##### Table of Contents



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

FORM 10-Q

(Mark One)

|                                  |                                                                                         
|--------------------------------- | ----------------------------------------------------------------------------------------
|[X]                               | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                  |                                                                                         
|                                  | For the quarterly period ended September 29, 2002                                       
|                                  |                                                                                         
|OR                               
|                                  |                                                                                         
|[    ]                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                 
|Commission File Number: 000-26125

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

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

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

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

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

(1) Yes
[X]    No [   ]

(2) Yes
[X]    No [   ]

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



---

---

1



---

TABLE OF CONTENTS



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



---



##### Table of Contents



RUBIOS RESTAURANTS, INC.

TABLE OF CONTENTS

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

2



---



##### Table of Contents









PART I   FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS




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

|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |              |       |        |        | 
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ----------------- | -------------------------- | ------ | ------------- | ------ | ------------ | ----- | ------ | ------ | 
|                                       |                                                                                                                                                     |                           |                   |                            |        | September 29, |        | December 30,
|                                       |                                                                                                                                                     |                           |                   |                            |        | 2002          |        | 2001        
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       |                                                                                                                                                     |                           |                   |                            |        | (unaudited)   |        | (see Note)  
|ASSETS                                 |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|CURRENT ASSETS:                        |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       | Cash and cash equivalents                                                                                                                           |                           | $                 | 11,420                     |        |               | $      | 4,710        |      
|                                       | Short-term investments                                                                                                                              |                           |                   | 1,292                      |        |               |        | 1,302        |      
|                                       | Income taxes receivable                                                                                                                             |                           |                   |                           |        |               |        | 798          |      
|                                       | Other receivables                                                                                                                                   |                           |                   | 645                        |        |               |        | 673          |      
|                                       | Inventory                                                                                                                                           |                           |                   | 1,429                      |        |               |        | 1,453        |      
|                                       | Prepaid expenses                                                                                                                                    |                           |                   | 838                        |        |               |        | 736          |      
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       |                                                                                                                                                     | Total current assets      |                   |                            | 15,624 |               |        |              | 9,672 |       
|INVESTMENTS                            |                                                                                                                                                     |                           |                  |                            |        |               | 367    |             
|PROPERTY  NET                         |                                                                                                                                                     |                           | 34,662            |                            |        |               | 35,911 |             
|OTHER ASSETS                           |                                                                                                                                                     |                           | 288               |                            |        |               | 353    |             
|DEFERRED INCOME TAXES                  |                                                                                                                                                     |                           | 2,831             |                            |        |               | 4,346  |             
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|TOTAL                                  |                                                                                                                                                     | $                         | 53,405            |                            |        | $             | 50,649 |             
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|CURRENT LIABILITIES:                   |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       | Accounts payable                                                                                                                                    |                           | $                 | 2,720                      |        |               | $      | 3,005        |      
|                                       | Accrued expenses and other liabilities                                                                                                              |                           |                   | 4,278                      |        |               |        | 3,634        |      
|                                       | Store closure reserve                                                                                                                               |                           |                   | 872                        |        |               |        | 1,496        |      
|                                       | Line of credit                                                                                                                                      |                           |                   | 1,000                      |        |               |        | 1,000        |      
|                                       | Income taxes payable                                                                                                                                |                           |                   | 529                        |        |               |        |             |      
|                                       | Deferred income taxes                                                                                                                               |                           |                   | 213                        |        |               |        | 214          |      
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       |                                                                                                                                                     | Total current liabilities |                   |                            | 9,612  |               |        |              | 9,349 |       
|STORE CLOSURE RESERVE                  |                                                                                                                                                     |                           | 1,707             |                            |        |               | 2,981  |             
|DEFERRED RENT                          |                                                                                                                                                     |                           | 1,878             |                            |        |               | 1,608  |             
|DEFERRED INCOME                        |                                                                                                                                                     |                           | 36                |                            |        |               |       |             
|DEFERRED FRANCHISE REVENUE             |                                                                                                                                                     |                           | 56                |                            |        |               | 87     |             
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       |                                                                                                                                                     |                           | Total liabilities |                            |        | 13,289        |        |              |       | 14,025 |       
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|COMMITMENTS AND CONTINGENCIES (NOTE 5) |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|STOCKHOLDERS EQUITY:                  |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       | Preferred stock, $.001 par value,
5,000,000 shares authorized, no
shares issued or outstanding                                                      |                           |                   |                           |        |               |        |             |      
|                                       | Common stock, $.001 par value,
75,000,000 shares authorized,
9,052,258 issued and outstanding in
2002, and 8,922,786 issued and
outstanding in 2001 |                           |                   | 9                          |        |               |        | 9            |      
|                                       | Paid-in capital                                                                                                                                     |                           |                   | 41,819                     |        |               |        | 41,441       |      
|                                       | Deferred compensation                                                                                                                               |                           |                   | 459                        |        |               |        | 217          |      
|                                       | Accumulated other comprehensive income                                                                                                              |                           |                   | 7                          |        |               |        | 6            |      
|                                       | Accumulated deficit                                                                                                                                 |                           |                   | (2,178                     | )      |               |        | (5,049       | )    
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|                                       |                                                                                                                                                     |                           |                   | Total stockholders equity |        |               | 40,116 |              |       |        | 36,624 | 
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             
|TOTAL                                  |                                                                                                                                                     | $                         | 53,405            |                            |        | $             | 50,649 |             
|                                       |                                                                                                                                                     |                           |                   |                            |        |               |        |             

