Forward-Looking Statements May Prove Inaccurate

This report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements based on our current beliefs, expectations, estimates and projections about our business and our industry. In some cases, you can identify forward-looking statements by terms such as believes, anticipates, estimates, expects, projections, may, potential, plan, continue or the negative of these terms or words of similar import. The forward-looking statements contained in this report involve known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors" in Items 1A of Part II below and elsewhere in this report, and the other documents we file with the SEC, including our most recent reports on Form 8-K and our Annual Report on Form 10-K for the year ended December 28, 2008. As a result of these risks and uncertainties, our actual results or performance may differ materially from any future results or performance expressed or implied by the forward-looking statements. These forward-looking statements represent beliefs and assumptions only as of the date of this report. We undertake no obligation to release publicly the results of any revisions or updates to these forward-looking statements to reflect events or circumstances arising after the date of this report that may cause our actual results to be materially different from those expressed in or implied by these statements.

Overview

We opened our first restaurant under the name "Rubio's, Home of the Fish Taco" in 1983. As of June 28, 2009, we have grown to 196 restaurants, including 191 company-operated, two licensed and three franchised locations. We position our restaurants in the high-quality, fresh and distinctive fast-casual Mexican cuisine segment of the restaurant industry. In the near term, we will focus on building units in our current markets. In the longer term, our vision is to be widely-recognized as the favorite national restaurant concept serving delicious and unique Baja-inspired food. Our primary strategic objective is to become a leading brand in the growing fast-casual industry segment.

2009 Highlights

Revenue Growth. Revenues for the quarter increased 7.8% to $48.7 million in the second quarter of 2009, compared to $45.1 million in the second quarter of 2008. Comparable store sales for the quarter increased 0.9%, due primarily to a 7.7% higher check average offset by a 6.4% decrease in transactions. On a year-to-date basis, revenues increased 8.8% to $95.0 million in 2009, compared to $87.3 million in 2008. Comparable store sales on a year-to-date basis increased 1.4%, due primarily to a 7.9% higher check average offset by a 6.1% decrease in transactions. We believe the decrease in transactions is in large part due to the loss of price-sensitive customers, as well as general economic conditions, unemployment and the impact of the sub-prime mortgage crisis. Our average unit volume for stores opened at least twelve periods decreased to $1,011,000 as of June 28, 2009, compared to $1,016,000 as of June 29, 2008, due to comparable store sales decreases compared to 2008.

Restaurant Development. We opened seven company-owned restaurants in the first two quarters quarter of 2009 and had two more under construction at the end of the second quarter. We currently plan to open 10 company-owned restaurants in fiscal 2009 in our existing geographic markets. The current slow down in housing, combined with the weak economy has caused us to focus almost exclusively on sites located in mature trade areas, where we will look for attractive long-term opportunities in the softening real estate market. This narrower focus has limited our growth in 2009 and could continue to do so in 2010. Our three-year expansion plan begins with an annual unit growth rate of approximately 5% in 2009, and increases to 10% in 2010 and 15% by 2011. We intend to tailor our expansion plan during 2010 and 2011 based on economic conditions, our financial results and our ability to continue to satisfy the covenants contained in our credit facility.

Restaurant Profitability. Cost of sales as a percentage of restaurant sales decreased to 26.6% in the second quarter of 2009 from 28.8% in the second quarter of 2008. Year-to-date cost of sales was 26.8% of restaurant sales as compared to 29.0% for the same period last year. The improvement in cost of sales was due primarily to our ability to leverage menu price increases taken in July 2008 and January 2009. Restaurant labor cost as a percentage of restaurant sales for the quarter increased to 32.3% in the second quarter of 2009 compared to 31.3% in the second quarter of 2008. Year-to-date restaurant labor increased to 32.6% as compared to 32.1% in 2008. The impact on restaurant labor of our menu price increases was offset by wage increases given in 2008 and higher incentive compensation paid to our restaurant managers as a result of quarter-over-quarter improvement in restaurant-level profitability. Restaurant occupancy and other costs as a percentage of restaurant sales for the second quarter and year-to-date increased to 24.4% and 24.4% in 2009, compared to 23.0% and 23.6% in 2008. We are putting significant effort into negotiating better terms on 32 leases that are up for renewal this year.

General and Administrative Expenses. General and administrative expenses were $4.4 million or 9.1% of revenues in the second quarter of 2009 compared to $4.5 million or 9.9% of revenues in the second quarter of 2008. Year-to-date general and administrative expenses increased to $8.6 million and 9.0% of revenue in 2009 compared to $9.0 million and 10.4% of revenue in 2008. The decrease in the 2009 quarter and year-to-date periods is primarily due to a decrease in non-cash share-based compensation, legal and processional fees, offset by increased compensation related costs.

