Rubios Restaurants 10Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended September 27, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number: 000-26125

RUBIO'S RESTAURANTS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

1902 WRIGHT PLACE, SUITE 300, CARLSBAD, CALIFORNIA 92008

(Address of Principal Executive Offices, Including Zip Code)

(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. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act .

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of October 26, 2009, there were 10,035,077 shares of the Registrant's common stock, par value $0.001 per share, issued and outstanding.

RUBIO’S RESTAURANTS, INC.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) at September 27, 2009 and December 28, 2008		3
	Condensed Consolidated Statements of Operations (unaudited) for the 13 weeks and 39 weeks ended September 27, 2009 and September 28, 2008		4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the 39 weeks ended September 27, 2009 and September 28, 2008		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4T.	Controls and Procedures		16

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		16
Item 1A.	Risk Factors		17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Submission of Matters to a Vote of Security Holders		18
Item 5.	Other Information		18
Item 6.	Exhibits		18
	Signatures		20

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RUBIO’S RESTAURANTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(In thousands, except share data)

	September 27, 2009			December 28, 2008

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,412		$	5,816
Other receivables		3,633			3,983
Inventory		2,006			2,389
Prepaid expenses		1,390			2,777
Deferred income taxes		2,854			1,764
Total current assets		17,295			16,729

PROPERTY, net		44,833			45,947
GOODWILL		519			519
OTHER ASSETS		955			694
DEFERRED INCOME TAXES		8,550			9,260

TOTAL	$	72,152		$	73,149

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,754		$	4,182
Accrued expenses and other liabilities		14,538			14,990
Total current liabilities		18,292			19,172

DEFERRED INCOME		211			272
DEFERRED RENT AND OTHER LIABILITIES		5,989			8,319
Total liabilities		24,492			27,763

COMMITMENTS AND CONTINGENCIES (NOTE 4)
SUBSEQUENT EVENT (NOTE 4)

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.001 par value, 35,000,000 shares authorized, 10,035,077 issued and outstanding in 2009, and 9,951,077 issued and outstanding in 2008		10			10
Paid-in capital		53,579			52,549
Accumulated deficit		(5,929	)		(7,173	)
Total stockholders’ equity		47,660			45,386

TOTAL	$	72,152		$	73,149

See notes to condensed consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(In thousands, except per share data)

	13 Weeks Ended						39 Weeks Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
REVENUES:
Restaurant sales	$	48,393		$	46,938		$	143,332		$	134,167
Franchise and licensing revenues		38			74			103			153
TOTAL REVENUES		48,431			47,012			143,435			134,320

COSTS AND EXPENSES:
Cost of sales		12,831			13,262			38,237			38,524
Restaurant labor		15,387			14,330			46,331			42,298
Restaurant occupancy and other		12,389			11,056			35,532			31,653
General and administrative expenses		4,521			4,513			13,076			13,561
Depreciation and amortization		2,480			2,420			7,425			7,011
Pre-opening expenses		63			130			339			488
Asset impairment and store closure expense (reversal)		26			—			385			(46	)
Loss on disposal or sale of property		75			57			259			219
TOTAL COSTS AND EXPENSES		47,772			45,768			141,584			133,708

OPERATING INCOME		659			1,244			1,851			612

OTHER (EXPENSE) INCOME:
Interest and investment (expense) income, net		(21	)		(42	)		(92	)		(73	)

INCOME BEFORE INCOME TAXES		638			1,202			1,759			539
INCOME TAX EXPENSE		151			413			515			160

NET INCOME	$	487		$	789		$	1,244		$	379

NET INCOME PER SHARE:
Basic	$	0.05		$	0.08		$	0.12		$	0.04

Diluted	$	0.05		$	0.08		$	0.12		$	0.04

SHARES USED IN CALCULATING NET INCOME PER SHARE:
Basic		10,021			9,951			9,979			9,951

Diluted		10,087			10,039			10,024			10,013

See notes to condensed consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

	39 weeks Ended
	September 27, 2009			September 28, 2008
OPERATING ACTIVITIES:
Net income	$	1,244		$	379
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,425			7,011
Amortization of debt issuance costs		52			—
Excess tax benefits from share-based compensation		(86	)		—
Share-based compensation expense		737			1,239
Asset impairment		385			—
Loss on disposal/sale of property		259			219
Provision for deferred income taxes		(380	)		2,268
Changes in assets and liabilities:
Other receivables		350			(713	)
Inventory		383			(538	)
Prepaid expenses		1,335			1,773
Other assets		(261	)		(158	)
Accounts payable		(428	)		38
Accrued expenses and other liabilities		(874	)		(2,362	)
Deferred income		(61	)		193
Deferred rent and other liabilities		(2,330	)		(272	)
Net cash provided by operating activities		7,750			9,077