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

See notes to consolidated financial statements-unaudited.

3



---



##### Table of Contents






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

|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |        |     | 
|------------------------------------------------------- | ----------------------------------------------------- | --------------------------- | ------ | ------------------ | -- | ------------------ | ------ | ------------------ | -- | ------------------ | ------ | ------ | --- | - | ------ | ------ | --- | 
|                                                        |                                                       |                             |        | 13 Weeks Ended     |    | 39 Weeks Ended    
|                                                        |                                                       |                             |        |                    |    |                   
|                                                        |                                                       |                             |        | September 29, 2002 |    | September 30, 2001 |        | September 29, 2002 |    | September 30, 2001
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                   
|REVENUE:                                                |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Restaurant sales                                      |                             | $      | 30,730             |    |                    | $      | 29,998             |    |                    | $      | 91,180 |     |   | $      | 85,377 |    
|                                                        | Franchise and licensing
revenue                       |                             |        | 69                 |    |                    |        | 39                 |    |                    |        | 198    |     |   |        | 150    |    
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|TOTAL REVENUE                                           |                                                       |                             | 30,799 |                    |    |                    | 30,037 |                    |    |                    | 91,378 |        |     |   | 85,527 |       
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|COSTS AND EXPENSES:                                     |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Cost of sales                                         |                             |        | 8,214              |    |                    |        | 8,345              |    |                    |        | 24,793 |     |   |        | 23,702 |    
|                                                        | Restaurant labor, occupancy
and other                 |                             |        | 17,194             |    |                    |        | 16,502             |    |                    |        | 50,675 |     |   |        | 47,728 |    
|                                                        | General and administrative
expenses                   |                             |        | 2,281              |    |                    |        | 2,554              |    |                    |        | 7,470  |     |   |        | 7,772  |    
|                                                        | Depreciation and amortization                         |                             |        | 1,288              |    |                    |        | 1,362              |    |                    |        | 3,887  |     |   |        | 3,890  |    
|                                                        | Pre-opening expenses                                  |                             |        | 21                 |    |                    |        | 112                |    |                    |        | 114    |     |   |        | 346    |    
|                                                        | Asset impairment and store
closure expense (reversal) |                             |        | (523               | )  |                    |        | 6,310              |    |                    |        | (523   | )   |   |        | 6,310  |    
|                                                        | Net loss on disposal/sale of
property                 |                             |        | 122                |    |                    |        | 6                  |    |                    |        | 161    |     |   |        | 6      |    
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|TOTAL COSTS AND EXPENSES                                |                                                       |                             | 28,597 |                    |    |                    | 35,191 |                    |    |                    | 86,577 |        |     |   | 89,754 |       
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|OPERATING INCOME (LOSS)                                 |                                                       |                             | 2,202  |                    |    |                    | (5,154 | )                  |    |                    | 4,801  |        |     |   | (4,227 | )     
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|OTHER (EXPENSE) INCOME:                                 |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Interest and investment
income                        |                             |        | 24                 |    |                    |        | 58                 |    |                    |        | 80     |     |   |        | 246    |    
|                                                        | Interest expense                                      |                             |        | (32                | )  |                    |        | (33                | )  |                    |        | (96    | )   |   |        | (75    | )  
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        |                                                       | OTHER
(EXPENSE) INCOME NET |        |                    | (8 | )                  |        |                    | 25 |                    |        |        | (16 | ) |        |        | 171 | 
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|INCOME (LOSS) BEFORE INCOME
TAXES                       |                                                       |                             | 2,194  |                    |    |                    | (5,129 | )                  |    |                    | 4,785  |        |     |   | (4,056 | )     
|INCOME TAX EXPENSE (BENEFIT)                            |                                                       |                             | 878    |                    |    |                    | (2,052 | )                  |    |                    | 1,914  |        |     |   | (1,622 | )     
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|NET INCOME (LOSS)                                       |                                                       | $                           | 1,316  |                    |    | $                  | (3,077 | )                  |    | $                  | 2,871  |        |     | $ | (2,434 | )     
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS:  |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Basic                                                 |                             | $      | 1,316              |    |                    | $      | (3,077             | )  |                    | $      | 2,871  |     |   | $      | (2,434 | )  
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Diluted                                               |                             | $      | 1,316              |    |                    | $      | (3,077             | )  |                    | $      | 2,871  |     |   | $      | (2,434 | )  
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|NET INCOME (LOSS) PER SHARE:                            |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Basic                                                 |                             | $      | 0.15               |    |                    | $      | (0.34              | )  |                    | $      | 0.32   |     |   | $      | (0.27  | )  
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Diluted                                               |                             | $      | 0.14               |    |                    | $      | (0.34              | )  |                    | $      | 0.31   |     |   | $      | (0.27  | )  
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|SHARES USED IN CALCULATING NET
INCOME (LOSS) PER SHARE: |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Basic                                                 |                             |        | 9,049              |    |                    |        | 8,923              |    |                    |        | 9,005  |     |   |        | 8,919  |    
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       
|                                                        | Diluted                                               |                             |        | 9,177              |    |                    |        | 8,923              |    |                    |        | 9,143  |     |   |        | 8,919  |    
|                                                        |                                                       |                             |        |                    |    |                    |        |                    |    |                    |        |        |     |   |        |       

