##### Table of Contents



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 March 30, 2003

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

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 [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
indicated in Rule 12b-2 of the Exchange Act).

(2) Yes [   ] No [X]

As of May 8, 2003 there were
9,085,427 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     
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | 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                    
|EXHIBIT 10.1                  
|EXHIBIT 99.1                  
|EXHIBIT 99.2                  



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.

TABLE OF CONTENTS

|        |  |                                                                                                            |  |      | 
|------- |  | ---------------------------------------------------------------------------------------------------------- |  | ---- | 
|        |  |                                                                                                            |  | Page | 
|        |  |                                                                                                            |  |      | 
|PART I  |  | FINANCIAL INFORMATION                                                                                      |  |      | 
|Item 1. |  | Financial Statements                                                                                       |  |      | 
|        |  | Consolidated Balance Sheets at March 30, 2003 (unaudited)
and December 29, 2002                            |  | 3    | 
|        |  | Consolidated Statements of Operations (unaudited) for the
13 weeks ended March 30, 2003 and March 31, 2002 |  | 4    | 
|        |  | Consolidated Statements of Cash Flows (unaudited) for the
13 weeks ended March 30, 2003 and March 31, 2002 |  | 5    | 
|        |  | Notes to Consolidated Financial Statements (unaudited)                                                     |  | 6    | 
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                      |  | 10   | 
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 23   | 
|Item 4. |  | Controls and Procedures                                                                                    |  | 23   | 
|PART II |  | OTHER INFORMATION                                                                                          |  |      | 
|Item 1. |  | Legal Proceedings                                                                                          |  | 24   | 
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                  |  | 24   | 
|Item 3. |  | Defaults Upon Senior Securities                                                                            |  | 24   | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                        |  | 24   | 
|Item 5. |  | Other Information                                                                                          |  | 24   | 
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                           |  | 24   | 
|        |  | Signatures                                                                                                 |  | 25   | 

2



---



##### Table of Contents









PART I -  FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS




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

|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |        |  |  | 
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | ----------- | ------ | ------------ | ------ |  |  | 
|                                       |                                                                                                                                                     |                            |        |        |        | March 30,   |        | December 29,
|                                       |                                                                                                                                                     |                            |        |        |        | 2003        |        | 2002        
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |             
|                                       |                                                                                                                                                     |                            |        |        |        | (unaudited) |        | (see Note)  
|ASSETS                                 |                                                                                                                                                     |                            |        |        |        |             |        |             
|CURRENT ASSETS:                        |                                                                                                                                                     |                            |        |        |        |             |        |             
|                                       | Cash and cash equivalents                                                                                                                           |                            | $      | 7,469  |        |             | $      | 8,578        |       
|                                       | Short-term investments                                                                                                                              |                            |        | 2,162  |        |             |        | 1,279        |       
|                                       | Income taxes receivable                                                                                                                             |                            |        | 357    |        |             |        | 357          |       
|                                       | Other receivables                                                                                                                                   |                            |        | 585    |        |             |        | 818          |       
|                                       | Inventory                                                                                                                                           |                            |        | 1,103  |        |             |        | 1,250        |       
|                                       | Prepaid expenses                                                                                                                                    |                            |        | 1,725  |        |             |        | 600          |       
|                                       | Deferred income taxes                                                                                                                               |                            |        | 49     |        |             |        |             |       
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|                                       |                                                                                                                                                     | Total current assets       |        |        | 13,450 |             |        |              | 12,882 | 
|PROPERTY  net                         |                                                                                                                                                     |                            | 36,113 |        |        |             | 35,504 |             
|OTHER ASSETS                           |                                                                                                                                                     |                            | 358    |        |        |             | 366    |             
|DEFERRED INCOME TAXES                  |                                                                                                                                                     |                            | 2,403  |        |        |             | 2,403  |             
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|TOTAL                                  |                                                                                                                                                     | $                          | 52,324 |        |        | $           | 51,155 |             
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                                     |                            |        |        |        |             |        |             
|CURRENT LIABILITIES:                   |                                                                                                                                                     |                            |        |        |        |             |        |             
|                                       | Accounts payable                                                                                                                                    |                            | $      | 1,888  |        |             | $      | 1,990        |       
|                                       | Income taxes payable                                                                                                                                |                            |        | 28     |        |             |        |             |       
|                                       | Accrued expenses and other liabilities                                                                                                              |                            |        | 4,701  |        |             |        | 3,832        |       
|                                       | Store closure reserve                                                                                                                               |                            |        | 515    |        |             |        | 559          |       
|                                       | Line of credit                                                                                                                                      |                            |        | 1,000  |        |             |        | 1,000        |       
|                                       | Deferred income taxes                                                                                                                               |                            |        |       |        |             |        | 90           |       
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|                                       |                                                                                                                                                     | Total current liabilities  |        |        | 8,132  |             |        |              | 7,471  | 
|STORE CLOSURE RESERVE                  |                                                                                                                                                     |                            | 1,157  |        |        |             | 1,248  |             
|DEFERRED INCOME                        |                                                                                                                                                     |                            | 398    |        |        |             | 69     |             
|DEFERRED RENT                          |                                                                                                                                                     |                            | 2,072  |        |        |             | 1,971  |             
|DEFERRED FRANCHISE REVENUE             |                                                                                                                                                     |                            | 26     |        |        |             | 36     |             
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|                                       |                                                                                                                                                     | Total liabilities          |        |        | 11,785 |             |        |              | 10,795 | 
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|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,
9,080,010 issued and outstanding in
2003, and 9,052,358 issued and
outstanding in 2002 |                            |        | 9      |        |             |        | 9            |       
|                                       | Paid-in capital                                                                                                                                     |                            |        | 41,952 |        |             |        | 41,868       |       
|                                       | Deferred compensation                                                                                                                               |                            |        | 551    |        |             |        | 510          |       
|                                       | Accumulated other comprehensive income                                                                                                              |                            |        | 1      |        |             |        | 3            |       
|                                       | Accumulated deficit                                                                                                                                 |                            |        | (1,974 | )      |             |        | (2,030       | )     
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|                                       |                                                                                                                                                     | Total stockholders equity |        |        | 40,539 |             |        |              | 40,360 | 
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       
|TOTAL                                  |                                                                                                                                                     | $                          | 52,324 |        |        | $           | 51,155 |             
|                                       |                                                                                                                                                     |                            |        |        |        |             |        |              |       

Note: The balance sheet as of December 29, 2002 is derived from the Companys
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.

