Real Mex Restaurants, Inc. - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

	For the quarterly period ended March 27, 2005

Or

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

	For the transition period from to .

Commission file number 333-116310

REAL MEX RESTAURANTS, INC.

(Exact name of Registrant as specified in its charter)

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

4001 Via Oro Avenue, Suite 200
Long Beach, California 90810
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(310) 513-7500

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 o No ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of April 30, 2005, the registrant had outstanding 300,016 shares of Class A Common Stock, par value $0.001 per share, and 15,867 shares of Class B Common Stock, par value $0.001 per share.

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

Real Mex Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for share data)

	March 27,			December 26,
	2005			2004
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,358		$	10,690
Trade receivables, net	8,190			4,312
Other receivables	791			157
Inventories	10,406			6,616
Deferred tax asset	1,371			1,371
Prepaid expenses and supplies	4,091			3,754
Total current assets	36,207			26,900

Property and equipment, net	82,268			35,848
Goodwill, net	153,243			105,387
Deferred charges	7,228			5,003
Deferred tax asset	7,769			7,769
Other assets	7,347			6,044
Total assets	$	294,062		$	186,951

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	62,194		$	42,505
Current portion of long-term debt	113			63
Current portion of capital lease obligations	226			242
Total current liabilities	62,533			42,810

Long-term debt, less current portion	180,758			105,000
Capital lease obligations, less current portion	1,146			1,198
Other liabilities	11,032			8,094
Total liabilities	255,469			157,102

Commitments and contingencies

Stockholders’ equity:
Redeemable Preferred Stock:
Series A, 12 1/2% Cumulative Compounding Preferred Stock—18,240 and 15,881 shares issued and outstanding at March 27, 2005 and December 26, 2004 respectively; liquidation preference of $32,631 and $29,644 at March 27, 2005 and December 26, 2004 respectively	32,631			29,644
Series B, 13.5% Cumulative Compounding Preferred Stock—12,323 and 10,722 shares issued and outstanding at March 27, 2005 and December 26, 2004 respectively; liquidation preference of $23,064 and $20,970 at March 27, 2005 and December 26, 2004 respectively;	23,064			20,970
Series C, 15% Cumulative Compounding Preferred Stock—17,478 and 14,975 shares issued and outstanding at March 27, 2005 and December 26, 2004 respectively; liquidation preference of $52,202 and $46,544 at March 27, 2005 and December 26, 2004 respectively;	52,202			46,544
Common Stock, $.001 par value, 2,000,000 shares authorized, 315,883 and 274,523 shares issued and outstanding at March 27, 2005 and December 26, 2004 respectively;	—			1
Warrants	4,027			4,027
Additional paid-in capital	16,203			16,202
Accumulated deficit	(89,534		)	(87,539		)
Total stockholders’ equity	38,593			29,849
Total liabilities and stockholders’ equity	$	294,062		$	186,951

See accompanying notes.

Real Mex Restaurants, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(in thousands)

	Three Months Ended
	March 27,			March 28,
	2005			2004
Revenues:
Restaurant revenues	$	119,438		$	78,127
Other revenues	3,870			1,664
Total revenues	123,308			79,791
Costs and expenses:
Cost of sales	31,035			19,613
Labor	44,592			29,808
Direct operating and occupancy expense	29,205			18,632
General and administrative expense	7,590			4,419
Depreciation	4,514			3,255
Pre-opening costs	171			178
Impairment of property and equipment	216			—

Operating income	5,985			3,886

Other income (expense):
Casualty gain	—			562
Interest expense	(5,394		)	(3,242		)
Royalty income	681			33
Other income (expense), net	125			(219		)

Total other expense, net	(4,588		)	(2,866		)

Income before income tax provision	1,397			1,020

Income tax provision	2			11

Net income	1,395			1,009

Redeemable preferred stock accretion	(3,391		)	(2,785		)

Net loss attributable to common stockholders	$	(1,996	)	$	(1,776	)

See accompanying notes.

Real Mex Restaurants, Inc.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)

	Three Months Ended
	March 27,			March 28,
	2005			2004
Operating activities
Net income	$	1,395		$	1,009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,514			3,256
Amortization of:
Deferred financing	400			190
Debt discount	—			111
(Gain) loss on disposal of property and equipment	(39		)	662
Casualty gain	—			(562		)
Impairment of property and equipment	216			—
Changes in operating assets and liabilities:
Trade and other receivables	(1,656		)	(305		)
Inventories	(2,397		)	(573		)
Prepaid expenses and supplies	1,092			765
Deferred charges, net	(1		)	—
Other assets	483			(1,054		)
Accounts payable and accrued liabilities	2,118			2,362
Other liabilities	528			160
Net cash provided by operating activities	6,653			6,021

Investing activities
Additions to property and equipment	(3,468		)	(1,023		)
Chevys Acquisition, net of cash acquired of $3,398	(74,822		)	—
Leasehold acquisition costs	(8		)	—
Proceeds from sale of property	5			—
Net cash used in investing activities	(78,293		)	(1,023		)

Financing activities
Borrowings under long-term debt agreements	75,000			—
Payments on long-term debt agreements and capital lease obligations	(76		)	(1,145		)
Payments received on stockholder loans for stock subscription notes	—			50
Payment of financing costs	(2,616		)	(298		)
Interest receivable increase on stockholder loans	—			(10		)
Net cash provided by (used in) financing activities	72,308			(1,403		)
Net increase in cash and cash equivalents	668			3,595

Cash and cash equivalents at beginning of period	10,690			2,605
Cash and cash equivalents at end of period	$	11,358		$	6,200

Supplemental disclosure of cash flow information
Interest paid	$	1,728		$	112
Income taxes paid	$	2		$	11

Supplemental disclosure of noncash investing and financing activities
Preferred and common stock issued as consideration for the Chevys Acquisition	$	7,349		$	—
In kind accrued interest transferred to debt	$	—		$	407

See accompanying notes.

Real Mex Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

March 27, 2005

(in thousands, except for share data)

1. Basis of Presentation

Real Mex Restaurants, Inc., a Delaware Corporation (together with its subsidiaries, the “Company”), was formed on May 15, 1998.

