For the third quarter ended October 1, 2006, Mexican Restaurants, Inc. (Nasdaq:CASA) reported net income of $375,389 or $0.10 per diluted share, compared with third quarter 2005 net income of $31,195 or $0.01 per diluted share. For the 39-week period ended October 1, 2006, the Company reported net income of $2,147,803 or $0.59 per diluted share, compared with net income of $1,208,516 or $0.32 per diluted share for the 39-week period of fiscal 2005.

During the third quarter of fiscal 2005, the Company estimates that it lost $1.0 million in revenues due to the impact of Hurricane Rita. Therefore, quarterly comparisons of same-store sales for the third quarter of fiscal 2006 required the use of actual 2005 sales up to September 22 and estimates for the final two weeks based on fiscal year 2004. The Company's revenues for the third quarter of fiscal 2006 increased $1.3 million or 6.3% to $21.0 million compared with $19.8 million for the same quarter in fiscal 2005. Restaurant sales for third quarter 2006 increased $1.2 million or 6.3% to $20.8 million compared with $19.6 million for the third quarter of fiscal 2005. The increase in revenue reflects net new restaurant additions less a decline in same restaurant sales. For the third quarter ended October 1, 2006, total system same-restaurant sales decreased approximately 0.8%, Company-owned same-restaurant sales decreased approximately 0.9% and franchised-owned same restaurant sales decreased approximately 0.4%.

On a year-to-date basis, the Company's revenue was up $4.1 million or 6.8% to $64.4 million compared with $60.3 million for the same 39-week period in fiscal 2005. Restaurant sales for the 39-week period ended October 1, 2006 increased $3.9 million or 6.6% to $63.7 million compared with $59.8 million for the same 39-week period of fiscal 2005. Approximately $2.1 million of the increase in restaurant sales reflects new restaurant additions, with the remainder of the increase reflecting positive same-restaurant sales growth. For the 39-week period ended October 1, 2006, total system same-restaurant sales increased approximately 0.9%, Company-owned same-restaurant sales increased approximately 1.7% and franchised-owned same-restaurant sales decreased approximately 1.9%.

Commenting on the Company's third quarter results for fiscal 2006, Curt Glowacki, Chief Executive Officer, stated, ?Despite solid fundamentals and continued improvements in service and value propositions, this has been a quarter with many challenges. Sales momentum slowed due to shrinking consumer discretionary spending, while profit margins were impacted by rising utility costs and higher insurance premiums due to Hurricane Rita. Notwithstanding, we are confident about our future with the acquisition of Mission Burritos, a new fast casual concept; and our cost control measures should insulate us from continued volatility in the marketplace.?

Mexican Restaurants, Inc. operates and franchises 82 Mexican restaurants. The current system includes 63 Company-operated restaurants, 18 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 and discretionary spending habits; the risk of food-borne illness; 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 recently filed 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 Income
(Unaudited)
 
13-Week 13-Week 39-Week 39-Week
Period Ended Period Ended Period Ended Period Ended
10/01/2006  10/02/2005  10/01/2006  10/02/2005 
Revenues:
Restaurant sales $20,832,658  $19,593,256  $63,733,466  $59,784,137 
Franchise fees, royalties and other 195,503  179,382  629,116  532,456 
Business interruption -  -  59,621  - 
21,028,161  19,772,638  64,422,203  60,316,593 
 
Costs and expenses:
Cost of sales 5,760,865  5,408,112  17,598,055  16,508,511 
Labor 6,920,514  6,562,936  20,770,774  19,776,820 
Restaurant operating expenses 5,174,645  4,779,591  15,043,981  13,935,315 
General and administrative 1,703,966  1,671,393  5,403,634  5,177,406 
Depreciation and amortization 830,417  704,492  2,375,155  2,050,882 
Pre-opening costs -  16,050  64,248  55,875 
Restaurant closure costs 17,458  -  95,589  - 
Hurricane Rita (gain) loss -  274,328  (366,808) 274,328 
(Gain) loss on sale of assets 7,729  158,868  (486) 292,261 
20,415,594  19,575,770  60,984,142  58,071,398 
       
Operating income 612,567  196,868  3,438,061  2,245,195 
 
Other income (expense):
Interest income 4,349  1,557  5,609  2,821 
Interest expense (109,230) (136,437) (308,222) (423,152)
Other, net 21,244  31,320  68,686  90,429 
(83,637) (103,560) (233,927) (329,902)
 
Income from continuing operations before income taxes 528,930  93,308  3,204,134  1,915,293 
Income tax expense 153,541  25,011  1,056,331  614,768 
Income from continuing operations 375,389  68,297  2,147,803  1,300,525 
 
Discontinued Operations:
Loss from discontinued operations -  (58,765) -  (146,035)
Loss on sale of assets -  (210) -  (210)
Loss from discontinued operations before income taxes -  (58,975) -  (146,245)
Income tax benefit -  21,873  -  54,236 
Loss from discontinued operations -  (37,102) -  (92,009)
 
Net income $375,389  $31,195  $2,147,803  $1,208,516 
 
Basic income per share
Income from continuing operations $0.11  $0.02  $0.63  $0.38 
Loss from discontinued operations -  (0.01) -  (0.03)
Net income $0.11  $0.01  $0.63  $0.35 
 
Diluted income per share
Income from continuing operations $0.10  $0.02  $0.59  $0.34 
Loss from discontinued operations -  (0.01) -  (0.02)
Net income $0.10  $0.01  $0.59  $0.32 
 
Weighted average number of shares (basic) 3,400,944  3,435,787  3,386,965  3,422,807 
 
Weighted average number of shares (diluted) 3,633,868  3,709,391  3,647,249  3,719,217