate of~~instruments ~~16.5%~~governing ~~and~~certain isindebtedness ~~payable quarterly, provided that~~ (~~i) such~~including ~~interest~~relating isto ~~payable in kind for~~ the ~~first four~~Company’s ~~quarters~~Notes ~~following~~and the ~~Closing~~Senior ~~Date~~Secured Revolving ~~and~~Credit ~~(ii~~Facilities) ~~thereafter~~, ~~will be payable in a combination of cash~~ and inincludes ~~kind.~~certain ~~The~~cross-default ~~term~~language ofrelated to the Company’s other ~~credit~~significant ~~facility~~debt ~~was~~agreements. ~~extended~~At ~~to July~~June 126, ~~2013~~2011, ~~and certain covenants were modified. Certain lenders to~~ the ~~Senior~~Company ~~Unsecured~~was ~~Credit~~in ~~Facility~~compliance ~~are~~with ~~owners~~all ofspecified ~~Holdco,~~financial and asother acovenants ~~result,~~under the Senior Unsecured Credit Facility ~~is held by related parties to the Company~~.

~~The~~ Senior Unsecured Credit Facility, as— ~~amended,~~Holdco ~~contains~~In ~~various~~connection ~~affirmative~~with ~~and~~the ~~negative covenants~~offering ~~which,~~of ~~among other things, require~~ the ~~Company~~Notes toand ~~meet~~as a ~~certain~~result ~~financial~~of ~~tests~~the ~~(including certain~~assumption ~~leverage~~by ~~and~~Holdco ~~interest~~of ~~coverage~~$25,000 ~~ratios)~~noted ~~and~~above, ~~limits~~Holdco ~~the~~entered ~~Company’s~~into ~~and~~a ~~its~~Credit ~~subsidiaries’~~Agreement ~~ability~~governing toa ~~incur~~$25,000 orHoldings ~~guarantee~~Term ~~additional~~Loan ~~indebtedness~~Facility, ~~grant~~(the ~~certain~~“Senior ~~liens,~~Unsecured ~~make~~Credit ~~certain~~Facility ~~restricted~~— ~~payments~~Holdco”), ~~make~~with ~~capital~~a ~~expenditures,~~maturity ~~engage~~date inof ~~transactions with affiliates~~January 1, ~~make~~2014. ~~certain investments,~~Interest ~~sell~~accrues ~~its~~at ~~assets,~~an ~~make~~annual ~~acquisitions,~~rate ~~effect~~of a20% ~~consolidation~~and oris payable ~~merger~~in ~~and~~kind. ~~amend~~The ~~or modify~~balance ~~instruments~~at ~~governing~~June 26, ~~certain~~2011 ~~indebtedness~~is ~~(including~~$35,214. ~~relating~~The toCompany ~~the~~has ~~Company’s~~no ~~Notes~~obligation ~~and the~~related to Senior ~~Secured~~Unsecured ~~Revolving~~ Credit ~~Facilities).~~Facility At— ~~March 27,~~Holdco ~~2011,~~and ~~the~~as ~~Company~~such ~~was~~it inis ~~compliance with~~not ~~all~~included ~~specified~~in ~~financial and other covenants under~~ the ~~Senior~~Consolidated Balance ~~Unsecured~~Sheets ~~Credit~~at ~~Facility~~June 26, ~~as amended~~2011.

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~~June 2726, 2011, the principal amount outstanding on on the mortgage was $~~419~~398.

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

	March 27,			December 26,
	June 26,			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	%
Senior Unsecured Credit Facility		16.50	%		16.50	%
Mortgage		9.28	%		9.28	%
Other		3.1914 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~~June 2726, 2011 and December 26, 2010, there were 1,000 shares of common stock authorized, issued and outstanding.

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~~12 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.

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

			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

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.

The ~~Company~~following ~~recorded~~table ~~$41~~summarizes ~~and~~the ~~$9 of~~ stock~~-based~~ ~~compensation~~option ~~expense~~activity ~~during~~as ~~the~~of ~~Successor three months ended March 27, 2011~~ and for the ~~Predecessor~~six ~~three~~months ended ~~March 28, 2010, respectively.~~ ~~Stock-based compensation is included in general and administrative expense on the consolidated statements of operations. As of March~~June 2726, 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.


				Weighted
				Average
	Shares			Exercise Price
Outstanding at December 26, 2010		194		$	8,150
Granted		—			—
Exercised		—			—
Forfeited/expired		(116	)		8,150

Outstanding at June 26, 2011		78		$	8,150

Vested and expected to vest at June 26, 2011		78		$	8,150
Exercisable at June 26, 2011		64		$	8,150

The Company recorded ($15) and $49 of stock-based compensation expense during the Successor six months ended June 26, 2011 and the Predecessor six months ended June 27, 2010, respectively. Stock-based compensation is included in general and administrative expense on the consolidated statements of operations. As of June 26, 2011, $15 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 0.9 years. At June 26, 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~~June 2726, 2011, based on quoted market prices, was $~~134~~110,~~068~~175. 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.

1213

As of ~~March~~June 2726, 2011, the Company had no assets or liabilities that were measured at fair ~~value~~ 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

AsCertain ~~discussed~~funds inmanaged ~~Note~~by 6,Farallon ~~the~~are ~~Senior~~indirect ~~Unsecured~~stockholders ~~Credit~~of ~~Facility~~Holdco. isCertain ~~held~~funds managed by ~~related~~Farallon ~~parties~~hold toan indirect interest in a shopping center from which the Company leases property for the operation of an Acapulco restaurant.

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~~six months ended ~~March~~June 2726, 2011 ~~and~~ and the Predecessor ~~three~~six months ended ~~March~~June 2827, 2010, were $69127 and $82164, respectively, of which up to to approximately $1732 and $3140 are attributable to the Farallon funds’ indirect interest in the ~~shopping~~ shopping center, respectively. Additionally, certain funds managed by Farallon hold approximately $13,000 aggregate principal amounts of the Notes. Effective as of June 28, 2010, Farallon and its affiliates, including Cocina, ceased to be affiliates of the Company as none of Farallon, nor any of its affiliates, including Cocina, directly or indirectly controls or is controlled by or under common control of the Company.

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~~June 2726, 2011 or December 26, 2010.

1314


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~~June 2726, 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 3230 restaurants in 1110 states and two foreign countries as of ~~March~~June 2726, 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~~have been opened during fiscal year 2010~~. We are in the early stages of relocating two restaurants~~, ~~but do~~and ~~not~~none ~~have~~are aplanned ~~definite~~during ~~date~~fiscal atyear ~~this time~~2011.

Our fiscal year consists of 52 or 53 weeks ending on the last Sunday in December each year. The three months ended ~~March~~June 2726, 2011 and ~~March~~June 2827, 2010 consist of thirteen weeks. When ~~calculating~~ 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~~June 2726, 2011, we had ~~178~~177 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~~ 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~~ 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.

1415

Goodwill is deemed to have an indefinite life and is subject to an annual impairment test and whenever indicators or potential impairment are identified. As a result of second quarter results and changes in the 2011 forecast, management determined that an impairment test was necessary as of June 26, 2011. Impairment of goodwill and intangible assets reflects the impairment losses related to the difference between the fair value and recorded value as identified in our impairment test. The fair value was determined based upon a combination of two valuation techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. As a result, we recorded impairment charges of $71.3 million during the second quarter of 2011.

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 and six months ended ~~March~~June 2726, 2011 and ~~the~~ the Predecessor three and six months ended ~~March~~June 2827, 2010.

Our operating results for the Successor three and six months ended ~~March~~June 2726, 2011 and the ~~Predecessor~~ Predecessor three and six months ended ~~March~~June 2827, 2010 are expressed as a percentage of total revenues below:

	Successor			Predecessor
	Three Months Ended						Six Months Ended
	Three months			Three months
	Successor			Predecessor			Successor			Predecessor
	ended			ended
	June 26,			June 27,			June 26,			June 27,
	March 27,			March 28,
	2011			2010			2011			2010
	2011			2010
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Total revenues		100.0	%		100.0	%
Restaurant costs:
Restaurant costs:
Cost of sales		22.0			22.3			22.1			22.2
Cost of sales		22.3			22.2
Labor		32.8			32.0			32.7			32.9
Labor		32.6			33.8
Direct operating and occupancy expense		26.1			25.2			26.5			25.9
Direct operating and occupancy expense		26.8			26.7
Total operating costs		81.0			79.4			81.3			81.0
Total restaurant costs		81.7			82.7
Manufacturing and distribution costs		7.4			6.2			7.3			5.9
Manufacturing and distribution costs		7.2			5.7
General and administrative expense		5.0			4.2			5.3			4.4
General and administrative expense		5.6			4.6
Depreciation and amortization		4.3			4.9			4.5			5.1
Depreciation and amortization		4.7			5.2
Impairment of goodwill and intangible assets		56.1			—			29.3			—
Operating income		0.8			1.7
Operating (loss) income		(53.7	)		5.3			(27.7	)		3.6
Interest expense		65.06			65.49			5.8			6.1
Loss before income tax provision		(5.3	)		(4.6	)
Loss before tax provision		(59.3	)		(0.6	)		(33.5	)		(2.5	)
Net loss		(559.43	)		(40.6	)		(33.6	)		(2.5	)

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

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.