The Company, primarily through its major subsidiaries El Torito Restaurants, Inc. (El Torito), Chevys Restaurants, LLC (Chevys) and Acapulco Restaurants, Inc. (Acapulco), currently operates 199 restaurants, of which 164 are located in California and the remainder are located in 12 other states, primarily under the trade names El Torito Restaurant, Chevys Fresh Mex and Acapulco Mexican Restaurant Y Cantina. The Company’s other major subsidiary, Real Mex Foods, Inc., (Real Mex) provides internal production, purchasing and distribution services for the restaurant operations. On a limited basis, Real Mex also manufactures specialty products for sale to outside customers.

The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited interim financial statements include all adjustments (consisting of normal recurring adjustments), which are necessary for a fair statement of the Company’s consolidated financial condition, results of operations and cash flows for the periods presented. However, these results are not necessarily indicative of results for any other interim periods or for the full fiscal year. The consolidated balance sheet data presented herein for December 26, 2004 was derived from the Company’s audited consolidated financial statements for the fiscal year then ended, but does not include all disclosures required by accounting principles generally accepted in the United States. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to the requirements of the Securities and Exchange Commission. The Company believes the disclosures included in the accompanying interim consolidated financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in our filings with the Securities and Exchange Commission.

2. Chevys Acquisition

On January 11, 2005, the Company completed the acquisition (the “Chevys Acquisition”) of substantially all of the assets of Chevys, Inc. and certain of its subsidiaries (the “Sellers”) out of the Sellers’ Chapter 11 bankruptcy proceeding, including 69 Chevys Fresh Mex® restaurants and five Fuzio Universal Pasta® restaurants. In addition, the Company assumed franchise agreements for 37 franchised Chevys Fresh Mex restaurants and five franchised Fuzio Universal Pasta restaurants. Chevys’ results of operations have been included in the Company’s consolidated financial statements since the date of acquisition.

The aggregate purchase price for the Chevys Acquisition of $88,948 consisted of approximately $77,900 in cash, the issuance of common stock, stock options and preferred stock to certain affiliates of the Sellers valued at $7,349, transaction costs of $2,883 and the assumption of an $816 mortgage loan. Additionally, the Company assumed certain liabilities, including ordinary course post-petition current and long-term liabilities of the Sellers, and issued approximately $6,300 of letters of credit as security for an insurance plan and certain leases.

The cash portion of the purchase price and related transaction expenses were financed with $75,000 of borrowings under a Senior Unsecured Credit Facility, acquired cash and cash on hand. The common stock, stock options and preferred stock issued to the affiliates of the Sellers included an aggregate of 41,360 shares of our Class A Common Stock, 2,064 shares of our Series A 12.5% Cumulative Compounding Preferred Stock (Series A), 1,393 shares of our Series B 13.5% Cumulative Compounding Preferred Stock (Series B), 1,946 shares of our Series C 15% Cumulative Compounding Participating Preferred Stock (Series C) and options to purchase 3,485 shares of our Class A Common Stock. The value of the common stock was determined to be its par value which was $0.001 per share. The value of the preferred stock was its liquidation preference value upon issuance of $1, $1, and $2 per share for the Series A, Series B and Series C, respectively.

The following table presents the preliminary allocation of the acquisition costs, including professional fees and other related transaction costs, to the assets acquired and liabilities assumed, based on their estimated fair values:

Cash and cash equivalents	$	3,938
Trade accounts receivable	2,856
Inventories	1,392
Other current assets	1,429
Property and equipment	47,697
Other assets	3,810
Goodwill	47,856
Total assets acquired	108,978

Accounts payable and accrued liabilities	17,571
Other liabilities	2,459
Total liabilities assumed	20,030
Net assets acquired	$	88,948

The primary reason for the Chevys Acquisition was to add a complementary growth vehicle in the full-service Mexican segment of the restaurant industry. The company attributes the goodwill associated with the Chevys Acquisition to the historical financial performance and the anticipated future performance of Chevys. The Company is in the process of obtaining third-party valuations of certain intangible assets acquired in the Chevys Acquisition; accordingly, the purchase price allocation required by SFAS No. 141 has not yet been finalized. The allocation of the purchase price is based on preliminary data and could change when the final valuation of certain property and equipment and certain intangible assets is completed.

The following pro forma consolidated results of operations have been prepared as if the Chevys Acquisition had occurred on December 29, 2003 (the first day of fiscal year 2004):

	Three Months Ended
	March 27,		March 28,
	2005		2004
Total revenues	$	131,247	$	130,638
Net income (loss) before redeemable preferred stock accretion	1,101		(408		)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the Chevys Acquisition been consummated as of that time, nor is it intended to be a projection of future results.

3. Long-Term Debt

Long-term debt consists of the following:

	March 27, 2005			December 26, 2004
Senior secured notes due 2010	$	105,000		$	105,000
Senior Unsecured Credit Facility	75,000			—
Mortgage	808			—
Other	63			63
	180,871			105,063

Less current portion	(113		)	(63		)

	$	180,758		$	105,000

On March 31, 2004, the Company retired the existing Revolving Credit and Term Loan Agreement and entered into a new Amended and Restated Revolving Credit Agreement (the “Line”) providing for $30,000 of Senior Secured Credit Facilities with a lead bank acting as Lead Arranger and Administrative Agent. The Line includes a $15,000 letter of credit facility and a $15,000 revolving credit facility, with a $15,000 sub-limit for letters of credit. No amounts were outstanding under the Line as of March 27, 2005.

On March 31, 2004, the Company sold $105,000 aggregate principal amount of 10% Senior Secured Notes due 2010 (the “Notes”). Interest on the Notes is payable semiannually on April 1 and October 1 each year, and commenced October 1, 2004. The proceeds of the Notes were used to repay a portion of the Senior A, B and C term loans, the Subordinated Debt and the fees associated with the sale of the Notes and the Line. Concurrent with the retirement of the Subordinated notes and the Senior A, B and C term loans, the company wrote-off the unamortized cost of the associated deferred debt fees in the amount of $4,677, recorded in Debt Termination Costs in the income statement. As a result of the failure of the Company to consummate an exchange offer of registered notes for the Notes, on November 8, 2004, the interest rate on the Notes increased by 0.25% per annum and an additional 0.25% per annum on February 6, 2005. Such increased interest will continue to accrue (subject to further increase) until the Company completes the exchange offer.

