Mexican Restaurants, Inc.

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International Guild of Hospitality & Restaurant Managers

Mexican Restaurants, Inc., incorporated in February 1996 and formerly Casa Ole Restaurants, Inc., operates and franchises Mexican-theme restaurants under the names Casa Ole, Monterey's Tex-Mex Cafe, Monterey's Little Mexico, Tortuga Coastal Cantina and La Senorita. The Casa Ole, Monterey, Tortuga and La Senorita concepts have been in business for 30, 47, eight and 23 years, respectively. At December 30, 2001, the Company had 50 Company-operated restaurants, 33 franchise restaurants and one license restaurant. As of such date, Mexican Restaurants operated and franchised Casa Ole restaurants in the States of Texas and Louisiana, operated Monterey's Tex-Mex Cafe restaurants in the State of Oklahoma, operated and franchised Monterey's Little Mexico restaurants in the States of Texas, operated Tortuga Coastal Cantina restaurants in the State of Texas and also operated and franchised La Senorita restaurants in the State of Michigan. The Company previously operated three restaurants in Idaho, but closed those restaurants on December 30, 2001.

The Idaho restaurant leased premises have subsequently been subleased. The Casa Ole, Monterey and La Senorita restaurants are designed to appeal to a broad range of customers, and are located primarily in small and medium-sized communities and middle-income areas of larger markets. The Tortuga Coastal Cantina restaurants also appeal to a broad range of customers and are primarily located in Houston suburban markets.

The Company's restaurants offer products with a distinctive, yet mild taste profile with mainstream appeal. Fresh ingredients are a critical recipe component, and the majority of menu items are prepared daily in the kitchen of each restaurant from original recipes. The menus feature a wide variety of entrees, including enchiladas, combination platters, burritos, fajitas, coastal seafood and other house specialties. The menu also includes soup, salads, appetizers and desserts. From time to time, Mexican Restaurants also introduces new dishes designed to keep the menus fresh. Alcoholic beverages are served as a complement to meals and represent a range of less than 5% of sales at its more family oriented locations, and up to 20% in its more casual dining locations.

Mexican Restaurants emphasizes an attractive interior and exterior design for each of its restaurants. The typical restaurant has a Mexican exterior. The interior decor is comfortable Mexican in appearance to reinforce the perceived value of the dining experience. Stucco, tile floors, carpets, plants and a variety of paint colors are integral features of each restaurant's decor. These decor features are incorporated in a floor plan designed to provide a comfortable atmosphere. The Company's restaurant designs are sufficiently flexible to accommodate a variety of available sites and development opportunities, such as malls, end-caps of strip shopping centers and freestanding buildings, including conversions. The restaurant facility is also designed to serve a high volume of customers in a relatively limited period of time. The Company's restaurants typically range in size from approximately 4,000 to 5,600 square feet, with an average of approximately 4,500 square feet and a seating capacity of approximately 180.

The Company has 15 franchisees operating a total of 33 restaurants and one licensee operating one restaurant. No new franchise restaurants were opened, one Casa Ole franchise restaurant was acquired by Mexican Restaurants, one La Senorita franchise location was closed and one Monterey's Little Mexico was licensed during fiscal year 2001. It is expected that one additional franchise La Senorita will close in fiscal 2002. Franchising allows the Company to expand the number of stores and penetrate markets more quickly and with less capital than developing Company-owned stores. Franchisees are selected on the basis of various factors, including business background, experience and financial resources.

Mexican Restaurants' primary source of revenues is the sale of food and beverages at Company-owned restaurants. The Company also derives revenues from franchise fees, royalties and other franchise-related activities. Franchise fee revenue from an individual franchise sale is recognized when all services relating to the sale have been performed and the restaurant has commenced operation. Initial franchise fees relating to area franchise sales are recognized ratably in proportion to services that are required to be performed pursuant to the area franchise or development agreements and proportionately as the restaurants within the area are opened.

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