See notes to consolidated financial statements-unaudited.

4



---



##### Table of Contents






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

|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                    |       |        |        |  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------- | -------------------------------------- | ------------------------------------- | ----- | ------------------ | ------ | ------------------ | ----- | ------ | ------ | -
|                                                   |                                                                                          |                                                       |                                        |                                       |       | 39 Weeks Ended    
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                   
|                                                   |                                                                                          |                                                       |                                        |                                       |       | September 29, 2002 |        | September 30, 2001
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|OPERATING ACTIVITIES:                              |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   | Net income (loss)                                                                        |                                                       | $                                      | 2,871                                 |       |                    | $      | (2,434             | )    
|                                                   | Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |                                                       |                                        |                                       |       |                    |        |                    |      
|                                                   |                                                                                          | Depreciation and amortization                         |                                        |                                       | 3,887 |                    |        |                    | 3,890 |       
|                                                   |                                                                                          | Deferred compensation                                 |                                        |                                       | 242   |                    |        |                    | 37    |       
|                                                   |                                                                                          | Asset impairment and store closure expense
(reversal) |                                        |                                       | (523  | )                  |        |                    | 6,310 |       
|                                                   |                                                                                          | Net loss on disposal/sale of property                 |                                        |                                       | 161   |                    |        |                    | 6     |       
|                                                   |                                                                                          | Changes in assets and liabilities:                    |                                        |                                       |       |                    |        |                    |       |       
|                                                   |                                                                                          |                                                       | Income taxes receivable/payable        |                                       |       | 1,327              |        |                    |       | 1,153  |       
|                                                   |                                                                                          |                                                       | Other receivables                      |                                       |       | 28                 |        |                    |       | 144    |       
|                                                   |                                                                                          |                                                       | Inventory                              |                                       |       | 24                 |        |                    |       | 424    |       
|                                                   |                                                                                          |                                                       | Prepaid expenses                       |                                       |       | (102               | )      |                    |       | (311   | )     
|                                                   |                                                                                          |                                                       | Other assets                           |                                       |       | 65                 |        |                    |       | 62     |       
|                                                   |                                                                                          |                                                       | Deferred income taxes                  |                                       |       | 1,514              |        |                    |       | (2,520 | )     
|                                                   |                                                                                          |                                                       | Accounts payable                       |                                       |       | (285               | )      |                    |       | (1,683 | )     
|                                                   |                                                                                          |                                                       | Accrued expenses and other liabilities |                                       |       | 644                |        |                    |       | 783    |       
|                                                   |                                                                                          |                                                       | Store closure reserve                  |                                       |       | (1,375             | )      |                    |       |       |       
|                                                   |                                                                                          |                                                       | Deferred rent                          |                                       |       | 270                |        |                    |       | 221    |       
|                                                   |                                                                                          |                                                       | Deferred income                        |                                       |       | 36                 |        |                    |       |       |       
|                                                   |                                                                                          |                                                       | Deferred franchise revenue             |                                       |       | (31                | )      |                    |       | (34    | )     
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   |                                                                                          |                                                       |                                        | Cash provided by operating activities |       |                    | 8,753  |                    |       |        | 6,048  |  
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|INVESTING ACTIVITIES:                              |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   | Purchases of property                                                                    |                                                       |                                        | (3,110                                | )     |                    |        | (7,855             | )    
|                                                   | Proceeds from sales of property                                                          |                                                       |                                        | 311                                   |       |                    |        | 644                |      
|                                                   | Purchases of investments                                                                 |                                                       |                                        | (2,102                                | )     |                    |        | (12,514            | )    
|                                                   | Sales and maturities of investments                                                      |                                                       |                                        | 2,480                                 |       |                    |        | 15,852             |      
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   |                                                                                          |                                                       |                                        | Cash used in investing activities     |       |                    | (2,421 | )                  |       |        | (3,873 | )
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|FINANCING ACTIVITIES:                              |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   | Proceeds from exercise of common stock options                                           |                                                       |                                        | 378                                   |       |                    |        | 46                 |      
|                                                   | Proceeds from borrowings on line of credit                                               |                                                       |                                        |                                      |       |                    |        | 1,000              |      
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   |                                                                                          |                                                       |                                        | Cash provided by financing activities |       |                    | 378    |                    |       |        | 1,046  |  
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|INCREASE IN CASH AND CASH EQUIVALENTS              |                                                                                          |                                                       | 6,710                                  |                                       |       |                    | 3,221  |                   
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   |                                                                                          |                                                       | 4,710                                  |                                       |       |                    | 1,311  |                   
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|CASH AND CASH EQUIVALENTS AT END OF PERIOD         |                                                                                          | $                                                     | 11,420                                 |                                       |       | $                  | 4,532  |                   
|                                                   |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                                          |                                                       |                                        |                                       |       |                    |        |                   
|                                                   | Cash paid for interest                                                                   |                                                       | $                                      | 85                                    |       |                    | $      |                   |      
|                                                   | Net income taxes (received) paid                                                         |                                                       | $                                      | (929                                  | )     |                    | $      | 45                 |      