On January 11, 2005, the Company entered into a $75,000 senior unsecured credit facility (the “Senior Unsecured Credit Facility”), consisting of a single term loan maturing on December 31, 2008, all of the proceeds of which were used to finance a portion of the cash consideration for the Chevys Acquisition and pay related fees and expenses. Obligations under the Senior Unsecured Credit Facility are guaranteed by subsidiaries. Interest on the term loan outstanding under the Senior Unsecured Credit Facility accrues, at the Company’s option, at either (i) the greater of prime or the rate which is 0.5% in excess of the federal funds rate, plus 8.5% or (ii) a reserve adjusted Eurodollar rate, plus 9.5%. As of April 18, 2005, the interest rate on the term loan was 12.27%.

On January 11, 2005, the Company assumed a $0.8 million mortgage (the “Mortgage”), secured by the building and improvements of one of the restaurants acquired in the Chevys Acquisition. The Mortgage carries a fixed annual interest rate of 9.28% and requires equal monthly payments of principal and interest through April, 2015.

The terms of the amended and Restated Credit Agreement, the Notes and the Senior Unsecured Credit Facility include specific financial and other covenants, all of which the Company was in compliance with at March 27, 2005.

4. Capitalization

Common Stock

The Company is authorized to issue 1,000,000 shares of par value $0.001 Class A Common Stock and 1,000,000 shares of par value $0.001 Class B Common Stock. The terms of the Class B Common Stock are identical to the Class A Common Stock except that the holders of Class B Common Stock have no voting rights, except as provided by law. Each holder of Class B Common Stock has the right to convert any or all shares of Class B Common Stock into an equal number of shares of Class A Common Stock at any time. There were 300,016 and 258,655 shares issued and outstanding of Class A Common Stock at March 27, 2005 and December 26, 2004, respectively. There were 15,867 shares issued and outstanding of Class B Common Stock at March 27, 2005 and December 26, 2004.

Redeemable Preferred Stock

The Company is authorized to issue 100,000 shares of nonvoting $0.001 par value Redeemable Preferred Stock. Shares are issued upon approval of the board of directors and are redeemable at any time at the option of the Company.

Series A 12.5% Cumulative Compounding Redeemable Preferred Stock (Series A) and Series B 13.5% Cumulative Compounding Redeemable Preferred Stock (Series B) have a liquidation preference of $1 per share, plus accreted dividends associated with each share. With respect to dividend rights and rights of liquidation, Series A ranks senior to all classes of Common Stock and Series B. Series B ranks senior to all classes of Common Stock.

Series C 15% Cumulative Compounding Participating Preferred stock (Series C) ranks senior with respect to payment of dividends, liquidation, and redemption to the previously existing series of preferred stock and common stock of the Company. The Series C has a liquidation preference equal to two times the original issue price of $1 per share, plus accreted dividends.

The liquidation preference on the Series A and Series B accretes at the stated rates, and the liquidation preference on Series C accretes at the stated rate on the liquidation preference value; dividends (representing the accreted liquidation preference) are to be paid from legally available funds, when and if declared by the board of directors. If dividends are not declared, a dividend will continue to accrue and will be paid as dividends only when and if declared, or upon a sale or liquidation of the Company or upon redemption of the Preferred Stock. Accretion of the liquidation preference on the Redeemable Preferred Stock was $3,390 and $11,862 during the three months ended March 27, 2005 and year ended December 26, 2004, respectively, and is reflected as an increase in the preferred stock values and an increase in the accumulated deficit.

Net loss attributable to common stockholders includes the effect of the accretion of the liquidation preference on the redeemable preferred stock, which reduces net income and increases net loss attributable to common stockholders for the relevant periods.

Stock Option Plans

The Company’s 1998 and 2000 Stock Option Plans (the Plans) have authorized the grant of options to certain employees, directors and independent contractors for up to 12,000 and 100,000 shares, respectively, of the Company’s Common Stock. All options granted under both Plans have 10-year terms.

The Company has elected to follow APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock Based Compensation,” requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB Opinion No. 25, if the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The Company follows the required disclosures of SFAS No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock Based Compensation”, which requires more prominent and more frequent disclosures in financial statements of the effects of stock based compensation.

For option grants prior to 2004, the Plans provide for 50% of the options to become exercisable based on “annual vesting,” with 10% of the grant vesting per year during the first five years after the grant date, and the remaining 50% to become exercisable based on a “cliff vesting” schedule. The 50% portion of the option shares with the cliff vesting feature will 1) vest at an accelerated rate of 20% per year (i.e., 10% of the total options granted), provided that the equity of the Company (as defined in the Plans) is greater than or equal to the specified annual targets, 2) on any vesting anniversary date, the cumulative unvested shares through that date would vest if the required threshold is met, and 3) if after the fifth anniversary date the required threshold is not met, unvested options shall expire and terminate. For options grants in 2004, the Plan provides for 20% of the option grants to become exercisable each year on the anniversary date of the grants.

A summary of the status of the Company’s two stock option plans as of March 27, 2005, and March 28, 2004, and changes during the periods ending on these dates, is presented below:

	1998 Plan			2000 Plan
	Number of Stock Options	Weighted- Average Exercise Price		Number of Stock Options	Weighted- Average Exercise Price
Outstanding—December 26, 2004	5,250	$	10.00	81,333	$	33.19

Granted	682	10.00		4,839	$	30.52
Exercised	—	—		—	—
Canceled	—	—		—	—
Outstanding—March 27, 2005	5,932	$	10.00	86,172	$	33.04

Exercisable at March 27, 2005	5,932	$	10.00	21,123	$	60.01

Under the 1998 Stock-Based Incentive Compensation Plan, the Company granted stock options 50% of whose vesting is contingent on one or more performance conditions. For stock options granted in 2000, the vesting is contingent on the Company’s Equity Value, as defined in its Plan, exceeding a specified threshold. If as of June 30, 2005, the Equity Value has not exceeded the prescribed threshold, then the performance-based portion of the option will be cancelled. For the stock option granted in 2001, 50% of the vesting is conditional on a change in control.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for 2004 and 2005 options respectively: risk-free interest rates of 3.96% and 3.87%; and expected lives of six years and volatility of 35% for both years. The weighed-average remaining contractual life of the employee stock options granted under the 1998 Stock-Based Incentive Compensation Plan is four years and the weighted-average fair value of the employee stock options granted under the 1998 Stock-Based Incentive Compensation Plan is $41.14 per share. The weighted-average remaining contractual life of the employee stock options granted under the 2000 Stock-Based Incentive Compensation Plan is eight years and the weighted-average fair value of the employee stock options granted under the 2000 Stock-Based Incentive Compensation Plan is $0.47 per share.