Our restaurant and manufacturing and distribution operating results for the Successor three and six months ended June 26, 2011 and the Predecessor three and six months ended June 27, 2010 are expressed as a percentage of their respective revenues below:


	Three Months Ended						Six Months Ended
	Successor			Predecessor			Successor			Predecessor
	June 26,			June 27,			June 26,			June 27,
	2011			2010			2011			2010
Restaurant revenues		100.0	%		100.0	%		100.0	%		100.0	%
Restaurant costs:
Cost of sales		23.9			24.0			24.0			24.0
Labor		35.6			34.5			35.6			35.5
Direct operating and occupancy expense		28.3			27.1			28.7			28.0
Total restaurant costs		87.8			85.6			88.3			87.6

Manufacturing and distribution revenues		100.0	%		100.0	%		100.0	%		100.0	%
Manufacturing and distribution costs		94.8			84.8			91.9			78.6

Three months ended June 26, 2011 compared to the three months ended June 27, 2010

Total Revenues. Total revenues decreased by $2.5 million, or 1.9%, to $127.2 million in the Successor second quarter of 2011 from $129.6 million in the Predecessor second quarter of 2010 due to a $2.8 million decrease in restaurant revenues and a $0.1 million decrease in franchise and other revenues, partially offset by a $0.4 million increase in manufacturing and distribution revenues. The decrease in restaurant revenues was primarily due to five restaurant closures combined with comparable store sales decreases of 0.2% in the Successor second quarter of 2011 as compared with the Predecessor second quarter of 2010. This decline is primarily attributable to a 3.1% reduction in check count, partially offset by a 2.9% increase in average check.

Restaurant Cost of Sales. Total restaurant cost of sales of $28.0 million in the Successor second quarter of 2011 decreased $0.8 million, or 3.0%, as compared to the Predecessor second quarter of 2010, primarily due to the decrease in restaurant revenue. As a percentage of restaurant revenues, restaurant cost of sales decreased to 23.9% in the Successor second quarter of 2011 from 24.0% in the Predecessor second quarter of 2010.

Restaurant Labor. Restaurant labor costs of $41.8 million in the Successor second quarter of 2011 increased by $0.3 million, or 0.8%, as compared to the Predecessor second quarter of 2010, primarily due to higher health insurance expense, casualty insurance expense and payroll tax expense. As a percentage of restaurant revenues, restaurant labor costs increased to 35.6% in the Successor second quarter of 2011 from 34.5% in the Predecessor second 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 $33.2 million in the Successor second quarter of 2011 increased $0.6 million, or 1.9%, as compared to the Predecessor second quarter of 2010, primarily due to higher advertising expense in an effort to stimulate sales growth. As a percentage of restaurant revenues, restaurant direct operating and occupancy expense increased to 28.3% in the Successor second quarter of 2011 from 27.1% in the Predecessor second quarter of 2010.

Manufacturing and Distribution Costs. Manufacturing and distribution expense of $9.4 million in the Successor second quarter of 2011 increased $1.4 million, or 17.0%, as compared to the Predecessor second quarter of 2010, primarily due to higher produce and groceries expense, resulting from a produce freeze in Mexico and higher commodity costs, combined with higher labor and non-recurring consulting expense. As a percentage of manufacturing and distribution revenues, manufacturing and distribution expense increased to 94.8% in the Successor second quarter of 2011 from 84.8% in the Predecessor second quarter of 2010.

General and Administrative Expense. General and administrative expense of $6.3 million in the Successor second quarter of 2011 increased by $0.8 million, or 15.3%, as compared to the Predecessor second quarter of 2010, primarily due to higher labor expense as a result of a reinstatement of wage rates which were reduced in the Predecessor second quarter of 2010, higher recruitment expense and higher consulting expense. General and administrative expense as a percentage of total revenues increased to 5.0% in the Successor second quarter of 2011 from 4.2% in the Predecessor second quarter of 2010.

Depreciation and Amortization. Depreciation and amortization expense of $5.5 million in the Successor second quarter of 2011 decreased $0.9 million, or 13.8%, as compared to the Predecessor second quarter of 2010, primarily due to assets which became fully depreciated during 2010. As a percentage of total revenues, depreciation and amortization decreased to 4.3% in the Successor second quarter of 2011 from 4.9% in the Predecessor second quarter of 2010.

Impairment of Goodwill and Intangible Assets. Non-cash goodwill and intangible asset impairment charges of $71.3 million were recorded in the Successor second quarter of 2011 to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill and other indefinite lived intangible assets. No impairment was recognized by the Company during the Predecessor second quarter of 2010.

Interest Expense. Interest expense of $7.1 million in the Successor second quarter of 2011 decreased $0.6 million, or 7.6%, as compared to the Predecessor second 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 $0.3 million. As a percentage of total revenues, interest expense decreased to 5.6% in the Successor second quarter of 2011 from 5.9% in the Predecessor second quarter of 2010.

Income tax provision. We have recorded a full valuation allowance against our deferred tax assets. No provision was recorded during the Successor second quarter of 2011. The benefit recorded of less than $0.1 million during the Predecessor second quarter of 2010 represents refunds received offset by various state taxes incurred.

Six months ended June 26, 2011 compared to the six months ended June 27, 2010

Total Revenues. Total revenues decreased by $6.6 million, or 2.7%, to $243.4 million in the Successor first six months of 2011 from $250.1 million in the Predecessor first six months of 2010 due to a $6.8 million decrease in restaurant revenues and a $0.2 million decrease in franchise and other revenues, partially offset by a $0.4 million increase in manufacturing and distribution revenues. The decrease in restaurant revenues was primarily due to five restaurant closures combined with comparable store sales decreases of 0.9% in the Successor first six months of 2011 as compared with the Predecessor first six months of 2010. This decline is primarily attributable to a 3.4% reduction in check count, partially offset by a 2.5% increase in average check.

Restaurant Cost of Sales. Total restaurant cost of sales of $53.9 million in the Successor first six months of 2011 decreased $1.7 million, or 3.1%, as compared to the Predecessor first six months of 2010, primarily due to the decrease in restaurant revenue. As a percentage of restaurant revenues, restaurant cost of sales was 24.0% in both the Successor first six months of 2011 and the Predecessor first six months of 2010.

Restaurant Labor. Restaurant labor costs of $79.7 million in the Successor first six months of 2011 decreased by $2.5 million, or 3.0%, as compared to the Predecessor first six months of 2010, primarily due to 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 increased to 35.6% in the Successor first six months of 2011 from 35.5% in the Predecessor first six months 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 $64.4 million in the Successor first six months of 2011 decreased $0.4 million, or 0.6%, as compared to the Predecessor first six months of 2010, primarily due to lower liability and property insurance expense. As a percentage of restaurant revenues, restaurant direct operating and occupancy expense increased to 28.7% in the Successor first six months of 2011 from 28.0% in the Predecessor first six months 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 $17.7 million in the Successor first six months of 2011 increased $2.9 million, or 19.3%, as compared to the Predecessor first six months of 2010, primarily due to higher produce and groceries expense, resulting from a produce freeze in Mexico and higher commodity costs, combined with higher labor and non-recurring consulting expense. As a percentage of manufacturing and distribution revenues, manufacturing and distribution expense increased to 91.9% in the Successor first six months of 2011 from 78.6% in the Predecessor first six months of 2010.

General and Administrative Expense. General and administrative expense of $12.8 million in the Successor first six months of 2011 increased by $1.7 million, or 15.8%, as compared to the Predecessor first six months of 2010, primarily due to higher labor expense as a result of a reinstatement of wage rates which were reduced in the Predecessor first six months of 2010, combined with higher recruitment expense, legal costs and consulting expense. General and administrative expense as a percentage of total revenues increased to 5.3% in the Successor first six months of 2011 from 4.4% in the Predecessor first six months of 2010.

Depreciation and Amortization. Depreciation and amortization expense of $11.0 million in the Successor first six months of 2011 decreased $1.7 million, or 13.2%, as compared to the Predecessor first six months of 2010, primarily due to assets which became fully depreciated during 2010. As a percentage of total revenues, depreciation and amortization decreased to 4.5% in the Successor first six months of 2011 from 5.1% in the Predecessor first six months of 2010.

Impairment of Goodwill and Intangible Assets. Non-cash goodwill and intangible asset impairment charges of $71.3 million were recorded in the Successor first six months of 2011 to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill and other indefinite lived intangible assets. No impairment was recognized by the Company during the Predecessor first six months of 2010.

Interest Expense. Interest expense of $14.1 million in the Successor first six months of 2011 decreased $1.2 million, or 8.0%, as compared to the Predecessor first six months 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 $1.8 million. This was partially offset by an increase in interest expense on the senior unsecured credit facility of $0.6 million. As a percentage of total revenues, interest expense decreased to 5.8% in the Successor first six months of 2011 from 6.1% in the Predecessor first six months 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 six months of 2011 represents various state taxes incurred. The benefit recorded of less than $0.1 million during the Predecessor first six months of 2010 represents refunds received offset by various state taxes incurred.

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~~June 2726, 2011, including obligations under capital leases and unamortized debt discount, was $~~167~~170.51 million, and we had $109.48 million of revolving credit availability under our $15.0 million senior secured revolving credit facility. Asand ~~discussed~~$5.9 ~~below,~~million inof ~~July 2009,~~availability weunder ~~refinanced~~ our ~~notes,~~$25.0 million ~~amended the credit agreement relating to our~~ senior secured ~~revolving~~letter ~~credit~~of ~~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.

