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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 July 1, 2001                                              | 
|           | OR                                                                                       | 
|/ /        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 

Commission File Number: 000-26125

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

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

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

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

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

(1) Yes /x/  No / /
(2) Yes /x/  No / /

As
of July 27, 2001 there were 8,921,993 shares of the Registrant's common stock, par value $0.001 per share, outstanding.

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RUBIO'S RESTAURANTS, INC.        TABLE OF CONTENTS

|        |  |                                                                                                                                                                             |  | Page
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                                                                       |  |     
|Item 1. |  | Financial Statements                                                                                                                                                        |  |     
|        |  | Consolidated Balance Sheets at July 1, 2001 (unaudited) and December 31, 2000                                                                                               |  | 3   
|        |  | Consolidated Statements of Operations (unaudited) for the thirteen weeks ended July 1, 2001 and June 25, 2000 and the twenty-six weeks ended July 1, 2001 and June 25, 2000 |  | 4   
|        |  | Consolidated Statements of Cash Flows (unaudited) for the twenty-six weeks ended July 1, 2001 and June 25, 2000                                                             |  | 5   
|        |  | Notes to Consolidated Financial Statements (unaudited)                                                                                                                      |  | 6   
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                       |  | 9   
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                  |  | 22  
|PART II |  | OTHER INFORMATION                                                                                                                                                           |  |     
|Item 1. |  | Legal Proceedings                                                                                                                                                           |  | 23  
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                                                   |  | 23  
|Item 3. |  | Defaults Upon Senior Securities                                                                                                                                             |  | 23  
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                         |  | 23  
|Item 5. |  | Other Information                                                                                                                                                           |  | 23  
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                            |  | 24  
|        |  | Signatures                                                                                                                                                                  |  | 25  

2

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                       |                                                                                                                                                     | July 1,
2001               |        | December 31,
2000
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | -----------------
|
|ASSETS                                 |                                                                                                                                                     |                            |        |                  
|CURRENT ASSETS:                        |                                                                                                                                                     |                            |        |                  
|                                       | Cash and cash equivalents                                                                                                                           |                            | $      | 3,242            
|                                       | Short-term investments                                                                                                                              |                            |        | 3,779            
|                                       | Other receivables                                                                                                                                   |                            |        | 1,074            
|                                       | Income taxes receivable                                                                                                                             |                            |        |                 
|                                       | Inventory                                                                                                                                           |                            |        | 1,567            
|                                       | Prepaid expenses                                                                                                                                    |                            |        | 846              
|                                       |                                                                                                                                                     |                            |        |                  
|                                       |                                                                                                                                                     | Total current assets       |        |                  
|INVESTMENTS                            |                                                                                                                                                     |                            | 274    |                  
|PROPERTYnet                           |                                                                                                                                                     |                            | 40,151 |                  
|OTHER ASSETS                           |                                                                                                                                                     |                            | 400    |                  
|DEFERRED INCOME TAXES                  |                                                                                                                                                     |                            | 869    |                  
|                                       |                                                                                                                                                     |                            |        |                  
|TOTAL                                  |                                                                                                                                                     | $                          | 52,202 |                  
|                                       |                                                                                                                                                     |                            |        |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                                     |                            |        |                  
|CURRENT LIABILITIES:                   |                                                                                                                                                     |                            |        |                  
|                                       | Accounts payable                                                                                                                                    |                            | $      | 3,132            
|                                       | Accrued expenses and other liabilities                                                                                                              |                            |        | 3,517            
|                                       | Income taxes payable                                                                                                                                |                            |        | 140              
|                                       | Deferred income taxes                                                                                                                               |                            |        | 10               
|                                       |                                                                                                                                                     |                            |        |                  
|                                       |                                                                                                                                                     | Total current liabilities  |        |                  
|DEFERRED RENT                          |                                                                                                                                                     |                            | 1,663  |                  
|DEFERRED FRANCHISE REVENUE             |                                                                                                                                                     |                            | 66     |                  
|                                       |                                                                                                                                                     |                            |        |                  
|                                       |                                                                                                                                                     | Total liabilities          |        |                  
|                                       |                                                                                                                                                     |                            |        |                  
|COMMITMENTS AND CONTINGENCIES (NOTE 3) |                                                                                                                                                     |                            |        |                  
|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, 8,921,993 issued and outstanding in 2001, and 8,894,440 issued and outstanding in 2000 |                            |        | 9                
|                                       | Paid-in capital                                                                                                                                     |                            |        | 41,439           
|                                       | Deferred compensation                                                                                                                               |                            |        | 162              
|                                       | Accumulated other comprehensive income                                                                                                              |                            |        | 12               
|                                       | Retained earnings                                                                                                                                   |                            |        | 2,052            
|                                       |                                                                                                                                                     |                            |        |                  
|                                       |                                                                                                                                                     | Total stockholders' equity |        |                  
|                                       |                                                                                                                                                     |                            |        |                  
|TOTAL                                  |                                                                                                                                                     | $                          | 52,202 |                  
|                                       |                                                                                                                                                     |                            |        |                  

Note: The balance sheet as of December 31, 2000 is derived from audited consolidated financial statements and is in accordance with accounting principles
generally accepted in the United States of America. Entire notes for the audited period are not included in this report.

See
notes to consolidated financial statementsunaudited.