At March 27, 2005, the Company has outstanding stock options granted under the 1998 Stock-Based Incentive Compensation Plan and the 2000 Stock-Based Incentive Compensation Plan. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value as of the underlying common stock on the date of grant, or in the case of performance based options have an exercise price above the market value as of the underlying common stock on March 27, 2005. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. Under SFAS No. 148, the Company would have incurred $567 additional compensation expense for the three months ended March 27, 2005.

5. Related Party Transactions

The Company has a management agreement with two of its stockholders. The stockholders are paid fees equating to .667% and .333%, respectively, of consolidated earnings before interest, income taxes, depreciation and amortization of the Company. Expenses relating to the agreement of $117 and $61 were recorded as general and administrative expense in the three months ended March 27, 2005 and March 28, 2004.

On January 19, 2005, the Company paid $833,333 and $166,667 to Bruckman, Rosser, Sherrill & Co., L.P. and FS Private Investments, LLP, respectively, for advisory and transactional services provided to our Company pursuant to the Amended and Restated Management Agreement in connection with the Chevys Acquisition.

Effective March 31, 2004, the Company cancelled its management agreement with Restaurant Associates Corp. to provide services for the benefit of the Company, including general and strategic management, treasury, tax, financial reporting, benefits administration, insurance, information technology, real estate and legal services. Two of our directors are employees of Restaurant Associates Corp. Expenses relating to this agreement of $64 were recorded as general and administrative expense for the three months ended March 28, 2004.

Notes receivable from stockholders consisted of amounts due from stockholders related to the acquisition of the Company’s Common and Preferred Stock. The notes bore interest at 8.0% and were fully repaid on June 28, 2004.

6. Sale Leaseback Transaction

On March 31, 2004, the Company sold and leased back the land and building underlying five of the Company’s restaurants (three in Missouri and two in California) for total net proceeds of $12,012 (the “Sale Leaseback Transaction”). The Sale-Leaseback Transaction resulted in deferred gain of $3,927 that is being amortized over the lives of the related leases. For the three month period ended March 27, 2005, the Company recognized $96 of the deferred gain which was recorded in other income (expense), net.

The leases underlying the Sale-Leaseback Transaction have initial 20-year non-cancelable terms and qualify for operating lease treatment. The impact of the Sale-Leaseback Transaction resulted in an increase in rent expense of approximately $1,025 in 2004. The proceeds of the Sale-Leaseback Transaction were used to repay a portion of the Senior A, B and C term loans.

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

You should read the following discussion together with our consolidated financial statements and related notes thereto included elsewhere in this report. 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 “Forward-Looking Statements” below.

Overview

Real Mex Restaurants, Inc. (referred to hereafter as “we”, “our” and “Company”) is one of the largest full service, casual dining Mexican restaurant chain operators in the United States in terms of number of restaurants. We currently operate 199 restaurants, of which 164 are located in California, with additional restaurants in Arizona, Florida, Indiana, Illinois, Maryland, Missouri, Nevada, New Jersey, New York, Oregon, Virginia and Washington. Our four major subsidiaries are El Torito Restaurants, Inc., which we acquired in June 2000, Acapulco Restaurants, Inc., Chevys Restaurants, LLC, which we formed in connection with the Chevys Acquisition, and a purchasing, distribution, and manufacturing subsidiary, Real Mex Foods, Inc.

Our three primary restaurant concepts, El Torito, Acapulco and Chevys, 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 16 additional restaurant locations, most of which are also full service Mexican formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; GuadalaHarry’s; Who Song & Larry’s; Keystone Grill; and Fuzio Universal Pasta.

On January 11, 2005 we completed the Chevys Acquisition, acquiring 69 Chevys restaurants and five Fuzio Universal Pasta restaurants and assuming franchise agreements for 37 franchised Chevys restaurants and five franchised Fuzio Universal Pasta restaurants. The purchase price for the Chevys Acquisition was approximately $77.9 million in cash and the assumption of certain liabilities, plus the issuance of Real Mex common and preferred stock to J.W. Childs Equity Partners L.P. and its affiliate, JWC Chevys Co-Invest, LLC. See “Notes to Consolidated Financial Statements”. Chevys’ results of operations have been included in our Company’s consolidated financial statements since the date of the acquisition.

In December 2004, we opened our first new El Torito restaurant in five years, located in Encinitas, California. We opened our second new El Torito restaurant in Corona, California in April 2005, and plan to open three additional restaurants in 2005.

Restaurant revenues includes sales of food and alcoholic and other beverages. Other revenues consists primarily of sales by Real Mex to outside customers of processed and packaged prepared foods and other merchandise items.

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

Labor cost includes direct hourly and management wages, operations management bonus expense, vacation pay, payroll taxes and workers’ compensation insurance and health insurance expenses.

Direct operating and occupancy expense 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.

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 principally includes depreciation of capital expenditures for restaurants. Pre-opening costs are expensed as incurred and include costs associated with the opening of a new restaurant or the conversion of an existing restaurant to a different concept.

Our fiscal year consists of 52 or 53 weeks and ends on the last Sunday in December of each year. The three months ended March 27, 2005 and March 28, 2004 consist of thirteen weeks. When calculating same store sales, we include a restaurant that has been open for more than 12 months and for the entirety of each comparable period. References to same store sales contained in this report do not include Chevys.

Critical Accounting Policies

The preparation of our 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 goodwill, income taxes, impairment of long-lived assets and self-insurance reserves. 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 make adjustments to our judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates under different assumptions or conditions.

For future information regarding the accounting policies that we believe to be critical accounting policies that affect our more significant judgments and estimates used in preparing our consolidated financial statements, see our form 10-K filed for the fiscal year ended December 26, 2004.