See notes to consolidated financial statements-unaudited.

5



---



##### Table of Contents






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

1. BASIS OF PRESENTATION

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

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

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

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

6



---



##### Table of Contents



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

2. ASSET IMPAIRMENT AND STORE CLOSURE EXPENSE (continued)

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

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

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

|                                                   |                             |   |                    |        |                    |   |       |      |               |   |                    |        |   |   |       |       |  
|-------------------------------------------------- | --------------------------- | - | ------------------ | ------ | ------------------ | - | ----- | ---- | ------------- | - | ------------------ | ------ | - | - | ----- | ----- | -
|                                                   |                             |   | Reserve Balance at |        | Store Closure      |   |       |      |               |   | Reserve Balance at
|                                                   |                             |   | December 30,       |        | Expense (Reversal) |   | Usage |      | September 29,
|                                                   |                             |   | 2001               |        |  Net              |   |  Net |      | 2002         
|                                                   |                             |   |                    |        |                    |   |       |      |              
|Reserve for stores closed in 2001                  |                             | $ | 2,800              |        |                    | $ | (678  | )    |               | $ | (1,139             | )      |   | $ | 983   |      
|Reserve for stores closed in
2002 and to be closed |                             |   | 1,150              |        |                    |   | (36   | )    |               |   | (24                | )      |   |   | 1,090 |      
|Severance and other costs                          |                             |   | 527                |        |                    |   | 191   |      |               |   | (212               | )      |   |   | 506   |      
|                                                   |                             |   |                    |        |                    |   |       |      |               |   |                    |        |   |   |       |      
|                                                   | Total store closure reserve |   |                    | 4,477  |                    |   | $     | (523 | )             |   | $                  | (1,375 | ) |   |       | 2,579 |  
|                                                   |                             |   |                    |        |                    |   |       |      |               |   |                    |        |   |   |       |      
|                                                   | Less: current portion       |   |                    | (1,496 | )                  |   |       |      |               |   |                    |        |   |   |       | (872  | )
|                                                   |                             |   |                    |        |                    |   |       |      |               |   |                    |        |   |   |       |      
|                                                   | Non-current                 |   | $                  | 2,981  |                    |   |       |      |               |   |                    |        |   |   | $     | 1,707 |  
|                                                   |                             |   |                    |        |                    |   |       |      |               |   |                    |        |   |   |       |      