InOur ~~addition, our~~ debt agreements require compliance with specified financial covenants. These ~~covenants~~ covenants could adversely affect our ability to finance future operations or capital needs and ~~pursue~~ 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~~ other indebtedness could result in a default under the terms of the indenture governing the notes. In In such an event, we may be required to refinance all or part of the then-existing debt (including ~~the~~ the notes), sell assets or borrow more money. We may not be able to accomplish any of the ~~alternatives~~ 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~~On ~~upon~~July 27, ~~management’s projections~~2011, ~~there~~we isentered into a ~~possibility~~series of Limited Waivers and Amendments with our various lenders and noteholders that ~~certain~~waived a series of defaults on financial covenants. These agreements ~~related~~require us to ~~the~~submit ~~notes~~a ~~and~~reasonably ~~senior~~detailed ~~secured~~proposal ~~revolving~~to ~~credit~~restructure ~~facilities~~our ~~will~~material ~~not~~debt beagreements ~~met~~on or asprior ofto ~~June~~September 2615, 2011. ~~Management~~and isnegotiate inand ~~negotiations~~execute ~~with~~a binding restructuring term sheet, plan support agreement, lock-up agreement or similar agreement containing the ~~lenders~~substance of such proposal or another restructuring plan with respect to ~~amend~~our ~~these~~material ~~covenants~~debt arrangements on or prior to October 31, 2011. AsThe ~~noted~~process ~~above~~of providing a reasonably detailed proposal by September 15, if2011 involves ~~negotiations~~the ~~are~~use ~~not~~of ~~successful~~several professional firms including financial, ~~certain~~real ~~long-term~~estate ~~debt~~and ~~balances~~legal ~~may~~advisors. ~~become~~While ~~current~~we believe these various resources and ~~subject~~their toefforts will provide us a viable capital structure by ~~the~~October 31, ~~remedies~~2011, ~~set~~there ~~forth~~can ~~above~~be no assurance that these efforts will be successful or that all parties will agree with the proposed solutions.

Our financial statements have been prepared assuming that we will continue as a going concern; however, if the restructuring efforts noted above are not successful, it would raise substantial doubt about our ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern. In addition, because the waivers noted above do not extend for a full year, and because management projections indicate that we will not meet certain covenants absent the completion of such a restructuring, we are required to reclassify related long term debt balances as current liabilities in accordance with ASC 470. As a result, the Notes and Senior Unsecured Credit Facility have been reclassified to current portion of long-term debt in the Consolidated Balance Sheets at June 26, 2011.

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~~19 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.

~~Financing~~Operating Activities. We had net cash ~~provided~~used byin ~~financing~~operating activities of $4.2.9 million for the Successor ~~quarter~~six months ended ~~March~~June 2726, 2011 compared to net cash ~~used~~provided inby ~~financing~~operating activities of $010.5 1 million for the Predecessor ~~quarter~~six months ended ~~March~~June 2827, 2010. The ~~increase~~decrease in cash provided by ~~financing~~operating activities of $412.79 million was primarily ~~the~~attributable ~~result~~to ofthe adecrease ~~net~~in ~~draw on our senior secured~~revenues ~~revolving~~combined ~~credit~~with ~~facility~~changes ~~during~~in ~~the~~working ~~current~~capital, ~~quarter~~primarily ofdue ~~$4.6 million,~~to ~~for~~increases ~~which~~in ~~there~~purchases ~~was~~of noinventory ~~outstanding~~related ~~balance~~to atReal ~~March 28,~~Mex ~~2010~~Foods.

Investing Activities. We had net cash used in investing activities of $3.7 million for the Successor six months ended June 26, 2011 compared to $5.1 million for the Predecessor six months ended June 27, 2010. The decrease in net cash used in investing activities of $1.3 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 $8.5 million in fiscal year 2011 comprised of approximately $0.8 million for information technology, approximately $0.5 million for Real Mex Foods and approximately $7.2 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.

Financing Activities. We had net cash provided by financing activities of $5.5 million for the Successor six months ended June 26, 2011 compared to less than $0.1 million for the Predecessor six months ended June 27, 2010. The increase in cash provided by financing activities of $5.5 million was primarily the result of a net draw on our senior secured revolving credit facility during the current quarter of $5.2 million, for which there was no outstanding balance at June 27, 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~~Effective to July 127, 2011, we ~~may~~entered ~~redeem~~into upa tosecond ~~35%~~supplemental ofindenture which provides for amendments to the ~~original~~existing ~~aggregate~~indenture. ~~principal~~The ~~amount~~second ~~of the~~supplemental ~~notes~~indenture atincludes awaivers ~~redemption~~and ~~price~~an amendment ~~equal~~relating to ~~114%~~a breach of the ~~principal~~Consolidated ~~amount~~Cash ~~thereof~~Flow covenant, ~~plus~~as ~~accrued~~defined ~~and unpaid~~in ~~interest~~the ~~thereon~~indenture, for ~~with~~ the ~~net~~period ~~proceeds~~ended ofJun ~~certain~~26, ~~equity~~2011, ~~financings;~~an ~~provided~~amendment to provide that ~~(i)~~through October ~~at least~~31, ~~65%~~2011, the consent of the holders of at least 35% in aggregate principal amount of ~~notes~~the ~~remains~~then outstanding ~~immediately after such~~notes ~~redemption~~will ~~and~~be ~~(ii) the~~required ~~redemption~~to ~~occurs~~declare ~~within~~all ~~90 days~~ of the ~~date~~notes ofto ~~the~~be ~~closing~~due ofand ~~such~~payable ~~sale~~upon an event of default, an ~~our~~amendment ~~equity~~to ~~interests.~~provide ~~Prior~~that tothrough ~~July~~October 131, ~~2012~~2011, wein ~~may~~order ~~also~~for ~~redeem~~any ~~some~~noteholder orto ~~all~~pursue ofa remedy with respect to the indenture or the notes, atholders ~~a premium~~of ~~ranging~~at ~~from~~least ~~1-2~~35% ofin ~~the~~ aggregate principal amount of the ~~notes~~then ~~redeemed.~~outstanding Onnotes orwill ~~after~~be ~~July 1,~~required ~~2012,~~to wemake ~~may~~a ~~redeem~~written ~~some~~request orto ~~all~~the oftrustee under the indenture, ~~notes~~waivers atof ~~100%~~certain breaches of the ~~notes’~~indenture ~~principal~~in ~~amount,~~connection ~~plus~~with our failure to provide ~~accrued~~certain notices and ~~unpaid~~timely set a special record date and payment date for the interest uppayment tomade on the ~~date~~notes on July 28, 2011, and waivers of ~~redemption~~certain breaches and cross-defaults under our other significant debt agreements.

~~Within~~Prior ~~90 days~~to ~~of the end of each four fiscal quarter period ending on or near December~~July 311, ~~beginning~~ ~~in 2009~~2012, we ~~must,~~may ~~subject~~also toredeem ~~certain~~some ~~exceptions,~~or ~~offer~~all toof ~~repay~~ the notes ~~with~~at ~~75%~~a ofpremium ~~the Excess~~ranging ~~Cash Flow (as defined in the indenture)~~ from ~~the period, at 100~~ 1-2% of the aggregate 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~~notes ~~Amended~~redeemed. ~~and~~On ~~Restated~~or ~~Credit~~after ~~Agreement entered into in connection with the senior secured revolving credit facilities~~July 1, ~~as described below~~2012, we ~~will deposit~~may ~~the~~redeem ~~amount~~some ~~that~~or ~~would~~all ~~have~~of ~~been used to fund~~ the ~~excess~~notes ~~cash~~at ~~flow~~100% ~~offer~~of ~~into an escrow account. Funds from~~ the ~~escrow~~notes’ ~~account~~principal ~~will~~amount, ~~only~~plus beaccrued ~~released~~and tounpaid interest usup to ~~repay borrowings under~~ the ~~senior secured~~date ~~revolving~~of ~~credit facilities or to make an excess cash flow offer~~redemption. ~~No Excess Cash Flow Offer~~ ~~was required for 2010 or 2009.~~

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 GECC 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.

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.