3



---



##### Table of Contents






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

|                                                 |                                       |                     |        |                |     |           |        |        |    |  
|------------------------------------------------ | ------------------------------------- | ------------------- | ------ | -------------- | --- | --------- | ------ | ------ | -- | -
|                                                 |                                       |                     |        | 13 Weeks Ended
|                                                 |                                       |                     |        |               
|                                                 |                                       |                     |        | March 30,      |     | March 31,
|                                                 |                                       |                     |        | 2003           |     | 2002     
|                                                 |                                       |                     |        |                |     |          
|REVENUE:                                         |                                       |                     |        |                |     |           |        |       
|                                                 | Restaurant sales                      |                     | $      | 30,405         |     |           | $      | 29,843 |   
|                                                 | Franchise and licensing revenue       |                     |        | 61             |     |           |        | 35     |   
|                                                 |                                       |                     |        |                |     |           |        |       
|TOTAL REVENUE                                    |                                       |                     | 30,466 |                |     |           | 29,878 |       
|                                                 |                                       |                     |        |                |     |           |        |       
|COSTS AND EXPENSES:                              |                                       |                     |        |                |     |           |        |       
|                                                 | Cost of sales                         |                     |        | 8,981          |     |           |        | 8,330  |   
|                                                 | Restaurant labor, occupancy and other |                     |        | 17,563         |     |           |        | 16,756 |   
|                                                 | General and administrative expenses   |                     |        | 2,423          |     |           |        | 2,707  |   
|                                                 | Depreciation and amortization         |                     |        | 1,384          |     |           |        | 1,284  |   
|                                                 | Pre-opening expenses                  |                     |        | 45             |     |           |        | 90     |   
|                                                 | Gain on disposal/sale of property     |                     |        | (34            | )   |           |        | (1     | ) 
|                                                 |                                       |                     |        |                |     |           |        |       
|TOTAL COSTS AND EXPENSES                         |                                       |                     | 30,362 |                |     |           | 29,166 |       
|                                                 |                                       |                     |        |                |     |           |        |       
|OPERATING INCOME                                 |                                       |                     | 104    |                |     |           | 712    |       
|                                                 |                                       |                     |        |                |     |           |        |       
|OTHER (EXPENSE)INCOME:                           |                                       |                     |        |                |     |           |        |       
|                                                 | Interest and investment income        |                     |        | 20             |     |           |        | 32     |   
|                                                 | Interest expense                      |                     |        | (30            | )   |           |        | (33    | ) 
|                                                 |                                       |                     |        |                |     |           |        |       
|                                                 |                                       | OTHER EXPENSE  NET |        |                | (10 | )         |        |        | (1 | )
|                                                 |                                       |                     |        |                |     |           |        |       
|INCOME BEFORE INCOME TAXES                       |                                       |                     | 94     |                |     |           | 711    |       
|INCOME TAX EXPENSE                               |                                       |                     | (38    | )              |     |           | (284   | )     
|                                                 |                                       |                     |        |                |     |           |        |       
|NET INCOME                                       |                                       | $                   | 56     |                |     | $         | 427    |       
|                                                 |                                       |                     |        |                |     |           |        |       
|NET INCOME PER SHARE:                            |                                       |                     |        |                |     |           |        |       
|                                                 | Basic                                 |                     | $      | 0.01           |     |           | $      | 0.05   |   
|                                                 |                                       |                     |        |                |     |           |        |       
|                                                 | Diluted                               |                     | $      | 0.01           |     |           | $      | 0.05   |   
|                                                 |                                       |                     |        |                |     |           |        |       
|SHARES USED IN CALCULATING NET INCOME
PER SHARE: |                                       |                     |        |                |     |           |        |       
|                                                 | Basic                                 |                     |        | 9,070          |     |           |        | 8,966  |   
|                                                 |                                       |                     |        |                |     |           |        |       
|                                                 | Diluted                               |                     |        | 9,131          |     |           |        | 9,067  |   
|                                                 |                                       |                     |        |                |     |           |        |       

See notes to consolidated financial statements-unaudited.