3

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

|                                                 |                                       | 13 Weeks Ended   |        | 26 Weeks Ended |   
|------------------------------------------------ | ------------------------------------- | ---------------- | ------ | -------------- | --
|
|REVENUE:                                         |                                       |                  |        |                |   
|                                                 | Restaurant sales                      |                  | $      | 28,877         |   
|                                                 | Franchise revenue                     |                  |        | 35             |   
|                                                 |                                       |                  |        |                |   
|TOTAL REVENUE                                    |                                       |                  | 28,912 |                |   
|                                                 |                                       |                  |        |                |   
|COSTS AND EXPENSES:                              |                                       |                  |        |                |   
|                                                 | Cost of sales                         |                  |        | 7,878          |   
|                                                 | Restaurant labor, occupancy and other |                  |        | 15,846         |   
|                                                 | General and administrative expenses   |                  |        | 2,502          |   
|                                                 | Depreciation and amortization         |                  |        | 1,310          |   
|                                                 | Pre-opening expenses                  |                  |        | 93             |   
|                                                 |                                       |                  |        |                |   
|TOTAL COSTS AND EXPENSES                         |                                       |                  | 27,629 |                |   
|                                                 |                                       |                  |        |                |   
|OPERATING INCOME                                 |                                       |                  | 1,283  |                |   
|                                                 |                                       |                  |        |                |   
|OTHER INCOME (EXPENSE):                          |                                       |                  |        |                |   
|                                                 | Interest and investment income        |                  |        | 70             |   
|                                                 | Interest expense                      |                  |        | (22            | ) 
|                                                 | Loss on disposal/sale of property     |                  |        | (1             | ) 
|                                                 |                                       |                  |        |                |   
|                                                 |                                       | OTHER INCOMENET |        |                | 47
|                                                 |                                       |                  |        |                |   
|INCOME BEFORE INCOME TAXES                       |                                       |                  | 1,330  |                |   
|INCOME TAX EXPENSE                               |                                       |                  | (532   | )              |   
|                                                 |                                       |                  |        |                |   
|NET INCOME                                       |                                       | $                | 798    |                | $ 
|                                                 |                                       |                  |        |                |   
|NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS:  |                                       |                  |        |                |   
|                                                 | Basic                                 |                  | $      | 798            |   
|                                                 |                                       |                  |        |                |   
|                                                 | Diluted                               |                  | $      | 798            |   
|                                                 |                                       |                  |        |                |   
|NET INCOME PER SHARE:                            |                                       |                  |        |                |   
|                                                 | Basic                                 |                  | $      | 0.09           |   
|                                                 |                                       |                  |        |                |   
|                                                 | Diluted                               |                  | $      | 0.09           |   
|                                                 |                                       |                  |        |                |   
|SHARES USED IN CALCULATING NET INCOME PER SHARE: |                                       |                  |        |                |   
|                                                 | Basic                                 |                  |        | 8,922          |   
|                                                 |                                       |                  |        |                |   
|                                                 | Diluted                               |                  |        | 9,002          |   
|                                                 |                                       |                  |        |                |   

See
notes to consolidated financial statementsunaudited.

4

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

|                                                   |                                                                                   | 26 Weeks Ended                     |                                       
|-------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------- | --------------------------------------
|
|OPERATING ACTIVITIES:                              |                                                                                   |                                    |                                       
|                                                   | Net income                                                                        |                                    | $                                     
|                                                   | Adjustments to reconcile net income to net cash provided by operating activities: |                                    |                                       
|                                                   |                                                                                   | Depreciation and amortization      |                                       
|                                                   |                                                                                   | Deferred compensation              |                                       
|                                                   |                                                                                   | Loss on disposal/sale of property  |                                       
|                                                   |                                                                                   | Changes in assets and liabilities: |                                       
|                                                   |                                                                                   |                                    | Other receivables                     
|                                                   |                                                                                   |                                    | Income taxes receivable               
|                                                   |                                                                                   |                                    | Inventory                             
|                                                   |                                                                                   |                                    | Prepaid expenses                      
|                                                   |                                                                                   |                                    | Other assets                          
|                                                   |                                                                                   |                                    | Deferred income taxes                 
|                                                   |                                                                                   |                                    | Accounts payable                      
|                                                   |                                                                                   |                                    | Accrued expenses and other liabilities
|                                                   |                                                                                   |                                    | Income taxes payable                  
|                                                   |                                                                                   |                                    | Deferred rent                         
|                                                   |                                                                                   |                                    | Deferred franchise revenue            
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|INVESTING ACTIVITIES:                              |                                                                                   |                                    |                                       
|                                                   | Proceeds from sale of property                                                    |                                    |                                       
|                                                   | Purchase of property                                                              |                                    |                                       
|                                                   | Purchases of investments                                                          |                                    |                                       
|                                                   | Sales and maturities of investments                                               |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|FINANCING ACTIVITIES:                              |                                                                                   |                                    |                                       
|                                                   | Proceeds from exercise of common stock options                                    |                                    |                                       
|                                                   | Other                                                                             |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|                                                   |                                                                                   |                                    |                                       
|INCREASE IN CASH AND CASH EQUIVALENTS              |                                                                                   |                                    | 1,931                                 
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   |                                                                                   |                                    | 1,311                                 
|                                                   |                                                                                   |                                    |                                       
|CASH AND CASH EQUIVALENTS AT END OF PERIOD         |                                                                                   | $                                  | 3,242                                 
|                                                   |                                                                                   |                                    |                                       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                                   |                                    |                                       
|                                                   | Cash paid for income taxesnet                                                    |                                    | $                                     

See
notes to consolidated financial statementsunaudited.

