RUBIOS RESTAURANTS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 29, 2002

OR

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

Commission File Number: 000-26125

RUBIO’S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization) 33-0100303
(I.R.S. Employer Identification Number)

1902 WRIGHT PLACE, SUITE 300, CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive Offices)

(760) 929-8226
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1) Yes [X] No [ ]

(2) Yes [X] No [ ]

As of October 31, 2002 there were 9,052,358 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
		CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT 99.1

RUBIO’S RESTAURANTS, INC.

TABLE OF CONTENTS

Page

PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

Consolidated Balance Sheets at September 29, 2002 (unaudited) and December 30, 2001
3

Consolidated Statements of Operations (unaudited) for the thirteen weeks ended September 29, 2002 and September 30, 2001 and the thirty-nine weeks ended September 29, 2002 and September 30, 2001
4

Consolidated Statements of Cash Flows (unaudited) for the thirty-nine weeks ended September 29, 2002 and September 30, 2001
5

Notes to Consolidated Financial Statements (unaudited)
6

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
12

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27

Item 4.
Controls and Procedures
27

PART II.
OTHER INFORMATION

Item 1.
Legal Proceedings
28

Item 2.
Changes in Securities and Use of Proceeds
28

Item 3.
Defaults Upon Senior Securities
28

Item 4.
Submission of Matters to a Vote of Security Holders
28

Item 5.
Other Information
28

Item 6.
Exhibits and Reports on Form 8-K
28

Signatures
30

PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

RUBIO’S RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


					September 29,			December 30,
					2002			2001

					(unaudited)			(see Note)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents				$	11,420		$	4,710
	Short-term investments					1,292			1,302
	Income taxes receivable					—			798
	Other receivables					645			673
	Inventory					1,429			1,453
	Prepaid expenses					838			736

		Total current assets				15,624			9,672
INVESTMENTS						—			367
PROPERTY — NET						34,662			35,911
OTHER ASSETS						288			353
DEFERRED INCOME TAXES						2,831			4,346

TOTAL					$	53,405		$	50,649

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable				$	2,720		$	3,005
	Accrued expenses and other liabilities					4,278			3,634
	Store closure reserve					872			1,496
	Line of credit					1,000			1,000
	Income taxes payable					529			—
	Deferred income taxes					213			214

		Total current liabilities				9,612			9,349
STORE CLOSURE RESERVE						1,707			2,981
DEFERRED RENT						1,878			1,608
DEFERRED INCOME						36			—
DEFERRED FRANCHISE REVENUE						56			87

			Total liabilities			13,289			14,025

COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS’ EQUITY:
	Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued or outstanding					—			—
	Common stock, $.001 par value, 75,000,000 shares authorized, 9,052,258 issued and outstanding in 2002, and 8,922,786 issued and outstanding in 2001					9			9
	Paid-in capital					41,819			41,441
	Deferred compensation					459			217
	Accumulated other comprehensive income					7			6
	Accumulated deficit					(2,178	)		(5,049	)

				Total stockholders’ equity		40,116			36,624

TOTAL					$	53,405		$	50,649

Note: The balance sheet as of December 30, 2001 is derived from audited consolidated financial statements and is in accordance with accounting principles generally accepted in the United States of America. Entire notes for the audited period are not included in this report.

See notes to consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(In thousands, except per share data)


			13 Weeks Ended						39 Weeks Ended

			September 29, 2002			September 30, 2001			September 29, 2002			September 30, 2001

REVENUE:
	Restaurant sales		$	30,730		$	29,998		$	91,180		$	85,377
	Franchise and licensing revenue			69			39			198			150

TOTAL REVENUE				30,799			30,037			91,378			85,527

COSTS AND EXPENSES:
	Cost of sales			8,214			8,345			24,793			23,702
	Restaurant labor, occupancy and other			17,194			16,502			50,675			47,728
	General and administrative expenses			2,281			2,554			7,470			7,772
	Depreciation and amortization			1,288			1,362			3,887			3,890
	Pre-opening expenses			21			112			114			346
	Asset impairment and store closure expense (reversal)			(523	)		6,310			(523	)		6,310
	Net loss on disposal/sale of property			122			6			161			6

TOTAL COSTS AND EXPENSES				28,597			35,191			86,577			89,754

OPERATING INCOME (LOSS)				2,202			(5,154	)		4,801			(4,227	)

OTHER (EXPENSE) INCOME:
	Interest and investment income			24			58			80			246
	Interest expense			(32	)		(33	)		(96	)		(75	)

		OTHER (EXPENSE) INCOME —NET		(8	)		25			(16	)		171

INCOME (LOSS) BEFORE INCOME TAXES				2,194			(5,129	)		4,785			(4,056	)
INCOME TAX EXPENSE (BENEFIT)				878			(2,052	)		1,914			(1,622	)

NET INCOME (LOSS)			$	1,316		$	(3,077	)	$	2,871		$	(2,434	)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS:
	Basic		$	1,316		$	(3,077	)	$	2,871		$	(2,434	)

	Diluted		$	1,316		$	(3,077	)	$	2,871		$	(2,434	)

NET INCOME (LOSS) PER SHARE:
	Basic		$	0.15		$	(0.34	)	$	0.32		$	(0.27	)

	Diluted		$	0.14		$	(0.34	)	$	0.31		$	(0.27	)

SHARES USED IN CALCULATING NET INCOME (LOSS) PER SHARE:
	Basic			9,049			8,923			9,005			8,919

	Diluted			9,177			8,923			9,143			8,919

See notes to consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)


					39 Weeks Ended

					September 29, 2002			September 30, 2001

OPERATING ACTIVITIES:
	Net income (loss)				$	2,871		$	(2,434	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				3,887			3,890
		Deferred compensation				242			37
		Asset impairment and store closure expense (reversal)				(523	)		6,310
		Net loss on disposal/sale of property				161			6
		Changes in assets and liabilities:
			Income taxes receivable/payable			1,327			1,153
			Other receivables			28			144
			Inventory			24			424
			Prepaid expenses			(102	)		(311	)
			Other assets			65			62
			Deferred income taxes			1,514			(2,520	)
			Accounts payable			(285	)		(1,683	)
			Accrued expenses and other liabilities			644			783
			Store closure reserve			(1,375	)		—
			Deferred rent			270			221
			Deferred income			36			—
			Deferred franchise revenue			(31	)		(34	)

				Cash provided by operating activities		8,753			6,048

INVESTING ACTIVITIES:
	Purchases of property					(3,110	)		(7,855	)
	Proceeds from sales of property					311			644
	Purchases of investments					(2,102	)		(12,514	)
	Sales and maturities of investments					2,480			15,852

				Cash used in investing activities		(2,421	)		(3,873	)

FINANCING ACTIVITIES:
	Proceeds from exercise of common stock options					378			46
	Proceeds from borrowings on line of credit					—			1,000

				Cash provided by financing activities		378			1,046

INCREASE IN CASH AND CASH EQUIVALENTS						6,710			3,221
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD						4,710			1,311

CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	11,420		$	4,532

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid for interest				$	85		$	—
	Net income taxes (received) paid				$	(929	)	$	45

See notes to consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

1. BASIS OF PRESENTATION

The accompanying consolidated financial information has been prepared by Rubio’s Restaurants, Inc. and its wholly-owned subsidiary, Rubio’s Restaurants of Nevada, Inc. (collectively, the “Company”) without audit, in accordance with the instructions to Form 10-Q and therefore does not include all information and notes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America.

UNAUDITED INTERIM FINANCIAL DATA — In the opinion of management, the unaudited consolidated financial statements for the interim periods presented reflect all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the financial position and results of operations as of and for such periods indicated. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended December 30, 2001 included in the Company’s annual report on Form 10-K and the review of our more critical accounting policies identified under the caption “Critical Accounting Policies” in that report. Results for the interim periods presented in this report are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal year.

2. ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE — The Company periodically assesses its ability to recover the carrying value of its long-lived assets. If the Company concludes that the carrying value will not be recovered based on expected future cash flows, an impairment write-down is recorded to reduce the asset to its estimated fair value. Impairment is reviewed at the lowest levels for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. In the Company’s circumstances, such analysis is performed on an individual restaurant basis. For assets to be held and used, the impairment charge is the difference between the carrying value and the estimated fair value of the assets. For assets to be disposed of, the impairment charge is the difference between the carrying value and the fair value less cost to sell.

The Company makes decisions to close stores based on their cash flows and anticipated future profitability. The Company records losses associated with the closure of restaurants in the same quarter that the decision to close these restaurants is made. These store closure charges primarily represent a liability for the future lease obligations after the expected closure dates, net of estimated sublease income, if any.

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

2. ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE (continued)

Asset impairment and store closure expenses are estimates that the Company has recorded based on reasonable assumptions related to these restaurant locations at a point in time. The conditions regarding these locations may change in the future and could be materially affected by factors such as the Company’s ability to maintain or improve sales levels, the Company’s ability to secure subleases, the Company’s success at negotiating early termination agreements with lessors, the general health of the economy and resultant demand for commercial property. Amounts recorded may not be sufficient and adjustments may be necessary.

During the second half of fiscal year 2001, the Company recorded a $6.6 million charge related to the impairment of a select number of under-performing restaurants. Additionally, the Company recorded a $4.8 million charge related to store closures, consisting primarily of future lease obligations on these closed stores (net of estimated sublease income, if any), severance and other related charges, when management committed to its store closure plan during the fourth quarter of 2001. Total charges recorded in fiscal year 2001 related to impairment and store closures were $11.4 million.

The changes in the store closure reserve during the 39 weeks ended September 29, 2002 were as follows (in thousands):


		Reserve Balance at			Store Closure						Reserve Balance at
		December 30,			Expense (Reversal)			Usage			September 29,
		2001			— Net			— Net			2002

Reserve for stores closed in 2001		$	2,800		$	(678	)	$	(1,139	)	$	983
Reserve for stores closed in 2002 and to be closed			1,150			(36	)		(24	)		1,090
Severance and other costs			527			191			(212	)		506

	Total store closure reserve		4,477		$	(523	)	$	(1,375	)		2,579

	Less: current portion		(1,496	)								(872	)

	Non-current	$	2,981								$	1,707

In addition, the Company previously decided to pursue a franchising effort on 13 selected Company-owned locations in certain regions. On April 15, 2002, the Company completed the sale of four of its Company-owned stores in the Las Vegas, Nevada market to a franchisee. There was no gain or loss on the sale of the stores as they had been written down to their estimated fair value less costs to sell as part of the 2001 fiscal year impairment write-down. Although the leases for those locations were assigned as part of the franchise arrangements, the Company remains contingently liable under those leases. The Company is also continuing to market its stores in Salt Lake City, Utah, Denver, Colorado and Tucson, Arizona for sale to qualified franchisees. During the 39 weeks ended

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

September 29, 2002, the Company reversed a net $523,000 of this reserve based primarily on the lease terminations and subleases that were more favorable than the original estimates.

3. BALANCE SHEET DETAILS as of September 29, 2002 and December 30, 2001, respectively (in thousands):


		2002			2001

OTHER RECEIVABLES:
	Tenant improvement receivables	$	210		$	274
	Other		435			399

Total		$	645		$	673

INVESTMENTS:
	Corporate bonds	$	1,122		$	505
	Municipal bonds		170			173
	Tax-free municipals		—			900
	Mortgage and asset-backed securities		—			91

			1,292			1,669
	Less: current portion		(1,292	)		(1,302	)

Non-current		$	—		$	367

PROPERTY — at cost:
	Building and leasehold improvements	$	27,890		$	26,643
	Equipment and furniture		24,330			23,586
	Construction in process and related costs		930			885

			53,150			51,114
	Less: accumulated depreciation and amortization		(18,488	)		(15,203	)

Total		$	34,662		$	35,911

ACCRUED EXPENSES AND OTHER LIABILITIES:
	Compensation	$	2,032		$	1,178
	Sales taxes		957			807
	Vacation pay		487			585
	Workers’ compensation		609			293
	Other		193			771

Total		$	4,278		$	3,634

4. CREDIT FACILITIES

REVOLVING LINE OF CREDIT — As of September 29, 2002 and December 30, 2001, the Company had available $10.4 million of a $12 million revolving line of credit with a maturity date of July 2004. The credit line bears interest based on certain leverage ratios and ranges from the lower of a bank reference rate plus 1% – 2%, or an adjusted London Interbank Offered Rate plus 2.5% – 3.5% per annum (4.32% as of September 29, 2002). The Company pays a commitment fee on the unused portion of the line of credit. As of September 29, 2002 and December 30, 2001, the Company had direct borrowings of $1.0 million on the line of credit and

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

$0.6 million was reserved as security for a standby letter of credit, related to the Company’s workers’ compensation insurance policy, that matured in October 2002. The Company renewed this letter of credit through October 2003, and increased the portion of the line of credit reserved as security for the standby letter of credit to $1.0 million. This $0.4 million increase is for the second year of our large-deductible workers’ compensation policy. This amount is 25% lower than the first year because of our improving trend in claims management. The Company does not anticipate significant additional direct borrowings under the line of credit in the near future.

The credit facility contains various covenants, with which the Company was in compliance at September 29, 2002, including a minimum EBITDA, fixed charge coverage ratio, minimum interest coverage ratio, maximum spending against the store closure reserve and maximum total leverage ratio, and places restrictions on fixed asset purchases. The revolving line of credit restricts the payment of cash dividends and other stock redemptions or repurchases. The Company’s assets collateralize borrowings under the revolving line of credit.

5. COMMITMENTS AND CONTINGENCIES

LITIGATION — On June 28, 2001, a class action complaint was filed against the Company in Orange County, California Superior Court by a former employee, who worked in the position of general manager. A second similar class action complaint was filed in Orange County, California Superior Court on December 21, 2001, on behalf of another former employee who worked in the positions of general manager and assistant manager. The Company classifies both positions as exempt. The former employees each purport to represent a class of former and current employees who are allegedly similarly situated. These cases currently involve the issue of whether employees and former employees in the general and assistant manager positions who worked in the California restaurants during specified time periods were misclassified as exempt and deprived of overtime pay. In addition to unpaid overtime, these cases seek to recover waiting time penalties, interest, attorneys’ fees, and other types of relief on behalf of the current and former employees that these former employees purport to represent.

The Company believes these cases are without merit and intends to vigorously defend against the related claims. These cases are in the early stages of discovery and the status of the class action certification is yet to be determined for both suits. The two cases have been consolidated into one action. The court granted a motion to disqualify the Company’s counsel. The proceeding has been stayed pending appeal of that disqualification. The Company continues to evaluate results in similar proceedings and to consult with advisors with specialized expertise. The Company is presently unable to predict the probable outcome of this matter or the amounts of any potential damages at issue.

On October 2, 2002, La Salsa, Inc. by correspondence requested that the Company immediately stop all use of the phrase “FRESH MEXICAN GRILL,” which La Salsa, Inc. contends is its service mark. The Company takes the position that La Salsa, Inc. has no enforceable right against the Company to the phrase “Fresh Mexican Grill” under U.S. trademark law. In fact, the United States Patent and Trademark Office (USPTO) has to date rejected La Salsa’s efforts to register the phrase “Fresh Mexican Grill” as a service mark on the principal register at the USPTO, instead concluding that the term is either descriptive, generic, or both. La Salsa, Inc. to date has not filed a lawsuit against the Company. The Company, if necessary, will vigorously defend its right to use the term “Fresh Mexican Grill.”

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The Company is unaware of any other litigation or claim that could have a material adverse effect on the Company’s results of operations, financial position or business.