4



---



##### Table of Contents






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

|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |           |       |        |        |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------- | -------------------------------------- | ------------------------------------- | ----- | -------------- | ------ | --------- | ----- | ------ | ------ | -
|                                                   |                                                                                   |                                    |                                        |                                       |       | 13 Weeks Ended
|                                                   |                                                                                   |                                    |                                        |                                       |       |               
|                                                   |                                                                                   |                                    |                                        |                                       |       | March 30,      |        | March 31,
|                                                   |                                                                                   |                                    |                                        |                                       |       | 2003           |        | 2002     
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|OPERATING ACTIVITIES:                              |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   | Net income                                                                        |                                    | $                                      | 56                                    |       |                | $      | 427       |      
|                                                   | Adjustments to reconcile net income to net cash
provided by operating activities: |                                    |                                        |                                       |       |                |        |           |      
|                                                   |                                                                                   | Depreciation and amortization      |                                        |                                       | 1,384 |                |        |           | 1,284 |       
|                                                   |                                                                                   | Deferred compensation              |                                        |                                       | 41    |                |        |           | 99    |       
|                                                   |                                                                                   | Gain on disposal/sale of property  |                                        |                                       | (34   | )              |        |           | (1    | )     
|                                                   |                                                                                   | Changes in assets and liabilities: |                                        |                                       |       |                |        |           |       |       
|                                                   |                                                                                   |                                    | Income taxes receivable                |                                       |       |               |        |           |       | 559    |       
|                                                   |                                                                                   |                                    | Other receivables                      |                                       |       | 233            |        |           |       | 87     |       
|                                                   |                                                                                   |                                    | Inventory                              |                                       |       | 147            |        |           |       | 643    |       
|                                                   |                                                                                   |                                    | Prepaid expenses                       |                                       |       | (1,125         | )      |           |       | (1,034 | )     
|                                                   |                                                                                   |                                    | Deferred income taxes                  |                                       |       | (139           | )      |           |       | (4     | )     
|                                                   |                                                                                   |                                    | Other assets                           |                                       |       | 8              |        |           |       | 35     |       
|                                                   |                                                                                   |                                    | Accounts payable                       |                                       |       | (102           | )      |           |       | (570   | )     
|                                                   |                                                                                   |                                    | Income taxes payable                   |                                       |       | 28             |        |           |       |       |       
|                                                   |                                                                                   |                                    | Accrued expenses and other liabilities |                                       |       | 869            |        |           |       | 1,273  |       
|                                                   |                                                                                   |                                    | Store closure reserve                  |                                       |       | (135           | )      |           |       | (584   | )     
|                                                   |                                                                                   |                                    | Deferred income                        |                                       |       | 329            |        |           |       |       |       
|                                                   |                                                                                   |                                    | Deferred rent                          |                                       |       | 101            |        |           |       | 86     |       
|                                                   |                                                                                   |                                    | Deferred franchise revenue             |                                       |       | (10            | )      |           |       | (1     | )     
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   |                                                                                   |                                    |                                        | Cash provided by operating activities |       |                | 1,651  |           |       |        | 2,299  |  
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|INVESTING ACTIVITIES:                              |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   | Purchases of property                                                             |                                    |                                        | (2,020                                | )     |                |        | (1,349    | )    
|                                                   | Proceeds from sale of property                                                    |                                    |                                        | 61                                    |       |                |        | 10        |      
|                                                   | Purchases of investments                                                          |                                    |                                        | (1,485                                | )     |                |        | (995      | )    
|                                                   | Sales and maturities of investments                                               |                                    |                                        | 600                                   |       |                |        | 1,050     |      
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   |                                                                                   |                                    |                                        | Cash used in investing activities     |       |                | (2,844 | )         |       |        | (1,284 | )
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|FINANCING ACTIVITIES:                              |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   | Proceeds from exercise of common stock options,
net of tax                        |                                    |                                        | 84                                    |       |                |        | 88        |      
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   |                                                                                   |                                    | (1,109                                 | )                                     |       |                | 1,103  |          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   |                                                                                   |                                    | 8,578                                  |                                       |       |                | 4,710  |          
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|CASH AND CASH EQUIVALENTS AT END OF PERIOD         |                                                                                   | $                                  | 7,469                                  |                                       |       | $              | 5,813  |          
|                                                   |                                                                                   |                                    |                                        |                                       |       |                |        |          
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                                   |                                    |                                        |                                       |       |                |        |          
|                                                   | Cash paid for interest                                                            |                                    | $                                      | 23                                    |       |                | $      | 29        |      
|                                                   | Cash paid (received) for income taxes                                             |                                    | $                                      | 10                                    |       |                | $      | (275      | )    

See notes to consolidated financial statements-unaudited.

5



---



##### Table of Contents






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 footnotes 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 and recurring adjustments,
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 29, 2002 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.

RECENT
ACCOUNTING PRONOUNCEMENTS - In July 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(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 establishes that the liability should
initially be measured and recorded at fair value. The Company was required to
adopt the provisions of SFAS No. 146 for exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on the Companys results of operations.

2.   STOCK-BASED COMPENSATION  SFAS No. 123, Accounting for Stock
Based-Compensation as amended by SFAS No. 148 Accounting for Stock
Compensation  Transition and Disclosure an amendment of FASB Statement No.
123, provides accounting guidance related to stock based employee compensation.
SFAS No. 123, as amended, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations for all periods presented.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Companys stock at the date of the grant over the
amount an employee must pay to acquire the stock.

6



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

The following table summarizes the impact on the Companys net income had
compensation cost been determined based upon the fair value at the grant date
for awards under the stock option plans consistent with the methodology
prescribed under SFAS No. 123 (in thousands, except per share data):

|                           |                                                                                                                                       |  |                |       |           |  |   |      | 
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | --------- |  | - | ---- | 
|                           |                                                                                                                                       |  | 13 Weeks Ended
|                           |                                                                                                                                       |  |               
|                           |                                                                                                                                       |  | March 30,      |       | March 31,
|                           |                                                                                                                                       |  | 2003           |       | 2002     
|                           |                                                                                                                                       |  |                |       |          
|                           | Net income, as reported                                                                                                               |  | $              | 56    |           |  | $ | 427  | 
|                           | Deduct: Stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects |  |                | 97    |           |  |   | 126  | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     
|                           | Pro forma net (loss) income                                                                                                           |  | $              | (41   | )         |  | $ | 301  | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     
|Earnings (loss) per share: |                                                                                                                                       |  |                |       |           |  |   |     
|                           | Basic  as reported                                                                                                                   |  | $              | 0.01  |           |  | $ | 0.05 | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     
|                           | Basic  pro forma                                                                                                                     |  | $              | (0.00 | )         |  | $ | 0.03 | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     
|                           | Diluted  as reported                                                                                                                 |  | $              | 0.01  |           |  | $ | 0.05 | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     
|                           | Diluted  pro forma                                                                                                                   |  | $              | (0.00 | )         |  | $ | 0.03 | 
|                           |                                                                                                                                       |  |                |       |           |  |   |     

The pro forma compensation costs were determined using the weighted
average fair values at the date of grant for options granted during the 13
weeks ended March 30, 2003 and March 31, 2002 of $2.47 and $3.41 per share
respectively. The fair value of each option granted was estimated on the date
of grant using the Black-Scholes option prices model with the following
assumptions:

|                                |  |                 |     |           |  |  |     |  
|------------------------------- |  | --------------- | --- | --------- |  |  | --- | -
|                                |  | 13 Weeks Ending
|                                |  |                
|                                |  | March 30,       |     | March 31,
|                                |  | 2003            |     | 2002     
|                                |  |                 |     |          
|Expected dividend               |  | None            |     | None     
|Expected stock price volatility |  |                 | 42  | %         |  |  | 59  | %
|Risk-free interest rate         |  |                 | 4.0 | %         |  |  | 4.0 | %
|Expected lives of options       |  | 5 years         |     | 5 years  

3.   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. The impairment charge is the
difference between the carrying value and the estimated fair value of the
assets (for assets to be held and used) and fair value less cost to sell (for
assets to be disposed of).