5

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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
INTERM FINANCIAL DATAIn the opinion of management, the unaudited consolidated financial statements for the interim periods presented reflect all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation of the financial position and results of operations as of and for such periods indicated. These consolidated financial
statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2000 included in the Company's
Form 10-K. Results for the interim periods presented herein are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal
year.

RECLASSIFICATIONCertain
prior period amounts have been reclassified to conform to current period presentation. Specifically, the Company has reclassified approximately
$192,000 of expenses attributable to credit card processing costs from general and administrative expenses to restaurant labor, occupancy and other ($82,000 in the first quarter and $110,000 in the
second quarter) for 2000 to conform to the 2001 presentation.

2. BALANCE SHEET DETAILS AS OF JULY 1, 2001 and DECEMBER 31, 2000, respectively (in thousands):

|                      |                                      | 2001 |        | 2000  |  
|--------------------- | ------------------------------------ | ---- | ------ | ----- | -
|OTHER RECEIVABLES:    |                                      |      |        |       |  
|                      | Tenant improvement receivables       |      | $      | 202   |  
|                      | Beverage usage receivable            |      |        | 164   |  
|                      | Accrued interest receivable          |      |        | 46    |  
|                      | Other                                |      |        | 662   |  
|                      |                                      |      |        |       |  
|Total                 |                                      | $    | 1,074  |       | $
|                      |                                      |      |        |       |  
|INVESTMENTS:          |                                      |      |        |       |  
|                      | Corporate bonds                      |      | $      | 2,114 |  
|                      | Tax-free municipals                  |      |        | 900   |  
|                      | Municipal bonds                      |      |        | 527   |  
|                      | Commercial paper                     |      |        | 299   |  
|                      | Mortgage and asset-backed securities |      |        | 213   |  
|                      |                                      |      |        |       |  
|                      |                                      |      | 4,053  |       |  
|Less: current portion |                                      |      | (3,779 | )     |  
|                      |                                      |      |        |       |  
|Non-current           |                                      | $    | 274    |       | $
|                      |                                      |      |        |       |  

6

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|                                        |                                                 | 2001 |        | 2000    |  
|--------------------------------------- | ----------------------------------------------- | ---- | ------ | ------- | -
|PROPERTYat cost:                       |                                                 |      |        |         |  
|                                        | Building and leasehold improvements             |      | $      | 27,931  |  
|                                        | Equipment and furniture                         |      |        | 25,651  |  
|                                        | Construction in process and related costs       |      |        | 837     |  
|                                        |                                                 |      |        |         |  
|                                        |                                                 |      | 54,419 |         |  
|                                        | Less: accumulated depreciation and amortization |      |        | (14,268 | )
|                                        |                                                 |      |        |         |  
|Total                                   |                                                 | $    | 40,151 |         | $
|                                        |                                                 |      |        |         |  
|OTHER ASSETS:                           |                                                 |      |        |         |  
|                                        | Long-term deposits                              |      | $      | 312     |  
|                                        | Other                                           |      |        | 88      |  
|                                        |                                                 |      |        |         |  
|Total                                   |                                                 | $    | 400    |         | $
|                                        |                                                 |      |        |         |  
|ACCRUED EXPENSES AND OTHER LIABILITIES: |                                                 |      |        |         |  
|                                        | Compensation                                    |      | $      | 1,341   |  
|                                        | Sales taxes                                     |      |        | 704     |  
|                                        | Vacation pay                                    |      |        | 569     |  
|                                        | Unearned usage allowance                        |      |        | 88      |  
|                                        | Other deferred income                           |      |        | 81      |  
|                                        | Other                                           |      |        | 734     |  
|                                        |                                                 |      |        |         |  
|Total                                   |                                                 | $    | 3,517  |         | $
|                                        |                                                 |      |        |         |  

3. COMMITMENTS AND CONTINGENCIES

REVOLVING LINE OF CREDITAs of July 1, 2001, the Company had available a $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. The Company pays a commitment fee on the unused portion of the credit line. In addition, the availability of the credit line is subject to maintaining certain
financial covenants. There were no borrowings against the credit line as of July 1, 2001 and December 31, 2000. On July 25, 2001, the Company drew $1.0 million on the line
of credit. This amount is still outstanding as of this date.

LITIGATIONThe
Company is subject to various types of litigation that arise in the ordinary course of its business. Based upon information presently available, management
is of the opinion that such litigation will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

7

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4. EARNINGS PER SHARE

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                                 |                                                                       | 26 Weeks Ended
|------------------- | -------- | ---------------------------------------------- | --------------------------------------------------------------------- | --------------
|
|Numerator           |          |                                                |                                                                       |               
|                    | Basic:   |                                                |                                                                       |               
|                    |          | Net income attributable to common stockholders |                                                                       | $             
|                    |          |                                                |                                                                       |               
|                    | Diluted: |                                                |                                                                       |               
|                    |          | Net income attributable to common stockholders |                                                                       | $             
|                    |          |                                                |                                                                       |               
|Denominator         |          |                                                |                                                                       |               
|                    | Basic:   |                                                |                                                                       |               
|                    |          | Weighted average common shares outstanding     |                                                                       |               
|                    | Diluted: |                                                |                                                                       |               
|                    |          | Effect of dilutive securities:                 |                                                                       |               
|                    |          |                                                | Common stock options                                                  |               
|                    |          |                                                |                                                                       |               
|                    |          |                                                | Total weighted average common and potential common shares outstanding |               
|                    |          |                                                |                                                                       |               
|Earnings per share: |          |                                                |                                                                       |               
|                    | Basic    |                                                | $                                                                     | 0.09          
|                    |          |                                                |                                                                       |               
|                    | Diluted  |                                                | $                                                                     | 0.09          
|                    |          |                                                |                                                                       |               

5. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations." SFAS No. 141 allows only the purchase
method of accounting to be used for business combinations that occur after June 30, 2001. At present, the Company has not entered into any business combinations and therefore, the adoption of
SFAS No. 141 has no effect on the Company's consolidated financial position or its results of operations.