6. EARNINGS PER SHARE

A reconciliation of basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” is as follows (in thousands, except per share data):


				13 Weeks Ended					39 Weeks Ended

				September 29, 2002		September 30, 2001			September 29, 2002		September 30, 2001

Numerator
	Basic:
		Net income (loss) attributable to common stockholders		$	1,316	$	(3,077	)	$	2,871	$	(2,434	)

	Diluted:
		Net income (loss) attributable to common stockholders		$	1,316	$	(3,077	)	$	2,871	$	(2,434	)

Denominator
	Basic:
		Weighted average common shares outstanding			9,049		8,923			9,005		8,919
	Diluted:
		Effect of dilutive securities:
			Common stock options		128		—			138		—

			Total weighted average common and potential common shares outstanding		9,177		8,923			9,143		8,919

Earnings (loss) per share:
	Basic			$	0.15	$	(0.34	)	$	0.32	$	(0.27	)

	Diluted			$	0.14	$	(0.34	)	$	0.31	$	(0.27	)

RUBIO’S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

7. STOCKHOLDERS’ EQUITY

In September 2002, the Company granted options to purchase 300,000 shares of the Company’s common stock to its new President and Chief Operating Officer, pursuant and subject to the Company’s 1999 Stock Incentive Plan.

8. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost, as defined in EITF Issue No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Company will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002. The provisions of SFAS No. 146 will have no effect on the Company’s treatment of the store closure expense that was recorded in fiscal year 2001.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q may contain predictions, projections, estimates and other forward-looking statements that involve a number of risks and uncertainties, including without limitation, those discussed below under “Risk Factors.” While this outlook represents our current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested below. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. The cautionary statements made in this discussion and analysis should be read as applying to all related forward-looking statements wherever they appear in this Form 10-Q.

OVERVIEW

We opened our first restaurant under the name “Rubio’s, Home of the Fish Taco” in 1983. We position our restaurants in the high-quality, quick-service Mexican food segment of the restaurant industry. Our business strategy is to become the leading brand in this industry segment nationwide.

Rubio’s Restaurants, Inc. was incorporated in California in 1985 and reincorporated in Delaware in 1997. In May 1999, we completed our initial public offering. Our current expansion plan calls for us to open eight Company-owned restaurants in fiscal year 2002. We opened five stores during the first quarter of 2002, and have opened two additional stores since September 29, 2002. Another store is scheduled to open during the fourth quarter of 2002. We also closed one underperforming store in Arizona on February 8, 2002 and two stores in California on August 25, 2002 and on October 13, 2002, respectively. We plan to close one additional store in June 2003. These closures were all part of our store closure plan announced at the end of 2001. In late 2000 we started a franchise program and entered into agreements with two franchisee groups in early 2001. These two agreements represent commitments to open 14 units, of which three units were open as of October 31, 2002. On April 15, 2002, we completed the sale of four Company-owned stores in the Las Vegas, Nevada market to a new franchisee. We also decided to continue pursuing several franchise groups in an effort to sell the remaining Company-owned locations in Colorado and Utah and Tucson, Arizona. We are focusing our efforts on building our presence in our core markets in California and Arizona. During 2002 and continuing into 2003, we are repositioning our concept, including an upgrade to our menu offerings and salsa bar, new interior and exterior signage and a change of our trade name from “Rubio’s Baja Grill” to “Rubio’s Fresh Mexican Grill.” We have developed a new store design that we used for the two stores opened in October 2002. After refinement, this design will be the base design for future store openings.

As a result of our expansion and repositioning efforts, period-to-period comparisons of our financial results may be less meaningful. When a new unit opens, it will typically incur higher than normal levels of food and labor costs until new personnel gain experience. Hourly labor schedules are gradually adjusted downward during the first three months of a restaurant opening, in order to reach operating efficiencies similar to those at established units. We introduce a restaurant into our comparable restaurant base calculation only when it has been in operation for 15 calendar months. During the upgrade of units to the repositioned concept, labor costs temporarily increase and food costs expected to increase as we offer larger portions of our higher quality products and upgraded packaging, which are more representative of our quick-casual positioning .

Revenues are constituted of gross restaurant sales, less coupons and other discounts, and franchise and licensing revenue. Cost of sales is composed of food, beverage, and paper supply expense. Components of restaurant labor, occupancy and other expenses include direct hourly and management wages, bonuses, fringe benefit costs, rent and other occupancy costs, advertising and promotion, operating supplies, utilities, maintenance and repairs, and other operating expenses.

General and administrative expenses include all corporate and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components of this category include management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, professional and consulting fees and franchise expense.

Pre-opening expenses, which are expensed as incurred, consist of the costs of hiring and training the initial workforce, travel, the cost of food used in training, the cost of the initial stocking of operating supplies and other direct costs related to opening a new restaurant.

On June 14, 2002, we entered into a one-year consulting agreement with Jack Goodall, a non-employee member of our Board of Directors. Under the consulting agreement, Mr. Goodall advises and consults with our Chief Executive Officer on various issues including marketing review, real estate review and other strategic corporate initiatives as identified by our Board of Directors. In consideration for his services and in lieu of cash compensation, Mr. Goodall received a non-statutory stock option to purchase an aggregate of 50,000 registered shares of our common stock pursuant to our 1999 Stock Incentive Plan. The option is fully vested and immediately exercisable and expires on June 14, 2004. The Board of Directors, with Mr. Goodall recusing himself, approved the consulting agreement and the option.

On September 9, 2002, the Company named Sheri Miksa as its new President and Chief Operating Officer. Ralph Rubio retains his role as Chief Executive Officer and Chairman of the Board of Directors. Ms. Miksa’s employment agreement with the Company, a copy of which is attached hereto as Exhibit 10.1, provides for, among other things: (i) an annual base salary of $300,000; (ii) for calendar year 2002, a prorated bonus of up to 50% of her base salary if pretax income equals budget in accordance with the Company’s Fiscal 2002 Executive Bonus Plan, and 7.5% of pretax income above budget for 2002 in accordance with the terms of such bonus plan for 2002; (iii) options to purchase 300,000 registered shares of the Company’s common stock in accordance with the Company’s 1999 Stock Option Plan (the options vest at 20% at the end of the first year and each month thereafter for 48 months, unless there is a change in control of the Company in which case 50% of all then unvested options will become fully vested immediately and the remaining unvested options will become fully vested if Ms. Miksa is actually or constructively terminated within 12 months of the change of control); (iv) a one-time $100,000 payment to be used for Ms. Miksa’s relocation expenses; (v) a car allowance of $750 per month plus $0.15 per mile (exclusive of commuter mileage); and (vi) severance benefits including six months salary if terminated without cause prior to a change of control of the Company and 12 months salary if terminated without cause after a change of control of the Company. The employment arrangement between Ms. Miksa and the Company is not for a specific term and can be terminated by Ms. Miksa or the Company at any time and for any reason, with or without cause or advanced notice.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that can have a material impact on a company’s

financial condition and results. Critical accounting policies are those that are most important to the portrayal of a company’s financial condition and results, and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. A summary of our critical accounting policies is set forth in our annual report on Form 10-K for the fiscal year ended December 30, 2001 under the caption “Critical Accounting Policies.”

RESULTS OF OPERATIONS

All comparisons under this heading between 2002 and 2001 refer to the 13-week period ended September 29, 2002 and the 13-week period ended September 30, 2001, respectively, unless otherwise indicated.

Our operating results, expressed as a percentage of revenue, were as follows:


		13 Weeks Ended

		September 29, 2002			September 30, 2001

Revenue(1)			100.0	%		100.0	%
Costs and expenses:
	Cost of sales		26.7			27.8
	Restaurant labor, occupancy and other		55.8			54.9
	General and administrative expenses(2)		7.4			8.5
	Depreciation and amortization		4.2			4.5
	Pre-opening expenses		0.1			0.4
	Asset impairment and store closure expense (reversal)		(1.7	)		21.0
	Net loss on disposal/sale of property		0.4			—

Operating income (loss)			7.1			(17.1	)
Other (expense) income:
	Interest income, net		—			0.1

Income (loss) before income taxes			7.1			(17.0	)
Income tax expense (benefit)			2.8			(6.8	)

Net income (loss)			4.3	%		(10.2	)%

(1) Includes $69,000 and $39,000 in franchise and licensing revenue for the 13 weeks ended September 29, 2002 and September 30, 2001, respectively.