The Company makes decisions to close stores based on their cash flows and
anticipated future profitability. The Company recognizes the cost and
related liability associated with the closure of restaurants measured
initially at its fair value in the period in which the liability is
incurred. 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.

7



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)

3.        ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE (continued)

The change in the store closure reserve during the first quarter of fiscal
2003 was as follows (in thousands):

|                                                   |                             |   |                 |       |               |   |             |   |      |   |                 |      |   |   |     |       |  
|-------------------------------------------------- | --------------------------- | - | --------------- | ----- | ------------- | - | ----------- | - | ---- | - | --------------- | ---- | - | - | --- | ----- | -
|                                                   |                             |   | Reserve Balance |       | Store Closure |   |             |   |      |   | Reserve Balance
|                                                   |                             |   | at              |       | Expense       |   |             |   |      |   | at             
|                                                   |                             |   | December 29,    |       | (Reversal)   |   |             |   |      |   | March 30,      
|                                                   |                             |   | 2002            |       | Net           |   | Usage  Net |   | 2003
|                                                   |                             |   |                 |       |               |   |             |   |     
|Reserve for stores closed in 2001                  |                             | $ | 787             |       |               | $ | 4           |   |      | $ | (108            | )    |   | $ | 683 |      
|Reserve for stores closed in
2002 and to be closed |                             |   | 978             |       |               |   | 15          |   |      |   | (27             | )    |   |   | 966 |      
|Severance and other costs                          |                             |   | 42              |       |               |   | (19         | ) |      |   |                |      |   |   | 23  |      
|                                                   |                             |   |                 |       |               |   |             |   |      |   |                 |      |   |   |     |      
|                                                   | Total store closure reserve |   |                 | 1,807 |               |   | $           |  |      |   | $               | (135 | ) |   |     | 1,672 |  
|                                                   |                             |   |                 |       |               |   |             |   |      |   |                 |      |   |   |     |      
|                                                   | Less: current portion       |   |                 | (559  | )             |   |             |   |      |   |                 |      |   |   |     | (515  | )
|                                                   |                             |   |                 |       |               |   |             |   |      |   |                 |      |   |   |     |      
|                                                   | Non-current                 |   | $               | 1,248 |               |   |             |   |      |   |                 |      |   |   | $   | 1,157 |  
|                                                   |                             |   |                 |       |               |   |             |   |      |   |                 |      |   |   |     |      

4.        BALANCE SHEET DETAILS as of March 30, 2003 and December 29, 2002,
respectively (in thousands):

|                    |                                                 |   |        |         |      |   |        |         |  
|------------------- | ----------------------------------------------- | - | ------ | ------- | ---- | - | ------ | ------- | -
|                    |                                                 |   | 2003   |         | 2002
|                    |                                                 |   |        |         |     
|OTHER RECEIVABLES:  |                                                 |   |        |         |      |   |        |        
|                    | Tenant improvement receivables                  |   | $      | 110     |      |   | $      | 210     |  
|                    | Beverage usage receivable                       |   |        | 256     |      |   |        | 274     |  
|                    | Other                                           |   |        | 219     |      |   |        | 334     |  
|                    |                                                 |   |        |         |      |   |        |         |  
|Total               |                                                 | $ | 585    |         |      | $ | 818    |        
|                    |                                                 |   |        |         |      |   |        |        
|INVESTMENTS:        |                                                 |   |        |         |      |   |        |        
|                    | Corporate bonds                                 |   | $      | 1,996   |      |   | $      | 1,111   |  
|                    | Municipal bonds                                 |   |        | 166     |      |   |        | 168     |  
|                    |                                                 |   |        |         |      |   |        |         |  
|                    |                                                 |   | 2,162  |         |      |   | 1,279  |        
|                    | Less: short-term investments                    |   |        | (2,162  | )    |   |        | (1,279  | )
|                    |                                                 |   |        |         |      |   |        |         |  
|Investments         |                                                 | $ |       |         |      | $ |       |        
|                    |                                                 |   |        |         |      |   |        |        
|PROPERTY  at cost: |                                                 |   |        |         |      |   |        |        
|                    | Building and leasehold improvements             |   | $      | 28,762  |      |   | $      | 28,700  |  
|                    | Equipment and furniture                         |   |        | 26,898  |      |   |        | 26,238  |  
|                    | Construction in process and related costs       |   |        | 1,475   |      |   |        | 244     |  
|                    |                                                 |   |        |         |      |   |        |         |  
|                    |                                                 |   | 57,135 |         |      |   | 55,182 |        
|                    | Less: accumulated depreciation and amortization |   |        | (21,022 | )    |   |        | (19,678 | )
|                    |                                                 |   |        |         |      |   |        |         |  
|Total               |                                                 | $ | 36,113 |         |      | $ | 35,504 |        
|                    |                                                 |   |        |         |      |   |        |        

8



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)

|                                        |                                |   |       |       |  |   |       |     | 
|--------------------------------------- | ------------------------------ | - | ----- | ----- |  | - | ----- | --- | 
|ACCRUED EXPENSES AND OTHER LIABILITIES: |                                |   |       |       |  |   |       |    
|                                        | Compensation                   |   | $     | 1,824 |  |   | $     | 917 | 
|                                        | Workers compensation insurance |   |       | 893   |  |   |       | 888 | 
|                                        | Sales taxes                    |   |       | 975   |  |   |       | 861 | 
|                                        | Vacation pay                   |   |       | 464   |  |   |       | 464 | 
|                                        | Other                          |   |       | 545   |  |   |       | 702 | 
|                                        |                                |   |       |       |  |   |       |     | 
|Total                                   |                                | $ | 4,701 |       |  | $ | 3,832 |    
|                                        |                                |   |       |       |  |   |       |    

5.   COMMITMENTS AND CONTINGENCIES



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|REVOLVING LINE OF CREDIT  As of March 30, 2003 and December 29, 2002,
the Company had available $10.0 million of a total $12,000,000 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 (3.92% as of March 30, 2003). The Company pays a commitment
fee on the unused portion of the line of credit. As of March 30, 2003 and
December 29, 2002, the Company had borrowings of $1.0 million on the line of
credit and $1.0 million assigned to standby letters of credit, related to the
Companys workers compensation insurance policy, that mature in October 2003.