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

7



---



##### Table of Contents



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

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

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

|                                        |                                                 |   |        |         |      |   |        |         |  
|--------------------------------------- | ----------------------------------------------- | - | ------ | ------- | ---- | - | ------ | ------- | -
|                                        |                                                 |   | 2002   |         | 2001
|                                        |                                                 |   |        |         |     
|OTHER RECEIVABLES:                      |                                                 |   |        |         |      |   |        |        
|                                        | Tenant improvement receivables                  |   | $      | 210     |      |   | $      | 274     |  
|                                        | Other                                           |   |        | 435     |      |   |        | 399     |  
|                                        |                                                 |   |        |         |      |   |        |        
|Total                                   |                                                 | $ | 645    |         |      | $ | 673    |        
|                                        |                                                 |   |        |         |      |   |        |        
|INVESTMENTS:                            |                                                 |   |        |         |      |   |        |        
|                                        | Corporate bonds                                 |   | $      | 1,122   |      |   | $      | 505     |  
|                                        | Municipal bonds                                 |   |        | 170     |      |   |        | 173     |  
|                                        | Tax-free municipals                             |   |        |        |      |   |        | 900     |  
|                                        | Mortgage and asset-backed securities            |   |        |        |      |   |        | 91      |  
|                                        |                                                 |   |        |         |      |   |        |        
|                                        |                                                 |   | 1,292  |         |      |   | 1,669  |        
|                                        | Less: current portion                           |   |        | (1,292  | )    |   |        | (1,302  | )
|                                        |                                                 |   |        |         |      |   |        |        
|Non-current                             |                                                 | $ |       |         |      | $ | 367    |        
|                                        |                                                 |   |        |         |      |   |        |        
|PROPERTY  at cost:                     |                                                 |   |        |         |      |   |        |        
|                                        | Building and leasehold improvements             |   | $      | 27,890  |      |   | $      | 26,643  |  
|                                        | Equipment and furniture                         |   |        | 24,330  |      |   |        | 23,586  |  
|                                        | Construction in process and related costs       |   |        | 930     |      |   |        | 885     |  
|                                        |                                                 |   |        |         |      |   |        |        
|                                        |                                                 |   | 53,150 |         |      |   | 51,114 |        
|                                        | Less: accumulated depreciation and amortization |   |        | (18,488 | )    |   |        | (15,203 | )
|                                        |                                                 |   |        |         |      |   |        |        
|Total                                   |                                                 | $ | 34,662 |         |      | $ | 35,911 |        
|                                        |                                                 |   |        |         |      |   |        |        
|ACCRUED EXPENSES AND OTHER LIABILITIES: |                                                 |   |        |         |      |   |        |        
|                                        | Compensation                                    |   | $      | 2,032   |      |   | $      | 1,178   |  
|                                        | Sales taxes                                     |   |        | 957     |      |   |        | 807     |  
|                                        | Vacation pay                                    |   |        | 487     |      |   |        | 585     |  
|                                        | Workers compensation                           |   |        | 609     |      |   |        | 293     |  
|                                        | Other                                           |   |        | 193     |      |   |        | 771     |  
|                                        |                                                 |   |        |         |      |   |        |        
|Total                                   |                                                 | $ | 4,278  |         |      | $ | 3,634  |        
|                                        |                                                 |   |        |         |      |   |        |        