(2) Includes $94,000 and $78,000 in franchise expense for the 13 weeks ended September 29, 2002 and September 30, 2001, respectively.

13 WEEKS ENDED SEPTEMBER 29, 2002 COMPARED TO THE 13 WEEKS ENDED SEPTEMBER 30, 2001

Results of operations reflect 13 weeks of operations for 133 restaurants and a partial period of operations for one restaurant for the 13 weeks ended September 29, 2002. Results of operations also reflect 13 weeks of operations for 135 restaurants and a partial period of operations for five restaurants for the 13 weeks ended September 30, 2001.

REVENUE. Revenue increased $0.8 million or 2.5%, to $30.8 million for the 13 weeks ended September 29, 2002 from $30.0 million for the 13 weeks ended September 30, 2001. The increase in 2002 was primarily due to sales of $1.2 million from our five 2002 store openings, a $1.4 million increase in sales generated by a full quarter of operations from units opened in 2001 that were not yet in our comparable unit base, an increase in comparable store sales of $0.3 million or 1.2%, a $0.1 million increase in franchising and licensing revenue, offset by a decrease of $1.5 million in sales at the 13 stores that have been closed and $0.7

million for the four stores sold to a franchisee. Units enter the comparable store base after 15 full months of operation. The increase in comparable store sales was primarily due to a 1.1% increase in transactions and a 0.1% increase in average check. The increase in comparable store sales is due primarily to the success of the $0.99 fish taco promotion followed by the fajitas promotion in San Diego, Los Angeles and Orange Counties in California.

COST OF SALES. Cost of sales as a percentage of revenue decreased to 26.7% in the 13 weeks ended September 29, 2002 from 27.8% in the 13 weeks ended September 30, 2001. The (1.1%) decrease was primarily due to the elimination of certain retail discount programs (0.4%) and lower commodity prices (1.1%), specifically cheese, and enhanced operational controls (0.1%), partially offset by food and paper cost increases associated with our concept repositioning (0.5%).

RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy, and other increased as a percentage of revenue to 55.8% for the 13 weeks ended September 29, 2002 from 54.9% in the 13 weeks ended September 30, 2001. The increase as a percentage of revenue is due in part to a 0.7% increase in menu upgrade and concept repositioning costs, a 0.7% increase in occupancy costs, a 0.6% increase in advertising, and a 0.3% increase in repairs and maintenance. Such increases were offset by a decrease in total direct and related labor costs of approximately 1.4%. These labor decreases were primarily due to the closure of under-performing stores, combined with improved operational efficiencies.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $2.3 million for the 13 weeks ended September 29, 2002 decreased from $2.6 million for the 13 weeks ended September 30, 2001 due primarily to a reduction in corporate wages and lower management training expense. As a percentage of revenue, general and administrative expenses decreased to 7.4% for the 13 weeks ended September 29, 2002 from 8.5% for the 13 weeks ended September 30, 2001. The decrease as a percentage of sales was primarily due to the leveraging of our expanding revenue base.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses of $1.3 million in the 13 weeks ended September 29, 2002 were essentially flat to $1.4 million in the 13 weeks ended September 30, 2001. As a percentage of revenue, depreciation and amortization decreased to 4.2% for the 13 weeks ended September 29, 2002 from 4.5% for the 13 weeks ended September 30, 2001.

PRE-OPENING EXPENSES. Pre-opening expenses decreased to $21,000 for the 13 weeks ended September 29, 2002 from $112,000 for the 13 weeks ended September 30, 2001. The decrease was due to no new stores opening during the 13 weeks ended 29, 2002, compared to five stores opening in the 13 weeks ended September 30, 2001. The $21,000 in the third quarter of 2002 relates to two new stores opened in October 2002.

ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE (REVERSAL). In the third quarter of 2001, we recorded a $6.3 million charge related to the impairment of a select number of under-performing restaurants as required under Statement of Financial Accounting Standard No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” In the third quarter of 2002, we have reversed a net $0.5 million of store closure expenses based on negotiating more favorable lease termination and sublease agreements than were estimated in 2001.

INTEREST INCOME, NET. Net interest income (expense) fluctuated to $(8,000) for the 13 weeks ended September 29, 2002 from $25,000 in net interest income for the 13 weeks ended September 30, 2001, primarily due to declining interest rates paid on our investments.

INCOME TAXES. The provision for income taxes for the 13 weeks ended September 29, 2002 and 13 weeks ended September 30, 2001 is based on the approximate annual effective tax rate of 40% applied to the respective period’s pretax book income (loss). The 40% tax rate applied to the 13 weeks ended September 29, 2002 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $2,194,000. The 40% tax benefit applied to the 13 weeks ended September 30, 2001 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax loss of $5,129,000.

All comparisons in the following section refer to the 39-week period ended September 29, 2002 and the 39-week period ended September 30, 2001, respectively, unless otherwise indicated.

Our operating results, expressed as a percentage of revenue, were as follows:


		39 Weeks Ended

		September 29, 2002			September 30, 2001

Revenue(1)			100.0	%		100.0	%
Costs and expenses:
	Cost of sales		27.1			27.7
	Restaurant labor, occupancy and other		55.5			55.8
	General and administrative expenses(2)		8.2			9.1
	Depreciation and amortization		4.3			4.5
	Pre-opening expenses		0.1			0.4
	Asset impairment and store closure expense (reversal)		(0.6	)		7.4
	Net loss on disposal/sale of property		0.2			—

Operating income (loss)			5.2			(4.9	)
Other (expense) income:
	Interest income, net		—			0.2

Income (loss) before income taxes			5.2			(4.7	)
Income tax expense (benefit)			2.1			(1.9	)

Net income (loss)			3.1	%		(2.8	)%

(1) Includes $198,000 and $150,000 in franchise and licensing revenue for the 39 weeks ended September 29, 2002 and September 30, 2001, respectively.

(2) Includes $307,000 and $296,000 in franchise expense for the 39 weeks ended September 29, 2002 and September 30, 2001, respectively.

39 WEEKS ENDED SEPTEMBER 29, 2002 COMPARED TO THE 39 WEEKS ENDED SEPTEMBER 30, 2001

Results of operations reflect 39 weeks of operations for 128 restaurants and partial period operations for eleven restaurants for the 39 weeks ended September 29, 2002. Results of operations also reflect 39 weeks of operations for 126 restaurants and a partial period of operations for fourteen restaurants for the 39 weeks ended September 30, 2001.

REVENUE. Revenue increased $5.9 million or 6.8%, to $91.4 million for the 39 weeks ended September 29, 2002 from $85.5 million for the 39 weeks ended September 30, 2001. The increase in 2002 was primarily due to sales of $3.5 million from our five 2002 store openings, $6.8 million in sales generated by a full nine months of operations from units opened in 2001 and 2000 that were not yet in our comparable unit base, an increase in comparable store sales of $1.0 million or 1.3%, offset by a decrease of $4.1 million in sales from the 12 stores that have been closed and $1.3 million for the four stores sold to a franchisee. Units enter the comparable store base after 15 full months of operation. The increase in comparable store sales was primarily due to a 0.7% increase in the average check amount and a 0.6% increase in transactions.

COST OF SALES. Cost of sales as a percentage of revenue decreased to 27.1% in the 39 weeks ended September 29, 2002 from 27.7% in the 39 weeks ended September 30, 2001. The 0.6% decrease was primarily due to the elimination of certain retail discount programs (0.4%), lower commodity costs (0.5%) partially offset by cost increases associated with our concept repositioning (0.3%).

RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy, and other decreased as a percentage of revenue to 55.5% for the 39 weeks ended September 29, 2002 from 55.8% in the 39 weeks ended September 30, 2001. The decrease as a percentage of sales is due in part to a decrease in total direct and related labor costs of approximately 1.5%. These labor decreases were primarily due to the closure of under-performing stores combined with improved operational efficiencies. Partially offsetting the decreases in labor expense was a 0.5% increase in advertising costs, a 0.4% in costs related to our concept repositioning project, and a 0.3% increase in occupancy costs.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $7.5 million for the 39 weeks ended September 29, 2002 decreased from $7.8 million for the 39 weeks ended September 30, 2001. As a percentage of revenue, general and administrative expenses decreased to 8.2% for the 39 weeks ended September 29, 2002 from 9.1% for the 39 weeks ended September 29, 2001. The decrease as a percentage of sales was primarily due to the leveraging of our expanding revenue base and to lower wage expense in 2002 compared to 2001.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses of $3.9 million for the 39 weeks ended September 29, 2002 were essentially flat to $3.9 million for the 39 weeks ended September 30, 2001. As a percentage of revenue, depreciation and amortization decreased to 4.3% for the 39 weeks ended September 29, 2002 from 4.5% for the 39 weeks ended September 30, 2001.

PRE-OPENING EXPENSES. Pre-opening expenses decreased to $114,000 for the 39 weeks ended September 29, 2002 from $346,000 for the 39 weeks ended September 30, 2001. The decrease was due in part to opening nine less units in the first nine months of 2002 versus 2001. The average pre-opening cost per new unit opening decreased from approximately $25,000 per new unit in the prior year to approximately $19,000 per new unit in the current year due to opening more locations in mature markets in 2002 than in 2001. New markets traditionally require higher pre-opening costs than mature markets due to the lack of leveraging an existing region’s resources.

ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE (REVERSAL). In the 39 weeks ended September 30, 2001, the Company recorded a $6.3 million charge related to the impairment of a select number of under-performing restaurants as required under Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” In the 39 weeks ended September 29, 2002, the Company reversed a net $0.5 million of store closure expenses based on negotiating more favorable lease termination and sublease agreements than were estimated in 2001.

INTEREST INCOME, NET. Net interest income (expense) decreased to $(16,000) for the 39 weeks ended September 29, 2002 from $171,000 in net interest income for the 39 weeks ended September 30, 2001. Interest income decreased to $80,000 for the 39 weeks ended September 29, 2002 from $246,000 for the 39 weeks ended September 30, 2001. The decrease is primarily due to reduced interest rates paid on investments. Interest expense increased to $96,000 in the current year from $75,000 in the same prior year period due to interest expense incurred by our borrowing on the credit line in July 2001.

INCOME TAXES. The provision for income taxes for the 39 weeks ended September 29, 2002 and 39 weeks ended September 30, 2001 is based on the approximate annual effective tax rate of 40% applied to the respective period’s pretax book income (loss). The 40% tax rate applied to the 39 weeks ended September 29, 2002 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $4,785,000. The 40% tax benefit applied to the 39 weeks ended September 30, 2001 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax loss of $4,056,000.

DEFERRED TAX ASSETS

The Company utilizes Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and income tax returns. Under this method, deferred income taxes are recorded based on current income tax rates applied to differences between the financial statement and tax basis of assets and liabilities, as well as the effects of operating loss carryforwards and income tax credits. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Management must make estimates and judgments on future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances, to determine the proper valuation allowance. The Company does not believe a valuation allowance is necessary at September 29, 2002. The provision for income taxes represents the income tax payable for the period and the change during the period in deferred income tax assets and liabilities. For the 39 weeks ended September 29, 2002, the Company’s income tax provision of $1,914,000 consisted of a reduction in deferred income taxes of $1,514,000 and an increase in income taxes payable of $400,000.

SEASONALITY

Historically, we have experienced seasonal variability in our quarterly operating results with higher sales per restaurant in the second and third quarters than in the first and fourth quarters. The higher sales in the second and third quarters improve profitability by reducing the impact of our restaurants’ fixed and semi-fixed costs, as well as through increased revenues. This seasonal impact on our operating results is expected to continue.

INFLATION

Components of our operations subject to inflation include labor, food, beverage, and lease costs. Our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are subject to inflationary increases. We believe that current adverse conditions in the insurance, utility and labor areas specifically, could have an impact on our results of operations during the upcoming year.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our capital requirements in recent years through the public sale of equity securities, cash flow from operations and bank debt. We generated $8.8 million in cash flow from operating activities for the 39 weeks ended September 29, 2002 compared to $6.0 million for the 39 weeks ended September 30, 2001.

Net cash used in investing activities was $2.4 million for the 39 weeks ended September 29, 2002 compared to net cash used in investing activities of $3.9 million for the 39 weeks ended September 30, 2001. Net cash used by investing activities for the 39 weeks ended September 29, 2002 included $3.1 million in

capital expenditures, where net cash used by investing activities for the 39 weeks ended September 30, 2001 consisted of $7.9 million of capital expenditures offset by a net $3.3 million provided by the sale, purchases and maturities of investments.

Net cash provided by financing activities was $378,000 for the 39 weeks ended September 29, 2002 compared to net cash provided of $1,046,000 for the 39 weeks ended September 30, 2001. Financing activities consisted of a $1,000,000 borrowing on the line of credit in July 2001 and proceeds from the exercise of common stock options in both periods.

As of September 29, 2002, we had available $10.4 million of a $12.0 million revolving line of credit agreement with a financial institution that matures in July 2004. On July 25, 2001, we drew $1.0 million on the line of credit. As of September 29, 2002, our outstanding principal balance under this agreement was $1.0 million and we had $0.6 million reserved as security for a standby letter of credit that matured in October 2002. The Company renewed this letter of credit through October 2003, and increased the portion of the line of credit reserved as security for the standby letter of credit to $1.0 million. Interest on the revolving line of credit is calculated on the lower of either a bank reference rate plus 1% — 2%, or on an adjusted London Interbank Offered Rate plus 2.5% — 3.5% per annum.

Our funds are principally used for the development and opening of new units. We incurred $3.1 million in capital expenditures during the 39 weeks ended September 29, 2002, of which $1.1 million was for newly opened units, $0.5 million for future openings, $1.0 million for existing locations and $0.5 million for corporate and information technology expenditures. During the 39 weeks ended September 30, 2001, we incurred $7.9 million in capital expenditures, of which $5.1 million was for new unit openings, $0.9 million for future openings, $1.5 million for remodels and point of sale system upgrades, $0.3 million for existing locations and $0.1 million for corporate and information technology expenditures.

We currently expect total capital expenditures in 2002 to be approximately $6.2 million, of which approximately $3.5 million is forecasted for the opening of new restaurants, $1.5 million to implement the concept repositioning, $0.8 million for existing stores and $0.4 million for corporate, information technology and other. We currently plan to open approximately eight units in 2002 and ten to fifteen units in 2003. After value-engineering, we are targeting future locations to generally cost between $425,000 and $475,000 per unit, net of landlord allowances and excluding pre-opening expenses. However, the first few locations with our new store design will cost up to $550,000, until the value-engineering is completed. Some units may exceed these ranges due to the area in which they are built and the specific requirements of the project. Pre-opening expenses are expected to average between $19,000 and $25,000 per restaurant.

The Company is undertaking a number of projects in 2002, which will carry over into 2003 that are designed to potentially improve sales. Certain of these projects, including proposed new store design, a potential retrofit design that can be incorporated into existing restaurants, signage changes, and salsa bar upgrades will require a significant amount of capital. These projects may require that certain existing assets be disposed of as a result of these projects. The Company estimates the capital requirements for these projects to be $15,000 to $20,000 per restaurant and the asset disposals to be $3,000 to $5,000 per restaurant.