The credit facility contains various covenants including a minimum EBITDA,
fixed charge coverage ratio, minimum interest coverage ratio, and a maximum
total leverage ratio, and places certain 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. The Company was in compliance
with the covenants at March 30, 2003.

LITIGATION  As previously disclosed in our filings with the SEC, 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

9



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)

outcome of this matter or the amounts of any potential damages at issue. An
unfavorable outcome in this matter or a significant settlement could have a
material impact on the Companys financial position and results of operations.

The Company is unaware of any other litigation 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 SFAS No. 128, Earnings Per Share, is as follows (in thousands, except
per share data):

|                      |          |                                            |                                                                       |      |                |       |           |      |       |       | 
|--------------------- | -------- | ------------------------------------------ | --------------------------------------------------------------------- | ---- | -------------- | ----- | --------- | ---- | ----- | ----- | 
|                      |          |                                            |                                                                       |      | 13 Weeks Ended
|                      |          |                                            |                                                                       |      |               
|                      |          |                                            |                                                                       |      | March 30,      |       | March 31,
|                      |          |                                            |                                                                       |      | 2003           |       | 2002     
|                      |          |                                            |                                                                       |      |                |       |          
|Numerator             |          |                                            |                                                                       |      |                |       |           |     
|Net income            |          | $                                          | 56                                                                    |      |                | $     | 427       |     
|                      |          |                                            |                                                                       |      |                |       |           |     
|Denominator           |          |                                            |                                                                       |      |                |       |           |     
|                      | Basic:   |                                            |                                                                       |      |                |       |           |      |      
|                      |          | Weighted average common shares outstanding |                                                                       |      | 9,070          |       |           |      | 8,966 |      
|                      | Diluted: |                                            |                                                                       |      |                |       |           |      |      
|                      |          | Effect of dilutive securities:             |                                                                       |      |                |       |           |      |       |      
|                      |          |                                            | Common stock options                                                  |      |                | 61    |           |      |       | 101   | 
|                      |          |                                            |                                                                       |      |                |       |           |     
|                      |          |                                            | Total weighted average common and
potential common shares outstanding |      |                | 9,131 |           |      |       | 9,067 | 
|                      |          |                                            |                                                                       |      |                |       |           |     
|Net income per share: |          |                                            |                                                                       |      |                |       |           |     
|                      | Basic    |                                            | $                                                                     | 0.01 |                |       | $         | 0.05 |      
|                      |          |                                            |                                                                       |      |                |       |           |     
|                      | Diluted  |                                            | $                                                                     | 0.01 |                |       | $         | 0.05 |      
|                      |          |                                            |                                                                       |      |                |       |           |     




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

This quarterly report on Form 10-Q may contain 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.

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-casual
Mexican

10



---



##### Table of Contents



food segment of the restaurant industry. Our business strategy is to
become the leading brand in this industry segment.

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. In late 2000, as part of our expansion strategy, we initiated
a franchising program. As of May 1, 2003, we have two franchise agreements
representing commitments to open 6 units, two of which were open as of May 1,
2003. Additionally, on April 15, 2002, we completed the sale of four
company-owned stores in the Las Vegas, Nevada market to one of these franchisee
groups. We opened eight stores and closed three underperforming stores in
2002. Our current expansion plan calls for us to open 8-10 company-owned
restaurants in fiscal 2003.

As a result of our expansion, period-to-period comparisons of our
financial results may not be 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. In
calculating our comparable restaurant base, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar
months.

Revenues represent gross restaurant sales less coupons and other discounts
and includes 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 and professional and
consulting fees and includes franchise expense used in training, the cost of
the initial stocking of operating supplies and other direct costs related to
opening new units.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which are
prepared in accordance with generally accepted accounting principles (GAAP).
The preparation of these financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingencies at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period.

Management evaluates these estimates and assumptions on an on-going basis
including those relating to impairment of assets, restructuring charges,
contingencies and litigation. Our estimates and assumptions have been prepared
on the basis of the most current available information, and actual results
could differ from these estimates under different assumptions and conditions.

We have several critical accounting policies, which were discussed in the
Companys 2002 Annual Report on Form 10-K, that are both important to the
portrayal of our financial condition and results of operations and require
managements most difficult, subjective and complex judgments. Typically, the
circumstances that make these judgments complex and difficult have to do with

11



---



##### Table of Contents



making estimates about the effect of matters that are inherently uncertain.
During the 13 weeks ending March 30, 2003, we have not adopted any new
accounting policies that are considered critical accounting policies nor have
there been any significant changes related to our critical accounting policies
that would have a material impact on our consolidated financial position,
results of operations, cash flow or our ability to conduct business.

RESULTS OF OPERATIONS

All comparisons under this heading between 2003 and 2002 refer to the
13-week period ended March 30, 2003 and the 13-week period ended March 31,
2002, respectively, unless otherwise indicated.