4. CREDIT FACILITIES

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

8



---



##### Table of Contents



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

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

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

5. COMMITMENTS AND CONTINGENCIES

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

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

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

9



---



##### Table of Contents



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

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

6. EARNINGS PER SHARE

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

|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |        |       | 
|-------------------------- | -------- | ----------------------------------------------------- | --------------------------------------------------------------------- | ---- | ------------------ | ----- | ------------------ | ----- | ------------------ | ----- | ------------------ | ---- | ----- | ----- | - | ----- | ------ | ----- | 
|                           |          |                                                       |                                                                       |      | 13 Weeks Ended     |       | 39 Weeks Ended    
|                           |          |                                                       |                                                                       |      |                    |       |                   
|                           |          |                                                       |                                                                       |      | September 29, 2002 |       | September 30, 2001 |       | September 29, 2002 |       | September 30, 2001
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                   
|Numerator                  |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           | Basic:   |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |       
|                           |          | Net income
(loss)
attributable
to common
stockholders |                                                                       | $    | 1,316              |       |                    | $     | (3,077             | )     |                    | $    | 2,871 |       |   | $     | (2,434 | )    
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           | Diluted: |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |       
|                           |          | Net income
(loss)
attributable
to common
stockholders |                                                                       | $    | 1,316              |       |                    | $     | (3,077             | )     |                    | $    | 2,871 |       |   | $     | (2,434 | )    
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|Denominator                |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           | Basic:   |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |       
|                           |          | Weighted
average
common shares
outstanding            |                                                                       |      | 9,049              |       |                    |       | 8,923              |       |                    |      | 9,005 |       |   |       | 8,919  |      
|                           | Diluted: |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |       
|                           |          | Effect of
dilutive
securities:                        |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |       |        |      
|                           |          |                                                       | Common
stock
options                                                  |      |                    | 128   |                    |       |                    |      |                    |      |       | 138   |   |       |        |      | 
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           |          |                                                       | Total
weighted
average
common and
potential
common
shares
outstanding |      |                    | 9,177 |                    |       |                    | 8,923 |                    |      |       | 9,143 |   |       |        | 8,919 | 
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|Earnings (loss) per
share: |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           | Basic    |                                                       | $                                                                     | 0.15 |                    |       | $                  | (0.34 | )                  |       | $                  | 0.32 |       |       | $ | (0.27 | )     
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      
|                           | Diluted  |                                                       | $                                                                     | 0.14 |                    |       | $                  | (0.34 | )                  |       | $                  | 0.31 |       |       | $ | (0.27 | )     
|                           |          |                                                       |                                                                       |      |                    |       |                    |       |                    |       |                    |      |       |       |   |      

10



---



##### Table of Contents



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

7. STOCKHOLDERS EQUITY

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

8. RECENT ACCOUNTING PRONOUNCEMENTS

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

11



---



##### Table of Contents






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

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

OVERVIEW

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

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

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

12



---



##### Table of Contents



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

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

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

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

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

CRITICAL ACCOUNTING POLICIES

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

13



---



##### Table of Contents



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

RESULTS OF OPERATIONS

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

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

|                                  |                                                       |  |                    |      |                    |  |       |      | 
|--------------------------------- | ----------------------------------------------------- |  | ------------------ | ---- | ------------------ |  | ----- | ---- | 
|                                  |                                                       |  | 13 Weeks Ended    
|                                  |                                                       |  |                   
|                                  |                                                       |  | September 29, 2002 |      | September 30, 2001
|                                  |                                                       |  |                    |      |                   
|Revenue(1)                        |                                                       |  | 100.0              | %    |                    |  | 100.0 | %   
|Costs and expenses:               |                                                       |  |                    |      |                    |  |       |     
|                                  | Cost of sales                                         |  |                    | 26.7 |                    |  |       | 27.8 | 
|                                  | Restaurant labor, occupancy and other                 |  |                    | 55.8 |                    |  |       | 54.9 | 
|                                  | General and administrative expenses(2)                |  |                    | 7.4  |                    |  |       | 8.5  | 
|                                  | Depreciation and amortization                         |  |                    | 4.2  |                    |  |       | 4.5  | 
|                                  | Pre-opening expenses                                  |  |                    | 0.1  |                    |  |       | 0.4  | 
|                                  | Asset impairment and store closure
expense (reversal) |  |                    | (1.7 | )                  |  |       | 21.0 | 
|                                  | Net loss on disposal/sale of property                 |  |                    | 0.4  |                    |  |       |     | 
|                                  |                                                       |  |                    |      |                    |  |       |     
|Operating income (loss)           |                                                       |  | 7.1                |      |                    |  | (17.1 | )   
|Other (expense) income:           |                                                       |  |                    |      |                    |  |       |     
|                                  | Interest income, net                                  |  |                    |     |                    |  |       | 0.1  | 
|                                  |                                                       |  |                    |      |                    |  |       |     
|Income (loss) before income taxes |                                                       |  | 7.1                |      |                    |  | (17.0 | )   
|Income tax expense (benefit)      |                                                       |  | 2.8                |      |                    |  | (6.8  | )   
|                                  |                                                       |  |                    |      |                    |  |       |     
|Net income (loss)                 |                                                       |  | 4.3                | %    |                    |  | (10.2 | )%  
|                                  |                                                       |  |                    |      |                    |  |       |     