We believe that anticipated cash flow from operations combined with funds anticipated to be available from our $12.0 million credit facility and our cash and investments balance of $12.7 million as of September 29, 2002 will be sufficient to satisfy our working capital and capital expenditure requirements for

at least the next 12 months. Changes in our operating plans, changes in our expansion plans, lower than anticipated sales, our ability to meet the financial covenants of our credit facility, increased expenses, potential acquisitions or other events may cause us to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing as needed could have a material adverse effect on our business and results of operations.

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this quarterly report, before you decide to buy our common stock. If any of the following risks actually occur, our business would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

OUR EXPECTED REVENUES, COMPARABLE STORE SALES AND OVERALL EARNINGS PER SHARE MAY NOT BE ATTAINED DUE TO FACTORS REGARDING OUR BRAND AWARENESS, MARKETING STRATEGY AND OUR ABILITY TO MANAGE ONGOING AND UNANTICIPATED COSTS.

Our expected sales levels and earnings rely heavily on the acceptability and quality of the products we serve. If any variances are experienced with respect to the recognition of our brand, the acceptableness of our promotions, or the ability to manage our ongoing operations as well as the ability to absorb unexpected costs, we could fall short of our revenue and earnings expectations. Factors that could have a significant impact on earnings include:

       •    labor costs for our hourly and management personnel, including increases in federal or state minimum wage requirements;

       •    fluctuations in food and beverage costs, particularly the cost of chicken, beef, fish, cheese and produce;

       •    costs related to our leases;

       •    timing of new restaurant openings and related expenses;

       •    the amount of sales contributed by new and existing restaurants;

       •    our ability to achieve and sustain profitability on a quarterly or annual basis;

       •    the ability for our marketing initiatives and operating improvement initiatives to increase sales;

       •    consumer confidence;

       •    changes in consumer preferences;

       •    the level of competition from existing or new competitors in the quick-service restaurant industry;

       •    impact of weather on revenues and costs of food;

       •    insurance and utility costs; and

       •    general economic conditions.

OUR CURRENT PROJECTS TO IMPROVE OUR BRAND COULD HAVE A MATERIAL ADVERSE IMPACT ON THE COMPANY.

We are working on a number of projects designed to improve the strength of our brand and increase sales. These projects include a new store design, a potential store remodel for existing restaurants, signage changes and new menu items, bigger portions, additional salsa bar choices, and new product packaging.

The implementation of these projects has capital costs and expenses associated with it. The packaging and salsa bar changes will increase the food

and paper cost of our restaurants. There is a risk that if these changes do not result in increased sales, either through increased transactions or higher average check, there could be a material adverse impact on the Company’s earnings. Also, the capital requirements of these projects could have an adverse material impact on our cash balances and liquidity.

WE MAY NOT PREVAIL IN OUR DEFENSE OF THE CLASS ACTION CLAIMS RELATED TO CALIFORNIA EXEMPT EMPLOYEE LAWS.

During 2001, two similar class action claims were filed against us. These cases have been consolidated into one proceeding and involve the issue of whether employees and former employees in the general manager and assistant manager positions who worked in our California restaurants during specified time periods were misclassified as exempt and deprived of overtime pay. Although we believe these matters are without merit and intend to vigorously defend the claims related to these matters, we are unable at present to predict the probable outcome of these matters, the amount of damages that may occur if we do not prevail or the amount of any potential settlement. This area of the law is rapidly evolving. An unfavorable outcome in these matters or a significant settlement may have a material adverse impact on our earnings.

WE HAVE RECENTLY CREATED RESERVES RELATED TO THE CLOSURE OF SOME SELECTED STORES. IF THE AMOUNTS OF THESE RESERVES ARE INADEQUATE, WE COULD EXPERIENCE AN ADVERSE EFFECT TO OUR EARNINGS EXPECTATIONS IN THE FUTURE.

Our reserves for expenses related to closed stores are estimates. The amounts we have recorded are our reasonable assumptions based on the condition of these locations at this point in time. The conditions regarding these locations may adversely change in the future and materially affect our future earnings. We will review these reserves on a quarterly basis and will likely have adjustments that may materially have a positive or negative impact to our future earnings.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY AND OTHER FACTORS, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.

Our business is subject to seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the second and third quarters of each fiscal year. As a result, we expect our highest earnings to occur in the second and third quarters of each fiscal year.

Accordingly, results for any one quarter or for any year are not necessarily indicative of results to be expected for any other quarter or for any year. Comparable unit sales for any particular future period may decrease.

WE CONTINUE TO PURSUE A FRANCHISE STRATEGY. WE MAY BE UNSUCCESSFUL IN FULLY EXECUTING THIS PROGRAM.

We started a franchise program by entering into agreements with two franchisee groups in late 2000 and early 2001. These two agreements represent commitments to open 14 units. As of October 31, 2002, three franchisee restaurants are open under these two agreements. In addition, on April 15, 2002, we completed the sale of four Company-owned stores in the Las Vegas, Nevada market to a new franchisee. Restaurant companies typically rely on franchise revenues as a significant source of revenues and potential for growth. Our inability to successfully execute our franchising program could adversely affect our business and results of operations. The opening and success of franchised restaurants is dependent on a number of factors, including availability of suitable sites, negotiations of acceptable lease or purchase terms for new locations, permitting and government regulatory compliance and the ability to meet construction

schedules. The franchisees may not have all of the business abilities or access to financial resources necessary to open our restaurants or to successfully develop or operate our restaurants in their franchise areas in a manner consistent with our standards.

WE MAY BE UNABLE TO FUND OUR SUBSTANTIAL WORKING CAPITAL REQUIREMENTS AND MAY NEED ADDITIONAL FUNDING SOONER THAN WE ANTICIPATE.

We believe that the proceeds from the initial public offering completed in May 1999, together with anticipated cash flow from operations and funds anticipated to be available from a credit facility will be sufficient to satisfy our working capital requirements for at least the next 12 months. We may need to seek additional financing sooner than we anticipate as a result of the following factors:

       •    capital needs associated with the potential upgrade and remodel of our restaurants, signage changes, menu related changes and other projects;

       •    changes in our operating plans;

       •    changes in our expansion plans;

       •    lower than anticipated sales of our menu offerings;

       •    our ability to meet the financial covenants of our credit facility;

       •    increased food, labor costs or other expenses;

       •    adverse results in litigation or similar claims;

       •    potential acquisitions; or

       •    other events or contingencies.

Additional financing may not be available on acceptable terms, or at all. If we fail to get additional financing as needed, our business and results of operations would likely suffer.

FUTURE EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF RISKS THAT COULD DELAY OR PREVENT THE OPENING OF NEW RESTAURANTS OR REQUIRE US TO ADJUST OUR EXPANSION STRATEGY.

Almost all of our current restaurants are located in the western region of the United States. Our expansion into geographic areas outside the West involves a number of risks, including:

       •    lack of market awareness or acceptance of our restaurant concept in new geographic areas;

       •    uncertainties related to local demographics, tastes and preferences;

       •    local custom, wages, costs and other legal and economic conditions particular to new regions;

       •    the need to develop relationships with local distributors and suppliers for fresh produce, fresh tortillas and other ingredients; and

       •    potential difficulties related to management of operations located in a number of broadly dispersed locations.

We may not be successful in addressing these risks. Although we do not have current plans to expand substantially into new markets outside our core markets, if and when we do, we may not be able to open planned new operations on a timely basis, or at all in these new areas. Also, new restaurants typically will take several months to reach planned operating levels due to inefficiencies typically associated with expanding into new regions, such as lack of market awareness, acceptance of our restaurant concept and inability to hire sufficient staff.

IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR EXPANSION STRATEGY, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.

We currently plan to open approximately eight Company-owned restaurants in 2002, seven of which have been opened as of October 31, 2002. Two of the eight planned 2002 openings are outside Southern California. The eight store will be opened in Southern California in the fourth quarter 2002. Our ability to successfully achieve our expansion strategy will depend on a variety of factors, many of which are beyond our control.