Impact of Recently Issued Accounting Principles

In April 2005, the Securities and Exchange Commission (“SEC”) approved a new rule that delays the effective date of Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. Except for this deferral of the effective date, the guidance in SFAS No. 123R is unchanged. Under the SEC’s rule, SFAS No. 123R is now effective for the Company for annual, rather than interim, periods that begin after June 15, 2005. The Company will apply this Statement to all awards granted on or after December 25, 2005 and to awards modified, repurchased, or cancelled after that date. We expect that the implementation of the provisions of SFAS No. 123R will have an impact consistent with our disclosures included under SFAS No. 148 in our fiscal 2004 Form 10-K.

Results of Operations

Our operating results for the three months ended March 27, 2005 and March 28, 2004 are expressed as a percentage of total revenues below:

	Three Months Ended
	March 27, 2005		March 28, 2004
Total revenues	100.0	%	100.0	%
Cost of sales	25.2		24.6
Labor	36.2		37.4
Direct operating and occupancy expense	23.7		23.4
Total operating costs	85.0		85.3
General and administrative expense	6.2		5.5
Depreciation	3.7		4.1
Operating income	4.9		4.9
Pre-opening costs	0.1		0.2
Interest expense	4.4		4.1
Total other expense, net	3.7		3.6
Income before tax provision	1.1		1.3
Net income	1.1		1.3

Three months ended March 27, 2005 compared to the three months ended March 28, 2004

Total Revenues. Total revenues increased by $43.5 million, or 54.5%, to $123.3 million in the first quarter of 2005 from $79.8 million in the first quarter of 2004 due to a $41.3 million increase in restaurant revenues and a $2.2 million increase in other revenues. The increase in restaurant revenues was the result of the inclusion in our results of operations of the Chevys restaurant sales of $40.8 million combined with comparable store sales increases of 3.3% in the quarter, partially offset by restaurant closures. The increase in comparable store sales was driven by increases in pricing in El Torito concept restaurants of approximately 1.2% and in Acapulco concept restaurants of approximately 1.9%, increases in customer counts of 2.9% in the El Torito restaurants and decreased discounting in the Acapulco restaurants. The $2.2 million increase in other revenues was primarily due to an increase in sales to outside customers by our distribution facility.

Cost of Sales. Total cost of sales of $31.0 million in the first quarter of 2005 increased $11.4 million or 58.2% as compared to the first quarter of 2004 primarily due to the inclusion in our results of operations of the Chevys restaurants cost of sales of $10.2

million combined with higher costs associated with the increase in sales to outside customers by our distribution facility. As a percentage of total revenues, cost of sales increased to 25.2% for the first quarter of 2005 from 24.6% for the first quarter of 2004.

Labor. Labor costs of $44.6 million in the first quarter of 2005 increased by $14.8 million or 49.6% as compared to the first quarter of 2004. The increase in labor cost dollars associated with the inclusion in our results of operations of the Chevys restaurants was $14.8 million. 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 and workers’ compensation insurance. As a percent of total revenues, labor costs decreased to 36.2% for the first quarter of 2005 from 37.4% for the first quarter of 2004 primarily due to lower hourly labor expense as a percent of sales due to continued focus on hourly labor controls and scheduling.

Direct Operating and Occupancy Expense. Direct operating and occupancy expense of $29.2 million in the first quarter of 2005 increased by $10.6 million or 56.7% as compared to the first quarter of 2004. The increase in direct operating and occupancy expense associated with the inclusion in our results of operations of the Chevys restaurants was $10.7 million. Direct operating and occupancy expense as a percentage of sales increased to 23.7% in the first quarter of 2005 from 23.4% in the first quarter of 2004.

General and Administrative Expense. General and administrative expense of $7.6 million in the first quarter of 2005 increased by $3.2 million or 71.8% primarily due to increased staffing associated with the Chevys Acquisition. General and administrative expense as a percentage of sales increased to 6.2% in the first quarter of 2005 from 5.5% in the first quarter of 2004.

Depreciation. Depreciation expense of $4.5 million in the first quarter of 2005 increased $1.3 million or 38.7% as compared to the first quarter of 2004. The increase associated with the inclusion in our results of operations of the Chevys restaurants was $1.4 million. As a percentage of total revenues, depreciation decreased to 3.7% for the first quarter of 2005 from 4.1% for the first quarter of 2004.

Interest Expense. Interest expense of $5.4 million in the first quarter of 2005 increased $2.2 million or 66.4% as compared to the first quarter of 2004 primarily due to increased debt levels associated with the $105.0 million in Notes and the $75.0 million Senior Unsecured Credit Facility. As a percentage of total revenues, interest expense increased to 4.4% for the first quarter of 2005 from 4.1% for the first quarter of 2004.

Liquidity and Capital Resources

Our principal liquidity requirements are to service our debt and meet our capital expenditure and working capital needs. Our indebtedness, including capital lease obligations, at March 27, 2005 was $182.2 million, and we had $3.2 million of revolving credit availability under our Line. 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 Line will be adequate to meet our liquidity needs for the foreseeable future. In addition, we may partially fund restaurant openings through credit received from trade suppliers and landlord contributions, if favorable terms are available. 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 Line 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.

Working Capital and Cash Flows

We presently have, in the past have had, and in the future are likely to have, negative working capital balances. The working capital deficit principally is the result of accounts payable and accrued liabilities being in excess of 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 certificate liabilities. We do not have significant receivables and we receive trade credit based upon negotiated terms in purchasing food and supplies. Funds available from cash sales not needed immediately to pay for food and supplies or to finance receivables or inventories typically have been used for capital expenditures and/or debt service payments under our existing indebtedness.

Operating Activities. We had net cash provided by operating activities of $6.7 million for the three months ended March 27, 2005 compared with net cash provided by operating activities of $6.0 million for the three months ended March 28, 2004. The increase in cash provided by operating activities was primarily attributable to an increase in inventories at Real Mex attributable to the initiation of distribution services to the Chevys restaurants.