Also
in July 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and
other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. It requires a company to perform a transitional assessment of whether there is an indication that goodwill is impaired as of the date of adoption. Any goodwill impairment
loss will be recognized as the cumulative effect of a change in accounting principle no later than the end of the fiscal year of adoption. The Company believes the initial adoption of SFAS
No. 142 will not have a material effect on its consolidated financial position or the results of operations.

In
June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The new standard became effective for the Company on January 1, 2001. At present, the Company does not hold any derivative instruments
nor does it engage in hedging activities. The initial adoption of SFAS No. 133 did not have an effect on the Company's consolidated financial position or the results of operations.

8

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

This quarterly report on Form 10-Q may contain certain 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 and grew steadily through 1994, at which time we operated 17 units. We
accelerated the number of restaurant openings in recent years, going from six new restaurants in 1995 to 36 in 2000. As of December 31, 2000, we had 126 restaurants open. We have opened an
additional nine company-owned restaurants this year, five this past quarter, bringing our total of company-owned restaurants open as of July 1, 2001 to 135. We also opened our first franchise
restaurant on June 4, 2001.

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

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

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

9

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RESULTS OF OPERATIONS

All comparisons under this heading between 2001 and 2000 refer to the 13-week period ended July 1, 2001 and the 13-week period
ended June 25, 2000, respectively, unless otherwise indicated.

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

|                           |                                         | 13 Weeks Ended          |     
|-------------------------- | --------------------------------------- | ----------------------- | ----
|
|Revenue (1)                |                                         | 100.0                   | %   
|Costs and expenses:        |                                         |                         |     
|                           | Cost of sales                           |                         | 27.3
|                           | Restaurant labor, occupancy and other   |                         | 54.9
|                           | General and administrative expenses (2) |                         | 8.7 
|                           | Depreciation and amortization           |                         | 4.5 
|                           | Pre-opening expenses                    |                         | 0.3 
|                           |                                         |                         |     
|Operating income           |                                         | 4.3                     |     
|                           |                                         |                         |     
|Other income (expense):    |                                         |                         |     
|                           | Interest income (expense), net          |                         | 0.2 
|                           | Loss on disposal/sale of property       |                         |    
|                           |                                         |                         |     
|                           |                                         | Total other income, net |     
|                           |                                         |                         |     
|Income before income taxes |                                         | 4.5                     |     
|Income tax expense         |                                         | (1.8                    | )   
|                           |                                         |                         |     
|Net income                 |                                         | 2.7                     | %   
|                           |                                         |                         |     

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13 WEEKS ENDED JULY 1, 2001 COMPARED TO THE 13 WEEKS ENDED JUNE 25, 2000

Results of operations reflect 13 weeks of operations for 130 restaurants and partial period operations for 5 restaurants for the 13 weeks ended
July 1, 2001. Results of operations also reflect 13 weeks of operations for 96 restaurants and a partial period of operations for 11 restaurants for the 13 weeks ended
June 25, 2000.

REVENUE.Revenue increased $5.4 million or 23.3%, to $28.9 million for the 13 weeks ended
July 1, 2001 from $23.5 million for the 13 weeks ended June 25, 2000. The increase in 2001 was due in part to $3.9 million in sales generated by a full quarter of
operations from units opened in 2000 that were not yet in our comparable unit base. Units enter the comparable store base after 15 full months of operation. Total sales from all units that comprise
our comparable base were down from prior year by $92,000, or 0.4%. Sales from our nine 2001 openings were $1.6 million. The decrease in comparable store sales was primarily due to a 3.8%
decrease in transactions, offset by a 3.4% increase in average check. Average check increased primarily as a result of a price increase of 4.5% at the beginning of the year and a lobster promotion
that ran the last six weeks of the quarter.

10

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COST OF SALES.Cost of sales as a percentage of restaurant sales decreased to 27.3% in the 13 weeks ended
July 1, 2001 from 29.2% in the 13 weeks ended June 25, 2000. The decrease was primarily due to the previously mentioned price increase that leveraged food cost as well as implementing
new portioning tools that produce our food more consistently. We were also able to work with our suppliers to reduce some of our commodity prices. In addition, some menu item components were changed
that also had a favorable impact on product cost. Offsetting these savings were the higher cost burrito upgrades we made in the summer of 2000.

RESTAURANT LABOR, OCCUPANCY AND OTHER.Restaurant labor, occupancy, and other increased as a percentage of restaurant
sales to 54.9% for the 13 weeks ended July 1, 2001 from 51.3% in the 13 weeks ended June 25, 2000. The increase as a percentage of restaurant sales is due in part to an
increase in total direct and related labor costs of approximately 2.1%. These labor increases were primarily due to expected inefficiencies in the new stores, increasing mix of stores located in newer
markets which have on average lower initial annual sales volumes than our mature markets and overall wage inflation. Also contributing to the higher labor related costs was the increase of workers'
compensation in California. Occupancy costs, which include rents, percentage rents and common area maintenance, increased by 0.9%. Also contributing to the variance were higher utility costs in
California that resulted in a 0.5% increase from prior year.