These factors include:

       •    our ability to operate our restaurants profitably;

       •    our ability to respond effectively to the intense competition in the quick-service restaurant industry;

       •    our ability to locate suitable restaurant sites or negotiate acceptable lease terms;

       •    our ability to obtain required local, state and federal governmental approvals and permits related to construction of the sites, food and alcoholic beverages;

       •    our dependence on contractors to construct new restaurants in a timely manner;

       •    our ability to attract, train and retain qualified and experienced restaurant personnel and management;

       •    our need for additional capital and our ability to obtain such capital on favorable terms or at all; and

       •    general economic conditions.

If we are not able to successfully address these factors, we may not be able to expand at the rate contemplated and may have to adjust our expansion strategy, and our business and results of operations may be adversely impacted.

THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO OPERATE AND MANAGE OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO SO COULD ADVERSELY AFFECT US.

Our success and the success of our individual restaurants depend upon our ability to attract and retain highly motivated, well-qualified restaurant operators and management personnel, as well as a sufficient number of 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. 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 or results of operations. We also face significant competition in the recruitment of qualified employees. In addition, we are heavily dependent upon the services of our officers and key management involved in restaurant operations, marketing, finance, purchasing, expansion, human resources and administration. The loss of any of these individuals could have a material adverse effect on our business and results of operations. We currently have only one employment agreement with our newly named President and Chief Operating Officer, Sheri Miksa. This agreement is attached hereto as Exhibit 10.1.

GOVERNMENT REGULATION CHANGES MAY IMPACT OUR BUSINESS

Our restaurants are subject to licensing and regulation by state and local health, sanitation, safety, fire and other authorities, including licensing and regulation requirements for the sale of alcoholic beverages and food. A substantial number of our employees are subject to various minimum wage

requirements. Many of our employees work in restaurants located in California and receive salaries equal to or slightly greater than the California minimum wage. The State of California has raised the minimum wage to $6.75. Additionally, the State of California has increased benefits provided to employees covered under workers’ compensation insurance. Over the last year, the State of California has entered into long-term energy contracts at fixed prices. Similar proposals may come before legislators or voters in other jurisdictions in which we operate or seek to operate. The effect of these and further governmental regulations and actions may have a material adverse impact on our earnings.

IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO INCREASES IN OUR FOOD COSTS, OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.

Our restaurant operating costs principally consist of food and labor costs. Our profitability is dependent on our ability to anticipate and react to changes in food and labor costs. Various factors beyond our control, including adverse weather conditions and governmental regulation, may affect our food costs. We may be unable to anticipate and react to changing food costs, whether through our purchasing practices, menu composition or menu price adjustments in the future. In the event that food price increases cause us to increase our menu prices, we face the risk that our guests will choose to patronize lower-cost restaurants. Failure to react to changing food costs or to retain guests if we are forced to raise menu prices could have a material adverse effect on our business and results of operations.

OUR RESTAURANTS ARE CONCENTRATED IN THE WESTERN REGION OF THE UNITED STATES, AND THEREFORE, OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IF ADVERSE CONDITIONS OCCUR IN THAT REGION.

As of October 31, 2002 all but six of our existing restaurants are located in the western region of the United States. Accordingly, we are susceptible to fluctuations in our business caused by adverse economic or other conditions in this region, including natural disasters, terrorist activities or similar events. Our significant investment in, and long-term commitment to, each of our units limits our ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect our operations. In addition, some of our competitors have many more units than we do. Consequently, adverse economic or other conditions in a region, a decline in the profitability of several existing units or the introduction of several unsuccessful new units in a geographic area could have a more significant effect on our results of operations than would be the case for a company with a larger number of restaurants or with more geographically dispersed restaurants.

AS A RESTAURANT SERVICE PROVIDER, WE COULD BE SUBJECT TO ADVERSE PUBLICITY OR CLAIMS FROM OUR GUESTS.

We may be the subject of complaints or litigation from guests alleging food-related illness, injuries suffered on the premises or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially affect us and our restaurants, regardless of whether such allegations are true or whether we are ultimately held liable. A lawsuit or claim could result in an adverse decision against us that could have a material adverse effect on our business and results of operations.

THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE THE RESOURCES TO COMPETE ADEQUATELY.

The restaurant industry is intensely competitive. There are many different segments within the restaurant industry that are distinguished by types of service, food types and price/value relationships. We position our restaurants in

the high-quality, quick-service Mexican food segment of the industry. In this segment, our direct competitors include Baja Fresh, La Salsa and Chipotle. We also compete indirectly with full-service Mexican restaurants including Chevy’s, Chi Chi’s and El Torito, and fast food restaurants, particularly those focused on Mexican food such as Taco Bell and Del Taco. Competition in our industry segment is based primarily upon food quality, price, restaurant ambiance, service and location. Many of our direct and indirect competitors are well-established national, regional or local chains and have substantially greater financial, marketing, personnel and other resources than we do. We also compete with many other retail establishments for site locations.

OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE AGAINST CLAIMS OR THE AFFECTS OF ADVERSE PUBLICITY.

There are types of losses we may incur that may be uninsurable or that we believe are not economically insurable, such as losses due to earthquakes and other natural disasters. In view of the location of many of our existing and planned units, our operations are particularly susceptible to damage and disruption caused by earthquakes. Further, we do maintain insurance coverage for employee-related litigation, however, the deductible per incident is high and we carry only limited insurance for the effects of adverse publicity. In addition, punitive damage awards are generally not covered by insurance. We may also be subject to litigation which, regardless of the outcome, could result in adverse publicity and damages. Such litigation, adverse publicity or damages could have a material adverse effect on our business and results of operations. We do from time to time have employee related claims brought against us. These claims and expenses related to these claims typically have not been material to our overall financial performance. We may experience claims or be the subject of complaints or allegations from former, current or prospective employees from time to time that are material in nature and that may have a material adverse effect on our financial results.

OUR FAILURE OR INABILITY TO ENFORCE OUR CURRENT AND FUTURE TRADEMARKS AND TRADE NAMES COULD ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH BRAND EQUITY.

Our ability to successfully expand our concept will depend on our ability to establish and maintain “brand equity” through the use of our current and future trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos. We currently hold four trademarks and have 12 service marks relating to our brand. Some or all of the rights in our intellectual property may not be enforceable, even if registered, against any prior users of similar intellectual property or our competitors who seek to utilize similar intellectual property in areas where we operate or intend to conduct operations. If we fail to enforce any of our intellectual property rights, we may be unable to capitalize on our efforts to establish brand equity. It is also possible that we will encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. On October 2, 2002, La Salsa, Inc. by correspondence requested that the Company immediately stop all use of the phrase “FRESH MEXICAN GRILL,” which La Salsa, Inc. contends is its service mark. The Company takes the position that La Salsa, Inc. has no enforceable right against the Company to the phrase “Fresh Mexican Grill” under U.S. trademark law. However, claims from prior users, including La Salsa, Inc., could limit our operations and possibly cause us to incur costs through the payment of damages, licensing fees to a prior user or registrant of similar intellectual property, or attorneys’ fees or other legal costs as well.

SALES BY OUR EXISTING STOCKHOLDERS OF A LARGE NUMBER OF SHARES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.

The market price of our common stock could decline as a result of sales by our existing stockholders of a large number of shares of our common stock in the market or the perception that such sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.

We completed our initial public offering in May 1999. Prior to this offering, there was no public market for our common stock. An active trading market in and increased liquidity of our common stock may not develop.

THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.

The stock market has experienced extreme price and volume fluctuations. The trading price of our common stock could be subject to wide fluctuations in response to a number of factors, including:

       •    fluctuations in our quarterly or annual results of operations;

       •    changes in published earnings estimates by analysts and whether our earnings meet or exceed such estimates;

       •    additions or departures of key personnel;

       •    changes in overall market conditions, including the stock prices of other restaurant companies; and

       •    resolution of litigation.