Investing Activities. We completed the Chevys Acquisition on January 11, 2005. Asset acquisition costs for the three months ended March 27, 2005 were $74.8 million. We expect to make capital expenditures totaling approximately $20.1 million in fiscal 2005 of which $7.6 million is expected to be spent on our Chevys and Fuzio Universal Pasta restaurants including approximately $2.0 million related to upgrades to the Chevys POS system and $5.6 million for maintenance capital expenditures. The remaining $12.5 million in capital expenditures includes approximately $6.2 million in maintenance capital expenditures and approximately $6.3 million to build four new El Torito or El Torito Grill restaurants. As of March 27, 2005, we made capital expenditures totaling approximately $3.5 million comprised of $2.6 million of maintenance capital expenditures and $0.9 million for new restaurant development.

These and other similar costs may be higher in the future due to inflation and other factors. We expect to fund the new El Torito restaurants and the other capital expenditures described above from cash flow from operations, available cash, available borrowings under our Senior Credit Facility, landlord contributions (if favorable terms are available) and trade financing received from trade suppliers.

Financing Activities. We had net cash provided by financing activities of $72.3 million for the three months ended March 27, 2005 compared with net cash used in financing activities of $1.4 million for the three months ended March 28, 2004. The increase in cash provided by financing activities was primarily due to the issuance of $75.0 million in notes under a Senior Unsecured Credit Facility to fund the Chevys Acquisition.

Debt and Other Obligations

On March 31, 2004, we sold $105.0 million aggregate principal amount of old notes. At the closing of the sale of the old notes, we used the proceeds from the sale of the Notes and the Sale-Leaseback Transaction to repay term loans then outstanding under our prior credit facility of $70.2 million and subordinated notes of $44.4 million in full, and entered into a new senior secured credit facility. In connection with the retirement of our term loans then outstanding, we took a charge of $4.7 million consisting of deferred financing costs and discounts on the retired debt and termination of an interest rate swap agreement at a cash cost of $0.2 million.

Senior Unsecured Credit Facility. Concurrently with the closing of the Chevys Acquisition, we entered into a $75.0 million Senior Unsecured Credit Facility, consisting of a single term loan maturing on December 31, 2008, all of the proceeds of which were used to finance a portion of the cash consideration for the Chevys Acquisition and pay related fees and expenses. Our obligations under the Senior Unsecured Credit Facility are guaranteed by our subsidiaries. Interest on the term loan outstanding under the Senior Unsecured Credit Facility accrues, at our option, at either (i) the greater of prime or the rate which is 0.5% in excess of the federal funds rate, plus 8.5% or (ii) a reserve adjusted Eurodollar rate, plus 9.5%. As of March 18, 2005, the interest rate on the term loan was 12.27%.

Our Senior Unsecured Credit Facility contains various affirmative and negative covenants, which among other things, requires us to meet certain financial tests (including certain leverage and interest coverage ratios) and limits our 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). We are required to maintain certain minimum interest coverage ratios ranging from (i) 1.75 to 1.00 for the four fiscal quarters ending on or prior to June 30, 2005, (ii) 1.85 to 1.00 for the four fiscal quarters ending on or prior to September 30, 2005 through March 31, 2006, (iii) 2.00 to 1.00 for the four fiscal quarters ending on or prior to June 30, 2006 through December 31, 2006, (iv) 2.15 to 1.00 for the fiscal quarters ending on or prior to March 31, 2007 through December 31, 2007, and (v) 2.30 to 1.00 thereafter until maturity. Pursuant to the terms of the Senior Unsecured Credit Facility, interest coverage ratio is defined as the ratio as of the last day of any fiscal quarter of (a) Consolidated EBITDA (as defined therein) for the four-fiscal quarter period then ending to (b) Consolidated Interest Expense (as defined therein) for such four-fiscal quarter period.

Line. Our Line was initially comprised of a $15.0 million revolving credit facility, which had a $2.0 million sub-limit for letters of credit (the “Revolving Credit Facility”) and a $15.0 million letters of credit facility (the “Letters of Credit Facility”). At the closing of the sale of the old notes, we utilized the Letters of Credit Facility in its entirety and utilized an additional $2.0 million from the Revolving Credit Facility to secure approximately $17.0 million in outstanding letters of credit, which serve as collateral for our various self-insured workers’ compensation and other insurance programs. On January 11, 2005, concurrent with the closing of the Chevys Acquisition, we amended the Line to, among other things, modify certain covenants, change the maturity date to June 30, 2008 (subject to extension to March 31, 2009 provided that the Senior Unsecured Credit Facility (as defined below) has been repaid and terminated in full on or prior to June 29, 2008), and increased the sub-limit for letters of credit availability under the Revolving Credit Facility from $2.0 million to $15.0 million (subject to an overall limitation of $30.0 million availability under the Line). At the closing of the Chevys Acquisition, we utilized an additional $6.4 million from the Revolving Credit Facility to secure assumed letters of credit which serve as collateral for Chevys’ workers’ compensation insurance programs and to guarantee performance under certain of Chevys’ operating leases.

Under the Line, interest accrues based upon a total leverage ratio calculation. The interest under the Line accrues, at our option, at either (i) the base rate of interest in effect from time to time, which is the higher of the lender’s prime rate as announced from time to time or the federal funds rate plus 0.50%, plus the current applicable margin of 1.75% or (ii) a London Inter Bank Offering Rate for deposits as reported by a generally recognized financial reporting service plus the current applicable margin of 4.0%. Our Line is guaranteed by our subsidiaries and secured by, among other things, perfected first priority pledges of all of the equity interests of our direct and indirect subsidiaries, and perfected first priority security interests (subject to customary exceptions) in substantially all of our current and future property and assets, with certain limited exceptions. The lien on the collateral securing the Line is senior to the lien on the collateral securing the notes and the guarantees of the notes.

Our Line contains various affirmative and negative covenants and restrictions, which among other things, requires us to meet certain financial tests (including certain leverage and cash flow ratios), and limits our 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, enter into arrangements that restrict dividends from subsidiaries, sell assets, engage in transactions with affiliates and effect a consolidation or merger. We are required to maintain certain cash flow ratios determined on an annual basis equal to (i) 1.40 to 1.00 for the period December 31, 2004 to December 31, 2005, (ii) 1.70 to 1.00 for the period January 1, 2006 to December 31, 2006, (iii) 1.80 to 1.00 for the period January 1, 2007 to December 31, 2007, and (iv) 1.90 to 1.00 for the period January 1, 2008 and thereafter until maturity. Pursuant to the terms of the Line, cash flow ratio is defined as the ratio of (a) Consolidated Cash Flow (as defined therein) to (b) Consolidated Financial Obligations (as defined therein).