GENERAL AND ADMINISTRATIVE EXPENSES.General and administrative expenses increased to $2.5 million for the
13 weeks ended July 1, 2001 from $2.4 million for the 13 weeks ended June 25, 2000. As a percentage of restaurant sales, general and administrative expenses
decreased to 8.7% for the 13 weeks ended July 1, 2001 from 10.4% for the 13 weeks ended June 25, 2000. The decrease was primarily due to the leveraging of our expanding
revenue base as well as lower wages, recruiting and travel expenses.

DEPRECIATION AND AMORTIZATION.Depreciation and amortization expenses increased to $1.3 million in the
13 weeks ended July 1, 2001 from $1.0 million in the 13 weeks ended June 25, 2000. The $0.3 million increase was primarily due to the additional depreciation
on the 36 new units opened during 2000 and the 9 new units opened during 2001. As a percentage of restaurant sales, depreciation and amortization increased to 4.5% for the 13 weeks ended
July 1, 2001 from 4.3% for the 13 weeks ended June 25, 2000.

PRE-OPENING EXPENSES.Pre-opening expenses decreased to $93,000 for the 13 weeks ended
July 1, 2001 from $190,000 for the 13 weeks ended June 25, 2000. The decrease was due in part to opening five units in the 13 weeks ended July 1, 2001 versus opening
eleven units in the 13 weeks ended June 25, 2000. The average pre-opening cost per new unit opening increased from approximately $17,300 per new unit in the prior year
quarter to approximately $18,600 per new unit in the current year quarter. This per unit average increase was due to opening one location in our new San Francisco market and one location in the
relatively new Sacramento market.

INTEREST INCOME (EXPENSE), NET.Net interest income decreased to $48,000 for the 13 weeks ended July 1,
2001 from $226,000 in net interest income for the 13 weeks ended June 25, 2000. Interest income decreased to $70,000 for the 13 weeks ended July 1, 2001 from $248,000 for
the 13 weeks ended June 25, 2000. The decrease is primarily due to less cash available for investing in the current year quarter versus last year's comparable quarter.

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INCOME TAXES.The provision for income taxes for the 13 weeks ended July 1, 2001 and 13 weeks
ended June 25, 2000 is based on the approximate annual effective tax rate of 40% applied to the respective period's pretax book income. The 40% tax expense applied to the 13 weeks ended
July 1, 2001 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $1,330,000. The 40% tax rate applied to the
13 weeks ended June 25, 2000 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $1,168,000.

All
comparisons in the following section refer to the 26-week period ended July 1, 2001 and the 26-week period ended June 25, 2000, respectively,
unless otherwise indicated.

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

|                           |                                         | 26 Weeks Ended          |     
|-------------------------- | --------------------------------------- | ----------------------- | ----
|
|Revenue (1)                |                                         | 100.0                   | %   
|Costs and expenses:        |                                         |                         |     
|                           | Cost of sales                           |                         | 27.7
|                           | Restaurant labor, occupancy and other   |                         | 56.3
|                           | General and administrative expenses (2) |                         | 9.4 
|                           | Depreciation and amortization           |                         | 4.6 
|                           | Pre-opening expenses                    |                         | 0.4 
|                           |                                         |                         |     
|Operating income           |                                         | 1.6                     |     
|                           |                                         |                         |     
|Other income (expense):    |                                         |                         |     
|                           | Interest income (expense), net          |                         | 0.3 
|                           | Loss on disposal/sale of property       |                         |    
|                           |                                         |                         |     
|                           |                                         | Total other income, net |     
|                           |                                         |                         |     
|Income before income taxes |                                         | 1.9                     |     
|Income tax expense         |                                         | (0.7                    | )   
|                           |                                         |                         |     
|Net income                 |                                         | 1.2                     | %   
|                           |                                         |                         |     

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26 WEEKS ENDED JULY 1, 2001 COMPARED TO THE 26 WEEKS ENDED JUNE 25, 2000

Results of operations reflect 26 weeks of operations for 126 restaurants and partial period operations for nine restaurants for the 26 weeks ended
July 1, 2001. Results of operations also reflect 26 weeks of operations for 90 restaurants and a partial period of operations for 17 restaurants for the 26 weeks ended June 25, 2000.

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REVENUE.Revenue increased $12.0 million or 27.6%, to $55.4 million for the 26 weeks ended July 1,
2001 from $43.4 million for the 26 weeks ended June 25, 2000. The increase in 2001 was due in part to $9.9 million in sales generated by a full six months of operations from units
opened in 2000 and 1999 that were not yet in our comparable unit base. Contributing to the positive sales variance were revenues from our nine 2001 openings of $1.9 million. Units enter the
comparable store base after 15 full months of operation. Total sales from all units that comprise our comparable base were up from prior year by $215,000, or 0.5%. The increase in comparable store
sales was primarily due to a 4.5% increase in the average check amount, offset by a 3.9% decrease in transactions. Average check increased primarily as a result of a price increase of 4.5% at the
beginning of the year and a lobster promotion that ran the last six weeks of the second quarter.