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~~GECC ~~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~~On ~~under~~July 27, ~~the~~2011, ~~senior~~we ~~secured~~entered ~~revolving~~into ~~credit~~a ~~facilities~~Limited ~~are~~Waiver ~~guaranteed~~and byAmendment ~~all~~No. 6 ~~of our~~to ~~subsidiaries,~~the asGECC ~~well~~Credit Agreement asincluding bywaivers ~~Holdco,~~of ~~which~~certain ~~has~~breaches ~~made~~of athe ~~first~~Leverage ~~priority~~Ratio, ~~pledge~~Adjusted ofLeverage ~~all~~Ratio, Interest ofCoverage ~~its~~Ratio ~~equity interests~~and inConsolidated ~~the~~Cash ~~Company~~Flow asfinancial ~~security~~covenants for the ~~obligations.~~period ~~The~~ended ~~senior~~June 26, ~~secured~~2011, ~~revolving~~as ~~credit facilities~~defined ~~are~~in ~~secured~~the ~~by,~~GECC ~~among~~Credit ~~other things~~Agreement, ~~first~~an ~~priority~~amendment ~~pledges~~which ofprovides ~~all~~that ofno ~~the~~default ~~equity~~will ~~interests~~be ofdeemed ~~our~~to ~~direct~~have ~~and~~occurred ~~indirect~~prior ~~subsidiaries~~to November 15, ~~and~~2011 ~~first~~solely ~~priority~~by ~~security~~reason ~~interests~~of ~~(subject~~any breach or violation toof ~~customary~~the ~~exceptions)~~financial covenants in ~~substantially~~the ~~all~~GECC ofCredit ~~our~~Agreement ~~current~~for ~~and~~the ~~future~~period ~~property~~ending September 25, 2011, and ~~assets~~waivers ~~and~~of ~~our direct~~certain breaches and ~~indirect~~cross-defaults ~~subsidiaries,~~under ~~with~~our ~~certain~~other ~~limited~~significant ~~exceptions~~debt agreements. AsIn connection ofwith ~~March~~Amendment No. 276, ~~2011,~~Sun weFinance ~~had~~ purchased a $85.40 million ~~available~~participation ~~under~~interest ~~the~~in the $2515.0 million ~~letter~~revolving of credit facility ~~and~~under ~~$10~~the GECC Credit Agreement.~~4 million~~ Sun Finance has an option ~~available~~to ~~under~~purchase ~~the~~up to an additional $152.05 million participation interest in the revolving credit facility. To the extent Sun Finance exercises its option to purchase such additional participation interest, the maximum amount we may borrow under the revolving credit facility ~~that~~will increase, and the maximum amount we may ~~also~~borrow beunder ~~utilized~~the ~~for~~letter of credit facility will decrease, each by an amount equal to the additional participation by Sun Finance. As a ~~letters~~result of the Sun Finance participation, the senior secured revolving credit facilities are held by related parties to the Company effective July 27, 2011.

~~The~~Obligations ~~Second~~under ~~Amended~~the ~~and~~senior ~~Restated~~secured ~~Revolving~~revolving ~~Credit~~credit ~~Agreement,~~facilities asare ~~amended,~~guaranteed ~~contains~~by ~~various~~all of our ~~affirmative~~subsidiaries, ~~and~~as ~~negative~~well ~~covenants~~as ~~and~~by ~~restrictions~~Holdco, which ~~among~~has ~~other~~made ~~things,~~a ~~require~~first uspriority topledge ~~meet certain~~of ~~financial~~all ~~tests~~of ~~(including~~its ~~certain~~equity interests ~~leverage~~in ~~and~~the ~~cash~~Company ~~flow~~as ~~ratios),~~security ~~and~~for ~~limits~~ the ~~Company and~~obligations. ~~our~~The ~~subsidiaries’~~senior ~~ability~~secured torevolving ~~incur~~credit facilities orare ~~guarantee~~secured ~~additional indebtedness~~by, ~~make~~among ~~certain~~other ~~capital expenditures~~things, ~~pay~~first ~~dividends~~priority orpledges ~~make~~of ~~other~~all ~~equity~~of ~~distributions,~~the ~~purchase~~equity interests orof ~~redeem~~our ~~capital~~direct ~~stock, make~~and ~~certain~~indirect ~~investments~~subsidiaries, ~~sell~~and ~~assets,~~first ~~engage~~priority insecurity ~~transactions~~interests ~~with~~(subject to ~~affiliates~~customary ~~and~~exceptions) ~~effect~~in ~~a consolidation~~substantially orall ~~merger.~~of ~~The~~our ~~agreement~~current ~~contains~~and afuture ~~cross-default~~property ~~provision~~and ~~wherein~~assets ifand ~~we are in~~our ~~default~~direct onand ~~any~~indirect ~~other credit facilities~~subsidiaries, ~~default~~with oncertain ~~this~~limited ~~facility is automatic~~exceptions. AtAs ~~March~~of June 2726, 2011, we ~~were~~had in$5.9 million ~~compliance~~available ~~with~~under ~~all~~the ~~specified~~$25.0 million ~~financial~~letter ~~and~~of ~~other~~credit ~~covenants~~facility and $9.8 million available under the ~~Second~~$15.0 million ~~Amended~~revolving ~~and Restated~~credit ~~Credit~~facility ~~Agreement,~~that asmay ~~amended~~also be utilized for the letters of credit.

~~Senior Unsecured Credit Facility. In connection with the offering of the notes, we entered~~21 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.

The GECC 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 June 26, 2011, we were in compliance with all specified financial and other covenants under the GECC 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 owed 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.

On July 27, 2011, we entered into a Limited Waiver and First Amendment to the senior unsecured credit facility which includes waivers of certain breaches and cross-defaults under the Company’s other significant debt agreements.

The senior unsecured credit facility, as amended, contains various affirmative and negative covenants which, among other things, 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) and includes certain cross-default language related to our other significant debt agreements. At June 26, 2011, we were in compliance with all specified financial and other covenants under the senior unsecured credit facility.

Senior Unsecured Credit Facility — Holdco In connection with the offering of the Notes and as a result of the assumption by Holdco of $25.0 million noted above, Holdco entered into a Credit Agreement governing a $25.0 million Holdco term loan facility, with a maturity date of January 1, 2014. Interest accrues at an annual rate of 20% and is payable in kind. The balance at June 26, 2011 is $35.2 million. We have no obligation related to Holdco’s senior unsecured credit facility and as such it is not included in the Consolidated Balance Sheets at June 26, 2011.

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 June 26, 2011, the principal amount outstanding on the mortgage was $0.4 million.

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

	March 27,			December 26,
	June 26,			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	%
Senior Unsecured Credit Facility		16.50	%		16.50	%
Mortgage		9.28	%		9.28	%
Other		3.1914 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~~June 2726, 2011, the principal amount due relating to capital lease obligations was $0.76 million. Principal and interest payments on the capital lease obligations are due monthly and range from $31 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~~July 24, 2011, we had borrowings of $56.47 million outstanding under our senior secured revolving credit facilities. A hypothetical 10% fluctuation in interest rates as of ~~April~~July 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.


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.

2123

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~~Our ~~were~~results noof ~~material~~operations ~~changes~~and ~~from~~financial condition can be adversely affected by numerous risks. You should carefully consider the risk factors ~~disclosed~~detailed below in ~~Item 1A~~conjunction ofwith ~~our~~the other information contained in this report. ~~on Form~~If ~~10-K~~any ~~for~~of the ~~fiscal~~following ~~year~~risks ~~ended~~actually ~~December 26~~occur, ~~2010~~our business, financial condition, operating results, cash flows and/or future prospects could be materially adversely affected.

Risks Related to Our Company

The U.S. economic crisis adversely impacted our business and financial results in fiscal 2010 and a prolonged recession could materially affect us in the future.

The restaurant industry is dependent upon consumer discretionary spending. The current economic crisis has reduced consumer confidence to historic lows impacting the public’s ability and/or desire to spend discretionary dollars as a result of job losses, home foreclosures, significantly reduced home values, investment losses, personal bankruptcies and reduced access to credit, resulting in lower levels of guest traffic in our restaurants. If this difficult economic situation continues for a prolonged period of time and/or deepens in magnitude, our business, results of operation and ability to comply with the covenants under our credit facility could be materially affected. Continued deterioration in customer traffic and/or a reduction in the average amount guests spend in our restaurants will negatively impact our revenues and our profitability. This could result in further reductions in staff levels, additional asset impairment charges and potential restaurant closures.

Future recessionary effects on the Company are unknown at this time and could have a potential material adverse effect on our financial position and results of operations. There can be no assurance that the government’s plan to stimulate the economy will restore consumer confidence, stabilize the financial markets, increase liquidity and the availability of credit, or result in lower unemployment.

We are vulnerable to changes in consumer preferences and economic and other conditions that could harm our business, financial condition, and results of operations and cash flows.

Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions, demographic trends, consumer confidence in the economy and discretionary spending priorities. Factors such as traffic patterns, weather conditions, local demographics and the type, number and location of competing restaurants may adversely affect the performance of individual locations. In addition, inflation and increased food and energy costs may harm the restaurant industry in general and our locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing, which could harm our business, financial condition, results of operations and cash flows. We cannot assure you that consumers will continue to regard our products favorably or that we will be able to develop new products that appeal to consumer preferences. Any failure to satisfy consumer preferences could have a materially adverse affect on our business. Our continued success will depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions.

Our business is highly sensitive to events and conditions in the State of California.

A majority of our restaurants are located in California. Because of this geographic concentration, we are susceptible to local and regional risks, such as energy shortages and related increased costs, increased government regulation, adverse economic conditions, adverse weather conditions, earthquakes and other natural disasters, any of which could have a material adverse effect on our business, financial condition and results of operations. In light of our current geographic concentration, adverse publicity relating to our restaurants could have a more pronounced adverse effect on overall sales than might be the case if our restaurants were more broadly dispersed.

Increases in the cost of ingredients could materially adversely affect our business, financial condition, and results of operations and cash flows.

The cost, availability and quality of the ingredients we use to prepare our food and beverages are subject to a range of factors, many of which are beyond our control. Changes in the cost of such ingredients can result from a number of factors, including seasonality, political conditions, weather conditions, shortages of ingredients and other factors. If we fail to anticipate and react to increasing ingredient costs by adjusting our purchasing practices and menu price adjustments, our cost of sales may increase and our operating results could be adversely affected.

Food-borne illness incidents could reduce our restaurant sales.