Senior Secured Notes due 2010. Interest on the notes accrues at a rate of 10% per annum and is payable semiannually on April 1 and October 1 of each year, commencing October 1, 2004. The notes are fully and unconditionally guaranteed on a senior secured basis by all of our present and future domestic subsidiaries which are restricted subsidiaries under the indenture governing the notes. The notes and related guarantees are secured by substantially all of our and our domestic restricted subsidiaries’ tangible and intangible assets, subject to the prior ranking claims on such assets by the lenders under our Line. The indenture governing the notes contains various affirmative and negative covenants, subject to a number of important limitations and exceptions, including but not limited those limiting our ability to incur additional indebtedness, make capital expenditures, pay dividends, redeem stock or make other distributions, issue stock of our subsidiaries, make certain investments or acquisitions, grant liens on assets, enter into transactions with affiliates, merge, consolidate or transfer substantially all of our assets, and transfer and sell assets. The covenant that limits our incurrence of indebtedness requires that, after giving effect to any such incurrence of indebtedness and the application of the proceeds thereof, our fixed charge coverage ratio as of the date of such incurrence will be at least (i) 2.25 to 1.00 in the case of any incurrence on or before April 1, 2006 and (ii) 2.50 to 1.00 in the case of any incurrence after April 1, 2006. The indenture defines consolidated fixed charge coverage ratio as the ratio of Consolidated Cash Flow (as defined therein) to Fixed Charges (as defined therein).

We can redeem the notes on or after April 1, 2007, except that we may redeem up to 35% of the notes prior to April 1, 2007 with the proceeds of one or more public equity offerings. We are required to redeem the old notes under certain circumstances involving a change of control. Additionally, if we or any of our domestic restricted subsidiaries engage in assets sales, we generally must either invest the net cash proceeds from such sales in our business within 360 days, prepay the indebtedness obligations under our Revolving Credit Facility or certain other secured indebtedness or make an offer to purchase a portion of the notes.

On June 9, 2004, we filed a registration statement with respect to notes having substantially identical terms as the old notes, as part of an offer to exchange registered notes for the Notes (the “Exchange Offer”). We temporarily suspended and extended the Exchange Offer on October 27, 2004 in connection with the pending acquisition of Chevys. As a result of the suspension of the Exchange Offer, pursuant to the terms of a registration rights agreement entered into with the initial purchasers of the old notes, we began paying additional interest on the old notes on November 8, 2004 at the rate of 0.25% per annum, which rate increased by an additional 0.25% per annum on February 6, 2005. Such additional interest will continue to accrue (subject to further increase) until we complete the Exchange Offer.

Mortgage. Concurrently with the closing of the Chevys Acquisition, we assumed a $0.8 million mortgage (the “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.

In connection with our acquisition of El Torito, we assumed capitalized lease obligations, collateralized with leasehold improvements, in an aggregate amount of $9.2 million. The capitalized lease obligations have a weighted average interest rate of

10.0%. As of March 27, 2005, the principal amount due relating to capitalized lease obligations was $1.4 million. Principal and interest payments on the capital lease obligations are due monthly and range from $1,100 to $7,500 per month. The capital lease obligations mature between 2005 and 2027.

Inflation

Over the past five years, inflation has not significantly affected our operations. However, 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. 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.

Risk Factors

Food-borne illness incidents could reduce our restaurant sales.

We cannot guarantee that our internal controls 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. Some food borne illness incidents could be caused by third party food suppliers and transporters outside of our control. 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.

Increases in the cost of ingredients could materially adversely affect our business, financial condition, 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.

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 key 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.

We are vulnerable to changes in consumer preferences and economic and other conditions that could harm our business, financial condition, 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. There can be no assurance that consumers will continue to regard our products favorably or that we will be able to develop new products that appeal to consumer preferences, which 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.

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.

We intend to open additional restaurants, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are reviewing additional sites for potential future restaurants. Historically, there is a “ramp-up” period of time before we expect a new restaurant to achieve our targeted level of performance. This is due to higher operating costs caused by start-up and other temporary inefficiencies such as customer acceptance and unavailability of experienced staff. Our ability to open new restaurants is dependent upon a number of factors, many of which are beyond our control, including our ability to:

• find quality locations;

• reach acceptable agreements regarding the lease or purchase of locations;

• raise or have available an adequate amount of money for construction and opening costs;

• timely hire, train and retain the skilled management and other employees necessary to meet staffing needs; and

• obtain, for an acceptable cost, required permits and regulatory approvals.

We may not be able to attract enough customers to new restaurants because potential customers may be unfamiliar with our restaurants or the atmosphere or menu of our restaurants might not appeal to them. In addition, as part of our growth strategy, we intend to open new restaurants in our existing markets. Since we typically draw customers from a relatively small radius around each of our restaurants, the operating results and comparable unit sales for existing restaurants that are near the area in which a new restaurant opens may decline, and the new restaurant itself may not be successful, due to the close proximity of other restaurants and market saturation.

For these same reasons, many markets would not successfully support one of our restaurants. Our existing business support systems, management information systems, financial controls and other systems and procedures may be inadequate to support our

expansion, which could require us to incur substantial expenditures that could materially adversely affect our operating results or cash flows.

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.

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 and planned 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.

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 wages;

• paid leaves of absence;

• tax reporting; and

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

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 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, our success depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualified employees, including guest service and kitchen staff, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in some geographic areas. In addition, full service casual dining segment restaurant operators have traditionally experienced relatively high employee turn over rates. Although we have not yet experienced any significant problems in recruiting or retaining employees, our ability to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing 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 impacting business in most industries including ours. To manage premium increases we have elected to self-insure. 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 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.

We face risks associated with government regulations.

We are subject to extensive government regulation at a 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 them 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 2004, approximately 28% 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 on the basis 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 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 which 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.

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®, El Torito®, Real Mex Foods™, Chevys Fresh Mex® and Fuzio Universal Pasta®. 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 on 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.