COST OF SALES.Cost of sales as a percentage of restaurant sales decreased to 27.7% in the 26 weeks ended
July 1, 2001 from 29.3% in the 26 weeks ended June 25, 2000. The decrease was primarily due to the price increase at the beginning of the year, which leveraged food cost as well as
implementing a new portioning system that produces our food more consistently. We were also able to work with our suppliers to reduce some of our commodity prices. In addition, some menu item
components were changed that also had a favorable impact on product cost. Offsetting these savings were the higher cost burrito upgrades we made in the summer of 2000.

RESTAURANT LABOR, OCCUPANCY AND OTHER.Restaurant labor, occupancy, and other increased as a percentage of restaurant
sales to 56.3% for the 26 weeks ended July 1, 2001 from 51.8% in the 26 weeks ended June 25, 2000. The increase as a percentage of sales is due in part to an increase in total direct and
related labor costs of approximately 2.6%. These labor increases were due to expected inefficiencies in the new stores and an increasing mix of stores located in newer markets, which have on average
lower initial annual sales volumes than our mature markets, and overall wage inflation. Also contributing to the higher labor related costs was the increase of workers' compensation premiums in
California. Occupancy costs, which include rents, percentage rents and common area maintenance, increased by 0.8%. Utility costs increased by 0.6% from prior year primarily due to the California
energy crisis. Increases in advertising costs of 0.4% and other unit operating expenses of 0.1% also contributed to the variance from prior year.

GENERAL AND ADMINISTRATIVE EXPENSES.General and administrative expenses increased to $5.2 million for the 26
weeks ended July 1, 2001 from $4.7 million for the 26 weeks ended June 25, 2000. As a percentage of restaurant sales, general and administrative expenses decreased to 9.4% for the
26 weeks ended July 1, 2001 from 10.9% for the 26 weeks ended June 25, 2000. The decrease as a percentage of sales was primarily due to the leveraging of our expanding revenue base.

DEPRECIATION AND AMORTIZATION.Depreciation and amortization expenses increased to $2.5 million in the 26 weeks
ended July 1, 2001 from $1.9 million in the 26 weeks ended June 25, 2000. The $0.6 million increase was primarily due to the additional depreciation on the 36 new units
opened during 2000 and the 9 new units opened during 2001. As a percentage of restaurant sales, depreciation and amortization increased to 4.6% for the 26 weeks ended July 1, 2001 versus 4.4%
for the 26 weeks ended June 25, 2000.

PRE-OPENING EXPENSES.Pre-opening expenses decreased to $234,000 for the 26 weeks ended
July 1, 2001 from $377,000 for the 26 weeks ended June 25, 2000. The decrease was due in part to opening eight less units in the first six months of 2001 versus 2000. The average
pre-opening cost per new unit opening increased from approximately $22,000 per new unit in the prior year to approximately $26,000 per new unit in the current year due to opening three
locations in our new San Francisco market and one location in the relatively new Sacramento market. New markets traditionally require higher pre-opening costs than in mature markets due to
the lack of leveraging an existing region's resources.

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INTEREST INCOME (EXPENSE), NET.Net interest income decreased to $147,000 for the 26 weeks ended July 1, 2001
from $430,000 in net interest income for the 26 weeks ended June 25, 2000. Interest income decreased to $188,000 for the 26 weeks ended July 1, 2001 from $474,000 for the 26 weeks ended
June 25, 2000. The decrease is primarily due to less cash available for investing in the first six months of 2001 versus the comparable period last year. Interest expense decreased to $41,000
in the current year from $44,000 in the same prior year period.

INCOME TAXES.The provision for income taxes for the 26 weeks ended July 1, 2001 and 26 weeks ended
June 25, 2000 is based on the approximate annual effective tax rate of 40% applied to the respective period's pretax book income. The 40% tax expense applied to the 26 weeks ended
July 1, 2001 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $1,073,000. The 40% tax rate applied to the 26 weeks
ended June 25, 2000 comprises the federal and state statutory rates based on the estimated annual effective rate on pre-tax income of $1,617,000.



Historically, we've 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.



Components of our operations subject to inflation include food, beverage, lease and labor 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.



We have funded our capital requirements in recent years through the public sale of equity securities, cash flow from operations, private placement of preferred
stock and bank debt. We generated $3.0 million in cash flow from operating activities for the 26 weeks ended July 1, 2001 and $3.5 million for the 26 weeks ended June 25,
2000. The $0.5 million decrease is due in part to lower construction related invoices in accounts payable at July 1, 2001 versus at December 31, 2000.

Net
cash used by investing activities was $1.1 million for the 26 weeks ended July 1, 2001 compared to $0.7 million for the 26 weeks ended June 25, 2000.
The decrease in cash was primarily due to the liquidation of investments that were used to fund our nine restaurant openings and our new point of sale conversions during the 26 weeks ended
July 1, 2001.

Net
cash provided by financing activities was $45,000 for the 26 weeks ended July 1, 2001 compared to net cash provided of $14,000 for the 26 weeks ended June 25, 2000.
Financing activities in both years consisted primarily of proceeds from exercises of common stock options.

In
addition, we have a $12.0 million revolving line of credit agreement with a financial institution that matures July 2004, and as of July 1, 2001 there was no
outstanding balance under this agreement. On July 25, 2001, the Company drew $1.0 million on the line of credit. This amount is still outstanding as of this date. 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.