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

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

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

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

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

14



---



##### Table of Contents



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

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

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

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

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

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

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

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

15



---



##### Table of Contents



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

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

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

|                                  |                                                       |  |                    |      |                    |  |       |      | 
|--------------------------------- | ----------------------------------------------------- |  | ------------------ | ---- | ------------------ |  | ----- | ---- | 
|                                  |                                                       |  | 39 Weeks Ended    
|                                  |                                                       |  |                   
|                                  |                                                       |  | September 29, 2002 |      | September 30, 2001
|                                  |                                                       |  |                    |      |                   
|Revenue(1)                        |                                                       |  | 100.0              | %    |                    |  | 100.0 | %   
|Costs and expenses:               |                                                       |  |                    |      |                    |  |       |     
|                                  | Cost of sales                                         |  |                    | 27.1 |                    |  |       | 27.7 | 
|                                  | Restaurant labor, occupancy and other                 |  |                    | 55.5 |                    |  |       | 55.8 | 
|                                  | General and administrative expenses(2)                |  |                    | 8.2  |                    |  |       | 9.1  | 
|                                  | Depreciation and amortization                         |  |                    | 4.3  |                    |  |       | 4.5  | 
|                                  | Pre-opening expenses                                  |  |                    | 0.1  |                    |  |       | 0.4  | 
|                                  | Asset impairment and store closure
expense (reversal) |  |                    | (0.6 | )                  |  |       | 7.4  | 
|                                  | Net loss on disposal/sale of property                 |  |                    | 0.2  |                    |  |       |     | 
|                                  |                                                       |  |                    |      |                    |  |       |     
|Operating income (loss)           |                                                       |  | 5.2                |      |                    |  | (4.9  | )   
|Other (expense) income:           |                                                       |  |                    |      |                    |  |       |     
|                                  | Interest income, net                                  |  |                    |     |                    |  |       | 0.2  | 
|                                  |                                                       |  |                    |      |                    |  |       |     
|Income (loss) before income taxes |                                                       |  | 5.2                |      |                    |  | (4.7  | )   
|Income tax expense (benefit)      |                                                       |  | 2.1                |      |                    |  | (1.9  | )   
|                                  |                                                       |  |                    |      |                    |  |       |     
|Net income (loss)                 |                                                       |  | 3.1                | %    |                    |  | (2.8  | )%  
|                                  |                                                       |  |                    |      |                    |  |       |     

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

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

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

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

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

16



---



##### Table of Contents



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

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

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

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

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

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

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

17



---



##### Table of Contents



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

DEFERRED TAX ASSETS

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

SEASONALITY

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

INFLATION

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

18



---



##### Table of Contents



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

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

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

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

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

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

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

19



---



##### Table of Contents



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

RISK FACTORS

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

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

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



| |  |  | labor costs for our hourly and management personnel, including
increases in federal or state minimum wage requirements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | fluctuations in food and beverage costs, particularly the cost
of chicken, beef, fish, cheese and produce;             
|
| |  |  | costs related to our leases;                                                                                           
|
| |  |  | timing of new restaurant openings and related expenses;                                                                
|
| |  |  | the amount of sales contributed by new and existing restaurants;                                                       
|
| |  |  | our ability to achieve and sustain profitability on a quarterly
or annual basis;                                       
|
| |  |  | the ability for our marketing initiatives and operating
improvement initiatives to increase sales;                     
|
| |  |  | consumer confidence;                                                                                                   
|
| |  |  | changes in consumer preferences;                                                                                       
|
| |  |  | the level of competition from existing or new competitors in
the quick-service restaurant industry;                    
|
| |  |  | impact of weather on revenues and costs of food;                                                                       
|
| |  |  | insurance and utility costs; and                                                                                       
|
| |  |  | general economic conditions.                                                                                           

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

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

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

20



---



##### Table of Contents



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

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

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

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

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

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

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

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

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

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

21



---



##### Table of Contents



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

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

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



| |  |  | capital needs associated with the potential upgrade and remodel
of our restaurants, signage changes, menu related changes and other
projects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in our operating plans;                                                                                                              
|
| |  |  | changes in our expansion plans;                                                                                                              
|
| |  |  | lower than anticipated sales of our menu offerings;                                                                                          
|
| |  |  | our ability to meet the financial covenants of our credit facility;                                                                          
|
| |  |  | increased food, labor costs or other expenses;                                                                                               
|
| |  |  | adverse results in litigation or similar claims;                                                                                             
|
| |  |  | potential acquisitions; or                                                                                                                   
|
| |  |  | other events or contingencies.                                                                                                               

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

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

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



| |  |  | lack of market awareness or acceptance of our restaurant
concept in new geographic areas;                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | uncertainties related to local demographics, tastes and
preferences;                                                                 
|
| |  |  | local custom, wages, costs and other legal and economic
conditions particular to new regions;                                        
|
| |  |  | the need to develop relationships with local distributors and
suppliers for fresh produce, fresh tortillas and other ingredients;
and
|
| |  |  | potential difficulties related to management of operations
located in a number of broadly dispersed locations.                       