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

|                           |                                         |  |                |      |           |  |       |      | 
|-------------------------- | --------------------------------------- |  | -------------- | ---- | --------- |  | ----- | ---- | 
|                           |                                         |  | 13 Weeks Ended
|                           |                                         |  |               
|                           |                                         |  | March 30,      |      | March 31,
|                           |                                         |  | 2003           |      | 2002     
|                           |                                         |  |                |      |          
|Revenue (1)                |                                         |  | 100.0          | %    |           |  | 100.0 | %   
|Costs and expenses:        |                                         |  |                |      |           |  |       |     
|                           | Cost of sales                           |  |                | 29.5 |           |  |       | 27.9 | 
|                           | Restaurant labor, occupancy and other   |  |                | 57.6 |           |  |       | 56.1 | 
|                           | General and administrative expenses (2) |  |                | 8.0  |           |  |       | 9.0  | 
|                           | Depreciation and amortization           |  |                | 4.5  |           |  |       | 4.3  | 
|                           | Pre-opening expenses                    |  |                | 0.1  |           |  |       | 0.3  | 
|                           | Gain on disposal/sale of property       |  |                |     |           |  |       |     | 
|                           |                                         |  |                |      |           |  |       |     
|Operating income           |                                         |  | 0.3            |      |           |  | 2.4   |     
|                           | Other expense, net                      |  |                |     |           |  |       |     | 
|                           |                                         |  |                |      |           |  |       |     
|Income before income taxes |                                         |  | 0.3            |      |           |  | 2.4   |     
|Income tax expense         |                                         |  | (0.1           | )    |           |  | (1.0  | )   
|                           |                                         |  |                |      |           |  |       |     
|Net income                 |                                         |  | 0.2            | %    |           |  | 1.4   | %   
|                           |                                         |  |                |      |           |  |       |     

(1) Includes $61,000 and $35,000 in franchise and licensing revenue for the 13
weeks ended March 30, 2003 and March 31, 2002, respectively.

(2) Includes $61,000 and $84,000 in franchise expense for the 13 weeks ended
 March 30, 2003 and March 31, 2002, respectively.

13 WEEKS ENDED MARCH 30, 2003 COMPARED TO THE 13 WEEKS ENDED MARCH 31, 2002

Results of operations reflect 13 weeks of operations for 135 restaurants
and partial period operations for two restaurants for the 13 weeks ended March
30, 2003. Results of operations also reflect 13 weeks of operations for 132
restaurants and a partial period of operations for six restaurants for the 13
weeks ended March 31, 2002.

REVENUE. Revenue increased $0.6 million or 1.9%, to $30.5 million for the
13 weeks ended March 30, 2003 from $29.9 million for the 13 weeks ended March
31, 2002. The increase in 2003 was primarily due to sales of $0.2 million from
our two 2003 store openings, a $0.9 million increase in sales generated by a
full quarter of operations from units opened in 2002 and 2001 that were not yet
in our comparable unit base, an increase in comparable store sales of $0.5
million or 1.6%, offset by a decrease of $1.0 million in sales at the 7 stores
that were sold or closed in 2002. Units enter the comparable store base after
15 full months of operation. The increase in comparable store sales was
primarily due to a 6.1% increase in average check, offset by a 4.2% decrease in
transactions. The increase in comparable store sales is due primarily to the
success of the annual $0.99 fish taco promotion run company-wide during March
2003 and the completion of a company-wide menu rollout, including new items,
larger portions and associated price increases.

12



---



##### Table of Contents



COST OF SALES. Cost of sales as a percentage of revenue increased to
29.5% in the 13 weeks ended March 30, 2003 from 27.9% in the 13 weeks ended
March 31, 2002. The increase was primarily due to the higher food and paper
costs associated with our larger portions, expanded salsa bar and upgraded
packaging for our brand repositioning.

RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy, and
other increased as a percentage of revenue to 57.6% for the 13 weeks ended
March 30, 2003 from 56.1% in the 13 weeks ended March 30, 2002. The 1.5%
increase is due to a 0.5% increase in total direct labor associated with the
training required for the conversion to the brand repositioning and a 1.0%
increase in unit operating expenses associated with supplies, repairs and
uniforms needed for this repositioning.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
of $2.4 million for the 13 weeks ended March 30, 2003 decreased by $0.3 million
from the 13 weeks ended March 31, 2002. As a percentage of revenue, general
and administrative expenses decreased to 8.0% for the 13 weeks ended March 30,
2003 from 9.0% for the 13 weeks ended March 31, 2002. The decrease as a
percentage of sales was primarily due to the leveraging of our expanding
revenue base, lower
labor and related costs from a corporate reorganization and well managed
cost containment in 2003.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $1.4 million in the 13 weeks ended March 30, 2003 from $1.3
million in the 13 weeks ended March 31, 2002. The $0.1 million increase was
primarily due to the additional depreciation on the 8 new units opened during
2002 and the 2 new units opened during 2003. As a percentage of restaurant
sales, depreciation and amortization increased to 4.5% for the 13 weeks ended
March 30, 2003 from 4.3% for the 13 weeks ended March 31, 2002.

PRE-OPENING EXPENSES. Pre-opening expenses remained relatively constant
at $45,000 for the 13 weeks ended March 30, 2003 compared to $90,000 for the 13
weeks ended March 31, 2002.

OTHER EXPENSE, NET. Other expense, net increased to $10,000 for the 13
weeks ended March 30, 2003 from $1,000 for the 13 weeks ended March 31, 2002,
primarily due to a decrease in the interest income earned on investments in
2003. Interest income decreased to $20,000 for the 13 weeks ended March 30,
2003 from $32,000 for the 13 weeks ended March 31, 2002 primarily due to lower
interest rates being paid on investments on 2003 compared to 2002.

INCOME TAXES. The provision for income taxes for the 13 weeks ended March
30, 2003 and March 31, 2002 is based on the approximate annual effective tax
rate of 40% applied to the respective periods pretax book income. The 40% tax
rate applied to the 13 weeks ended March 30, 2003 comprises the federal and
state statutory rates based on the estimated annual effective rate on pre-tax
income of $94,000. The 40% tax rate applied to the 13 weeks ended March 31,
2002 comprises the federal and state statutory rates based on the estimated
annual effective rate on pre-tax income of $711,000.

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.