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Our funds are principally used for the development and opening of new units. We incurred $5.3 million in capital expenditures during the 26 weeks ended July 1, 2001, of
which $3.6 million was for newly opened units, $0.2 million for future openings, $0.9 for remodels and point of sale system upgrades, $0.5 million for existing locations and
$0.1 million for corporate and information technology expenditures. During the 26 weeks ended June 25, 2000, we incurred $6.5 million in capital expenditures, of which
$5.2 million was for new unit openings, $0.2 million for future openings, $0.9 million was for expenditures on existing locations and $0.2 million for corporate
expenditures.

We
currently expect total capital expenditures in 2001 to be approximately $11.0 million, of which approximately $8.8 million is forecasted for the opening of new
restaurants. We currently plan to open approximately 18 units in 2001 and approximately eight units in 2002. We currently expect that future locations will generally cost between $380,000 and $450,000
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 in existing markets and between $25,000 and $35,000 in newer markets.

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

RISK FACTORS

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

OUR EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF RISKS WHICH 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 southwest region of the United States. Our expansion into geographic areas outside the Southwest
involves a number of risks, including:



15

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We
may not be successful in addressing these risks. We also may not be able to open our planned new operations on a timely basis, or at all, or sustain such operations in these new
areas. Delays in opening or failure to open or sustain new restaurants outside the Southwest could have a material adverse effect on our business and results of operations. We currently anticipate
that our new restaurants will take several months to reach planned operating levels due to inefficiencies typically associated with expanding into new regions, such as lack of market awareness,
acceptance of our restaurant concept and inability to hire sufficient staff.

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

We continue to evaluate our expansion strategy. As of July 1, 2001, we have opened 135 company-owned restaurants, 51 restaurants in greater Los Angeles,
California which includes Los Angeles, Orange, San Bernardino, Ventura and Riverside counties, 38 restaurants in San Diego county, 17 restaurants in Phoenix/Tucson, Arizona, nine restaurants in
Denver, Colorado, six restaurants in Salt Lake City, Utah, five restaurants in Las Vegas, Nevada, five in the Sacramento, California area and four in the San Francisco, California area. We currently
plan to open approximately 18 restaurants in 2001, nine of which have been opened as of July 1, 2001. Ten of the 18 planned 2001 openings are outside Southern California. We currently plan to
open approximately eight restaurants in 2002. Our ability to successfully achieve our expansion strategy will depend on a variety of factors, many of which are beyond our control.

These
factors include:



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.

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

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

In
addition to seasonality, our quarterly and annual operating results and comparable unit sales may fluctuate significantly as a result of a variety of factors, including:



16

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

OUR FINANCIAL PERFORMANCE MAY BE MATERIALLY ADVERSELY AFFECTED BY THE ENERGRY CRISIS IN CALIFORNIA.

The Company has 98 restaurants located in California. These units may be materially adversely affected by the current utility crisis in the state. If the
utility companies institute "rolling blackouts," the Company's financial performance could be materially impacted by these power outages. If a rolling blackout occurs, the locations without power may
have to cease operations during the power outage and food supplies may be ruined.

WE HAVE RECENTLY INITIATED A FRANCHISE STRATEGY. WE MAY BE UNSUCCESSFUL IN FULLY EXECUTING THIS PROGRAM.

We started a franchise program by entering into an agreement with a franchisee in late October 2000. We had a total of two franchise agreements signed
as of July 1, 2001. These agreements represent commitments to open 14 units. In conjunction with these signings, we received $140,000 in franchise fees in 2000 and were able to recognize
$40,000 of that as income in the fourth quarter of 2000. We have recorded $65,000 in franchise revenue during the first six months of 2001 related to area development fees, franchise fees and
royalties. We also incurred $218,000 and $179,000 of expense related to franchising in the 26 weeks ended July 1, 2001 and June 25, 2000 respectively. We opened our first franchise
location on June 4, 2001 in Fresno, California. Our second franchise restaurant is expected to open in the fourth quarter of 2001. 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
these business abilities or access to the financial resources necessary to open the restaurants or to successfully develop or operate the restaurants in their franchise areas in a manner consistent
with our standards.

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UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF OUR RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW RESTAURANTS.

We depend on contractors and real estate developers to construct our restaurants. Many factors may adversely affect the cost and time associated with the
development and construction of our restaurants, including:



Any
of these factors could give rise to delays or cost overruns which may prevent us from developing additional restaurants within our anticipated budgets or time periods. Any such
failure could have a material adverse effect on our business and results of operations.

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

We plan to incur substantial costs over the near-term in connection with our marketing plans and expansion strategy. We may need to seek additional
financing sooner than we anticipate as a result of the following factors:



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

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

Our success and the success of our individual restaurants depend upon our ability to attract and retain highly motivated, well-qualified restaurant
operators and management personnel, as well as a sufficient number of qualified employees, including guest service and kitchen staff, to keep pace with our expansion schedule. Qualified individuals
needed to fill these positions are in short supply in some geographic areas. Our ability to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher
employee turnover in existing restaurants, which could have a material adverse effect on our business or results of operations. We also face significant competition in the recruitment of qualified
employees. In addition, we are heavily dependent upon the services of our officers and key management involved in restaurant operations, marketing, finance, purchasing, expansion, human resources and
administration. The loss of any of these individuals could have a material adverse effect on our business and results of operations. We currently do not have employment agreements with any of our
employees.

OUR RESOURCES MAY BE STRAINED IN IMPLEMENTING OUR BUSINESS STRATEGY.