In the past, companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. If we were subject to securities class action litigation, it could result in substantial costs and a diversion of our management’s attention and resources.

THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR INTERESTS.

As of October 31, 2002, the executive officers, directors and entities affiliated with them, in the aggregate, beneficially own approximately 32.2% of our outstanding common stock. These stockholders are able to exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of our Company.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.

The anti-takeover provisions in our certificate of incorporation, our bylaws and Delaware law could make it more difficult for a third party to acquire us. As a result of these provisions, we could delay, deter or prevent a takeover attempt or third party acquisition that our stockholders consider to be in their best interest, including a takeover attempt that results in a premium over the market price for the shares held by our stockholders.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures are related to our cash, cash equivalents and investments. We invest our excess cash in highly liquid short-term investments primarily with maturities of less than one year. The portfolio consists primarily of corporate bonds and municipal bonds. As of September 29, 2002, we have no investments that have maturities in excess of one year. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations. Due to the types of investment and debt instruments the Company has, a 10% change in period-end interest rates or a hypothetical 100 basis point adverse move in interest rates would not have a significant negative affect on our financial results.

As of September 29, 2002, we had available $10.4 million of a total $12.0 million revolving line of credit with a maturity date of July 2004. As of September 29, 2002, we have $1.0 million borrowed against this facility and $0.6 million reserved as security for a standby letter of credit related to our workers’ compensation insurance policy that matured in October 2002. The Company renewed this letter of credit through October 2003, and increased the portion of the line of credit reserved as security for the standby letter of credit to $1.0 million. Interest on the revolving line of credit is calculated on the lower of either a bank reference rate plus 1% — 2%, or on an adjusted London Interbank Offered Rate plus 2.5% — 3.5%, per annum (4.32% as of September 29, 2002). We also pay a commitment fee on the unused portion of the line of credit. Should we make additional draws on this line in the future, changes in interest rates would affect the interest expense on these loans and, therefore, impact our cash flows and results of operations.

Many of the food products purchased by us are affected by changes in weather, production, availability, seasonality and other factors outside our control. In an effort to control some of this risk, we have entered into some fixed price purchase commitments with terms of less than one year. In addition, we believe that almost all of our food and supplies are available from several sources, which helps to control food commodity risks.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Based on their evaluation, as of a date within 90 days of the filing of this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective.

(b) Changes in Internal Controls. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        (a)    Not applicable

        (b)    Not applicable

        (c)    Not applicable

        (d)    We currently have approximately $2.0 million remaining from our initial public offering in May 1999 as well as an additional $10.7 million of cash and cash equivalents generated from previous private placements and operating cash flows. The use of proceeds during this reporting period has conformed to our intended use outlined in our initial public offering prospectus.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

Item 5. OTHER INFORMATION

Not Applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K


a)	3.1	(1)	Second Amended and Restated Certificate of Incorporation (Exhibit 3.2)
	3.2	(1)	Restated Bylaws (Exhibit 3.4)
	3.3	(2)	Certificate of Amendment to Bylaws (Exhibit 3.4)
	10.1	(3)	Letter Agreement between Sheri Miksa and the Company, dated September 9, 2002 (Exhibit 99.2)
	99.1		Certification under Section 906 of the Sarbanes-Oxley Act of 2002

(1)		Incorporated by reference to the above noted exhibit to our registration statement on Form S-1 (333-75087) filed with the SEC on March 26, 1999, as amended.




(2)		Incorporated by reference to the above noted exhibit to our annual report on Form 10-K filed with the SEC on April 1, 2002.

(3) Incorporated by reference to the above noted exhibit to our current report on Form 8-K filed with the SEC on September 10, 2002 referenced below.

b) Reports on Form 8-K:

On September 10, 2002, the Company filed an 8-K under Item 5 announcing that Sheri Miksa became its President and Chief Operating Officer.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 13, 2002 RUBIO’S RESTAURANTS, INC.

/s/ IRA FILS

Ira Fils
Chief Financial Officer
(Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Ralph Rubio, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rubio’s Restaurants, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ RALPH RUBIO

Ralph Rubio
Chief Executive Officer
(principal executive officer)

I, Ira Fils, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rubio’s Restaurants, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ IRA FILS

Ira Fils
Chief Financial Officer
(principal financial officer)

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

	For the quarterly period ended September 29, 2002

OR

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

Commission File Number: 000-26125


DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		33-0100303 (I.R.S. Employer Identification Number)


		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 29, 2002 (unaudited) and December 30, 2001		3
	Consolidated Statements of Operations (unaudited) for the thirteen weeks ended September 29, 2002 and September 30, 2001 and the thirty-nine weeks ended September 29, 2002 and September 30, 2001		4
	Consolidated Statements of Cash Flows (unaudited) for the thirty-nine weeks ended September 29, 2002 and September 30, 2001		5
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		27
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		28
Item 2.	Changes in Securities and Use of Proceeds		28
Item 3.	Defaults Upon Senior Securities		28
Item 4.	Submission of Matters to a Vote of Security Holders		28
Item 5.	Other Information		28
Item 6.	Exhibits and Reports on Form 8-K		28
	Signatures		30

	•		labor costs for our hourly and management personnel, including increases in federal or state minimum wage requirements;

	•		fluctuations in food and beverage costs, particularly the cost of chicken, beef, fish, cheese and produce;

	•		costs related to our leases;

	•		timing of new restaurant openings and related expenses;

	•		the amount of sales contributed by new and existing restaurants;

	•		our ability to achieve and sustain profitability on a quarterly or annual basis;

	•		the ability for our marketing initiatives and operating improvement initiatives to increase sales;

	•		consumer confidence;

	•		changes in consumer preferences;

	•		the level of competition from existing or new competitors in the quick-service restaurant industry;

	•		impact of weather on revenues and costs of food;

	•		insurance and utility costs; and

	•		general economic conditions.

	•		capital needs associated with the potential upgrade and remodel of our restaurants, signage changes, menu related changes and other projects;

	•		changes in our operating plans;

	•		changes in our expansion plans;

	•		lower than anticipated sales of our menu offerings;

	•		our ability to meet the financial covenants of our credit facility;

	•		increased food, labor costs or other expenses;

	•		adverse results in litigation or similar claims;

	•		potential acquisitions; or

	•		other events or contingencies.

	•		lack of market awareness or acceptance of our restaurant concept in new geographic areas;

	•		uncertainties related to local demographics, tastes and preferences;

	•		local custom, wages, costs and other legal and economic conditions particular to new regions;

	•		the need to develop relationships with local distributors and suppliers for fresh produce, fresh tortillas and other ingredients; and

	•		potential difficulties related to management of operations located in a number of broadly dispersed locations.

	•		our ability to operate our restaurants profitably;

	•		our ability to respond effectively to the intense competition in the quick-service restaurant industry;

	•		our ability to locate suitable restaurant sites or negotiate acceptable lease terms;

	•		our ability to obtain required local, state and federal governmental approvals and permits related to construction of the sites, food and alcoholic beverages;

	•		our dependence on contractors to construct new restaurants in a timely manner;

	•		our ability to attract, train and retain qualified and experienced restaurant personnel and management;

	•		our need for additional capital and our ability to obtain such capital on favorable terms or at all; and

	•		general economic conditions.

	•		fluctuations in our quarterly or annual results of operations;

	•		changes in published earnings estimates by analysts and whether our earnings meet or exceed such estimates;

	•		additions or departures of key personnel;

	•		changes in overall market conditions, including the stock prices of other restaurant companies; and

	•		resolution of litigation.


Dated: November 13, 2002	RUBIO’S RESTAURANTS, INC.

	/s/ IRA FILS

	Ira Fils Chief Financial Officer (Principal Financial and Accounting Officer)


Date: November 13, 2002	/s/ RALPH RUBIO

	Ralph Rubio Chief Executive Officer (principal executive officer)