Delaware		5810		13-4012902
(State or Other Jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
Incorporation or Organization)		Classification Code Number)		Identification No.)

5660 Katella Avenue, Suite 100
Cypress, California 90630
(562) 346-1200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Richard E. Rivera
President and Chief Executive Officer and Chairman
Real Mex Restaurants, Inc.
5660 Katella Avenue, Suite 100
Cypress, California 90630
(562) 346-1200
(Name, address including zip code, and telephone number, including area code, of agent for service)

Copy to:
Gerald Chizever, Esq.
Lawrence Venick, Esq.
Loeb & Loeb LLP
10100 Santa Monica Blvd., Suite 2200
Los Angeles, CA 90067
(310) 282-2000

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer þ		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

				Proposed Maximum			Amount of
	Title of Each Class of			Aggregate			Registration
	Securities to be Registered			Offering Price(1)			Fee
	14% Senior Secured Notes due 2013			13,000,000			$725.40
	Guarantees			(2)			(2)

 

 

		State of				Primary Standard
		Incorporation				Industrial Classification				IRS Employer
Name		of Organization				Code Number				Identification No.
Acapulco Restaurants, Inc.		Delaware					5810				13-3304897
El Torito Restaurants, Inc.		Delaware					5810				33-0197059
El Torito Franchising Company		Delaware					5810				33-0722754
El Paso Cantina, Inc.		California					5810				95-2810112
Murray Pacific		California					5810				95-3721596
TARV, Inc.		California					5810				33-0338081
ALA Design, Inc.		California					5810				95-3218584
Acapulco Restaurant of Westwood, Inc.		California					5810				13-0631162
Acapulco Restaurant of Moreno Valley, Inc.		California					5810				33-0874606
Acapulco Restaurant of Ventura, Inc.		California					5810				13-3353626
Acapulco Restaurant of Downey, Inc.		California					5810				95-4122910
Acapulco Mark Corp.		Delaware					5810				13-3923570
Real Mex Foods, Inc.		California					5810				95-3218585
CKR Acquisition Corp.		Delaware					5810				20-1738287
Chevys Restaurants, LLC		Delaware					5810				20-1892992
RM Restaurant Holding Corp.		Delaware					5810				20-5392217

The address, including zip code, of the principal offices of the additional registrants listed above is: 5660 Katella Avenue, Suite 100, Cypress, California 90630; and the telephone number at that address is (562) 346-1200.

This prospectus relates to $13,000,000 aggregate principal amount of 14% senior secured notes due January 1, 2013 which were originally issued by us on July 7, 2009, in an offering of $130,000,000 aggregate principal of 14% senior secured notes due January 1, 2013 (the “old notes”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

The old notes, excluding the notes offered pursuant to this prospectus, are currently subject to an exchange offer (the “exchange offer”) which commenced on October 8, 2009, pursuant to which certain holders of the old notes have the right to exchange the old notes for our registered 14% senior notes due January 1, 2013 (the “new notes”) with substantially identical terms. The exchange offer terminates on November 9, 2009, unless extended. The selling securityholders named herein exchanged their old notes for new notes in a private exchange. The selling securityholders may use this prospectus to resell from time to time any or all of their private notes and related guarantees described below. The selling securityholders may offer all, some or none of the private notes pursuant to this prospectus. We will not receive any proceeds from the resale by the selling securityholders of the private notes and related guarantees. The term “notes,” as used in this prospectus, includes both the old notes and the new notes issued in exchange for the old notes in the exchange offer (including the private notes).

We pay interest on the notes on July 1 and January of each year beginning on January 1, 2010. Interest accrues at a rate of 14% per annum. The notes mature on January 1, 2013. On or after July 1, 2011, we have the option to redeem all or part of the notes at 100% of the notes’ principal amount, plus accrued and unpaid interest up to the date of redemption. Prior to July 1, 2011, we may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of certain equity offerings at 114.0% of their aggregate principal amount, plus accrued and unpaid interest thereon to the date of redemption; provided that at least 65% of the aggregate principal amount of the notes issued under the indenture governing the notes remains outstanding after such redemption. Prior to July 1, 2011, we may redeem some or all of the notes at a “make- whole” premium. If we undergo a change of control, we will be required to make an offer to each holder to repurchase all or a portion of their notes at 101% of their principal amount, plus accrued and unpaid interest up to the date of repurchase. The notes are fully, unconditionally and irrevocably guaranteed jointly and severally on a senior secured basis by our parent, and each of our existing and future domestic restricted subsidiaries (as defined in the indenture).The notes and the guarantees are secured by a second priority lien on substantially all of our assets and the assets of the guarantors, subject to certain exceptions, which will also secure our senior secured credit facility on a first priority basis.

There is no existing public market for the notes offered hereby. We do not intend to list the notes on any securities exchange or seek approval for quotation through any automated trading system.

The notes offered pursuant to this prospectus, including the related guarantees, may be offered and sold from time to time by the selling securityholders named in this prospectus either directly or through agents or broker-dealers acting as principal or agent. The selling securityholders may engage underwriters, brokers, dealers or agents, who may receive commissions or discounts from the selling securityholders. We will pay substantially all of the expenses incident to the registration of the notes, including the related guarantees, except for the selling commissions, if any. See “Plan of Distribution.”

The date of this prospectus is     , 2009.

		Page
Summary			1
Risk Factors			15
Use of Proceeds			31
Capitalization			32
Selected Historical Consolidated Financial Data			33
Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Business			53
Management			64
Executive Compensation			66
Security Ownership of Certain Beneficial Owners and Management			72
Certain Relationships and Related Transactions			73
Description of Certain Indebtedness			74
Description of The Notes			76
Material United States Federal Income and Estate Tax Consequences			150
Selling Securityholders			156
Plan of Distribution			157
Legal Matters			158
Experts			158
Where You Can Find More Information			158
Index to Consolidated Financial Statements			F-1
EX-5.1
EX-23.1
EX-23.2

This prospectus includes “forward looking statements.” 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;
	•		food-borne illness incidents;
	•		increases in the cost of ingredients;
	•		our dependence upon frequent deliveries of food and other supplies;
	•		our vulnerability to changes in consumer preferences and economic conditions;
	•		our ability to compete successfully with other casual dining restaurants;
	•		our ability to expand; and
	•		anticipated growth in the restaurant industry and our markets.

These forward looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause actual results to differ materially from trends, plans or expectations set forth in the forward looking statements. These risks and uncertainties may include those discussed in “Risk Factors.” Given these risks and uncertainties, we urge you to read this prospectus completely and with the understanding that actual future results may be materially different from what we plan or expect. Also, these forward looking statements present our estimates and assumptions only as of the date of this prospectus. 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 prospectus.

EBITDA and Adjusted EBITDA and the ratios related thereto, as presented in this prospectus, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as measures of our liquidity.

Our measurement of EBITDA and Adjusted EBITDA and the ratios related thereto may not be comparable to similarly titled measures of other companies and is not a measure of performance calculated in accordance with GAAP. We have included information concerning EBITDA and Adjusted EBITDA in this prospectus because we believe that such information is used by certain investors as one measure of a company’s historical ability to service debt. For a presentation of net income (loss) as calculated under GAAP and reconciliation to our EBITDA and Adjusted EBITDA, see “Summary Consolidated Historical Information”

INDUSTRY AND MARKET DATA

We obtained the market and competitive position data used throughout this prospectus from our own research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data and we do not make any representation as to the accuracy of such information. Similarly, we believe our internal research is reliable, but it has not been verified by any independent sources.

TRADEMARKS AND SERVICE MARKS

We own or have the rights to various trademarks, copyrights and trade names used in our business, including El Torito, El Torito Grill, Chevys Fresh Mex, and Acapulco, among others. This prospectus also includes trade names and trademarks of other companies. Our use or display of other parties’ trade names, trademarks or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trade name or trademark owners.

On July 7, 2009, we issued and sold $130.0 million aggregate principal amount of our 14% Senior Secured Notes Due 2013, referred to as the “old notes,” in a transaction exempt from the registration requirements of the Securities Act. The initial purchaser of the old notes subsequently resold the old notes to qualified institutional buyers in reliance on Rule 144A of the Securities Act, to a limited number of institutional accredited investors in the United States and to persons outside the United States in reliance on Regulation S under the Securities Act.

As part of the issuance of the old notes, holders of the old notes were granted benefits pursuant to the registration rights agreement between us and the initial purchaser. The registration rights agreement obligated us to file a registration statement in connection with the exchange offer of the old notes. The registration statement was declared effective on October 8, 2009 and the exchange offer commenced that same day. The exchange offer terminates on November 9, 2009 , unless extended. The selling securityholders named herein exchanged their old notes for new notes in a private exchange.

The registration rights agreement obligated us to make a prospectus generally available to certain holders of old notes or private notes to engage in offers and sales for the notes in the secondary market. The selling securityholders may use this prospectus to resell from time to time any or all of their private notes and related guarantees described below. The selling securityholders may offer all, some or none of the private notes pursuant to this prospectus.

We are the largest full service Mexican casual dining restaurant operator in the United States. As of June 28, 2009, we had 224 restaurants system-wide, consisting of 189 Company-operated units, of which 155 were located in California with the remainder located in 12 other states, primarily under the trade names El Torito Restaurant, Chevys Fresh Mex and Acapulco Mexican Restaurant Y Cantina. In addition, we franchise 27 domestic Chevys Fresh Mex restaurants and eight international El Torito restaurants. Our restaurants offer a large variety of traditional, innovative and authentic Mexican dishes and a wide selection of alcoholic beverages at moderate prices, seven days a week for lunch and dinner, as well as Sunday brunch. Our restaurant concepts feature fresh, high quality and flavorful foods, served in casual atmospheres. Our other major subsidiary, Real Mex Foods, Inc., referred to as “Real Mex Foods,” provides purchasing and distribution services for our restaurant operations and manufactures specialty products for sale to more than 100 outside customers. For the LTM Period, we generated revenues and Adjusted EBITDA of $528.1 million and $39.8 million, respectively.

We have three separate concepts, each providing our customers with different flavor profiles and atmospheres. Our restaurants appeal to a wide variety of consumers across different ethnic, age and income demographics. Our three concepts are geographically diversified and experience minimal overlap.

El Torito and El Torito Grill (approximately 42% of LTM Period restaurant revenues). Founded in 1954, El Torito has been a pioneer in the full service, casual dining Mexican restaurant segment in California. As of June 28, 2009, we operated 81 El Torito restaurants, including nine El Torito Grill restaurants and two Sinigual restaurants. Our El Torito concept is the largest full service Mexican casual dining restaurant chain in California and features authentic regional specialties created by our executive chef, Pepe Lopez. El Torito restaurants are dedicated to fresh, quality ingredients and authentic, made-from-scratch Mexican cuisine, including sizzling fajitas, hand-made tamales and traditional Mexican combination platters. In the El Torito concept, we strive to increase traffic in the traditionally slower day-parts of early evening and weekday through Happy Hour offers and specialty theme menus. During Happy Hour, guests enjoy value priced appetizers and drinks. Our Pronto Lunch menu offers our time-sensitive guests value priced entrées. We stimulate incremental traffic with value promotions such as our longstanding Tacorito Tuesday programs where guests may enjoy grilled chicken, steak or carnitas tacos in the cantina. Lunch and dinner entrées range in price from $8.99 to $17.99, with an average dining room check per guest of $15.06 for the LTM Period.

El Torito restaurants are primarily free standing buildings, modeled after traditional Mexican haciendas. The restaurants average approximately 8,800 square feet with average seating for approximately 306 guests. All of the El Torito properties are leased.

El Torito Grill, or Sinigual in markets outside of Southern California, is our upscale concept with a warm, upbeat atmosphere and contemporary Mexican cuisine. Lunch and dinner entrées range in price from $8.99 to $19.99, with an average dining room check per guest of $16.55 for the LTM Period.

Chevys (approximately 38% of the LTM Period restaurant revenues). Chevys was founded in Alameda, California in 1986. As of June 28, 2009, we operated 68 Company-owned restaurants and franchised 27 restaurants. This concept is the second largest full service, Mexican casual dining restaurant chain in California. Chevys is a comfortable yet high-energy restaurant concept that prides itself on the concept of “fresh” (“no cans in the kitchen”) and making many of its items from scratch, offering guests an array of freshly prepared Mexican dishes in an ultra-casual atmosphere. A signature item of Chevys is its fresh tortilla maker called “El Machino.” El Machino is prominently featured in the dining room and helps reinforce the Company’s commitment to freshness. Our Chevys concept offers an extensive variety of Mexican dishes, including traditional enchiladas, burritos and tacos, as well as a variety of combination platters. The food menu is complemented by a full bar with a wide selection of margaritas and an assortment of Mexican and American beers. Lunch and dinner entrees range in price from $8.99 to $22.99, with an average dining room check per guest of $14.36 for the LTM Period.

Chevys restaurants are primarily freestanding and located in high-traffic urban and suburban areas. Chevys restaurants average approximately 7,800 square feet with average seating for approximately 327 guests in the dining room and cantina. The restaurant design is cantina-style with a vibrant, ultra-casual layout. All of the Chevys properties are leased.

Acapulco (approximately 15% of the LTM Period restaurant revenues). The first Acapulco restaurant opened in Pasadena, California in 1960. As of June 28, 2009, we operated 32 Acapulco restaurants. This concept is the third largest full service, Mexican casual dining restaurant chain in California. Our Acapulco concept offers California style Mexican food featuring traditional favorites as well as seafood specialties such as grilled halibut, shrimp and crab entrees. Acapulco benefits from long-standing value oriented day-part programs designed to drive incremental traffic during slow periods. Beginning with Sunday brunch, guests can indulge in a champagne brunch with a variety of fresh soups, chilled salads, a taco bar with handmade tortillas, a made to order taco bar and a variety of traditional Mexican favorites. Weekday value promotions include Happy Hour, Margarita Mondays, and a lunch buffet for time sensitive guests. Acapulco also features a host of specialty drinks, including our signature Acapulco Gold Margarita. Lunch and dinner entrees range in price from $5.99 to $17.99 with an average dining room check per guest of $14.92 for the LTM Period.

Acapulco restaurants are primarily freestanding and located in high-traffic urban and suburban areas. Acapulco restaurants average approximately 8,500 square feet with average seating for approximately 240 guests. Many locations have attractive outdoor patios. Acapulco currently uses three models for restaurant decor: Hacienda, Aztec and Resort. A consistent appearance is achieved through similar exterior signage and the use of Mexican furnishings and vibrant primary color schemes in interior design throughout. All Acapulco restaurants. All but one of the properties are leased.

Other Restaurant Concepts (approximately 5% of the LTM Period restaurant revenues). As of June 28, 2009, we operated eight additional restaurant locations, all of which are also full service Mexican formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; and Who-Song & Larry’s. We acquired most of these restaurants with the acquisition of El Torito Restaurants, Inc.

Our Real Mex Foods Subsidiary

Founded in 1970, our Real Mex Foods subsidiary provides purchasing and distribution services for the restaurant operations and manufactures specialty products for sales to outside customers. Real Mex Foods has built significant expertise in the procurement, manufacturing, distribution, and product development of Mexican foods and has emerged as a premier Hispanic foodservice provider in California. Headquartered in Buena Park, California, Real Mex Foods operates two distribution centers as well as a new, state-of-the-art 101,000 square foot manufacturing facility in Vernon, California which has substantial capacity for growth. Real Mex Foods provides a one-stop source of supply needs to our restaurants on the West Coast and coordinates purchasing for all non-West Coast U.S. restaurants. Our relationship with Real Mex Foods generates significant purchasing economies of scale and ensures quality and consistency across our entire store base. This enables our restaurant managers to spend more time focusing on operations, without the burden of purchasing and supply management.

In addition to the internal benefits it provides, Real Mex Foods has an attractive customer base with deep relationships in the quick service restaurant, or “QSR,” casual dining, retail, and foodservice channels. Real Mex Foods’ custom manufacturing and research and development, or “R&D,” capabilities provide quality Mexican food products to leading QSR brands such as El Pollo Loco, Rubio’s, and Baja Fresh in addition to private label products for leading retailers such as Trader Joe’s, Costco and Albertsons and a proprietary line of entrées under the Real Mex Foods label. Real Mex Foods’ external sales grew to $41.3 million in the LTM Period from $9.9 million in fiscal year 2004, representing a compound annual growth rate of approximately 37.3% and accounting for approximately 7.8% of our LTM Period total revenues.

Our Competitive Strengths

Leading Operator with Local Appeal. We are the largest operator of Mexican casual dining restaurants in the U.S. and our El Torito, Chevys and Acapulco concepts are ranked #1, #2 and #3 in market share, respectively, in California. While there is minimal overlap of our concepts due to differing geographic concentrations, the high market density and long operating history of each concept creates a strong brand identity and marketing efficiencies not available to our national and “mom and pop” Mexican restaurant competitors. We believe our brands appeal to a wide demographic and will continue to benefit from the growing demand for fresh, authentic Mexican food and a fun, festive dining experience.

Compelling Demographic Trends and Long-Term Industry Dynamics. According to the U.S. Census Bureau, California is expected to grow from 33.8 million people in 2000 to 46.4 million people by 2030, the second largest incremental population increase of any state in the U.S. In addition, the U.S. Census Bureau projects the Hispanic population, which accounts for approximately 31% of our total restaurant revenue, to be the fastest growing demographic in the U.S., more than doubling in size from 35.3 million people in 2000 to 73.0 million people by 2030. We expect to benefit from these long-term demographic trends as we believe the Hispanic influence on dining trends will continue to grow in tandem with population growth.

Our restaurants are positioned to benefit from the long-term trend of increased expenditure on food consumed away from home. According to the USDA Economic Research Service, dollars spent on food away from home was 49% of total dollars spent on food in 2007, and is expected to reach 52% of total dollars spent on food by 2015. Additionally, our Real Mex Foods subsidiary is uniquely positioned to benefit and grow as a result of consumers increasing demand for convenient, home meal replacement solutions through the manufacture of packaged entrées sold through the grocery and club store channels and proprietary products developed for quick service restaurants.

Fresh, Authentic, Mexican Food. Our food and beverage offerings range from guest favorites such as sizzling fajitas, hand-made tamales and traditional Mexican combination platters to authentic regional specialties created by our executive chef. Our executive chef makes regular visits to many regions of Mexico to identify new flavors and recipes, and introduces distinct dishes to our restaurant guests. We believe that these freshly prepared made-from scratch items underscore our authenticity. We prepare all our recipes with fresh, high quality ingredients, from our salsa to our sizzling fajitas. El Torito is known for tableside preparations, including our most popular appetizer, our guacamole, which is made to our guests’ specifications at their table. Our food is complemented by a variety of specialty drinks, including our Cadillac Margarita. We believe the breadth of our menus, which feature distinctive specialty dishes and a variety of price points, coupled with our consistent execution of food quality and service creates a favorable positioning to our “mom and pop” competitors.

Well Maintained Store Base and Limited Future Capital Requirements. We have consistently invested in our restaurants in an effort to uphold their image as attractive, well maintained concepts. Over the last four years, we have invested significant discretionary capital in our restaurants to maintain a fresh and comfortable dining experience which we believe sets us apart from our competitors. Furthermore, because we have no new restaurants or remodeling projects currently planned, we believe our modest ongoing capital expenditure requirements enhance our ability to generate free cash flow.

Internal Production, Purchasing and Distribution Facilities. We centralize purchasing and distribution for the majority of our raw ingredients, fresh products and alcoholic beverages through two facilities located in Buena Park and Union City, California and manufacture food products through a facility in Vernon, California. The purchasing and distribution facilities, encompassing approximately 67,000 square feet in Buena Park and 54,000 square feet in Union City enable us to order and deliver food items and ingredients on a timely basis. We are able to leverage our purchasing power and reduce delivery costs, contributing to our restaurant gross margins. Our manufacturing facility, encompassing approximately 101,000 square feet, produces certain high volume items for our Acapulco restaurants including soups, baked goods and sauce bases, enabling us to maintain food quality and consistency while reducing costs. This facility also manufactures specialty products for sales to more than 100 outside customers, marketed under the Real Mex Foods label as well as co-packaged products under other branded names. All three facilities have additional capacity to allow for growth in our distribution operations and production for outside customers.

Proven Management Team with New and Experienced Leadership. We are led by a strong management team with extensive experience in all aspects of restaurant operations. Our management team has an average of more than 30 years of experience in the restaurant industry. We recently hired industry veteran Dick Rivera as our President, CEO and Chairman. Mr. Rivera brings us more than 38 years of management experience in the restaurant and food service industries. Prior to joining Real Mex, Mr. Rivera served as Vice Chairman, President and Chief Operating Officer of Darden Restaurants in addition to various other executive positions at RARE Hospitality, Chart House, Applebee’s, TGI Fridays, El Chico, Del Taco and Steak & Ale. Mr. Rivera also served as Chairman of the National Restaurant Association from June 2007 to May 2008 and has been a board member since 1993. Mr. Rivera is joined by a very talented and tenured senior management team and board of directors with considerable experience in the restaurant and food industry.

Service. We train our servers to follow a service program designed to achieve fast and consistent service while also promoting a casual and festive atmosphere. Our service program outlines procedures, such as the server’s first approach to the guest, product recommendations throughout the visit, timing and manner of

food delivery, plate clearing, payment processing, and bidding the guest farewell. Throughout the day, managers are responsible for generating energy and enthusiasm throughout their restaurants by circulating and visiting with guests at their tables. Our primary goal is to ensure that every guest leaves fully satisfied, thereby promoting repeat visits.

Business Strategy

Our primary business objective is to increase profitability through same store sales growth and restaurant level margin improvements, identified reductions in overhead costs, and continued growth in outside sales by Real Mex Foods.

Drive Same Store Sales through Revamped Product Offering and Redesigned Marketing Efforts. We recently launched a major initiative targeted at improving our menu development strategy and our marketing program to drive incremental traffic into our restaurants. After months of extensive research and analysis, we developed new menus and a new comprehensive marketing approach for each of our concepts.

	•		Our menu development strategy consisted of extensive competitive research, the design of new product offerings that would be profitable while still reasonably priced and our commitment to authentic flavors inspired by research in Mexico. After rigorous development, we have launched new menus in each of our concepts, introducing new distinctive items without sacrificing margins. We have made an effort to fill missing price points such as adding a Tilapia entrée at $12.49 that complements our $16.49 Halibut entrée, as well as entrées for less than $10.00 and appetizers for less than $8.00. We believe the introduction of our recently reengineered menus will substantially enhance our value image to our guests and differentiate us from our competitors. In addition, we made select price investments in items that drive price perception such as combinations, fajitas and soup/salads.
	•		We believe that our new comprehensive marketing approach will significantly improve traffic while not increasing expenses. We have reduced spending in less efficient coupon based free standing inserts, or “FSIs,” and reallocated the funds towards new campaigns in print, radio and television. We have also launched three new promotional events to build sales on important dates throughout the year. Many of our units now offer improved specific in-store elements that reinforce the fresh, fun and festive attributes of the brand including kitchen tours and table side preparations. In addition, we are rebuilding our local store marketing capabilities where we believe we have a competitive advantage versus independent operators and national chains.

Cost Cutting Initiatives. We estimate that we have eliminated approximately $10 million in annual costs through various cost cutting initiatives. Our management team has analyzed all aspects of our operations and is implementing the following cost cutting initiatives:

	•		Controlling variable store operating expenses by managing food and beverage costs and our hourly and salaried labor more efficiently without sacrificing the guest experience.
	•		Eliminating approximately $5 million in general and administrative expenses through headcount reductions and reduced programs and activities spending.
	•		Eliminating approximately $3 million in excess costs at the store level by renegotiating cleaning and maintenance contracts and eliminating inefficiencies through training.
	•		Focusing on energy conservation at the store level to manage restaurants in a more efficient and environmentally friendly manner, generating savings of up to $1 million annually.
	•		Hiring a third-party to assist in negotiations with our landlords to receive rent concessions on our underperforming restaurants. We anticipate rental expense reductions of more than $1 million annually.

Growth in Outside Sales by Real Mex Foods. In addition to serving as the proprietary foods procurement, manufacturing, product development and distribution operation for our restaurants, our Real Mex Foods subsidiary leverages its scale and expertise through the development, manufacture and distribution of proprietary Mexican food products to more than 100 outside customers. We currently sell directly to, or package for quick service and casual dining restaurants, amusement parks, club stores, and food service, retail, vending and institutional customers. We believe there are substantial opportunities to expand Real Mex Foods’ product offerings, build upon relationships with existing customers, increase shelf space and enter new retail channels. To support this growth, in 2008 we moved into our new state-of-the-art 101,000 square foot manufacturing facility, which we believe will support up to $200 million in outside sales with minimal capital required for equipment as we expand.

	•		Real Mex Foods’ custom manufacturing and R&D capabilities provide quality Mexican food products to leading quick service restaurant operators seeking to outsource the development and procurement of unique, high quality products at a lower cost than they could do themselves. We believe there is a strong opportunity to increase the sale of existing products through additional restaurant operators and have an existing pipeline of products for new customers.
	•		We manufacture proprietary products under other branded company names through co-package and license agreements. We believe there is a significant opportunity to expand the retail sales of co-package and license products through expanded sales of existing products through new retail channels, increasing the number of products manufactured for existing customers and adding new customers. We currently have several new products in the pipeline for both new and existing customers and believe there are significant opportunities to expand the sale of existing products through new retail channels.
	•		In addition, we manufacture and sell a proprietary line of packaged multi-serve entrées including premium quality burritos, enchiladas and tamales under the Real Mex Foods label, in more than 600 retail supermarkets. We have developed a line of single-serve entrées that are expected to be in production in the third quarter, targeting smaller households. We believe the introduction of this single-serve line will increase our shelf-space and overall sales. We also plan to expand our retail sales by adding the Safeway family of supermarkets to our distribution network in 2009.

Expansion of the Chevys Franchise Network. We currently have 10 franchisees operating 27 franchised Chevys restaurants in 12 states. We believe that Chevys’ “Fresh Mex” flavor profiles and fun, casual atmosphere have broad appeal and make the concept attractive as a franchise. This is supported by the success of our franchised Chevys locations in the Midwest and on the East Coast. While we are not currently planning to develop new franchise relationships or expand existing franchise relationships, we believe there will be an opportunity to build our franchise system in the next 12 to 24 months as economic conditions improve.

Our Significant Stockholders

Farallon Capital Management, L.L.C. is an investment firm which manages equity capital for institutions, typically endowments and foundations, high net worth individuals, other pooled investment vehicles, and charitable organizations. Farallon Capital Management, L.L.C. invests globally in debt and equity of public and private companies. Founded in 1986, Farallon Capital Management, L.L.C has more than $17 billion in assets under management.

Kohlberg Kravis Roberts & Co., or KKR, is a leading global alternative asset manager with $50.8 billion in assets under management, over 600 people and 13 offices around the world as of June 30, 2009. KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationship and capital markets platforms. KKR Asset Management is a dedicated asset management platform focused on corporate credit.

Sun Capital Partners, Inc. is a leading private investment firm focused on leveraged buyouts, equity, debt, and other investments in market-leading companies that can benefit from its in-house operating professionals and experience. Sun Capital affiliates have invested in and managed more than 200 companies worldwide since Sun Capital’s inception in 1995. Sun Capital has offices in Boca Raton, Los Angeles and New York, and affiliates with offices in London, Paris, Frankfort, and Shenzhen and Shanghai, China. Sun Capital has been one of the most active private investment firms in the U.S., closing 161 transactions from 2002 through 2008.

The following chart summarizes our current organizational structure.

We are a Delaware corporation. Our headquarters are located at 5660 Katella Avenue, Suite 100, Cypress, California 90630. Our telephone number is (562) 346-1200 and our websites are located at www.realmexrestaurants.com, www.eltorito.com, www.acapulcorestaurants.com, and www.chevysfreshmex.com. The contents of our websites are not part of this prospectus.

THE NOTES

The summary below describes the principal terms of the notes. The terms of the new notes and the old notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the old notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The section entitled “Description of the Notes” of this prospectus contains a more detailed description of the terms and conditions of the notes and the indenture governing the notes. In this subsection, the “Company,” “we,” “us” and “our” refer only to Real Mex Restaurants, Inc., as issuer of the notes, and not to any of our subsidiaries.

Issuer		Real Mex Restaurants, Inc., a Delaware corporation
Notes Offered		$13,000,000 in aggregate principal amount of 14% Senior Secured Notes due 2013
Maturity Date		January 1, 2013
Interest Rate		The notes bear interest at an annual rate of 14%.
Interest Payment Dates		July 1 and January 1 of each year, beginning on January 1, 2010.
Original Issue Discount		The notes may be offered with original issue discount for federal income tax purposes. Accordingly, holders of notes who or that are U.S. persons generally may be required to include original issue discount in income in advance of the receipt of cash attributable to such income. See “Material United States Federal Income Tax Considerations”
Guarantees		The notes are fully, unconditionally and irrevocably guaranteed jointly and severally on a senior secured basis by our parent, and each of our existing and future domestic restricted subsidiaries (as defined in the indenture).
Ranking		The notes and the guarantees are our and the guarantors’ senior second priority secured obligations and are:
		• secured on a second-priority basis, by liens on substantially all of our and the guarantors’ assets (other than certain excluded assets), subject to the first priority liens securing our secured revolving credit facility and any other permitted prior liens;
		• effectively junior, to the extent of the value of the collateral, to our and the guarantors’ obligations under the secured revolving credit facility, which are secured on a first-priority basis by substantially the same assets that secure the notes;
		• effectively junior to certain permitted prior liens, to the extent of the value of our and the guarantors’ assets subject to those permitted prior liens;

		• pari passu in right of payment with all other senior debt of Real Mex, including debt under the secured revolving credit facility and the unsecured revolving credit facility; and
		• senior in right of payment to any future subordinated indebtedness of Real Mex, if any.
Collateral		The notes and the guarantees are secured by a second priority lien on substantially all of our assets and the assets of the guarantors, subject to certain exceptions, which also secure our senior secured credit facility on a first priority basis. See the section entitled “Description of the Notes—Collateral.”
Intercreditor Agreement		Wells Fargo Bank, National Association, as collateral agent for the holders of the notes, has entered into an intercreditor agreement with General Electric Capital Corporation, as collateral agent under our senior secured revolving credit facility, that governs the relationship of holders of the notes and the lenders under the senior secured credit facility. See “Description of the Notes—Intercreditor Agreement.”
Optional Redemption		On or after July 1, 2011, we may redeem some or all of the notes at 100% of the notes’ principal amount, plus accrued and unpaid interest up to the date of redemption.
		Prior to July 1, 2011, we may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture governing the notes with the net proceeds of certain equity offerings at 114.0% of their aggregate principal amount, plus accrued and unpaid interest thereon to the date of redemption; provided that at least 65% of the aggregate principal amount of the notes issued under the indenture governing the notes remains outstanding after such redemption. Prior to July 1, 2011, we may redeem some or all of the notes at a “make- whole” premium.
Excess Cash Flow Offer		Within 90 days of the end of each four fiscal quarter period ending on or near December 31, beginning in 2009, the Company must, subject to certain exceptions, offer to repay the notes with 75% of the Excess Cash Flow (as defined herein) from the period, at 100% of the principal amount plus any accrued and unpaid interest and liquidated damages. If the excess cash flow offer is prohibited by the terms of our senior secured revolving credit facility, we will deposit the amount that would have been used to fund the excess cash flow offer into an escrow account. Funds from the escrow account will only be released to the Company to repay borrowings under the senior secured revolving credit facility or to make an excess cash flow offer. Our senior secured revolving credit facility will be secured on a first- priority basis, and the notes will be secured on a second-priority basis, by the funds in the escrow account.
Change of Control Offer		If we undergo a change of control, we will be required to make an offer to each holder to repurchase all or a portion of their notes at 101% of their principal amount, plus accrued and unpaid interest up to the date of repurchase.

Asset Sale Proceeds		If we sell assets outside the ordinary course of business and we do not use the net proceeds for specified purposes, we may be required to use such net proceeds to repurchase the notes at 100% of their principal amount, together with accrued and unpaid interest up to the date of repurchase.
Covenants		The indenture governing the notes contains certain covenants that, among other things, limit our and our restricted subsidiaries’ ability to:
		• incur additional indebtedness or issue certain preferred stock;
		• repay certain indebtedness prior to stated maturities;
		• pay dividends or make other distributions on, redeem or repurchase, capital stock or subordinated indebtedness;
		• make certain investments or other restricted payments;
		• enter into transactions with affiliates;
		• engage in sale and leaseback transactions;
		• issue stock of subsidiaries;
		• transfer, sell or consummate a merger or consolidation of all, or substantially all, of our assets;
		• change our line of business;
		• incur dividend or other payment restrictions with regard to restricted subsidiaries; or
		• create or incur liens on assets to secure debt.
		These covenants are subject to a number of important exceptions and qualifications. See “Description of the Notes—Certain Covenants.”
No Established Trading Market		The notes are a new issue of securities with no established trading market. The notes will not be listed on any securities exchange or on any automated dealer quotation system. We cannot assure you that an active or liquid trading market for the notes will develop. If an active or liquid trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected.

RISK FACTORS

You should carefully consider all of the information in this prospectus prior to purchasing the notes. In particular, we urge you to consider carefully the factors set forth under the heading “Risk Factors.”

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION

The following table sets forth our summary consolidated historical and as adjusted financial data for fiscal years 2006, 2007 and 2008 and for the unaudited six months ended June 29, 2008 and June 28, 2009 and for the unaudited LTM Period. The consolidated historical and as adjusted financial data is presented for the periods prior to (the “Predecessor Period”) and following (the “Successor Period”) the exchange of our parent holding company’s outstanding borrowings under its unsecured term loan facility for 94.5% of its common stock, which occurred on November 13, 2008 (the “Exchange”). In addition, fiscal year 2006 is presented as the 19 week Predecessor Period from August 21, 2006 to December 31, 2006 and the 34 week Predecessor Period from December 25, 2005 to August 20, 2006 to reflect the merger between the Company and its subsidiary RM Integrated, Inc. (the “Merger”), which occurred on August 21, 2006. See the section entitled “Business” for additional details regarding the Exchange and the Merger. The summary consolidated historical and as adjusted financial data set forth below should be read in conjunction with (i) the sections entitled “Use of Proceeds” and “Capitalization,” each of which are contained elsewhere in this prospectus and (ii) our consolidated financial statements and the notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

The summary consolidated historical financial data as of the end of and for the fiscal years ended 2007 and 2008 have been derived from our consolidated historical financial statements included in this prospectus, which have been audited by Grant Thornton LLP. The summary consolidated historical financial data of the Company for the period from August 21, 2006 to December 31, 2006 and for the period ended December 26, 2005 through August 20, 2006 have been derived from our consolidated historical 2006 statements of operations, stockholders’ equity, and cash flows, for the period indicated and included in this prospectus, which have been audited by Ernst & Young LLP. The summary consolidated historical financial data of the Company as of December 31, 2006 have been derived from our consolidated historical 2006 balance sheet not included in this prospectus, which has been audited by Ernst & Young LLP. The summary consolidated historical financial data for the unaudited six months ended June 29, 2008 and June 28, 2009 have been derived from our consolidated unaudited historical financial statements included in this prospectus, which, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for the fair presentation of that information for such periods. The financial data presented for the interim periods is not necessarily indicative of the results for the full year. The summary consolidated financial data for the unaudited LTM Period have been prepared by adding the financial data from our audited consolidated financial statements for the fiscal year ended December 28, 2008 to the financial data from our unaudited condensed consolidated financial statements for the six months ended June 28, 2009 and subtracting the financial data from our unaudited condensed consolidated financial statements for the six months ended June 29, 2008 (each included elsewhere in this prospectus). The results of operations for the LTM Period are not necessarily indicative of the results to be expected for any future period.

The summary consolidated as adjusted financial data set forth below give effect to the sale of the old notes and use of proceeds therefrom to refinance certain of our debt (the “Refinancing Transactions”) as if they had occurred on June 28, 2009. Such data is based on assumptions and is presented for illustrative and informational purposes only and does not purport to represent what our actual financial position or results of operations would have been had the Refinancing Transactions actually been completed on the date or for the periods indicated and is not necessarily indicative of our financial position or results of operations as of the specified date or in the future.

		Predecessor																Successor												LTM
		December 26,				August 21,				Fiscal Year				December 31,				November 14,				Predecessor				Successor				Period
		2005 to				2006 to				Ended				2007 to				2008 to				Six Months Ended								Ended
		August 20,				December 31,				December 30,				November 13,				December 28,				June 29,				June 28,				June 28,
		2006				2006				2007				2008				2008				2008				2009				2009
STATEMENT OF INCOME DATA
Revenue:
Restaurant revenues		$	351,591			$	179,630			$	523,352			$	456,587			$	52,448			$	267,792			$	241,821			$	483,064
Other revenues			18,358				11,094				38,164				37,110				4,571				20,706				21,210				42,185
Franchise revenues			2,603				1,374				3,675				2,732				297				1,607				1,385				2,807
Total operating revenue		$	372,552			$	192,098			$	565,191			$	496,429			$	57,316			$	290,105			$	264,416			$	528,056
Costs and expenses:
Cost of sales		$	87,388			$	46,883			$	140,824			$	123,878			$	14,255			$	71,732			$	63,614			$	130,015
Labor			125,748				67,729				199,843				178,962				21,210				103,745				97,574				194,001
Direct operating and occupancy expense			94,422				51,127				148,088				133,337				14,886				75,113				69,215				142,325
General and administrative expense			18,893				11,414				31,718				25,726				3,219				15,729				12,701				25,917
Depreciation and amortization			12,230				10,323				23,961				21,724				3,750				12,313				16,245				29,406
Legal settlement costs			4,180				19				402				781				15				—				—				796
Merger costs			9,434				307				—				—				—				—				—				—
Pre-opening costs			910				917				2,139				2,342				—				1,335				—				1,007
Impairment of goodwill and intangible assets			—				—				10,000				163,196				—				34,000				—				129,196
Impairment of property and equipment			1,197				—				1,362				5,151				—				1,623				216				3,744
Operating income (loss)		$	18,150			$	3,379			$	6,854			$	(158,668	)		$	(19	)		$	(25,485	)		$	4,851			$	(128,351	)
Interest expense			(16,005	)			(10,481	)			(19,326	)			(16,407	)			(4,108	)			(9,238	)			(18,237	)			(29,514	)
Other income (expense), net			642				(1,136	)			1,670				2,014				24				699				310				1,649
Income (loss) before income tax provision			2,787				(8,238	)			(10,802	)			(173,061	)			(4,103	)			(35,024	)			(13,076	)			(156,216	)
Income tax provision (benefit)			1,307				(3,191	)			12,744				52				—				17				6				41
Net income (loss) before redeemable preferred stock accretion			1,480				(5,047	)			(23,546	)			(173,113	)			(4,103	)			(34,041	)			(13,082	)			(156,257	)
Redeemable preferred stock accretion			(10,126	)			—				—				—				—				—				—				—
Net loss attributable to common stockholders			(8,646	)			(5,047	)			(23,546	)			(173,113	)			(4,103	)			(34,041	)			(13,082	)			(156,257	)
CASH FLOW DATA
Net cash provided by (used in) operating activities		$	30,458			$	(3,419	)		$	25,430			$	17,729			$	7,186			$	19,748			$	12,598			$	17,765
Net cash used in investing activities			(15,885	)			(10,495	)			(28,415	)			(23,583	)			(756	)			(14,008	)			(3,410	)			(13,741	)
Net cash (used in) provided by financing activities			(174	)			(12,646	)			2,598				4,948				(5,748	)			(5,780	)			(7,330	)			(2,350	)
OTHER FINANCIAL DATA
Rent expense		$	30,003			$	14,893			$	45,369			$	41,935			$	4,997			$	23,485			$	24,273			$	47,720
Capital expenditures			15,885				10,495				34,404				23,332				736				14,047				3,082				13,103
EBITDA(2)(3)			42,547				14,431				45,949				35,764				3,741				24,680				21,790				36,615
Adjusted EBITDA(2)(3)			46,330				13,127				48,431				37,992				4,394				26,091				23,543				39,838
(Dollars in thousands)

																						LTM Period
		Fiscal Year Ended(1)												Six Months Ended								Ended
		December 31,				December 30,				December 28,				June 29,				June 28,				June 28,
		2006				2007				2008				2008				2009				2009
RESTAURANT DATA
System same store sales (%)			0.0	%			1.3	%			(2.3)	%			0.6	%			(10.7)	%			(8.3)	%
Average sales per restaurant		$	2,815			$	2,794			$	2,731			$	1,442			$	1,285			$	2,562
Average dining room check—El Torito		$	13.94			$	14.85			$	15.39			$	15.45			$	14.84			$	15.06
Average dining room check—Chevys		$	13.24			$	13.58			$	14.37			$	14.35			$	14.29			$	14.36
Average dining room check—Acapulco		$	14.38			$	14.51			$	15.17			$	15.17			$	14.67			$	14.92
(Dollars in thousands, except average dining room check)

		As of				As of				As of				As of				As of
		December 31,				December 30,				December 28,				June 29,				June 28,
		2006				2007				2008				2008				2009
RESTAURANTS OPEN (AT PERIOD END)
Company-operated restaurants			195				188				190				189				189
Franchised restaurants			49				41				35				38				35
Total			244				229				225				227				224
		As of				As of				As of				As of				As of
		December 31,				December 30,				December 28,				June 29,				June 28,
		2006				2007				2008				2008				2009
BALANCE SHEET DATA
Cash and cash equivalents		$	2,710			$	2,323			$	2,099			$	2,283			$	3,957
Property equipment, net			90,802				96,179				110,505				99,058				98,275
Total assets			450,872				434,455				298,328				403,328				284,492
Total secured debt(2)			118,457				120,844				96,171				111,317				95,652
Total debt(2)			183,905				186,187				161,813				177,359				161,849
Total stockholders’ equity			184,077				163,113				23,044				134,498				10,857
(Dollars in thousands)

		As of and for
		LTM Period
		Ended
		June 28,
		2009
AS ADJUSTED DATA
Cash and cash equivalents		$	2,835
Senior secured debt(3)			118,701
Total debt(3)			144,899
Cash interest expense			19,286
Senior secured debt to Adjusted EBITDA(4) ratio			3.0	x
Total debt to Adjusted EBITDA(4) ratio			3.6	x
Adjusted EBITDA(4) to cash interest expense			2.1	x

 

		Predecessor																Successor												LTM
		December 26,				August 21,				Fiscal Year				December 31,				November 14,				Predecessor				Successor				Period
		2005 to				2006 to				Ended				2007 to				2008 to				Six Months Ended								Ended
		August 20,				December 31,				December 30,				November 13,				December 28,				June 29,				June 28,				June 28,
		2006				2006				2007				2008				2008				2008				2009				2009
Net loss attributed to common stockholders		$	(8,646	)		$	(5,047	)		$	(23,546	)		$	(173,113	)		$	(4,103	)		$	(34,041	)		$	(13,082	)		$	(156,257	)
Income tax provision (benefit)			1,307				(3,191	)			12,744				52				—				17				6				41
Interest expense			16,005				10,481				19,326				16,407				4,108				9,238				18,237				29,514
Depreciation and amortization			12,230				10,323				23,961				21,724				3,750				12,313				16,245				29,406
Impairment of goodwill and intangible assets			—				—				10,000				163,196				—				34,000				—				129,196
Redeemable preferred stock accretion			10,126				—				—				—				—				—				—				—
Pre-opening costs			910				917				2,139				2,342				—				1,335				—				1,007
Merger transaction costs			9,434				307				840				406				(28	)			225				150				303
(Gain)/Loss on asset disposal			1,181				641				485				4,750				14				1,593				234				3,405
EBITDA		$	42,547			$	14,431			$	45,949			$	35,764			$	3,741			$	24,680			$	21,790			$	36,615
FASB rent expense adjustment(a)			598				211				1,907				1,321				183				736				960				1,728
Management fees(b)			436				173				500				445				3				250				—				198
Chevys acquisition(c)			(617	)			(169	)			—				—				—				—				—				—
Asset disposal(d)			(200	)			—				(933	)			(1,239	)			—				(432	)			—				(807	)
Legal(e)			3,628				627				542				831				(6	)			480				33				378
RMF litigation(f)			—				—				—				800				—				364				—				436
Severance and search costs(g)			—				—				448				285				473				93				—				665
53rd week(h)			—				(2,500	)			—				—				—				—				—				—
Other adjustments(i)			(62	)			354				17				(215	)			—				(80	)			760				625
Adjusted EBITDA		$	46,330			$	13,127			$	48,431			$	37,992			$	4,394			$	26,091			$	23,543			$	39,838
(Dollars in thousands)

 

RISK FACTORS

An investment in the notes involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the following risks before deciding whether to purchase the notes. If any of the following risks actually occur, our business, financial condition, operating results and/or cash flows could be materially adversely affected, which, in turn, could adversely affect our ability to pay interest and principal on the notes.

Risks Related to the Notes

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

We have substantial indebtedness, including obligations under capital leases and unamortized debt discount. As of June 28, 2009, after giving pro forma effect to our offering of the old notes and the application of the net proceeds therefrom, we would have had approximately $144.9 million of total debt outstanding, of which $118.7 million would have been secured. Subject to restrictions in the indenture and our senior secured and unsecured credit facilities, we may incur additional indebtedness. Our high level of indebtedness could have important consequences to you and significant effects on our business, including the following:

	•		it may be more difficult for us to satisfy our financial obligations, including with respect to the notes;
	•		our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;
	•		we must use a substantial portion of our cash flow from operations to pay interest on the notes and our other indebtedness as well as to fund excess cash flow offers on the notes, which will reduce the funds available to use for operations and other purposes;
	•		all of the indebtedness outstanding under our senior secured credit facility will have a prior ranking claim on substantially all of our assets, and all of the indebtedness outstanding under our other secured debt (like equipment financing) will have a prior ranking claim on the underlying assets;
	•		our ability to fund a change of control offer may be limited;
	•		our ability to borrow additional funds may be limited;
	•		our high level of indebtedness could place us at a competitive disadvantage compared to those of our competitors that may have proportionately less debt;
	•		our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;
	•		we may be restricted from making strategic acquisitions or exploiting other business opportunities; and
	•		our high level of indebtedness makes us more vulnerable to economic downturns and adverse developments in our business.

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

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

After giving pro forma effect to our offering of the old notes and the application of the net proceeds therefrom, as of June 28, 2009, we would have had approximately $15.0 million of revolving credit availability under our senior secured credit facility. We and our subsidiaries may also be able to incur substantial additional indebtedness in the future. The terms of the indenture and the senior secured and unsecured credit facilities do not fully prohibit us or our subsidiaries from doing so. If we incur any additional indebtedness that ranks equally with the notes, the holders of that debt will be entitled to share ratably with the holders of the notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of us, subject to any collateral securing the notes. If new debt is added to our or our subsidiaries’ current debt levels, the related risks that we now face could intensify. See “Description of Certain Indebtedness—Senior Secured Credit Facility,” and “—Senior Unsecured Credit Facility.”

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

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

	•		their earnings;
	•		covenants contained in agreements to which we or our subsidiaries are or may become subject, including our senior secured and unsecured credit facilities and the notes;
	•		business and tax considerations; and
	•		applicable law, including laws regarding the payment of dividends and distributions.

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

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

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

	•		incur additional indebtedness;
	•		repay indebtedness (including the notes) prior to stated maturities;
	•		pay dividends on, redeem or repurchase our stock or make other distributions;
	•		make acquisitions or investments;
	•		create or incur liens;
	•		transfer or sell certain assets or merge or consolidate with or into other companies;
	•		enter into certain transactions with affiliates;
	•		sell stock in our subsidiaries;
	•		restrict dividends, distributions or other payments from our subsidiaries; and
	•		otherwise conduct necessary corporate activities.

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

These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. Acceleration of our other indebtedness could result in a default under the terms of the indenture governing the notes.

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

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

We cannot assure you that, if a change of control, excess cash flow or asset sale offer is made, we will have available funds sufficient to pay the purchase price for any or all of the notes that might be delivered by

holders of the notes seeking to accept the offer or that we will be permitted under the terms of our other indebtedness to make such offers and, accordingly, none of the holders of the notes may receive the purchase price for their notes. Our failure to make or consummate the change of control, excess cash flow or asset sale offer or pay the relevant purchase price when due will give the trustee and the holders of the notes the rights described in “Description of the Notes—Events of Default.”

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

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

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

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

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

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

	•		any agreement or contract the terms of which prohibit, or would be breached by, the grant of a security interest therein to secure the notes, if (i) the prohibition is legally enforceable and (ii) after using commercially reasonable efforts, we have been unable to amend the agreement or contract to remove the offending terms;
	•		money and letters of credit rights that are not supporting obligations;
	•		any deposit accounts that have been pledged to secure priority lien obligations, if, after using commercially reasonable efforts, we have been unable to obtain perfected liens on those accounts;

	•		any foreign intellectual property or automobiles, vehicles or the like in which a security interest cannot be perfected by the filing of a Uniform Commercial Code financing statement;
	•		any other assets in which a security interest cannot be perfected by the filing of a Uniform Commercial Code financing statement, so long as the aggregate fair market value of those assets is not more than $1.0 million at any time;
	•		any leased real property;
	•		the voting stock of any foreign subsidiary in excess of 65% of the outstanding voting stock of that foreign subsidiary; and
	•		while any priority lien obligations remain outstanding, any other assets that have not been pledged to secure priority lien obligations, so long as the aggregate fair market value of those assets is not more than $500,000 at any time.

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

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

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

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

Holders of notes will not control decisions regarding collateral.

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

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

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

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

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

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

However, the bankruptcy court will determine, based on evidence at the confirmation hearing on such plan, whether certain of those statutory requirements have been satisfied upon the basis of the factual circumstances existing at the time of such confirmation hearing. The bankruptcy court’s factual findings on such matters generally are accorded deference by any appellate court and generally are not to be reversed on appeal unless “clearly erroneous.” Also, there is another doctrine generally applied by federal appellate courts, which generally is referred to as the “equitable mootness” doctrine and generally requires dismissal

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

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

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

Any future pledge of collateral might be avoidable in bankruptcy.

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

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

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

	•		incurred the indebtedness or granted the security interests with the intent of hindering, delaying or defrauding present or future creditors;
	•		received less than reasonably equivalent value or fair consideration for incurring the indebtedness or granting the security interests;
	•		were insolvent or rendered insolvent by reason of the incurrence of the indebtedness or the grant of the security interests;

	•		were left with inadequate capital to carry on business; or
	•		intended to incur, or did incur, or believed or reasonably should have believed that we or our restricted subsidiaries would incur, debts beyond our or our restricted subsidiaries’ ability to repay as they matured or became due,

then, such court might:

	•		subordinate the notes, the guarantees or the security interests to our or our guarantors’ presently existing or future indebtedness or any liens securing such indebtedness;
	•		void the issuance of the notes, the guarantees or the security interests; or
	•		take other actions detrimental to holders of the notes, including avoiding any payment by us pursuant to the notes or by the guarantors pursuant to the guarantees and requiring the return of any such payment to a fund for the benefit of our or our guarantors’ unpaid creditors.

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

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

	•		the sum of its debts, including contingent liabilities, was greater than the fair salable value of all its assets;
	•		the present fair salable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or
	•		it could not (or believed that it could not, or intended not to) pay its debts as they become due.

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

	•		what standard a court would apply in order to determine whether we or our guarantors were insolvent as of the date we or our guarantors issued the notes or the guarantees or granted the security interests, as applicable, or that regardless of the method of valuation, a court would determine that we or our guarantors were insolvent on that date; or
	•		whether a court would not determine that the notes, the guarantees or the security interests constituted fraudulent transfers on another ground.

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

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

issue discount under U.S. federal income tax law and, accordingly, a holder might be required to recognize gain or loss in the event of a distribution related to such a bankruptcy case.

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

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

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

The old notes are a new issue of securities and there is no established trading market for them. We do not intend to apply for the old notes or any new notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation systems. You may not be able to sell your notes at a particular time or at favorable prices. As a result, we cannot assure you as to the liquidity of any trading market for the notes or, in the case of any holders of the old notes that do not exchange them, the trading market for the old notes following the offer to exchange the old notes for new notes. In addition, to the extent that old notes are tendered for exchange and accepted in the exchange offer, the trading market for the untendered and tendered but unaccepted old notes could be adversely affected. As a result, you may be required to bear the financial risk of your investment in the notes indefinitely. If any of the notes are traded after they are initially issued, they may trade at a discount from their initial offering price. If a trading market were to develop, future trading prices of the notes may be volatile and will depend on many factors, including:

	•		our operating performance and financial condition;
	•		our ability to complete the offer to exchange the old notes for the new notes;
	•		prevailing interest rates;
	•		the interest of securities dealers in making a market for them; and
	•		the market for similar securities.

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

Risks Related to our Business

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. Third party food suppliers and transporters outside of our control could cause some food borne illness incidents. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation

periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our restaurants could negatively affect our restaurant sales if highly publicized. This risk exists even if it were later determined that the illness was wrongly attributed to one of our restaurants. A number of other restaurant chains have experienced incidents related to food borne illnesses that have had a material adverse impact on their operations, and we cannot assure you that we can avoid a similar impact upon the occurrence of a similar incident at our restaurants. In addition, we may be subject to liability claims as a result of food-borne illnesses.

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

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

We depend upon frequent deliveries of food and other supplies.

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

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

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

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

The U.S. economic crisis adversely impacted our business and financial results in fiscal 2008 and the six months ended June 28, 2009, and a prolonged recession could materially affect us in the future.

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

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

We may not realize expected benefits from our cost cutting initiatives.

In order to improve the efficiency of our operations, we implemented certain cost cutting initiatives, including headcount reductions and the negotiation of rent concessions. We cannot assure you that we will realize the expected cost savings or improve our operating performance as a result of our past, current and future cost cutting activities. We also cannot assure you that our cost cutting activities will not adversely affect our ability to retain key employees, the significant loss of whom could adversely affect our operating results. Further, as a result of our cost cutting activities, we may not have the appropriate level of resources and personnel to appropriately react to significant changes or fluctuations in the market and in the level of demand for our goods and services.

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. In addition, with improving product offerings at quick-service restaurants and grocery stores, coupled with the present state of the economy, consumers may choose to trade down to these alternatives, which could also negatively affect revenues.

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

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

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 wage;
	•		paid leaves of absence;
	•		provision to employees of mandatory health insurance;
	•		tax reporting; and
	•		revisions in the tax payment requirements for employees who receive gratuities.

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

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

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

We 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.

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

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

We face risks associated with government regulations.

We are subject to extensive government regulation at the federal, state and local government level. These include, but are not limited to, regulations relating to the preparation and sale of food and beverages, zoning and building codes, land use and employee, public health, sanitation and safety matters. We are required to obtain and maintain governmental licenses, permits and approvals. Difficulty or failure in obtaining these approvals in the future could result in delaying or canceling the opening of new restaurants or could materially adversely affect the operation of existing restaurants. Local authorities may suspend or

deny renewal of our governmental licenses if they determine that our operations do not meet the standards for initial grant or renewal. This risk would be even higher if there were a major change in the licensing requirements affecting our types of restaurants.

Typically our restaurants’ licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. Alcoholic beverage control regulations relate to various aspects of daily operations of our restaurants, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. In fiscal year 2008, approximately 24.2% of our restaurant revenues were attributable to the sale of alcoholic beverages, and we believe that our ability to serve alcoholic beverages, such as our signature margarita drinks, is an important factor in attracting customers. The failure of any of our restaurants to timely obtain and maintain liquor or other licenses, permits or approvals required to serve alcoholic beverages or food could delay or prevent the opening of, or adversely impact the viability of, the restaurant and we could lose significant revenue. Our restaurants are also subject in each state in which we operate to “dram shop” laws, which allow a person to sue us if that person was injured by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could exceed our liability insurance coverage policy limits and could result in substantial liability for us and have a material adverse effect on our profitability. Our inability to continue to obtain such insurance coverage at reasonable costs also could have a material adverse effect on us.

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

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

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

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

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

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

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

We face risks associated with environmental laws.

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

	•		govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes; and
	•		impose liability for the costs of cleaning up, and damage resulting from, sites of past spills, disposals or other releases of hazardous materials.

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

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

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

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

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

We may make acquisitions or enter into similar transactions.

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

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

Goodwill is the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets we acquire. Current accounting standards require that goodwill and other indefinite lived intangible assets be periodically evaluated for impairment based on the fair value. The downturn in the economy has resulted in an unfavorable impact on current operations and growth projections. As a result, impairment charges of goodwill and other intangible assets of approximately $163.2 million and $10.0 million were recognized during fiscal years 2008 and 2007, respectively. After recording this impairment loss and the valuation of the company in accordance with the Exchange, approximately $112.1 million, or 37.6%, of our total assets represented goodwill and other indefinite lived intangible assets at December 28, 2008. Any further declines in our assessment of the fair value the Company could result in a further write-down of our goodwill and a reduction in our net income.

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

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

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

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

USE OF PROCEEDS

This prospectus may be delivered in connection with the resale of notes by the selling securityholders in transactions in the notes in the secondary market. We will not receive any of the proceeds from such resales.

The following table sets forth our cash and cash equivalents and our capitalization on a consolidated basis as of June 28, 2009 on an actual and as adjusted basis. As adjusted capitalization gives effect to the offer and sale of the old notes and the application of the net proceeds therefrom. This table should be read in conjunction with “Summary Consolidated Historical Financial Information” and our consolidated financial statements and the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

		As of June 28, 2009
		Actual				As Adjusted
Cash and cash equivalents		$	3,957			$	2,835
Debt:
Revolving credit facility		$	—			$	—
Old notes(1)			—				117,000
Existing senior secured notes due 2010(2)			105,000				—
Capital lease obligations			1,146				1,146
Mortgage			556				556
Existing senior unsecured credit facility(3)			65,000				25,000
Other			1,197				1,197
Total debt(3)		$	172,899			$	144,899
Total stockholder’s equity		$	10,857			$	21,732
Total capitalization		$	183,756			$	166,631
		(Dollars in thousands)

The following table sets forth selected historical consolidated financial and other data of our Company. The selected historical consolidated financial data has been derived from our Company’s audited consolidated financial statements for the Successor Period from November 14, 2008 to December 28, 2008 (“Successor 2008”), the Predecessor Period from December 31, 2007 to November 13, 2008 (“Predecessor 2008”), the Predecessor fiscal year 2007 (“Predecessor 2007”), the Predecessor Period from August 21, 2006 to December 31, 2006 (“Predecessor 2006-2”), the Predecessor Period from December 26, 2005 to August 20, 2006 (“Predecessor 2006-1”) and the Predecessor fiscal years ended December 2005 and 2004. When combined, fiscal year 2006 consists of 53 weeks and all other fiscal years presented consist of 52 weeks. This data presented below should be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus.

										Predecessor																Successor
										December 26,				August 21,				Fiscal				December 31,				November 14,
		Predecessor								2005 to				2006 to				Year				2007 to				2008 to
		Fiscal Year Ended								August 20,				December 31,				Ended				November 13,				December 28,
		2004				2005(4)				2006				2006				2007				2008				2008
														(In thousands)
Statement of Operations Data:
Restaurant revenues		$	314,157			$	510,013			$	351,591			$	179,630			$	523,352			$	456,587			$	52,448
Other revenue			10,787				20,532				18,358				11,094				38,164				37,110				4,571
Total revenues			326,810				534,296				372,552				192,098				565,191				496,429				57,316
Cost of sales			80,839				127,126				87,388				46,883				140,824				123,878				14,255
Labor			118,888				186,390				125,748				67,729				199,843				178,962				21,210
Direct operating and occupancy expense			76,760				140,648				94,422				51,127				148,088				133,337				14,886
Total operating costs			276,487				454,164				307,558				165,739				488,755				436,177				50,351
General and administrative expenses			17,725				28,346				18,893				11,414				31,718				25,726				3,219
Depreciation and amortization			11,837				18,498				12,230				10,323				23,961				21,724				3,750
Goodwill impairment			—				—				—				—				10,000				163,196				—
Operating income (loss)			20,299				31,433				18,150				3,379				6,854				(158,668	)			(19	)
Interest expense			12,528				22,973				16,005				10,481				19,326				16,407				4,108
Debt termination costs			4,677				—				—				—				—				—				—
Income (loss) before income tax provision			4,546				8,677				2,787				(8,238	)			(10,802	)			(173,061	)			(4,103	)
Net income (loss)			13,616				13,386				1,480				(5,047	)			(23,546	)			(173,113	)			(4,103	)
Redeemable preferred stock accretion			(11,862	)			(14,583	)			(10,126	)			—				—				—				—
Net income (loss) attributable to common stockholders(1)		$	1,754			$	(1,197	)		$	(8,646	)		$	(5,047	)		$	(23,546	)		$	(173,113	)		$	(4,103	)
Balance Sheet Data:
Cash and cash equivalents			10,690				14,871								2,710				2,323								2,099
Property and equipment, net			36,589				82,592								90,802				96,179								110,505
Total assets			186,951				310,889								447,135				434,455								298,328
Total debt(2)			106,503				182,031								183,905				186,187								161,813
Total stockholders’ equity			29,849				50,584								184,077				163,113								23,044
Other Financial Data:
Capital expenditures		$	9,982			$	23,408							$	26,380			$	34,404							$	24,068
Ratio of earnings to fixed charges(3)			1.2	x			1.2	x							—				—								—

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations contains forward looking statements as a result of certain factors, including those set forth under the heading “Forward-Looking Statements” above and elsewhere in this prospectus. Unless otherwise provided below, references to “we”, “us” and “our Company” refer to Real Mex Restaurants, Inc., our parent holding company RM Restaurant Holding Corp. and our consolidated subsidiaries. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Overview

We are one of the largest full service, casual dining Mexican restaurant chain operators in the United States in terms of number of restaurants. As of June 28, 2009, we operated 189 restaurants, 155 of which are located in California, with additional restaurants in Arizona, Florida, Indiana, Illinois, Maryland, Missouri, Nevada, New Jersey, New York, Oregon, Virginia and Washington. Our major subsidiaries are El Torito Restaurants, Inc., which we acquired in June 2000, Acapulco Restaurants, Inc., Chevys Restaurants LLC, which we formed to facilitate the Chevys acquisition in January 2005, and a purchasing, distribution, and manufacturing subsidiary, Real Mex Foods, Inc.

El Torito, El Torito Grill (including Sinigual), Acapulco and Chevys, our primary restaurant concepts, each offer high quality Mexican food, a wide selection of alcoholic beverages and excellent guest service. In addition to the El Torito, El Torito Grill, Acapulco and Chevys concepts, we operate 10 additional restaurant locations, which are also full service Mexican formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; Sinigual; and Who Song & Larry’s.

In 2008, we opened five restaurants, including our first Sinigual restaurants in Brandon, Florida and New York, New York. Sinigual is the name for El Torito Grill style restaurants outside southern California. The other three restaurants opened in 2008 included one El Torito and two Chevys restaurants in California. During fiscal year 2007, we opened four restaurants, including two El Torito, one El Torito Grill and one Chevys restaurants, all in California. During fiscal year 2006, we opened six restaurants, including three El Torito, one El Torito Grill and one Chevys restaurants, all in California, and one Chevys restaurant in New York. Due to the current downturn in the economy, we do not expect to open any new restaurants in 2009. Our fiscal year consists of 52 or 53 weeks and ends on the last Sunday in December of each year. Fiscal year 2006 was comprised of 53 weeks and all other fiscal years presented are comprised of 52 weeks. See additional breakdown of these years into reported periods in Results of Operations below. The three months ended June 28, 2009 and June 29, 2008 consisted of thirteen weeks. When calculating comparable store sales, we include a restaurant that has been open for more than 18 months and for the entirety of each comparable period. As of December 28, 2008, and June 28, 2009, we had 180 and 182 restaurants, respectively, that met this criterion.

In fiscal year 2008, we generated revenues of $553.7 million. Our revenues are comprised of restaurant sales, other revenues and royalty and franchise fees. Restaurant revenues include sales of food and alcoholic and other beverages. Other revenues consist primarily of sales by Real Mex Foods 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, 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 and amortization principally includes depreciation of capital expenditures for restaurants and also includes amortization of favorable lease asset and unfavorable lease liability.

Goodwill is deemed to have an indefinite life and is subject to an annual impairment test. Other intangible assets are amortized over their useful lives in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. Impairment of goodwill and intangible assets reflects the impairment losses related to the difference between the fair value and recorded value as identified in our annual impairment test. The fair value was determined using discounted cash flow projections based upon management forecasts. We recorded impairment charges of $163.2 million and $10.0 million in 2008 and 2007, respectively as a result of the impact of the downturn in the economy on current operations and growth projections.

Amortization of favorable lease asset and unfavorable lease liability, represents the amortization of the asset in excess of the approximate fair market value and the liability in excess of the approximate fair market value of the leases assumed, which is revalued in purchase price accounting. The amounts are being amortized over the remaining primary terms of the underlying leases.

Our annual operating results are impacted by restaurant closures to the extent we close locations. Due to our long operating history, restaurant closures are generally the result of lease expirations. Many of our leases are non- cancelable and have initial terms of 10 to 20 years with one or more renewal terms of three or more years that we may exercise at our option. As of December 28, 2008, we owned one restaurant location and leased the remaining 189.

We perform ongoing analyses of restaurant cash flow and in the case of negative cash flow or underperforming restaurants, we may negotiate early termination of leases, allow leases to expire without renewal or sell restaurants. In addition, from time to time we may be forced to close a successful restaurant if we are unable to renew the lease on satisfactory terms, or at all. From the end of fiscal 2006 to the end of fiscal Year 2008, we closed 24 restaurants, 16 of which were early lease terminations and 8 of which we were unable to renew the leases thereon.

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.

Results of Operations

Three and six months ended June 28, 2009 and June 29, 2008

Our operating results for the three and six months ended June 28, 2009 and June 29, 2008 are expressed as a percentage of total revenues below:

		Three Months Ended								Six Months Ended
		Successor				Predecessor				Successor				Predecessor
		June 28,				June 29,				June 28,				June 29,
		2009				2008				2009				2008
Total revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			23.9				24.7				24.1				24.7
Labor			36.8				34.9				36.9				35.8
Direct operating and occupancy expense			25.4				25.3				26.2				25.9
Total operating costs			86.1				84.9				87.1				86.4
General and administrative expense			4.4				5.2				4.8				5.4
Depreciation and amortization			6.0				4.1				6.1				4.2
Pre-opening costs			—				0.7				—				0.5
Goodwill impairment			—				22.3				—				11.7
Operating income (loss)			3.4				(18.2	)			1.8				(8.8	)
Interest expense			6.6				3.0				6.9				3.2
Loss before tax provision			(3.0	)			(20.9	)			(4.9	)			(11.7	)
Net loss			(3.0	)			(20.9	)			(4.9	)			(11.7	)

Three months ended June 28, 2009 compared to the three months ended June 29, 2008

Total Revenues. Total revenues decreased by $16.6 million, or 10.9%, to $135.9 million in the second quarter of 2009 from $152.5 million in the second quarter of 2008, due to a $15.9 million decrease in restaurant revenues, combined with a $0.6 million decrease in other revenues and a $0.1 million decrease in royalty and franchise fees. The decrease in restaurant revenues was primarily due to comparable store sales decreases of 12.1% in the quarter. The decrease in other revenues was primarily due to a decrease in sales to outside customers by Real Mex Foods, including a decrease in distribution sales of $1.8 million, partially offset by an increase in manufacturing sales of $1.1 million.

Cost of Sales. Total cost of sales of $32.5 million in the second quarter of 2009 decreased $5.2 million, or 13.7%, as compared to the second quarter of 2008. As a percentage of total revenues, cost of sales decreased to 23.9% in the second quarter of 2009 from 24.7% in the second quarter of 2008. This decrease was primarily due to restaurant revenue declines combined with lower commodity costs, specifically cheese, dairy, beef and poultry.

Labor. Labor costs of $50.0 million in the second quarter of 2009 decreased by $3.3 million, or 6.2%, as compared to the second quarter of 2008, primarily due to adjustments in staffing as a result of the decrease in restaurant revenue, combined with lower casualty and health insurance expenses in the second quarter of 2009. As a percentage of total revenues, labor cost increased to 36.8% in the second quarter of 2009 from 34.9% in the second quarter of 2008, primarily due to the fixed nature of some components of labor expense. 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.

Direct Operating and Occupancy Expense. Direct operating and occupancy expense of $34.5 million in the second quarter of 2009 decreased $4.1 million, or 10.5%, versus the second quarter of 2008, primarily due to lower advertising, utilities and maintenance and cleaning expenses in the second quarter of 2009 as a result of management’s focus on decreasing costs to minimize the impact of lower restaurant revenues.

Direct operating and occupancy expense as a percentage of sales increased to 25.4% in the second quarter of 2009 from 25.3% in the second quarter of 2008.

General and Administrative Expense. General and administrative expense of $6.0 million in the second quarter of 2009 decreased by $1.9 million, or 24.2%, as compared to the second quarter of 2008, primarily due to lower labor expense as a result of a reduction in headcount to minimize the impact of lower restaurant revenues. General and administrative expense as a percentage of sales decreased to 4.4% in the second quarter of 2009 from 5.2% in the second quarter of 2008.

Depreciation and Amortization. Depreciation and amortization expense of $8.1 million in the second quarter of 2009 increased $1.9 million, or 30.0%, as compared to the second quarter of 2008, primarily due to depreciation on the assets of new restaurants combined with the revaluation of tangible and intangible assets in conjunction with the Exchange (as defined in Note 2 to the consolidated financial statements). As a percentage of total revenues, depreciation and amortization increased to 6.0% in the second quarter of 2009 from 4.1% in the second quarter of 2008.

Goodwill Impairment. A non-cash goodwill impairment charge of $34.0 million was recorded during the second quarter of 2008 to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill. The fair value was determined based upon a combination of two valuation techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. No impairment was recognized by the Company during the second quarter of 2009.

Interest Expense. Interest expense of $9.0 million in the second quarter of 2009 increased $4.4 million, or 95.1%, as compared to the second quarter of 2008. This increase was primarily due to the amortization of the discount on our senior secured notes recorded in conjunction with the Exchange, with total amortization of $3.7 million recorded as interest expense in the second quarter of 2009. Prior to the Exchange, a premium was amortized as a reduction to interest expense, with $0.3 million in amortization in the second quarter of 2008. As a percentage of total revenues, interest expense increased to 6.6% in the second quarter of 2009 from 3.0% in the second quarter of 2008.

Income tax Provision. We have recorded a full valuation allowance against our deferred tax assets. As a result, no income tax benefit was recorded during the second quarter of 2009 or the second quarter of 2008.

Six months ended June 28, 2009 compared to the six months ended June 29, 2008

Total Revenues. Total revenues decreased by $25.7 million, or 8.9%, to $264.4 million in the first six months of 2009 from $290.1 million in the first six months of 2008, due to a $26.0 million decrease in restaurant revenues and a $0.2 million decrease in royalty and franchise fees, partially offset by a $0.5 million increase in other revenues. The decrease in restaurant revenues was primarily due to comparable store sales decreases of 10.7% in the first six months of 2009 versus the first six months of 2008. The increase in other revenues was primarily due to an increase in sales to outside customers and the addition of new outside customers by Real Mex Foods, including an increase in manufacturing sales of $4.2 million, partially offset by decrease in distribution sales of $3.8 million.

Cost of Sales. Total cost of sales of $63.6 million in the first six months of 2009 decreased $8.1 million, or 11.3%, as compared to the first six months of 2008. As a percentage of total revenues, cost of sales decreased to 24.1% in the first six months of 2009 from 24.7% in the first six months of 2008. This decrease was primarily due to restaurant revenue declines combined with lower commodity costs, specifically cheese, dairy, beef and poultry.

Labor. Labor costs of $97.6 million in the first six months of 2009 decreased by $6.2 million, or 5.9%, as compared to the first six months of 2008, primarily due to adjustments in staffing as a result of the decrease in restaurant revenue, combined with lower casualty and health insurance expenses in the first six months

of 2009. As a percentage of total revenues, labor costs increased to 36.9% in the first six months of 2009 from 35.8% in the first six months of 2008, primarily due to the fixed nature of some components of labor expense. Payroll and benefits remain subject to inflation and government regulation; especially wage rates that are currently at or near the minimum wage, and expenses for health insurance.

Direct Operating and Occupancy Expense. Direct operating and occupancy expense of $69.2 million in the first six months of 2009 decreased by $5.9 million, or 7.9%, as compared to the first six months of 2008, primarily due to lower advertising, utilities and maintenance and cleaning expenses in the first six months of 2009 as a result of management’s focus on decreasing costs to minimize the impact of lower restaurant revenues. Direct operating and occupancy expense as a percentage of sales increased from 25.9% in the first six months of 2008 to 26.2% in the first six months of 2009.

General and Administrative Expense. General and administrative expense of $12.7 million in the first six months of 2009 decreased by $3.0 million, or 19.3%, as compared to the first six months of 2008 primarily due to lower labor expense as a result of a reduction in headcount to minimize the impact of lower restaurant revenues. General and administrative expense as a percentage of sales decreased to 4.8% in the first six months of 2009 from 5.4% in the first six months of 2008.

Depreciation and Amortization. Depreciation and amortization expense of $16.2 million in the first six months of 2009 increased $3.9 million or 31.9% as compared to the first six months of 2008 primarily due to depreciation on the assets of new restaurants combined with the revaluation of tangible and intangible assets in conjunction with the Exchange. As a percentage of total revenues, depreciation and amortization increased to 6.1% in the first six months of 2009 from 4.2% in the first six months of 2008.

Goodwill Impairment. A non-cash goodwill impairment charge of $34.0 million was recorded during the first six months of 2008 to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill. The fair value was determined based upon a combination of two valuation techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. No impairment was recognized by the Company during the first six months of 2009.

Interest Expense. Interest expense of $18.2 million in the first six months of 2009 increased $9.0 million, or 97.4%, as compared to the first six months of 2008. This increase was primarily due to the amortization of the discount on our senior secured notes recorded in conjunction with the Exchange, with total amortization of $7.4 million recorded as interest expense in the first six months of 2009. Prior to the Exchange, a premium was amortized as a reduction to interest expense, with $0.6 million in amortization in the first six months of 2008. As a percentage of total revenues, interest expense increased to 6.9% in the first six months of 2009 from 3.2% in the first six months of 2008.

Income Tax Provision. We have recorded a valuation allowance against our deferred tax assets. As a result, no income tax benefit was recorded during the first six months of 2009 or 2008. The provisions recorded of less than $0.1 million in the first six months of 2009 and 2008 represent various state taxes incurred.

Fiscal Years 2006, 2007 and 2008

Our operating results for Successor 2008, Predecessor 2008, Predecessor 2007, Predecessor 2006-2 and Predecessor 2006-1 are expressed as a percentage of total revenues below. Because of purchase accounting adjustments to the fair market value of long-term assets and long-term liabilities, and because the number of days in each period presented vary, certain amounts may not be comparable between each period presented.

		Successor(1)				Predecessor(1)
		November 14,				December 31,				Fiscal				August 21,				December 26,
		2008 to				2007 to				Year				2006 to				2005 to
		December 28,				November 13,				Ended				December 31,				August 20,
		2008				2008				2007				2006				2006
Total revenues			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			24.9				25.0				24.9				24.4				23.5
Labor			37.0				36.0				35.4				35.3				33.8
Direct operating and occupancy expense			26.0				26.9				26.2				26.6				25.3
Total operating costs			87.8				87.9				86.5				86.3				82.6
General and administrative expense			5.6				5.2				5.6				5.9				5.1
Depreciation and amortization			6.5				4.4				4.2				5.4				3.3
Goodwill impairment			—				32.9				1.8				—				—
Operating (loss) income			—				(32.0	)			1.2				1.8				4.9
Interest expense			7.2				3.3				3.4				5.5				4.3
(Loss) income before income tax provision			(7.2	)			(34.9	)			(1.9	)			(4.3	)			0.7
Net (loss) income			(7.2	)			(34.9	)			(4.2	)			(2.6	)			0.4

Fiscal Year 2008 Compared to Fiscal Year 2007

Total Revenues. Total revenues were $57.3 million in Successor 2008 and $496.4 million in Predecessor 2008, compared to $5652 million in Predecessor 2007. The overall decrease of $11.4 million, or 2.0%, was due to a $3.5 million increase in other revenues, offset by a $14.3 million decrease in restaurant revenues and a $0.6 million decrease in royalty and franchise fees. The $3.5 million increase in other revenues was primarily due to an increase in sales to existing outside customers and the addition of new outside customers by Real Mex Foods, Inc., our distribution and manufacturing subsidiary. The $14.3 million decrease in restaurant revenues was primarily due to comparable store sales declines of 23% versus fiscal year 2007. The comparable store sales decline was approximately 1.2% during Predecessor 2008 and approximately 13.2% during Successor 2008. This decline is primarily attributable to a reduction in guest count at our existing restaurants resulting from the slowing U.S. economy, which has negatively impacted overall consumer traffic in the restaurant industry. This decline particularly impacted our December sales, combined with the shortened peak shopping period between Thanksgiving and Christmas holidays from almost 5 weeks in 2007 to 4 weeks in 2008.

Cost of Sales. Total cost of sales was $14.3 million in Successor 2008 and $123.9 million in Predecessor 2008, compared to $140.8 million in Predecessor 2007. The overall decrease of $2.7 million, or 1.9%, was primarily due to the comparable store sales decline noted above. As a percentage of total revenues, cost of sales remained consistent, at 24.9% in Successor 2008 and 25.0% in Predecessor 2008 compared to 24.9% in Predecessor 2007. The slight increase in Predecessor 2008 of 0.1% was primarily due to higher commodity costs, specifically poultry, dairy and oils during 2008.

Labor. Labor costs were $21.2 million in Successor 2008 and $179.0 million in Predecessor 2008, compared to $199.8 million in Predecessor 2007. The overall increase of $0.3 million or 0.2% was primarily due to higher benefits expense combined with annual restaurant management salary increases partially offset by lower hourly labor expense related to the comparable store sales decline. As a percentage of total revenues, labor costs increased to 37.0% in Successor 2008 and 36.0% in Predecessor 2008 compared to 35.4% in Predecessor 2007. Payroll and benefits remain subject to inflation and government regulation; especially wage rates that are currently at or near the minimum wage and expenses for health insurance.

Direct Operating and Occupancy Expense. Direct operating and occupancy expense was $14.9 million in Successor 2008 and $133.3 million in Predecessor 2008, compared to $148.1 million in Predecessor 2007. The overall increase was $0.1 million, or 0.1%. As a percentage of total revenues, direct operating and occupancy expense was 26.0% in Successor 2008 and 26.9% in Predecessor 2008 compared to 26.2% in Predecessor 2007. The increase as a percent of total revenues in Predecessor 2008 was primarily due to the comparable store sales decline, since a significant portion of these costs are fixed or take time to adjust for the reduction in sales.

General and Administrative Expense. General and administrative expense was $3.2 million in Successor 2008 and $25.7 million in Predecessor 2008 as compared to $31.7 million in Predecessor 2007. The overall decrease of $2.8 million or 8.7% was primarily due to lower salary expense associated with position eliminations during Predecessor 2008. As a percentage of total revenues, general and administrative expense was flat at 5.6% in Successor 2008 and decreased to 5.2% in Predecessor 2008 compared to 5.6% in Predecessor 2007. The increase from Predecessor 2008 to Successor 2008 resulted from the decrease in comparable sales for Successor 2008, as noted above, plus accrued severance of $0.5 million related to the resignation of our CEO in December 2008.

Depreciation and Amortization. Depreciation and amortization expense was $3.8 million in Successor 2008 and $21.7 million in Predecessor 2008 as compared to $24.0 million in Predecessor 2007. The overall increase of $1.5 million or 6.3% was primarily due to depreciation on the assets of new restaurants. In addition, in conjunction with the Exchange, we revalued our assets, which resulted in an increase in property and equipment of $18.7 million at November 13, 2008, resulting in additional depreciation in Successor 2008 of $0.8 million. As a percentage of total revenues, depreciation and amortization increased to 65% in Successor 2008 and 4.4% in Predecessor 2008 from 4.2% in Predecessor 2007.

Goodwill Impairment. Non-cash goodwill and intangible asset impairment charges of $163.2 million and $10.0 million were recorded in Predecessor 2008 and Predecessor 2007, respectively, to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill and other indefinite lived intangible assets. The fair value was determined based upon a combination of two valuation techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. No goodwill or trademark impairment was recognized by the Company during Successor 2008.

Interest Expense. Interest expense was $4.1 million in Successor 2008 and $16.4 million in Predecessor 2008 as compared with $19.3 million in Predecessor 2007. As a percentage of total revenues, interest expense increased to 7.2% in Successor 2008 and decreased to 3.3% in Predecessor 2008 as compared to 3.4% in Predecessor 2007. The decrease in interest as a percentage of total revenues during Predecessor 2008 resulted primarily from a reduction in the weighted average interest rate on our senior unsecured credit facility from 10.36% in Predecessor 2007 to 8.45% in Predecessor 2008. The increase in interest expense as a percentage of total sales during Successor 2008 was primarily due to the amortization of the discount recorded as a reduction of debt related to our senior secured notes, with total amortization of $1.5 million recorded as interest expense in Successor 2008.

Income Tax Provision. No income tax expense was recorded during Successor 2008. We have recorded income tax expense of $0.1 million in Predecessor 2008 and $12.7 million in Predecessor 2007. During Predecessor 2007 we recorded a deferred tax valuation allowance of $13.3 million. In 2008 we continue to record a valuation allowance against our deferred tax assets, which was $23.1 million at December 28, 2008. The amount of deferred tax assets considered realizable is based upon our ability to generate future taxable income, exclusive of reversing temporary differences and carry forwards. In evaluating future taxable income for valuation allowance purposes as of December 28, 2008, we considered only income expected to be generated in fiscal years 2009, 2010 and 2011.

Fiscal Year 2007 Compared to Fiscal Year 2006

Total Revenues. Total revenues were $565.2 million in Predecessor 2007 as compared to $192.1 million in Predecessor 2006-2 and $372.6 million in Predecessor 2006-1. The overall increase of $0.5 million, or 0.1%, was due to an $8.7 million increase in other revenues, partially offset by a $7.9 million decrease in restaurant revenues. The $8.7 million increase in other revenues to $38.2 million in Predecessor 2007 was primarily due to an increase in sales to existing outside customers and the addition of new outside customers by Real Mex Foods, Inc., our distribution and manufacturing subsidiary. The $7.9 million decrease in restaurant revenues to $523.4 million in Predecessor 2007 was primarily due to one less week of operations in Predecessor 2007. Comparable store sales increased 1.3% in Predecessor 2007 when comparing 52 comparable weeks’ sales results with the combined Predecessor 2006 periods.

Cost of Sales. Total cost of sales was $140.8 million in Predecessor 2007 as compared to $46.9 million in Predecessor 2006-2 and $87.4 million in Predecessor 2006-1. The overall increase was $6.6 million, or 4.9%. As a percentage of total revenues, cost of sales increased to 24.9% in Predecessor 2007 from 24.4% in Predecessor 2006-2 and from 23.5% in Predecessor 2006-1 primarily due to higher commodity costs, specifically beef, cheese, dairy and oils, in Predecessor 2007.

Labor. Total Labor costs were $199.8 million in Predecessor 2007 as compared to $67.7 million in Predecessor 2006-2 and $125.7 million in Predecessor 2006-1. The overall increase was $6.4 million, or 3.3%. As a percentage of total revenues, labor costs increased to 35.4% in Predecessor 2007 from 35.3% in Predecessor 2006-2 and 33.8% in Predecessor 2006-1. These increases were primarily due to minimum wage increases which took place in January in the majority of the states in which we operate combined with annual management salary increases. Payroll and benefits remain subject to inflation and government regulation; especially wage rates that are currently at or near the minimum wage, and expenses for health insurance.

Direct Operating and Occupancy Expense. Direct operating and occupancy expense was $148.1 million in Predecessor 2007 as compared to $51.1 million in Predecessor 2006-2 and $94.4 million in Predecessor 2006-1. The overall increase was $2.5 million, or 1.7%. Direct operating and occupancy expense as a percentage of sales of 26.2% was a decrease versus direct operating and occupancy expense of 26.6% in Predecessor 2006-2 and an increase versus direct occupancy and operating expense of 25.3% in Predecessor 2006-1 primarily due to an increase in expenditures for advertising and promotion and increases in property taxes, common area maintenance expense and rent expense in Predecessor 2007.

General and Administrative Expense. General and administrative expense was $31.7 million in Predecessor 2007 as compared to $11.4 million in Predecessor 2006-2 and $18.9 million in Predecessor 2006-1. The overall increase of $1.4 million or 4.7% was primarily due to higher salaried labor expense combined with higher insurance expense and stock-based compensation expense related to options issued during Predecessor 2007. General and Administrative expense as a percentage of sales decreased to 5.6% in Predecessor 2007 from 5.9% in Predecessor fiscal year 2006-2 and increased from 5.1% in Predecessor 2006-1.

Depreciation and Amortization. Depreciation and amortization expense was $24.0 million in Predecessor 2007 as compared to $10.3 million in Predecessor 2006-2 and $12.2 million in Predecessor 2006-1. The overall increase was $1.4 million or 6.2%. As a percentage of total revenues, depreciation and amortization was 4.2% in Predecessor 2007 as compared to 5.4% in Predecessor 2006-2 and 3.3% in Predecessor 2006-1. The increase to 4.2% in Predecessor 2007 from 4.0% in the combined Predecessor Year 2006 was due to the increase in the depreciable basis of furniture, fixtures and equipment to fair market value and net favorable lease asset and unfavorable lease liability amortization required under purchase accounting rules due to the Merger on August 21, 2006 and depreciation on the assets of new restaurants.

Goodwill Impairment. A non-cash goodwill impairment charge of $10.0 million was recorded in Predecessor 2007 to reflect the impairment losses related to the difference between the fair value and recorded value for goodwill. The fair value was determined based upon a combination of two valuation

techniques, including an income approach, which utilizes discounted future cash flow projections based upon management forecasts, and a market approach, which is based upon pricing multiples at which similar companies have been sold. No goodwill or trademark impairment was recognized by the Company during Predecessor 2006-1 or Predecessor 2006-2.

Interest Expense. Interest expense was $19.3 million in Predecessor 2007 as compared to $10.5 million in Predecessor 2006-2 and $16.0 million in Predecessor 2006-1. The overall decrease of $7.2 million, or 27.0%, was primarily due to a $10.0 million reduction in our senior unsecured credit facility and a reduction in the weighted average interest rate on our senior unsecured credit facility from 13.61% in the combined Predecessor 2006 to 10.36% in Predecessor 2007. As a percentage of total revenues, interest expense was 3.4% in Predecessor 2007 as compared to 4.7% in the combined Predecessor 2006.

Income Tax Provision. The income tax provision for Predecessor 2007 and for the combined Predecessor 2006 was based on estimated annual effective tax rates. A rate of 118.0% was applied to Predecessor 2007 versus a rate of 34.6% in the combined Predecessor 2006. The rates are comprised of the combined federal and state statutory rates. The difference in rates primarily results from the valuation allowance of $13.3 million recorded in Predecessor 2007.

Liquidity and Capital Resources

Our principal liquidity requirements are to service our debt and meet our capital expenditure and working capital needs. Our indebtedness at December 28, 2008 and June 28, 2009, including obligations under capital leases and unamortized debt discount, was $161.8 million and $183.9 million, respectively, and we had $7.4 million and $15.0 million, respectively, of revolving credit availability under our $15.0 million senior secured revolving credit facility. Our ability to make principal and interest payments and to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our senior secured revolving credit facility will be adequate to meet our liquidity needs for the near future. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured revolving credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. See “Description of Certain Indebtedness”. 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 more than current asset levels. The largest components of our accrued liabilities include reserves for our self-insured workers’ compensation and general liability insurance, accrued payroll and related employee benefits costs and gift card liabilities. We do not have significant receivables and we receive trade credit based upon negotiated terms in purchasing food and supplies. Funds 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

Six months ended June 28, 2009 compared to the six months ended June 29, 2008

We had net cash provided by operating activities of $12.6 million for the six months ended June 28, 2009 compared with net cash provided by operating activities of $19.7 million for the six months ended June 29, 2008. The decrease in cash provided by operating activities was primarily attributable to the decrease in

revenues, combined with changes in working capital, particularly related to the timing of payments related to accounts payable and accrued liabilities.

Fiscal Year 2008 Compared to Fiscal Year 2007

We had net cash provided by operating activities of $7.2 million for Successor 2008 and $17.7 million for Predecessor 2008, compared to $25.4 million for Predecessor 2007, resulting in a net decrease overall of $0.5 million from Predecessor 2007 to the combined results from Predecessor and Successor 2008. Overall, we remained consistent year over year, with a slight decrease of $0.5 million. However, as shown on our consolidated statement of cash flows, the sources fluctuated when comparing Predecessor 2007 to Predecessor and Successor 2008, due to changes in the timing of accounts payable and accrued liabilities, mostly offset by decreases in trade and other receivables.

Investing Activities

Six months ended June 28, 2009 compared to the six months ended June 29, 2008

We had net cash used in investing activities, comprised primarily of additions to property and equipment, of $3.4 million and $14.0 million for the six months ended June 28, 2009 and June 29, 2008, respectively. The decrease in additions primarily results from no construction of new restaurants during 2009, combined with management’s focus on reducing costs in order to minimize the impact of lower restaurant revenues.

Fiscal Year 2008 Compared to Fiscal Year 2007

We had net cash used in investing activities of $0.8 million for Successor 2008 and $23.6 million for Predecessor 2008, compared to $28.4 million for Predecessor 2007. The overall decrease in cash used in investing activities of $4.0 million was primarily the result of a decrease in additions to property and equipment of $11.1 million from Predecessor 2007 to Predecessor 2008, partially offset by the sale of all remaining Fuzio units, including the rights to the Fuzio trademark, of $6.0 million during Predecessor 2007.

Outlook