Our growth strategy will place a strain on our management, financial and other resources. To manage our growth effectively, we must maintain the level of
quality and service at our existing and future restaurants. We must also continue to enhance our operational, marketing, financial and management systems and locate, hire, train and retain experienced
and dedicated operating personnel, particularly managers. We may not be able to effectively manage any one or more of these or other aspects of our expansion. Failure to do so could have a material
adverse effect on our business and results of operations.

IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO INCREASES IN OUR FOOD AND LABOR 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 not be able to anticipate and react to
changing food costs, whether through our purchasing practices, menu composition or menu price adjustment in the future. In the event that food and labor 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.

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. On January 1, 2001, the California minimum wage was increased to $6.25 per hour from $5.75. On January 1, 2002, the California
minimum wage will increase from $6.25 to $6.75 per hour. Similar proposals may come before legislators or voters in other jurisdictions in which we operate or seek to operate. In addition, workers'
compensation premiums have increased significantly in California. Such minimum wage and insurance cost increases could continue to have a material adverse effect on our business and results of
operations.

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

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

The
performance of our restaurants may be affected by factors such as traffic patterns, demographic considerations and the type, number and proximity of our competition. In addition,
factors such as inflation, utility costs, increased food, labor and employee benefit costs and the availability of experienced management and hourly employees may also adversely affect the restaurant
industry in general and our units in particular.

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

Our ability to successfully expand our concept will depend on our ability to establish and maintain "brand equity" through the use of our trademarks, service
marks, trade dress and other proprietary intellectual property, including our name and logos. We currently hold four trademarks and have seven service marks relating to our brand. Some or all of the
rights in our intellectual property may not be enforceable, even if registered, against any prior users of similar intellectual property or our competitors who seek to use similar intellectual
property in areas where we operate or intend to conduct operations. If we fail to enforce any of our intellectual property rights, we may be unable to capitalize on our efforts to establish brand
equity. It is also possible that we will encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. Claims from prior users could
limit our operations and possibly cause us to incur costs through the payment of damages, licensing fees to a prior user or registrant of similar intellectual property, or attorney's fees or other
legal costs as well.

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. We are also the subject of complaints or allegations from current, former or prospective employees from time to time. 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.

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

As of July 1, 2001 all but 15 of our existing restaurants are located in the southwest 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 or other disasters. Our significant investment in, and long-term commitment
to, each of our units limits our ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect our operations. In addition, some of our
competitors have many more units than we do. Consequently, adverse economic or other conditions in a region, a decline in the profitability of several existing units or the introduction of several
unsuccessful new units in a geographic area could have a more significant effect on our results of operations than would be the case for a company with a larger number of restaurants or with more
geographically dispersed restaurants, and we may have to adjust our expansion strategy.

OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE AGAINST CLAIMS.

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

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR STOCK PRICE TO DECLINE.

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

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

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

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

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



21

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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 August 6, 2001, the executive officers, directors and entities affiliated with them, in the aggregate, beneficially own approximately 32.7% of our
outstanding common stock. These stockholders are able to exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company.

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

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures are related to our cash, cash equivalents and investments. We invest our excess cash in highly liquid short-term
investments primarily with maturities of less than one year and corporate bonds, tax-free municipals, municipal bonds, commercial paper and mortgage and asset-backed securities with
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.

In
addition, we have a $12.0 million revolving line of credit agreement with a financial institution. 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.

There
were no borrowings under this agreement as of July 1, 2001. On July 25, 2001, the Company drew $1.0 million on the line of credit. This amount is still
outstanding as of this date. Changes in interest rates would affect the interest expense on these borrowings 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.

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PART IIOTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) Not
applicable

(b) Not
applicable

(c) Not
applicable

(d) We
currently have approximately $2.1 million remaining from our initial public offering in May 1999 as well as an additional $5.2 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 SECURITIES

Not applicable

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

At the Company's annual meeting of stockholders held on June 8, 2001, the stockholders voted on the following matters:

| | Nominees        |  | Votes For |  | Votes Withheld |  | Broker Non-Vote | 
| | --------------- |  | --------- |  | -------------- |  | --------------- | 
| | Jack W. Goodall |  | 8,278,426 |  | 21,730         |  |                | 
| | Timothy J. Ryan |  | 8,252,972 |  | 47,184         |  |                | 

| | Votes For |  | Votes Against |  | Votes Abstain |  | Broker Non-Vote | 
| | --------- |  | ------------- |  | ------------- |  | --------------- | 
| | 8,285,598 |  | 7,515         |  | 7,043         |  |                | 

Item 5. OTHER INFORMATION

Not applicable

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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)                                                                                                            
|  |    |                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |                                                                                                                                                             
|  |    |                      |     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                         |     | Incorporated by reference to the above noted exhibit to our registration statement on Form S-1 (333-75087) filed with the SEC on March 26, 1999, as amended.
|  |    |                      |     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                         |     | Incorporated by reference to the above noted exhibit to our annual report on Form 10-K filed with the SEC on April 2, 2001.                                 
|b | )  | Reports on Form 8-K:
|  |    |                      |     | The Company filed with the Securities and Exchange Commission a Current Report on Form 8-K on May 23, 2001, disclosing under "Item 5 Other Events" the approval by the board of directors of an amendment to its insider trading policy
effective May 4, 2001, permitting its officers, directors and other parties subject to the Company's insider trading guidelines to enter into written trading plans complying with SEC Rule 10b5-1.

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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 dully authorized.

|Dated: August 15, 2001 |  | RUBIO'S RESTAURANTS, INC.
|---------------------- |  | -------------------------
|                       |  | By:                      

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