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

22



---



##### Table of Contents



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

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

These factors include:



| |  |  | our ability to operate our restaurants profitably;                                                                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to respond effectively to the intense competition in the
quick-service restaurant industry;                                                       
|
| |  |  | our ability to locate suitable restaurant sites or negotiate
acceptable lease terms;                                                                          
|
| |  |  | our ability to obtain required local, state and federal governmental
approvals and permits related to construction of the sites, food and
alcoholic beverages;
|
| |  |  | our dependence on contractors to construct new restaurants in a
timely manner;                                                                                
|
| |  |  | our ability to attract, train and retain qualified and experienced
restaurant personnel and management;                                                       
|
| |  |  | our need for additional capital and our ability to obtain such
capital on favorable terms or at all; and                                                      
|
| |  |  | general economic conditions.                                                                                                                                  

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

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

Our success and the success of our individual restaurants depend upon our
ability to attract and retain highly motivated, well-qualified restaurant
operators and management personnel, as well as a sufficient number of qualified
employees, including guest service and kitchen staff, to keep pace with our
expansion schedule. Qualified individuals needed to fill these positions are
in short supply in some geographic areas. Our ability to recruit and retain
such individuals may delay the planned openings of new restaurants or result in
higher employee turnover in existing restaurants, which could have a material
adverse effect on our business or results of operations. We also face
significant competition in the recruitment of qualified employees. In
addition, we are heavily dependent upon the services of our officers and key
management involved in restaurant operations, marketing, finance, purchasing,
expansion, human resources and administration. The loss of any of these
individuals could have a material adverse effect on our business and results of
operations. We currently have only one employment agreement with our newly
named President and Chief Operating Officer, Sheri Miksa. This agreement is
attached hereto as Exhibit 10.1.

GOVERNMENT REGULATION CHANGES MAY IMPACT OUR BUSINESS

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

23



---



##### Table of Contents



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

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

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

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

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

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

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

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

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

24



---



##### Table of Contents



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

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

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

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

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

25



---



##### Table of Contents



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

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

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

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

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

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



| |  |  | fluctuations in our quarterly or annual results of
operations;                                             
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | changes in published earnings estimates by analysts and
whether our earnings meet or exceed such estimates;
|
| |  |  | additions or departures of key personnel;                                                                  
|
| |  |  | changes in overall market conditions, including the stock
prices of other restaurant companies; and        
|
| |  |  | resolution of litigation.                                                                                  

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

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

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

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

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

26



---



##### Table of Contents






Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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




Item 4. CONTROLS AND PROCEDURES

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

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

27



---



##### Table of Contents






PART II  OTHER INFORMATION




Item 1. LEGAL PROCEEDINGS

Not applicable




Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



| | (a) |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                     
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                     
|
| | (c) |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                     
|
| | (d) |  | We currently have approximately $2.0 million remaining from our
initial public offering in May 1999 as well as an additional $10.7
million of cash and cash equivalents generated from previous private
placements and operating cash flows. The use of proceeds during this
reporting period has conformed to our intended use outlined in our
initial public offering prospectus.




Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable




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

Not Applicable




Item 5. OTHER INFORMATION

Not Applicable




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

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



---

|(1) |  | Incorporated by reference to the above
noted exhibit to our registration statement on Form S-1
(333-75087) filed with the SEC on March 26, 1999, as
amended.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to the above
noted exhibit to our annual report on Form 10-K filed
with the SEC on April 1, 2002.                                 

28



---



##### Table of Contents



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



| | b) |  | Reports on Form 8-K:
| | -- |  | --------------------

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

29



---



##### Table of Contents






SIGNATURES

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

|                         |                                                                              
|------------------------ | -----------------------------------------------------------------------------
|Dated: November 13, 2002 | RUBIOS RESTAURANTS, INC.                                                    
|                        
|                         | /s/ IRA FILS                                                                 
|                         |                                                                              
|                         | Ira Fils
Chief Financial Officer
(Principal Financial and Accounting Officer)

30



---



##### Table of Contents






CERTIFICATIONS

I, Ralph Rubio, certify that:

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

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

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

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

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

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

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

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

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

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

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

|                        |                                                                  
|----------------------- | -----------------------------------------------------------------
|Date: November 13, 2002 | /s/ RALPH RUBIO                                                  
|                        |                                                                  
|                        | Ralph Rubio
Chief Executive Officer
(principal executive officer)

31



---



##### Table of Contents



I, Ira Fils, certify that:

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

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

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

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

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

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

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

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

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

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

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

|                        |                                                               
|----------------------- | --------------------------------------------------------------
|Date: November 13, 2002 | /s/ IRA FILS                                                  
|                        |                                                               
|                        | Ira Fils
Chief Financial Officer
(principal financial officer)

32