Results of Operations

All comparisons in the following section between 2009 and 2008 refer to the
13-week ("quarter") and 26-week ("year-to-date") periods ended June 28, 2009 and
June 29, 2008, respectively, unless otherwise indicated.

The following table sets forth our operating results, expressed as a percentage
of total revenues, except where noted, with respect to certain items included in
our statements of operations.

                                                     13 Weeks Ended                          26 Weeks Ended
                                            June 28, 2009       June 29, 2008       June 28, 2009       June 29, 2008
Total revenues                                       100.0 %             100.0 %             100.0 %             100.0 %
Costs and expenses:
Cost of sales (1)                                     26.6                28.8                26.8                29.0
Restaurant labor (1)                                  32.3                31.3                32.6                32.1
Restaurant occupancy and other (1)                    24.4                23.0                24.4                23.6
General and administrative expenses                    9.1                 9.9                 9.0                10.4
Depreciation and amortization                          5.0                 5.2                 5.2                 5.3
Pre-opening expenses                                   0.2                 0.3                 0.3                 0.4
Asset impairment and store closure
expense (reversal)                                     0.7                 0.1                 0.4                (0.1 )
Loss on disposal/sale of property                      0.2                 0.1                 0.2                 0.2
Operating income (loss)                                1.6                 1.4                 1.3                (0.7 )
Other (expense) income, net                           (0.1 )              (0.1 )              (0.1 )                 -
Income (loss) before income taxes                      1.5                 1.3                 1.2                (0.8 )
Income tax expense (benefit)                           0.4                 0.5                 0.4                (0.3 )
Net income (loss)                                      1.1                 0.7                 0.8                (0.5 )

(1) As a percentage of restaurant sales

The following table summarizes the number of restaurants:

                                         June 28,      June 29,
                                           2009          2008
                      Company-operated         191           179
                      Franchised                 3             2
                      Licensed                   2             2
                      Total                    196           183

Revenues

Total revenues were $48.7 million in the second quarter of 2009 as compared to $45.1 million in the second quarter of 2008. Year-to-date revenues increased to $95.0 million in 2009, compared to $87.3 million in 2008. The quarter over quarter increase in revenue of $3.5 million was primarily the result of three factors: first, 14 restaurant openings in fiscal 2008 and seven in 2009 contributed sales of $3.5 million; second, one restaurant closure in fiscal 2008 and two in fiscal 2009 offset the increase by $329,000; and third, increased comparable store sales of $375,000, or 0.9% in the current year. The second quarter comparable store sales increase was due to an increase in average check size of 7.7% offset by a decrease in the number of transactions of 6.4%.

Costs and Expenses

Cost of sales as a percentage of restaurant sales decreased to 26.6% in the second quarter of 2009 as compared to 28.8% in the second quarter of 2008. Year-to-date cost of sales was 26.8% of restaurant sales as compared to 29.0% for the same period last year. The quarter over quarter and year-to-date decrease is due to menu price increases in July 2008 and January 2009, in addition to the second quarter 2008 price increase on our taco Tuesday promotion. In addition, menu engineering efforts allowed us to reduce food costs while maintaining quality and flavor profiles.

Restaurant occupancy and other costs as a percentage of restaurant sales for the second quarter and year-to-date increased to 24.4% and 24.4% in 2009, compared to 23.0% and 23.6% in 2008. The quarter-to-quarter and year-to-date increases are primarily due to de-leveraging of the fixed costs that are included in this line item as well as higher rent, utilities and credit card fees.

General and administrative expenses were $4.4 million or 9.1% of revenues in the second quarter of 2009 compared to $4.5 million or 9.9% of revenues in the second quarter of 2008. Year-to-date general and administrative expenses decreased to $8.6 million and 9.0% of revenue in 2009 compared to $9.0 million and 10.4% of revenue in 2008. The decrease in the 2009 quarter is primarily due to a decrease in non-cash share-based compensation costs, legal and processional fees. In addition, in the year-to-date period of 2008, we incurred additional costs associated with our decision to cancel our plans to build four restaurants in developing trade areas in Northern California.

Depreciation and amortization increased to $2.4 million and $4.9 million for the second quarter and year-to-date 2009, respectively, as compared with $2.3 million and $4.6 million for the same period in 2008. The increase is due to our continued expansion efforts, which included the addition of 17 restaurants throughout 2008 and seven in the first and second quarters of 2009.

Pre-opening expenses decreased to $105,000 in the second quarter of 2009, compared to $139,000 in the second quarter of 2008. On a year-to-date basis, pre-opening expenses decreased to $276,000 in 2009 from $358,000 in 2008. This decrease is due to the slightly slower pace in development that has resulted from our shift exclusively towards sites located in mature trade areas.

Asset impairment and store closure expense (reversal) consisted of a $359,000 asset impairment in the second quarter and year-to-date periods in 2009, compared to a $45,000 store closure expense in the second quarter of 2008 and a $46,000 store closure reversal in the year-to-date period in 2008. In the 2009 second quarter and year-to-date periods, the asset impairment charge related to the carrying amount of certain long-lived assets exceeding the fair value of the assets at four under-performing stores. In the second quarter of 2008, a $45,000 store closure expense related to the closure of our Beverly Center location in Los Angeles, California. On a year-to-date basis in 2008, a store closure reversal of $91,000 was due to our decision to re-brand a location in the Fort Collins, Colorado area that was closed in 2001 and was offset by a $45,000 store closure expense related to the closure of our Beverly Center location.

Loss on disposal/sale of property was $99,000 in the second quarter of 2009 and $184,000 for year-to-date 2009, compared to $58,000 and $162,000, respectively, for the same time periods in 2008. The loss on disposal in the 2009 quarter and year-to-date periods consists of normal disposal costs associated with the ordinary course of our business. The loss on disposal in the 2008 year-to-date period was primarily due to the closure of our Beverly Center location in Los Angeles, California.

Other (expense) income, net, decreased to an expense of $38,000 for the second quarter and $71,000 for year-to-date in 2009, as compared to expense of $32,000 and $31,000 for the same time periods in 2008, respectively. The increase in interest expense in the 2008 quarter and year-to-date periods is due to interest accruals related to our class action settlement in addition to the amortization of debt issuance costs incurred in conjunction with the new credit facility we secured during fiscal 2008.

The 2009 income tax provision reflects the projected annual tax rate of 31.1%. The 2008 income tax benefit reflects the projected annual tax rate of 41.9%. We report interest accruals under FIN 48 as additional income tax expense and, in the first and second quarters, we accrued $25,000 of additional interest. This accrual increased the year-to-date rate to 32.5%. The final 2009 annual tax rate cannot be determined until the end of the fiscal year. As a result, the actual rate could differ from our current estimate.

Liquidity and Capital Resources

Since we became public in 1999, we have funded our capital requirements primarily through cash flows from operations. We generated $5.9 million in cash flows from operating activities for the 26 weeks ended June 28, 2009, and generated $3.3 million for the 26 weeks ended June 29, 2008. The increase in cash flow from operating activities for the 26 weeks ended June 28, 2009 is due to a $1.2 million increase in net income, changes in operating assets and liabilities, and non-cash expenses, including depreciation, amortization and non-cash share-based compensation, offset by the second of three $2.5 million installment payments associated with the 2007 settlement of a class action lawsuit.

Net cash used in investing activities was $4.0 million for the 26 weeks ended June 28, 2009 compared to $3.3 million for the 26 weeks ended June 29, 2008. Net cash used in investing activities for the 26 weeks ended June 28, 2009 and June 29, 2008 included $4.0 million and $6.4 million in capital expenditures, respectively. The year-over-year net increase in cash used in investing activities was driven by decreased new store development activity offset by proceeds from the release of restricted cash that was collateralizing standby letters of credit during 2008.

Net cash used by financing activity was $0 for the 26 weeks ended June 28, 2009 compared to $246,000 for the 26 weeks ended June 28, 2009. Financing activities for the 2008 period consisted of the payment of debt issuance costs.

On May 13, 2008, we entered into a $5.0 million revolving line of credit and a $15.0 million non-revolving line of credit (the "Credit Facility") with Pacific Western Bank (the "Bank"). The revolving line of credit calls for monthly interest payments, which began June 5, 2008 at a variable interest rate based on the prime rate plus 0.25%, resulting in an initial rate of 5.25%. All outstanding principal plus accrued unpaid interest on the revolving line of credit is due May 13, 2010. The non-revolving line of credit calls for each advance to be evidenced by a separate note. Each advance shall have a maximum term of 57 months with an interest rate based on the prime rate plus 0.25%. Payments on advances shall be interest only for the first nine months, then principal and interest payments monthly. Both lines are collateralized by all of our assets and guaranteed by our subsidiaries. In addition, both lines require us to maintain our primary depository relationship with the Bank and the related accounts are subject to the right of offset for amounts due under the lines. Both lines are subject to certain financial and non-financial debt covenants and include a restriction on the payment of dividends without prior consent of the Bank. As of June 28, 2009, we were in compliance with all debt covenants. At June 28, 2009, we had $2.4 million of availability under the revolving line of credit, net of $2.6 million under outstanding letters of credit, and $15.0 million of availability under the non-revolving line of credit.

We currently expect total capital expenditures in 2009 to be approximately $7.5 million to $9.0 million for restaurant openings, restaurant re-imaging, maintenance, information technology and other corporate assets. We currently expect that future locations will generally cost approximately $550,000 per unit, net of tenant improvement allowance and excluding pre-opening expenses. Some units may exceed this range due to the area in which they are built and the specific requirements of the project. Pre-opening expenses are expected to average between $50,000 and $60,000 per restaurant, which includes approximately $20,000 to $30,000 of non-cash rent expense during the build-out period.

We believe that the anticipated cash flows from operations and the availability on our line of credit agreements, combined with our cash and cash equivalents of $7.7 million as of June 28, 2009 will be sufficient to satisfy our working capital needs, required capital expenditures and class action settlement obligations for the next 12 months. We intend to tailor our expansion plan during 2009 based on economic conditions, our financial results and our ability to continue to satisfy the covenants contained in the Credit Facility. If our financial results drop below our expectations or we are unable to comply with the covenants in the Credit Facility, we will slow or curtail our expansion plan. Nevertheless, changes in our operating plans, lower than anticipated sales, increased expenses, potential acquisitions or other events may cause us to seek additional or alternative financing sooner than anticipated. Additional or alternative financing may not be available on acceptable terms, or at all. Failure to obtain additional or alternative financing as needed could have a material adverse effect on our business and results of operations.

Critical Accounting Policies

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

Management evaluates these estimates and assumptions, which include those relating to impairment of assets, restructuring charges, contingencies and litigation, and estimates related to our FIN48 income tax liability, on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current available information, and actual results could differ from these estimates under different assumptions and conditions.

We have several critical accounting policies, which were discussed in our 2008 Annual Report on Form 10-K, that are both important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments complex and difficult have to do with making estimates about the effect of matters that are inherently uncertain.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 provides for the FASB Accounting Standards CodificationTM ("the Codification") as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (SEC), will be superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. The Codification does not change GAAP, but instead introduces a new structure that will combine all authoritative standards into a comprehensive, topically organized online database. The Codification will be effective for interim or annual periods ending after September 15, 2009, and will impact our financial statement disclosures beginning with the quarter ending September 27, 2009 as all future references to authoritative accounting literature will be referenced in accordance with the Codification. We do not believe that the adoption of SFAS 168 will have a material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued ("subsequent events"). SFAS 165 requires disclosure of the date through which the entity has evaluated subsequent events and the basis for that date. For public entities, this is the date the financial statements are issued. SFAS 165 is effective for interim or annual periods ending after June 15, 2009. We implemented SFAS 165 during the quarter ended June 28, 2009. We evaluated for subsequent events through August 6, 2009, and no recognized or non-recognized subsequent events were noted.

In April 2009, the FASB issued SFAS Staff Position (FSP) No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (SFAS 157-4). SFAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. SFAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. We adopted FAS 157-4 in the second quarter of fiscal 2009. The adoption of SFAS 157-4 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued FSP No. 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). The FSP amends SFAS 107, Disclosure about Fair Value of Financial Instruments, and APB No. 28, Interim Financial Reporting, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 are effective for all interim and annual reporting periods ending after June 15, 2009 and did not have a material impact on our consolidated financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures are related to our cash and cash equivalents. We invest our excess cash in highly liquid short-term investments with maturities of less than one year. The portfolio consists primarily of money market instruments. As of June 28, 2009, we had no investments with maturities in excess of one year. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations. Due to the types of our investments, a 10% change in period-end interest rates or a hypothetical 100-basis-point adverse change in interest rates would not have a significant negative effect on our financial results.

We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. At June 28, 2009, there were no amounts outstanding under our revolving or non-revolving lines of credit. The revolving line of credit calls for monthly interest payments beginning June 5, 2008 at a variable interest rate based on the prime rate plus 0.25%, resulting in an initial rate of 5.25%. All outstanding principal plus accrued unpaid interest on the revolving line of credit is due May 13, 2010. The non-revolving line calls for each advance to be evidenced by a separate note. Each advance shall have a maximum term of 57 months with an interest rate based on the prime rate plus 0.25%. Interest expense incurred during the 13- and 26-weeks ended June 28, 2009 was primarily due to interest accruals related to our class action settlement in addition to the amortization of debt issuance costs incurred in conjunction with the new credit facility we secured during fiscal 2008.

Many of the prices of food products purchased by us are affected by changes in weather, production, availability, seasonality, fuel and energy costs, 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 one year or less. We do not believe that these purchase commitments are material to our operations as a whole. In addition, we believe that almost all of our food and supplies are available from several sources.

Impact of Inflation

The primary areas of our operations affected by inflation are food, supplies, labor, fuel, lease, utility, insurance costs and materials used in the construction of our restaurants. Substantial increases in costs and expenses, particularly food, supplies, labor, fuel and operating expenses could have a significant impact on our operating results to the extent that such increases cannot be passed through to our guests. Our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are subject to inflationary increases. We believe inflation with respect to food, labor, . . .