We cannot guarantee that our food handling policies and training at our restaurants and distribution and manufacturing facilities will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third party suppliers makes it difficult to monitor food safety compliance and increases the risk that food-borne illness would affect multiple locations rather than single restaurants. Third party food suppliers and transporters outside of our control could cause some food borne illness incidents. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our restaurants could negatively affect our restaurant sales if highly publicized. This risk exists even if it were later determined that the illness was wrongly attributed to one of our restaurants. A number of other restaurant chains have experienced incidents related to food borne illnesses that have had a material adverse impact on their operations, and we cannot assure you that we can avoid a similar impact upon the occurrence of a similar incident at our restaurants. In addition, we may be subject to liability claims as a result of food-borne illnesses.

We depend upon frequent deliveries of food and other supplies.

Our ability to maintain consistent quality menu items depends in part upon our ability to acquire fresh food products and related items, including essential ingredients used in the Mexican restaurant business such as avocados, from reliable sources in accordance with our specifications. Shortages or interruptions in the supply of fresh food products caused by unanticipated demand, problems in production or distribution, contamination of food products, an outbreak of food-borne diseases, inclement weather or other conditions could materially adversely affect the availability, quality and cost of ingredients, which could adversely affect our business, financial condition, results of operations and cash flows.

We have contracts with a large number of suppliers of most food, beverages and other supplies for our restaurants. In addition, we distribute substantially all of the products we receive from suppliers through our distribution facility. If suppliers do not perform adequately or if any one or more of such entities seeks to terminate its agreement or fails to perform as anticipated, or if there is any disruption in any of our supply relationships or distribution operations for any reason, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our inability to replace our distribution operations and our suppliers in a short period of time on acceptable terms could increase our costs and could cause shortages at our restaurants of food and other items that may cause our restaurants to remove certain items from a restaurant’s menu or temporarily close a restaurant. If we temporarily close a restaurant or remove popular items from a restaurant’s menu, that restaurant may experience a significant reduction in revenue during the time affected by the shortage or thereafter, as our customers may change their dining habits as a result.

There is intense competition in the restaurant industry.

The restaurant business is intensely competitive with respect to food quality, price value relationships, ambiance, service and location, and there are many well-established competitors with substantially greater financial, marketing, personnel and other resources. In addition, many of our competitors are well established in the markets where we operate. While we believe that our restaurants are distinctive in design and operating concept, other companies may develop restaurants that operate with similar concepts. In addition, with improving product offerings at quick-service restaurants and grocery stores, coupled with the present state of the economy, consumers may choose to trade down to these alternatives, which could also negatively affect revenues.

Negative publicity relating to one of our restaurants could reduce sales at some or all of our other restaurants.

We are, from time to time, faced with negative publicity relating to food quality, restaurant facilities, health inspection scores, employee relationships or other matters at specific restaurants. Adverse publicity may negatively affect us, regardless of whether the allegations are valid or whether we are liable. In addition, the negative impact of adverse publicity relating to one restaurant may extend far beyond the restaurant involved to affect some or all of our other restaurants. A similar risk exists with respect to totally unrelated food service businesses, if customers mistakenly associate such unrelated businesses with our own operations.

Changes in employment laws may adversely affect our business.

Various federal and state labor laws govern the relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers’ compensation rates and citizenship requirements. Significant additional government imposed increases in the following areas could materially affect our business, financial condition, operating results or cash flow:

	•		minimum wage;

	•		paid leaves of absence;

	•		provision to employees of mandatory health insurance;

	•		tax reporting; and

	•		revisions in the tax payment requirements for employees who receive gratuities.

We may be subject to significant liability should the consumption of any of our specialty products cause injury, illness or death.

We may be required to recall specialty products that we manufacture and co-package at our manufacturing facility in the event of contamination, product tampering, mislabeling or damage to our products. We cannot assure you that product liability claims will not be asserted against us or that we will not be obligated to recall our products. A product liability judgment against us or a product recall could have a material adverse effect on our business, financial condition or results of operations.

Wage and hour class action lawsuits may adversely affect our business.

The Company is subject from time to time to employee claims based, among other things, on discrimination, harassment, wrongful termination, or violation of wage and labor laws in the ordinary course of business. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. In recent years a number of restaurant companies have been subject to wage and hour class action lawsuits alleging violations of federal and state labor laws. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. We have been and may in the future be named as a defendant in wage and hour class action lawsuits. Any significant judgment against us or settlement by us could adversely affect our financial condition and adverse publicity resulting from these allegations could adversely affect our business.

The current economic crisis could have a material adverse impact on our landlords or other tenants in shopping centers in which we are located, which in turn could negatively affect our financial results.

If the recession continues or increases in severity, our landlords may be unable to obtain financing or remain in good standing under their existing financing arrangements, resulting in failures to satisfy lease covenants to us. In addition, other tenants at shopping centers in which we are located or have executed leases may fail to open or may cease operations. If our landlords fail to satisfy required co-tenancies, such failures may result in us terminating leases in these locations. Also, decreases in total tenant occupancy in shopping centers in which we are located may affect guest traffic at our restaurants. All of these factors could have a material adverse impact on our operations.

Uninsured losses could occur.

We have comprehensive insurance, including general liability and property (including business interruption) extended coverage. However, there are certain types of losses that may be uninsurable or that we believe are not economical to fully insure, such as earthquakes and other natural disasters. In view of the location of many of our existing restaurants in California, our operations are particularly susceptible to damage and disruption caused by earthquakes. In the event of an earthquake or other natural disaster affecting our geographic area of operations, we could suffer a loss of the capital invested in, as well as anticipated earnings from, the damaged or destroyed properties.

The failure to enforce and maintain our trademarks could materially adversely affect our ability to establish and maintain brand awareness.

We have registered or filed applications to register certain names used by our restaurants and our food manufacturing operations as trademarks or service marks with the United States Patent and Trademark Office and in certain foreign countries, including the names Acapulco Mexican Restaurant^®, El Torito^®, El Torito Grill^®, Sinigual^®, Chevys Fresh Mex^® and Real Mex Foods^®. The success of our business strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance.

We cannot assure you that all of the steps we have taken to protect our intellectual property in the U.S. and foreign countries will be adequate. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S.

We may be locked into long-term and non-cancelable leases and may be unable to renew leases at the end of their terms.

Many of our current leases are non-cancelable and typically have initial terms of 10 to 20 years and one or more renewal terms of three or more years that we may exercise at our option. Leases that we enter into in the future likely will also be long-term and non-cancelable and have similar renewal options. If we close a restaurant, we may remain committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. We may close or relocate the restaurant, which could subject us to construction and other costs and risks, and could have a material adverse effect on our business. Additionally, the revenue and profit, if any, generated at a relocated restaurant, may not equal the revenue and profit generated at the existing restaurant. Furthermore, in the past, we have been forced to close profitable restaurants due to the inability to renew a lease upon the expiration of its lease term and we expect this to occur from time to time in the future.

If we face labor shortages or increased labor costs, our growth and operating results could be adversely affected.

Labor is a primary component in the cost of operating our restaurants. If we face labor shortages or increased labor costs because of increased competition for well-qualified employees, higher employee turnover rates or increases in the federal or applicable state minimum wage or other employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase and our growth could be adversely affected. In addition, full service casual dining segment restaurant operators have traditionally experienced relatively high employee turnover rates. Although we have not yet experienced any significant problems in recruiting or retaining employees, our ability to recruit and retain such individuals may result in higher employee turnover in our restaurants, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have been affected by increasing healthcare and workers’ compensation expenses affecting business in most industries including ours. To manage premium increases we have elected to self-insure workers’ compensation. Higher deductibles could result in greater exposure to our operating results and liquidity. If we are exposed to material liabilities that are not insured it could materially adversely affect our financial condition and results of operations.

We face risks associated with government regulations.

We are subject to extensive government regulation at the federal, state and local government level. These include, but are not limited to, regulations relating to the preparation and sale of food and beverages, zoning and building codes, land use and employee, public health, sanitation and safety matters. We are required to obtain and maintain governmental licenses, permits and approvals. Difficulty or failure in obtaining these approvals in the future could result in delaying or canceling the opening of new restaurants or could materially adversely affect the operation of existing restaurants. Local authorities may suspend or deny renewal of our governmental licenses if they determine that our operations do not meet the standards for initial grant or renewal. This risk would be even higher if there were a major change in the licensing requirements affecting our types of restaurants.

Typically our restaurants’ licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. Alcoholic beverage control regulations relate to various aspects of daily operations of our restaurants, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. In fiscal year 2010, approximately 25.2% of our restaurant revenues were attributable to the sale of alcoholic beverages, and we believe that our ability to serve alcoholic beverages, such as our signature margarita drinks, is an important factor in attracting customers. The failure of any of our restaurants to timely obtain and maintain liquor or other licenses, permits or approvals required to serve alcoholic beverages or food could delay or prevent the opening of, or adversely impact the viability of, the restaurant and we could lose significant revenue. Our restaurants are also subject in each state in which we operate to “dram shop” laws, which allow a person to sue us if that person was injured by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could exceed our liability insurance coverage policy limits and could result in substantial liability for us and have a material adverse effect on our profitability. Our inability to continue to obtain such insurance coverage at reasonable costs also could have a material adverse effect on us.

The federal Americans with Disabilities Act and similar state laws prohibit discrimination because of disability in public accommodations and employment. Mandated modifications to our facilities (or related litigation) in the future to make different accommodations for persons with disabilities could result in material unanticipated expenses.

Our distribution and manufacturing operations are subject to extensive regulation by the FDA, USDA and other state and local authorities. Our processing facilities and products are subject to periodic inspection by federal, state and local authorities. We cannot assure you, however, that we are in full compliance with all currently applicable governmental laws, or that we will be able to comply with any or all future laws and regulations. Failure by us to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, financial condition or results of operations.