There can be no assurance 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 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, the loss of whom 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 related SEC regulations will require a significant amount of management attention and external resources. We are committed to observing high standards of corporate governance and public disclosure. As a result, 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.

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 or 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.

The integration of Chevys may result in substantial costs, delays and other problems.

Our future performance will depend heavily on our ability to integrate Chevys. To integrate a newly acquired business such as Chevys, we must integrate restaurant resources and extend our financial and management controls and operating, administrative and information systems in a timely manner and on satisfactory terms and conditions. We may not be able to successfully integrate Chevys or realize projected cost savings and synergies in connection with the Chevys Acquisition on the timetable contemplated or at all.

Furthermore, the costs of the Chevys Acquisition could significantly impact our short-term operating results. These costs could include:

• restructuring charges associated with the Chevys Acquisition; and

• acquisition costs including accounting and legal fees, investment banking fees, recognition of transaction-related obligations and various other acquisition-related costs.

The integration of Chevys will require the expenditure of substantial managerial, operating, financial and other resources and may also lead to a diversion of management’s attention from our ongoing business concerns.

Our substantial level of indebtedness could adversely affect our financial condition.

We have substantial indebtedness. As of March 27, 2005, we had $182.3 million of indebtedness including obligation under capital leases. Subject to restrictions in the indenture for the Notes and our senior secured and unsecured credit facilities, we may incur additional indebtedness. Our high level of indebtedness could have important consequences to holders of our indebtedness and significant effects on our business, including the following:

• 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 our indebtedness, which will reduce the funds available to use for operations and other purposes;

• 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; and

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

We expect to use cash flow from operations to pay our expenses and amounts due under our outstanding indebtedness. Our ability to make these payments thus depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. 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 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, 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 for the Notes and our senior secured and unsecured credit facilities, may restrict us from adopting any of these alternatives.

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

Our current debt agreements impose, and future debt agreements may impose, significant operating and financial restrictions on us. These restrictions will limit or prohibit, among other things, our ability to:

• incur additional indebtedness;

• repay indebtedness 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 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.

Bruckmann, Rosser, Sherril & Co., LLC and Jefferies Capital Partners together control our Company, and their interests may conflict with the interests of the holders of our indebtedness.

As a result of their stock ownership, Bruckmann, Rosser, Sherril & Co., LLC, or BRS, and Jefferies Capital Partners, or JCP, together own beneficially approximately 65.8% of our outstanding capital stock. By virtue of their stock ownership and the terms of the securities holders agreement, these entities have significant influence over our management and will be able to determine the outcome of all matters required to be submitted to the stockholders 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 BRS and JCP as equity owners of our Company may differ from the interests of the holders of our indebtedness, and, as such, BRS and JCP may take actions which may not be in the interests of the holders of our indebtedness. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity owners might conflict with the interests of the holders of our indebtedness. In addition, our equity owners may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to the holders of our indebtedness.

Forward Looking Statements

This report includes “forward looking statements” within the meaning of the federal securities laws. 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. Also, 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.

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 fiscal years 2005 and 2004 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 and unsecured credit facilities that are payable at floating rates of interest. We currently do not have any borrowings outstanding under our Line. We currently have $75.0 million outstanding under our Senior Unsecured Credit Facility. A hypothetical 10% fluctuation in interest rates, as of May 1, 2005, would have a net after tax impact of $0.9 million on earnings in fiscal 2005.

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 a 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

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 (“CEO”) and principal financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 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.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

The Company is periodically a defendant in cases involving personal injury and other matters which arise in the normal course of business. While any pending or threatened litigation has an element of uncertainty, the Company believes that the outcome of these lawsuits or claims, individually or combined, will not materially adversely affect the consolidated financial position, results of operations or cash flows of the Company.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Exhibit No.		Description
4.1		Second Supplemental Indenture, dated as of January 10, 2005, among Chevys Restaurants, LLC, Real Mex Restaurants, Inc., the guarantors named therein and Wells Fargo Bank, N.A., as trustee (Filed with the Securities and Exchange Commission as Exhibit 4.4 to the Company’s Registration Statement on Form S-4 (File No. 333-124670) on May 5, 2005 and incorporated by reference herewith)

10.1		Joinder Agreement, dated as of January 11, 2005, among Real Mex Restaurants, Inc., J.W. Childs Equity Partners, L.P., JWC Chevys Co-Invest, LLC, Bruckmann, Rosser, Sherrill & Co., L.P. and Bruckmann, Rosser, Sherrill & Co., II L.P. (Filed with the Securities and Exchange Commission as Exhibit 10.1 to Form 8-K (File No. 333-116310) on January 18, 2005 and incorporated by reference herewith)

10.2		Term Loan Credit Agreement, dated as of January 11, 2005, among Real Mex Restaurants, Inc., Deutsche Bank Securities, Inc. and Credit Suisse First Boston (Filed with the Securities and Exchange Commission as Exhibit 10.2 to Form 8-K (File No. 333-116310) on January 18, 2005 and incorporated by reference herewith)

10.3		Second Amendment and Consent, dated as of January 11, 2005, among Real Mex Restaurants, Inc., Acapulco Restaurants, Inc., El Torito Franchising Company, El Torito Restaurants, Inc., Acapulco Restaurants of Encinitas, Inc., TARV, Inc., Acapulco Restaurant of Ventura, Inc., Acapulco Restaurant of Westwood, Inc., Acapulco Mark Corp., Murray Pacific, ALA Design, Inc., Real Mex Foods, Inc., Acapulco Restaurant of Downey, Inc., Acapulco Restaurant of Moreno Valley, Inc., El Paso Cantina, Inc., CKR Acquisition Corp., Chevys Restaurants, LLC, Fleet National Bank and Union Bank of California, N.A. (Filed with the Securities and Exchange Commission as Exhibit 10.3 to Form 8-K (File No. 333-116310) on January 18, 2005 and incorporated by reference herewith)

31.1		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer.

31.2		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.

	REAL MEX RESTAURANTS, INC.


Dated: May 10, 2005	By:	/s/ Frederick F. Wolfe
		Frederick F. Wolfe
		President & Chief Executive Officer (principal executive officer)


Dated: May 10, 2005	By:	/s/ Steven Tanner
		Steven Tanner
		Chief Financial Officer (principal financial and accounting officer)

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION

Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURE