HOUSTON  (RestaurantNewsRelease.com)  For the Company’s 2010 second quarter ended July 4, 2010, the Company reported a net loss of $102,524 or $0.03 per diluted share, compared with a net loss of $207,937 or $0.06 per diluted share for the second quarter of fiscal year 2009. For the 26-week period ended July 4, 2010, the Company reported a net loss of $501,670 or $0.15 per diluted share, compared with a net loss of $28,083 or $0.01 per diluted share for the 26-week period ended June 28, 2009.

Our restaurant revenues for the 13-week and 26-week periods of fiscal year 2010 decreased $1.2 million or 6.6% and $3.3 million or 9.0% to $16.9 and $33.8 million, respectively, compared with revenues of $18.1 and $37.1 million for the same respective periods in fiscal year 2009. The decrease in restaurant revenues primarily reflects a decrease in same-store sales. For the 13-week and 26-week periods ended July 4, 2010, Company-owned same-restaurant sales decreased approximately 7.1% and 9.4%, respectively. Franchised-owned restaurant sales, as reported by franchisees, decreased approximately 6.6% and 8.8%, respectively, over the same respective periods in fiscal 2009. We believe these decreases are a result of the continued weakness in the economy and its impact on consumers’ dining habits.

Commenting on the Company’s second quarter results, Curt Glowacki, Chief Executive Officer, stated, “Our second quarter results continue to reflect a weak economy and the impact it has on consumers’ dining habits. Declining same-store sales continues to be our biggest obstacle to returning to profitability, as cost leverage is lost when same-store sales decline. We believe the best response to this economic downturn is to stay focused on our customers. Late last year, we initiated a program to retrain all of our employees that emphasizes hospitality, service standards, salesmanship, food preparation and consistency, all within well-maintained and clean restaurants. We believe that program is beginning to make an impact.”

Mexican Restaurants, Inc. operates and franchises 72 Mexican restaurants. The current system includes 55 Company-operated restaurants, 16 franchisee operated restaurants and one licensed restaurant.

Special Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: growth strategy; dependence on executive officers; geographic concentration; increasing susceptibility to adverse conditions in the region; changes in consumer tastes and eating habits; national, regional or local economic and real estate conditions; demographic trends; inclement weather; traffic patterns; the type, number and location of competing restaurants; inflation; increased food, labor and benefit costs; the availability of experienced management and hourly employees; seasonality and the timing of new restaurant openings; changes in governmental regulations; dram shop exposure; and other factors not yet experienced by the Company. The use of words such as “believes”, “anticipates”, “expects”, “intends” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this release and in the Company’s most recent Annual Report and Form 10-K , that attempt to advise interested parties of the risks and factors that may affect the Company’s business.

                     
Mexican Restaurants, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

                     
      13-Week

Period Ended

7/4/2010

    13-Week
Period Ended

6/28/2009

  26-Week

Period Ended

7/4/2010

  26-Week
Period Ended

6/28/2009

Revenues:                    
Restaurant sales     $ 16,921,142     $ 18,107,695     $ 33,774,217     $ 37,121,251  
Franchise fees, royalties and other       117,776       126,578       241,688       264,867  
Business interruption             103,528             103,528  
        17,038,918       18,337,801       34,015,905       37,489,646  
                     
Costs and expenses:                    
Cost of sales       4,954,217       5,263,291       9,899,129       10,513,537  
Labor       5,734,905       6,050,108       11,551,991       12,173,097  
Restaurant operating expenses       4,387,496       4,522,659       8,772,384       9,304,997  
General and administrative       1,251,211       1,632,038       2,699,712       3,318,767  
Depreciation and amortization       862,780       885,013       1,721,146       1,752,970  
Impairment and restaurant closure expense       6,197       214,778       11,418       237,231  
Loss on involuntary disposals             15,028             7,797  
Loss on sale of property and equipment       9,663       36,934       13,378       73,696  
        17,206,469       18,619,849       34,669,158       37,382,092  
                     
Operating income (loss)       (167,551 )     (282,048 )     (653,253 )     107,554  
                     
Other income (expense):                    
Interest income       563       883       12,346       1,863  
Interest expense       (44,599 )     (42,918 )     (106,368 )     (105,111 )
Other, net       5,945       9,601       24,513       20,102  
        (38,091 )     (32,434 )     (69,509 )     ( 83,146 )
                     
Income (loss) from continuing operations before income taxes       (205,642 )     (314,482 )     (722,762 )     24,408  
Income tax (expense) benefit       103,118       62,825       324,808       (2,983 )
Income (loss) from continuing operations       (102,524 )     (251,657 )     (397,954 )     21,425  
                     
Discontinued Operations:                    
Income (loss) from discontinued operations             (39,436 )           36,021  
Restaurant closure expense             (369 )     (181,543 )     (190,941 )
Gain on sale of assets             387,083             386,502  
Income (loss) from discontinued operations before income taxes           347,278       (181,543 )     231,582  
Income tax (expense) benefit             (303,558 )     77,827       (281,090 )
Income (loss) from discontinued operations             43,720       (103,716 )     (49,508 )
                     
Net loss     $ (102,524 )   $ (207,937 )   $ (501,670 )   $ (28,083 )
                     
Basic income (loss) per common share                    
Income (loss) from continuing operations     $ (0.03 )   $ ( 0.07 )   $ (0.12 )   $ 0.01  
Income (loss) from discontinued operations             0.01       (0.03 )     (0.02 )
Net loss     $ (0.03 )   $ (0.06 )   $ (0.15 )   $ (0.01 )
                     
Diluted income (loss) per common share                    
Income (loss) from continuing operations     $ (0.03 )   $ (0.07 )   $ (0.12 )   $ 0.01  
Income (loss) from discontinued operations             0.01       (0.03 )     (0.02 )
Net loss     $ (0.03 )   $ (0.06 )   $ (0.15 )   $ (0.01 )
                     
Weighted average number of common shares (basic)       3,423,148       3,284,641       3,366,388       3,271,358  
                     
Weighted average number of common shares (diluted)       3,423,148       3,284,641       3,366,388       3,272,981