We face risks associated with environmental laws.

We are subject to federal, state and local laws, regulations and ordinances that:

•

govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes; and

•

impose liability for the costs of cleaning up, and damage resulting from, sites of past spills, disposals or other releases of hazardous materials.

In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities, including liabilities resulting from lawsuits brought by private litigants, relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurants or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. If we are found liable for the costs of remediation of contamination at any of our properties our operating expenses would likely increase and our operating results would be materially adversely affected.

We depend on the services of key executives, whose loss could materially harm our business.

Some of our senior executives are important to our success because they have been instrumental in setting our strategic direction, operating and marketing our business, identifying, recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of these individuals could materially adversely affect our business until a suitable replacement could be found. We believe that they could not easily be replaced with executives of equal experience and capabilities. We do not maintain key person life insurance policies on any of our executives.

Compliance with regulation of corporate governance and public disclosure will result in additional expenses.

Keeping abreast of, and in compliance with, laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations require a significant amount of management attention and external resources. We are committed to observing high standards of corporate governance and public disclosure. Consequently, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment will result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

The interests of the stockholders of the voting stock of our parent, RM Restaurant Holding Corp, may conflict with the interests of the holders of our indebtedness.

By virtue of their stock ownership and the terms of various agreements between our parent and its stockholders, the stockholders of our parent have significant influence over our management and will be able to determine the outcome of all matters required to be submitted for approval, including the election of our directors and the approval of mergers, consolidations and the sale of all or substantially all of our assets. The interests of the stockholders of our parent may differ from the interests of the holders of our indebtedness if, for example we encounter financial difficulties or are unable to pay our debts as they mature. In addition, our parent’s stockholders may have an interest in pursuing acquisitions, divestitures, financing, or other transactions that, in their judgment, could enhance their equity investments, although such transactions might involve risks to the holders of our indebtedness.

We have a material amount of goodwill and other indefinite lived intangible assets which, if impaired, would result in a reduction in our net income.

Goodwill is the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets we acquire. Current accounting standards require that goodwill and other indefinite lived intangible assets be periodically evaluated for impairment based on the fair value. The downturn in the economy has resulted in an unfavorable impact on current operations and growth projections. As a result, impairment charges of goodwill and other intangible assets of approximately $71.3 million, $1.1 million and $16.3 million were recognized during the six months ended June 26, 2011, fiscal year 2010 and fiscal year 2009, respectively. Any declines in our assessment of the fair value the Company could result in a further write-down of our goodwill and other indefinite lived intangible assets and a reduction in our net income.

We may make acquisitions or enter into similar transactions.

We may expand by pursuing acquisitions, business combinations and joint ventures. We may encounter difficulties in integrating the expanded operations, entering into markets, or conducting operations where we have no or limited prior experience. Furthermore, we may not realize the benefits we anticipated when we entered into these transactions. In addition, the negotiation of potential acquisitions, business combinations or joint ventures as well as the integration of an acquired business could require us to incur significant costs and cause diversion of management’s time and resources.

Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.

A change in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions before the change is effective. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing accounting rules or the questioning of current accounting practices may adversely affect our reported financial results.

Risks Related to Our 14.0% Senior Secured Notes due January 1, 2013

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes.

We have substantial indebtedness, including obligations under capital leases and unamortized debt discount. As of June 26, 2011, we had approximately $170.1 million of total debt outstanding, of which $136.2 million is secured. Subject to restrictions in the indenture and our senior secured and unsecured credit facilities, we may incur additional indebtedness. Our high level of indebtedness could have important consequences to you and significant effects on our business, including the following:

	•		it may be more difficult for us to satisfy our financial obligations, including with respect to the notes;

	•		our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;

	•		we must use a substantial portion of our cash flow from operations to pay interest on the notes and our other indebtedness as well as to fund excess cash flow offers on the notes, which will reduce the funds available to use for operations and other purposes;

	•		all of the indebtedness outstanding under our senior secured credit facility will have a prior ranking claim on substantially all of our assets, and all of the indebtedness outstanding under our other secured debt (like equipment financing) will have a prior ranking claim on the underlying assets;

	•		our ability to fund a change of control offer may be limited;

	•		our ability to borrow additional funds may be limited;

	•		our high level of indebtedness could place us at a competitive disadvantage compared to those of our competitors that may have proportionately less debt;

	•		our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;

	•		we may be restricted from making strategic acquisitions or exploiting other business opportunities; and

	•		our high level of indebtedness makes us more vulnerable to economic downturns and adverse developments in our business.

We intend to use cash flow from operations to pay our expenses and scheduled interest and principal payments due in the next 12 months under our outstanding indebtedness, including the notes. Our ability to make these payments thus depends on our future performance, which is affected by financial, business, economic and other factors, many of which we cannot control. The economic downturn has negatively impacted our cash flow and has decelerated our growth plans. Our business may not generate sufficient cash flow from operations in the future and our anticipated growth in revenue and cash flow may not be realized, either or both of which could result in our being unable to repay or pay interest on our indebtedness, including the notes, to pay interest on our indebtedness, or to fund other liquidity needs. If we do not have enough money, we may be required to refinance all or part of our then-existing debt (including the notes), sell assets or borrow more money. We cannot make any assurances that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements, including the indenture and our senior secured and unsecured credit facilities, may restrict us from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of these alternatives could significantly adversely affect the value of the notes and our ability to pay the amounts due under the notes.

Despite our current indebtedness level, we and our subsidiaries may still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.

As of June 26, 2011, we had $9.8 million of revolving credit availability under our $15.0 million senior secured credit facility. We and our subsidiaries may also be able to incur substantial additional indebtedness in the future. The terms of the indenture and the senior secured and unsecured credit facilities do not fully prohibit us or our subsidiaries from doing so. If we incur any additional indebtedness that ranks equally with the notes, the holders of that debt will be entitled to share ratably with the holders of the notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of us, subject to any collateral securing the notes. If new debt is added to our or our subsidiaries’ current debt levels, the related risks that we now face could intensify.

We are a holding company and, therefore, our ability to make payments under the notes and service our other debt depends on cash flow from our subsidiaries.

We are, and are required under the indenture governing our notes to remain, a holding company. Our only material assets are our ownership interests in our subsidiaries. Consequently, we will depend on distributions or other intercompany transfers of funds from our subsidiaries to make payments under the notes and service our other debt. Distributions and intercompany transfers of funds to us from our subsidiaries will depend on:

	•		their earnings;

	•		covenants contained in agreements to which we or our subsidiaries are or may become subject, including our senior secured and unsecured credit facilities and the notes;

	•		business and tax considerations; and

	•		applicable law, including laws regarding the payment of dividends and distributions.

We cannot assure you that the operating results of our subsidiaries at any given time will be sufficient to make distributions or other payments to us or that any distributions and/or payments will be adequate to pay any amounts due under the notes or our other indebtedness.

Our senior secured and unsecured credit facilities and the indenture for the notes impose significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.

Our senior secured and unsecured credit facilities and the indenture for the notes impose, and future debt agreements may impose, significant operating and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability to:

	•		incur additional indebtedness;

	•		repay indebtedness (including the notes) prior to stated maturities;

	•		pay dividends on, redeem or repurchase our stock or make other distributions;

	•		make acquisitions or investments;

	•		create or incur liens;

	•		transfer or sell certain assets or merge or consolidate with or into other companies;

	•		enter into certain transactions with affiliates;

	•		sell stock in our subsidiaries;

	•		restrict dividends, distributions or other payments from our subsidiaries; and

	•		otherwise conduct necessary corporate activities.

In addition, our senior secured and one of our unsecured credit facilities require us to maintain compliance with specified financial covenants.

These covenants could adversely affect our ability to finance our 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 our other indebtedness could result in a default under the terms of the indenture governing the notes.

Our failure to restructure our principal debt agreements could result in events of default under such agreements.

As previously disclosed in our Current Report on Form 8-K filed with the SEC on July 27, 2011, which disclosures are incorporated by reference herein, on July 27, 2011, we entered into agreements with various lenders and noteholders to amend certain provisions of, and waive certain defaults and events of default under, our principal debt agreements. The defaults and events of default related primarily to violations of certain financial covenants under our principal debt agreements for the period ended June 26, 2011. In addition, we failed to make an interest payment on the Notes which was due on July 1, 2011.

Although we were able to obtain waivers of such defaults and events of defaults and also received an infusion of additional liquidity in connection with the agreements, the waivers were limited to the specific defaults and events of default set forth in such agreements. A future breach of any of the financial covenants or other provisions of our principal debt agreements could result in further defaults and/or events of default which may not be waived. If a default or event of 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 our other indebtedness could result in a default under the terms of the indenture governing the notes.

In addition, the agreements require us to submit a reasonably detailed proposal to restructure our principal debt agreements on or prior to September 15, 2011 and negotiate and execute a binding restructuring term sheet, plan support agreement, lock-up agreement or similar agreement containing the substance of such proposal or another restructuring plan with respect to our principal debt arrangements on or prior to October 31, 2011. The process of providing a reasonably detailed proposal by September 15, 2011 involves the use of several professional firms including financial, real estate and legal advisors. While management believes these various resources and their efforts would provide us with a viable capital structure by October 31, 2011, there can be no assurance that these efforts will be successful or that all parties will agree with the proposed solutions. Any failure by us to comply with our obligations to restructure our principal debt agreements could result in events of default under each of our principal debt agreements.