13



---



##### Table of Contents



INFLATION

Components of our operations subject to inflation include food, beverage,
lease, utility, labor and insurance 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, private placement of preferred stock, bank debt and
cash flow from operations. We generated $1.7 million in cash flow from
operating activities for the 13 weeks ended March 30, 2003 compared to $2.3
million for the 13 weeks ended March 31, 2002.

Net cash used in investing activities was $2.8 million for the 13 weeks
ended March 30, 2003 compared to net cash used in investing activities of $1.3
million
for the 13 weeks ended March 31, 2002. Net cash used in investing
activities for the 13 weeks ended March 30, 2003 included $2.0 million in
capital expenditures and a net $.9 million used by the sales, purchases and
maturities of investments, where net cash used in investing activities for the
13 weeks ended March 31, 2002 consisted of $1.3 million of capital expenditures
offset by a net $0.1 million provided by the sale, purchases and maturities of
investments.

Net cash provided by financing activities was $84,000 for the 13 weeks
ended March 30, 2003 compared to net cash provided of $88,000 for the 13 weeks
ended March 31, 2002. Financing activities in both quarters consisted of
proceeds from the exercise of common stock options, net of tax.

As of March 30, 2003 and December 29, 2002, we had available $10.0 million
of a total $12.0 million revolving line of credit agreement with a financial
institution that matures in July 2004. As of March 30, 2003 and December 29,
2002, our outstanding principal balance under this agreement was $1.0 million.
Also, as of March 30, 2003 and December 29, 2002, we had $1.0 million assigned
to standby letters of credit that mature in October 2003. 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 $2.0 million in capital expenditures during the 13 weeks
ended March 30, 2003, of which $1.1 million was for newly opened units, $0.8
million for existing locations and $0.1 million for corporate and information
technology expenditures. During the 13 weeks ended March 31, 2002, we incurred
$1.3 million in capital expenditures, of which $1.0 million was for new unit
openings, $0.2 million for existing locations and $0.1 million for corporate
and information technology expenditures.

We currently expect total capital expenditures in 2003 to be approximately
$9.9 million, of which approximately $5.5 million is forecasted for the opening
of new restaurants, $3.4 million for existing stores and $1.0 million for
corporate, information technology and other. We currently plan to open
approximately eight to ten units in 2003 and a minimum of ten units in 2004.
We currently expect that future locations will generally cost between $500,000
and $550,000 per unit, net of landlord allowances and excluding pre-opening
expenses. Some units may exceed this range 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.

14



---



##### Table of Contents



The Company is undertaking a number of projects in 2003 designed to
potentially improve sales. These projects include a new prototype store
design, a potential retrofit design that can be incorporated into existing
restaurants, and signage changes that could require a significant amount of
capital. The Company is unable to estimate the capital requirements for these
projects until certain project tests are complete and rollout schedules are
determined.

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 $9.6 million as of March 30, 2003 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. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
operations. If any of the following risks actually occur, our business would
likely suffer and our results could differ materially from those expressed in
any forward-looking statements contained in this quarterly report including
those contained in the section captioned Managements Discussion and Analysis
of Financial Condition and Results of Operations under Item 2. 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 OR MARKETING
STRATEGY AND/OR 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,
the impact of our advertising campaigns or the ability to manage our ongoing
operations, including 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;                                       

15



---



##### Table of Contents





| |  |  | the ability of 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-casual 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 our new prototype
restaurant design, a potential store remodel or continuing re-image program for
existing restaurants, signage changes, 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 increase in portion sizes, packaging, new menu items
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 or both, there could be
a material adverse impact on our 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.
Although the cases have not been certified as a class, they 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 we 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.

OUR FAILURE OR INABILITY TO ENFORCE OUR CURRENT AND FUTURE TRADEMARKS AND TRADE
NAMES COULD ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH AND MAINTAIN 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 and we have filed
applications for two additional marks. 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
16Table of Contentsprior 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 we
immediately stop all use of the phrase FRESH MEXICAN GRILL, which La Salsa,
Inc. contends is its service mark. We believe that La Salsa, Inc. has no
current enforceable right against us to the phrase Fresh Mexican Grill under
U.S. trademark law and have so advised La Salsa, Inc. through counsel. On
January 24, 2003, by correspondence, La Salsa, Inc. requested that the Company
license from La Salsa, Inc. the Fresh Mexican Grill service mark in order to
avoid litigation. The Company has not yet formally responded to this
correspondence.La Salsa, Inc. is the owner of registration number 2,142,545 on the
Principal Register of the USPTO for La Salsa Fresh Mexican Grill. This
registration disclaims however, any right to Fresh Mexican Grill. La Salsa,
Inc. is the owner of registration number 2,190,028 on the Supplemental Register
of the USPTO for Fresh Mexican Grill. This supplemental registration
disclaims any right to Mexican Grill. On March 1, 2001, La Salsa, Inc.
filed another application with the USPTO to attempt registration of Fresh
Mexican Grill on the Principal Register. The USPTO initially issued a final
refusal to La Salsa, Inc.s effort to register Fresh Mexican Grill on the
Principal Register, finding that the mark was generic and descriptive. La
Salsa, Inc. sought reconsideration of that refusal and amended its application
to disclaim Mexican Grill. The USPTO reconsidered its refusal and without
written opinion has indicated the mark will be approved for publication. The
opposition period did open on April 8, 2003. Because of the descriptive nature
of Fresh Mexican Grill, we believe that opposition to the mark will be
successful.La Salsa, Inc. to date has not filed a lawsuit against us. We intend to
vigorously defend our right to use the term Fresh Mexican Grill and believe
we will be successful in doing so.WE HAVE CREATED RESERVES RELATED TO THE CLOSURE OF SOME SELECTED STORES. IF
THE AMOUNT OF THESE RESERVES ARE INADEQUATE, WE COULD EXPERIENCE AN ADVERSE
EFFECT TO OUR EARNINGS EXPECTATIONS IN THE FUTURE.Our reserves for expenses related to store closures 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. In 2001, we set up a reserve for underperforming restaurants
we planned to close. Most of these store closures have been completed and
lease terminations have been negotiated.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 generally find our highest earnings 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 other year. Comparable unit sales
for any particular future period may increase or decrease vs. previous history.THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO OPERATE, MANAGE
AND SUPPORT OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO SO
COULD ADVERSELY AFFECT US.17Table of ContentsOur success and the success of our individual restaurants depends 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, product development,
finance, purchasing, real estate development, information technologies, 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
generally do not have long-term employment contracts with key personnel except
for the employment agreement with our newly named President and Chief Operating
Officer, Sheri Miksa.WE OFFER A FRANCHISE PROGRAM. WE MAY BE UNSUCCESSFUL IN FULLY EXECUTING THIS
PROGRAM.We started a franchise program by entering into agreements with three
franchisee groups between 2001 and 2002. In April 2003, our relationship with
one of the franchisee groups was terminated. As of May 1, 2003, we have two
franchise agreements representing commitments to open 6 units, two of which
were open as of May 1, 2003. On April 15, 2002, we completed the sale of four
company-owned stores in the Las Vegas, Nevada market to one of these franchisee
groups. 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 our 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:
    
    changes in our expansion plans;
    
    changes in our operating plans;
    
    capital needs associated with the potential re-image and/or
remodel of our restaurants, signage changes, menu related changes and
other projects;
    
    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; or18Table of Contents
    
    other events or contingencies.Additional financing may not be available on acceptable terms, or at all.
If we fail to obtain 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 customs, 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 high-quality 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 to ten Company-owned
restaurants in 2003, two of which have been opened as of March 30, 2003. None
of the planned 2003 openings are outside California. 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-casual restaurant industry;
    
    our ability to locate suitable high-quality 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 and 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; and19Table of Contents
    
    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.GOVERNMENT REGULATION CHANGES MAY IMPACT OUR BUSINESSOur 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 food and alcoholic beverages. 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 hourly minimum wage is $6.75.Additionally, the State of California has increased benefits provided to
employees covered under workers compensation insurance. Federal and state
laws may also require us to provide paid and unpaid leave to our employees,
which could result in significant additional expense to us. Similarly, various
proposals which would require employers to provide health insurance for all of
their employees are being considered from time to time in Congress and various
states. The imposition of any requirement that we provide health insurance to
all employees would have a material adverse impact on the operations and
financial condition of our business and the restaurant industry.In 2001, the State of California entered into long-term energy contracts
at fixed prices that caused our energy costs to dramatically increase. 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 March 30, 2003, 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,20Table of Contentsadverse 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, fresh Mexican grill 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 because of the high cost, 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.WE MAY INCUR SIGNIFICANT REAL ESTATE RELATED COSTS AND LIABILITIES WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITIONThe majority of our units are leased locations in multi-unit retail
centers. The age and condition of the real estate we occupy varies. Some of
our locations21Table of Contentsmay require significant repairs due to normal deterioration or
due to sudden and accidental incidents, such as plumbing failures. It is
difficult to predict how many of our unit locations will require major repairs
or refurbishment, and it is also difficult to predict what portion of these
potential costs would be covered
by insurance. Also, as a lessee of real estate, we are subject to and have
received claims that our operations at these locations may have caused property
damage or personal injury to others. The fact that the majority of our units
are located in multi-unit retail buildings means that if there is a plumbing
failure or other event in one of our units, neighboring tenants may be
affected, which can subject us to liability for property damage and personal
injuries. If we were to incur increased real estate costs and liabilities, it
could adversely affect our financial condition and results of operations.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.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 March 30, 2003, 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 best22Table of Contentsinterest, 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 RISKOur 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 and municipal bonds. As of March 30, 2003, we had 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 March 30, 2003, we had available $10.0 million of a total $12.0
million revolving line of credit with a maturity date of July 2004. As of March
30, 2003, we have $1.0 million borrowed against this facility and $1.0 million
assigned to standby letters of credit related to our workers compensation
insurance policy that mature in October 2003. 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
(3.92% as of March 30, 2003). 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 a 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, our
Chief Executive Officer and Interim 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.23Table of Contents
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGSNot applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS(a)
    
    Not applicable(b)
    
    Not applicable(c)
    
    Not applicable(d)
    
    We currently have approximately $2.1 million remaining from our
initial public offering in May 1999 as well as an additional $5.4
million of cash, cash equivalents and investments 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 SECURITIESNot applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNot applicable
Item 5. OTHER INFORMATIONNot 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 | * |  |  |    |   |  | Master Distributor Agreement between the Company and
U.S. Foodservice, Inc., dated as of January 27, 2003.
|  
|   |  |  | 99.1 |   |  |  |    |   |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                   
|  
|   |  |  | 99.2 |   |  |  |    |   |  | Certification pursuant to 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 March 27, 2003.                                

|* |  | Confidential treatment requested
|- |  | --------------------------------

|                           |  |  |      |  |  |  |  |  |  | 
|-------------------------- |  |  | ---- |  |  |  |  |  |  | 
|b)    Reports on Form 8-K:
|                          
|                           |  |  | None

24



---



##### Table of Contents






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: May 13, 2003 |  | RUBIOS RESTAURANTS, INC.                   
|                   
|                    |  | /s/ Gary Allen                              
|                    |  |                                             
|                    |  | Gary Allen                                  
|                    |  | Controller/Interim Chief Financial Officer  
|                    |  | (Principal Financial and Accounting Officer)

25



---



##### Table of Contents



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: May 13, 2003 |  |  |  | /s/ RALPH RUBIO              
|                   |  |  |  |                              
|                   |  |  |  | Ralph Rubio                  
|                   |  |  |  | Chief Executive Officer      
|                   |  |  |  | (principal executive officer)

26



---



##### Table of Contents



I, Gary Allen, 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: May 13, 2003 |  |  |  | /s/ GARY S. ALLEN                         
|                   |  |  |  |                                           
|                   |  |  |  | Gary S. Allen                             
|                   |  |  |  | Controller/Interim Chief Financial Officer
|                   |  |  |  | (principal financial officer)             

27