We may not be able to satisfy our obligations to holders of the notes upon a change of control or in connection with an excess cash flow offer or asset sale offer.

Upon the occurrence of a change of control, as defined in the indenture, we will be required to offer to purchase the notes at a price equal to 101% of the principal amount thereof, together with any accrued and unpaid interest and liquidated damages, if any, to the date of purchase, unless we have given a prior redemption notice. In addition, upon our accumulation of certain levels of excess cash flow, we will be required to offer to purchase the notes at a price equal to 100% of the principal amount thereof, together with any accrued and unpaid interest and liquidated damages, if any, to the date of purchase, unless we have given a prior redemption notice. Furthermore, if we sell assets and we do not use the net proceeds for specified purposes, we will be required to use such net proceeds to offer to repurchase the notes at 100% of the principal amount thereof, plus accrued and unpaid interest up to the date of repurchase.

We cannot assure you that, if a change of control, excess cash flow or asset sale offer is made, we will have available funds sufficient to pay the purchase price for any or all of the notes that might be delivered by holders of the notes seeking to accept the offer or that we will be permitted under the terms of our other indebtedness to make such offers and, accordingly, none of the holders of the notes may receive the purchase price for their notes.

In addition, the events that constitute a change of control under the indenture may also be events of default under our senior secured and unsecured credit facilities or other obligations we incur in the future. These events may permit the lenders under our senior secured and unsecured credit facilities to accelerate the debt outstanding thereunder and, if such debt is not paid, to enforce security interests in our assets, thereby limiting our ability to raise cash to purchase the notes, and reducing the practical benefit of the offer to purchase provisions to the holders of the notes.

The notes will be structurally subordinated to indebtedness and other liabilities of any non-guarantor subsidiaries.

The notes will be structurally subordinated to the indebtedness and other liabilities (including trade payables) of any non-guarantor subsidiary, and holders of notes will not have any claim as a creditor against any non-guarantor subsidiary. In addition, the indenture under which the notes have been issued permits, subject to certain limitations, non-guarantor subsidiaries to incur additional indebtedness and does not contain any limitations on the amount of liabilities (such as trade payables) that may be incurred by them.

The proceeds from the sale of the collateral securing the notes may not be sufficient to pay all amounts owed under the notes. The collateral securing the notes is subject to first priority liens, and your right to receive payments on the notes will effectively be subordinated to payments under the instruments governing our priority lien obligations, including our senior secured credit facility, to the extent of the value of the assets securing that indebtedness.

The collateral securing the notes is subject to a first priority claim in favor of certain of our other indebtedness, including our senior secured credit facility, which must be paid in full before the collateral can be used to pay the notes. Indebtedness under our senior secured credit facility and certain other senior secured indebtedness that we may incur in the future, referred to in this report as priority lien debt, is and will be secured by a first priority lien on substantially all of our tangible and intangible assets, with certain exceptions. In addition, under the indenture certain other permitted prior liens may rank ahead of the second priority liens securing the notes. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding, the assets that are pledged as collateral securing both the first priority claims and/or the claims secured by other permitted prior liens and the notes must first be used to pay the first priority claims and any claims secured by other permitted prior liens in full before making any payments on the notes.

In addition, the notes are secured by our assets only to the extent those assets constitute “collateral” under the security documents. Not all of our and our subsidiaries’ assets are “collateral.” Subject to limited exceptions, the notes are not secured by, among other assets, any of the following assets that we currently own or may acquire in the future:

•

any agreement or contract the terms of which prohibit, or would be breached by, the grant of a security interest therein to secure the notes, if (i) the prohibition is legally enforceable and (ii) after using commercially reasonable efforts, we have been unable to amend the agreement or contract to remove the offending terms;

	•		money and letters of credit rights that are not supporting obligations;

	•		any deposit accounts that have been pledged to secure priority lien obligations, if, after using commercially reasonable efforts, we have been unable to obtain perfected liens on those accounts;

	•		any foreign intellectual property or automobiles, vehicles or the like in which a security interest cannot be perfected by the filing of a Uniform Commercial Code financing statement;

	•		any other assets in which a security interest cannot be perfected by the filing of a Uniform Commercial Code financing statement, so long as the aggregate fair market value of those assets is not more than $1.0 million at any time;

	•		any leased real property;

	•		the voting stock of any foreign subsidiary in excess of 65% of the outstanding voting stock of that foreign subsidiary; and

	•		while any priority lien obligations remain outstanding, any other assets that have not been pledged to secure priority lien obligations, so long as the aggregate fair market value of those assets is not more than $500,000 at any time.

Absent the Intercreditor Agreement between the trustee for the note holders under the indenture and the administrative agent for the lenders under our senior secured credit facility, the failure by the lenders under the senior secured credit facility to perfect their liens on the collateral properly might have allowed the security interests that secure the notes to assert first priority. The Intercreditor Agreement, however, bars the noteholders from asserting such priority. In addition, to the extent that third parties, including lenders under any credit facility, hold liens on the collateral, such third parties will have rights and remedies with respect to the assets or property subject to such liens that, if exercised, could adversely affect the value of the collateral.

No appraisal of the value of the collateral securing the notes has been made and the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. However, we believe that the book value of our tangible assets will be less than our secured indebtedness on a pro forma basis and we cannot assure you that liquidating the collateral securing the notes would be likely to produce proceeds in an amount sufficient to pay all or any amounts due on the notes, after first satisfying our obligations in full under our senior secured credit facility and any other obligations secured by a first priority lien or other permitted prior lien on the collateral. Under the Bankruptcy Code, unless the value of the collateral securing the notes is greater than the amount of the remaining obligations under the notes, holders of notes will not be entitled to post petition interest in a bankruptcy proceeding.

We have not analyzed the effect of such exceptions, limitations, imperfections and liens, and the existence of any could adversely affect the value of the collateral securing the notes as well as the ability of the collateral agent to realize or foreclose on such collateral.

For each of the reasons set forth above, there may not be sufficient collateral to pay all or any of the amounts due on the notes. Any claim for the difference between the amount realized by holders of the notes from the sale of the collateral securing the notes and the obligations under the notes will be an unsecured claim and will rank equally in right of payment with all of our other unsecured unsubordinated indebtedness and other obligations, including trade payables.

Holders of notes will not control decisions regarding collateral.

The holders of the priority lien debt control substantially all matters related to the shared collateral securing the first priority claims and the notes. The holders of priority lien debt may cause the collateral agent under the applicable security agreements to take action (or delay or refuse to take action) to dispose of, foreclose on, or exercise other remedies with respect to the shared collateral with which holders of the notes may disagree or that may be contrary to the interests of holders of the notes.

The ability of the trustee to foreclose on the collateral may be limited.

The right of our secured creditors to foreclose on and sell collateral upon the occurrence of an event of default also could be subject to certain limitations under applicable federal bankruptcy laws if we become the subject of a case under the Bankruptcy Code. Various provisions of the Bankruptcy Code could prevent the trustee from repossessing and disposing of the collateral upon the occurrence of an event of default if a bankruptcy case is commenced by or against us before the trustee repossesses and disposes of the collateral. Under the Bankruptcy Code, secured creditors, such as the holders of the notes, may be prohibited from repossessing their collateral from a debtor in a bankruptcy case, or from disposing of collateral repossessed from such debtor, without prior bankruptcy court approval. Furthermore, other provisions of the Bankruptcy Code permit a debtor to continue to retain and to use the collateral (and the proceeds, products, rents or profits of such collateral) so long as the secured creditor is afforded “adequate protection” of its interest in the collateral. Although the precise meaning of the term “adequate protection” may vary according to circumstances, it is intended in general to protect a secured creditor against any diminution in the value of the creditor’s interest in its collateral. Accordingly, a bankruptcy court may find that a secured creditor is “adequately protected” if, for example, the debtor makes certain cash payments or grants the creditor additional or replacement liens as security for any diminution in the value of the collateral occurring for any reason during the pendency of the bankruptcy case. In view of the fact that the application of the doctrine of “adequate protection” will vary depending on the circumstances of the particular case and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the trustee could repossess or dispose of the collateral, or whether or to what extent holders of the notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of “adequate protection.” Furthermore, if the bankruptcy court determines the value of the collateral is not sufficient to repay all amounts due on the notes, you would hold secured claims to the extent of the value of the collateral to which a note holder is entitled, and would hold unsecured claims with respect to any shortfall.

Moreover, secured creditors that hold a security interest in real property may be held liable under environmental laws for the costs of remediating or preventing release or threatened releases of hazardous substances at such real property. The trustee may therefore need to evaluate the impact of such potential liabilities before determining to foreclose on collateral consisting of real property. Consequently, the trustee may decline to foreclose on such collateral or exercise remedies available if it does not receive indemnification to its satisfaction from the holders of the notes.

In addition, the trustee’s ability to foreclose on the collateral on your behalf may be subject to lack of perfection, the consent of third parties, prior liens (as discussed above) and practical problems associated with the realization of the trustee’s security interest in the collateral. We did not and will not obtain legal opinions on any of the real property included in the collateral. Therefore, the enforceability of the provisions of the deeds of trust securing our real property, including the remedial provisions, have not been and will not be passed on by local counsel.

Moreover, the Bankruptcy Code contains provisions permitting both secured and unsecured claims to be impaired, including materially re-written as to their terms and under certain circumstances, extinguished, pursuant to a Chapter 11 plan of reorganization that has been approved by a bankruptcy court. There are statutory requirements (including requirements intended to provide specific economic protections for holders of both secured and unsecured claims) that are to be satisfied before a bankruptcy court is legally entitled to approve or confirm a Chapter 11 plan of reorganization.

However, the bankruptcy court will determine, based on evidence at the confirmation hearing on such plan, whether certain of those statutory requirements have been satisfied upon the basis of the factual circumstances existing at the time of such confirmation hearing. The bankruptcy court’s factual findings on such matters generally are accorded deference by any appellate court and generally are not to be reversed on appeal unless “clearly erroneous.” Also, there is another doctrine generally applied by federal appellate courts, which generally is referred to as the “equitable mootness” doctrine and generally requires dismissal of any appeal of a bankruptcy court’s order confirming a Chapter 11 plan if a stay pending appeal has not been granted and if the plan has been so consummated (e.g., the transactions contemplated under the plan such as the payment of certain claims and/or the issuance of new debt or equity instruments have taken place) such that it would be unduly burdensome or unfair to third persons to unravel or “unwind” the plan. Thus, a bankruptcy court’s determination to confirm a Chapter 11 plan of reorganization is likely to be based in part on the bankruptcy court’s factual findings as to the future circumstances existing at the time of confirmation (as well as on its legal conclusions), may be subject with respect to those factual findings to a deferential review standard if appealed, and further may evade appellate review altogether if the appellate court determines that the “equitable mootness” doctrine is applicable to the circumstances surrounding such appeal and that, consequently, the appeal of that plan should be dismissed as being “equitably moot.” Accordingly, there can be no guarantee as to the manner in which the claims under the notes will be treated under any confirmed Chapter 11 plan of reorganization for us or any of our subsidiaries.

Rights of the holders of the notes in the collateral may be adversely affected by the failure to perfect security interests in certain collateral acquired in the future.

The collateral securing the notes includes certain assets that we may acquire in the future. Applicable law requires that certain property and rights, including real property, acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified. The collateral agent for the notes has no obligation to monitor the acquisition of, or the perfection of any security interests in, additional property or rights that constitute collateral. There can be no assurance that the trustee or the collateral agent will monitor, or that we will inform the trustee or the collateral agent of, the future acquisition of property and rights that constitute collateral, or that the necessary action will be taken to properly or timely perfect the security interest in such after acquired collateral. Such failure may result in the loss of the security interest in the collateral or the priority of the security interest in favor of the notes against third parties.

Any future pledge of collateral might be avoidable in bankruptcy.

Any future pledge of collateral to secure the notes, including pursuant to security documents delivered after the date of the indenture, might be avoidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if (1) the pledgor is insolvent at the time of the pledge, (2) the pledge permits the holders of the notes to receive a greater recovery than if the pledge had not been given, and (3) a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

Federal and state fraudulent transfer or conveyance laws permit a court to void the notes, the security interests or the guarantees, and, if that occurs, you may not receive any payments on the notes.

The issuance of the notes, the grant of the security interests and the issuance of the guarantees may be subject to review under federal and state fraudulent transfer and conveyance statutes in a bankruptcy or reorganization case or lawsuit commenced by or on behalf of our or our guarantors’ unpaid creditors. Under these laws, if a court were to find that, at the time we issued the notes and our guarantors issued the guarantees or we or our guarantors granted the security interests, we or our guarantors:

	•		incurred the indebtedness or granted the security interests with the intent of hindering, delaying or defrauding present or future creditors;

	•		received less than reasonably equivalent value or fair consideration for incurring the indebtedness or granting the security interests;

	•		were insolvent or rendered insolvent by reason of the incurrence of the indebtedness or the grant of the security interests;

	•		were left with inadequate capital to carry on business; or

	•		intended to incur, or did incur, or believed or reasonably should have believed that we or our restricted subsidiaries would incur, debts beyond our or our restricted subsidiaries’ ability to repay as they matured or became due,

then, such court might:

	•		subordinate the notes, the guarantees or the security interests to our or our guarantors’ presently existing or future indebtedness or any liens securing such indebtedness;

	•		void the issuance of the notes, the guarantees or the security interests; or

	•		take other actions detrimental to holders of the notes, including avoiding any payment by us pursuant to the notes or by the guarantors pursuant to the guarantees and requiring the return of any such payment to a fund for the benefit of our or our guarantors’ unpaid creditors.

In the event of a finding that a fraudulent conveyance occurred, a note holder may not receive any repayment on the notes. Further, the avoidance of the notes could result in an event of default with respect to our other debt that could result in acceleration of such debt.

Generally, an entity would be considered insolvent if, at the time it incurred indebtedness:

	•		the sum of its debts, including contingent liabilities, was greater than the fair salable value of all its assets;

	•		the present fair salable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or

	•		it could not (or believed that it could not, or intended not to) pay its debts as they become due.

Without limiting the generality of the preceding paragraphs, we cannot predict:

	•		what standard a court would apply in order to determine whether we or our guarantors were insolvent as of the date we or our guarantors issued the notes or the guarantees or granted the security interests, as applicable, or that regardless of the method of valuation, a court would determine that we or our guarantors were insolvent on that date; or

	•		whether a court would not determine that the notes, the guarantees or the security interests constituted fraudulent transfers on another ground.

Because the notes were issued with original issue discount, the interest payable in a bankruptcy case could be reduced, including by deduction of amounts of “unmatured interest” at the time of bankruptcy filing.

If a bankruptcy case is commenced by or against us under the Bankruptcy Code, the claim of a holder of notes with respect to the principal amount thereof may be limited to an amount equal to the sum of (i) the issue price of the notes and (ii) that portion of the original issue discount which is not deemed to constitute “unmatured interest” for purposes of the Bankruptcy Code. Accordingly, holders of the notes under such circumstances may, even if sufficient funds are available, receive a lesser amount than they would be entitled to under the express terms of the notes. In addition, there can be no assurance that a bankruptcy court would compute the accrual of interest by the same method as that used for the calculation of original issue discount under U.S. federal income tax law and, accordingly, a holder might be required to recognize gain or loss in the event of a distribution related to such a bankruptcy case.

Because the notes were issued with original issue discount, U.S. holders of the notes generally must include interest in income in advance of the receipt of cash attributable to such income.

The notes were issued with original issue discount for U.S. federal income tax purposes. Holders of notes who are U.S. persons generally must include original issue discount in gross income for U.S. federal income tax purposes on an annual basis under a constant yield accrual method regardless of their regular method of tax accounting. These holders must include original issue discount in income in advance of the receipt of cash attributable to such income.

There is no established trading market for the notes, and an active trading market may not develop for the notes. Therefore, a holder of the notes may not be able to sell the notes readily or at all or at or above the price that such holder paid.

There is no established trading market for the notes. We do not intend to apply for the notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation systems. A note holder may not be able to sell its notes at a particular time or at favorable prices. As a result, we cannot provide any assurance as to the liquidity of any trading market for the notes. As a result, a note holder may be required to bear the financial risk of its investment in the notes indefinitely. If any of the notes are traded after they are initially issued, they may trade at a discount from their initial offering price. If a trading market were to develop, future trading prices of the notes may be volatile and will depend on many factors, including:

	•		our operating performance and financial condition;

	•		prevailing interest rates;

	•		the interest of securities dealers in making a market for them; and

	•		the market for similar securities.

In addition, the market for non-investment grade debt historically has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes. The market for the notes, if any, may be subject to similar disruptions that could adversely affect their value and liquidity.


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

None.


Item 3.		Defaults Upon Senior Securities

~~None~~The information contained in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Debt and Other Obligations” with respect to certain defaults under our debt documents is incorporated by reference herein.


Item 4.		(Removed and Reserved)

Not applicable.


Item 5.		Other Information

None.

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Item 6.		Exhibits

Exhibit No.			Description	~~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.
3.1*			Amendment to Bylaws of RM Restaurant Holding Corp., dated October 26, 2010
	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.
3.2*			Amendment to Articles of Incorporation of Real Mex Foods, Inc., dated June 16, 2011
3.3*			Amendment to Articles of Incorporation of ALA Design, Inc., dated June 16, 2011
3.4*			Amendment to Bylaws of Acapulco Restaurant of Ventura, Inc., dated June 16, 2011
3.5*			Amendment to Bylaws of Acapulco Restaurant of Westwood, Inc., dated June 16, 2011
3.6*			Amendment to Bylaws of Murray Pacific, dated June 16, 2011
3.7*			Amendment to Bylaws of TARV, Inc., dated June 16, 2011
3.8*			Amendment to Bylaws of ALA Design, Inc., dated June 16, 2011
3.9*			Amendment to Bylaws of Acapulco Restaurant of Downey, Inc., dated June 16, 2011
3.10*			Amendment to Bylaws of Acapulco Restaurant of Moreno Valley, Inc., dated June 16, 2011
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

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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
Dated: August 15, 2011	By:	/s/ David Goronkin
		David Goronkin
		President, Chief Executive Officer and Chairman (Principal Executive Officer)
Dated: August 15, 2011	By:	/s/ Richard P. Dutkiewicz
		Richard P. Dutkiewicz
		Interim Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
		Chief Financial Officer (Principal Financial Officer and Accounting Officer)

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Table of Contents

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

Table of Contents

Table of Contents

Table of Contents

Filing Compare · Real Mex Restaurants, Inc.