INVESTING ACTIVITIES:
Purchases of property & equipment		(3,375	)		(6,578	)
Purchases of leasehold improvements		(3,102	)		(2,818	)
Purchases of investments		—			(96	)
Proceeds from the sale of investments		—			3,165
Net cash used in investing activities		(6,477	)		(6,327	)

FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		237			3
Excess tax benefits from share-based compensation		86			—
Payments for debt issuance costs		—			(246	)
Net cash provided by (used in) financing activities		323			(243	)

INCREASE IN CASH AND CASH EQUIVALENTS		1,596			2,507
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,816			3,562
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,412		$	6,069

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	34		$	4

SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND INVESTING ACTIVITIES:
Property, net, purchased and included in accrued expenses and other liabilities	$	478		$	1,550

See notes to condensed consolidated financial statements-unaudited.

RUBIO’S RESTAURANTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCMENTS

Basis of Presentation

The accompanying condensed consolidated financial information has been prepared by Rubio’s Restaurants, Inc. and its wholly-owned subsidiaries, Rubio’s Restaurants of Nevada, Inc. and Rubio’s Incentives, LLC (collectively, the “Company”) without audit and reflects all adjustments, consisting of normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules and regulations. These unaudited condensed 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 28, 2008 included in the Company’s Annual Report on Form 10-K and the review of the Company’s 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. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.

Recent Accounting Pronouncements

As of September 27, 2009, the Company adopted the Financial Accounting Standards Board (FASB) authoritative guidance on the Accounting Standards Codification (“Codification” or “ASC”) and the hierarchy of U.S. GAAP (ASC 105.10), which establishes the Codification as the sole source of authoritative guidance recognized by the FASB to be applied by nongovernmental entities. Accordingly the Company has revised references to legacy U.S. GAAP to be consistent with the Codification in its publicly issued consolidated financial statements, starting with the accompanying unaudited condensed consolidated financial statements and disclosures for the periods ended September 27, 2009. Adoption of this authoritative guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In May 2009, the FASB issued Codification 855.10, Authoritative Guidance for Subsequent Events (ASC 855.10 ), 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”). ASC 855.10 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. ASC 855.10 is effective for interim or annual periods ending after June 15, 2009. The Company implemented ASC 855.10 during the quarter ended June 28, 2009. The Company evaluated for subsequent events through November 4, 2009, the issuance date of the Company’s financial statements, and no recognized or non-recognized subsequent events were noted.

In April 2009, the FASB issued Codification 825.10.65.1, Authoritative Guidance for Financial Instruments (ASC 825.10.65.1). The ASC amends ASC 825.10.50, Authoritative Guidance for Disclosure of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825.10.65.1 is effective for all interim and annual reporting periods ending after June 15, 2009. The adoption of ASC 825.10.65.1 did not have a material impact on the Company’s consolidated financial statements.

2. IMMATERIAL CORRECTION OF AN ERROR IN PRIOR PERIODS

During the second quarter of fiscal 2009 but prior to the filing of the Company’s Form 10-Q for the first quarter, the Company identified errors related to its payroll tax accrual balance. As a result, the Company’s historical payroll tax expense, in addition to penalties and interest, and the related accrued liability balances were misstated. In addition, income tax expense and income tax receivable balances were impacted by these adjustments. In accordance with Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the errors from qualitative and quantitative perspectives, and concluded that the errors were immaterial to the prior periods. Consequently, the Company will revise its historical financial statements for fiscal 2007, fiscal 2008, and the quarters within fiscal 2008, when they are published again in future filings. The Company will recognize the cumulative effect of the error on periods prior to those that will be presented in future filings by increasing other receivables, increasing other current liabilities and increasing accumulated deficit by $49,000, $263,000 and $214,000, respectively, as of January 1, 2007. The errors had no impact on the consolidated statement of operations for the year ended December 30, 2007.

The following table represents a summary of the effects of the immaterial error correction on the condensed consolidated balance sheet for the period indicated (unaudited and in thousands):

	As of December 28, 2008
	As previously Reported			Adjustments			Adjusted
Other receivables	$	3,866		$	117		$	3,983
Total current assets	$	16,612		$	117		$	16,729
Total assets	$	73,032		$	117		$	73,149
Accrued expenses and other current liabilities	$	14,509		$	436		$	14,945
Total current liabilities	$	18,736		$	436		$	19,172
Total liabilities	$	27,327		$	436		$	27,763
Accumulated deficit	$	(6,854	)	$	(319	)	$	(7,173	)
Total stockholders’ equity	$	45,705		$	(319	)	$	45,386
Total liabilities and stockholders’ equity	$	73,032		$	117		$	73,149

The following tables represent a summary of the effects of the immaterial error correction on the condensed consolidated statements of operations for the periods indicated (unaudited and in thousands, except per share amounts):

	Thirteen Weeks Ended December 28, 2008									Twelve Months Ended December 28, 2008
	As previously Reported			Adjustments			Adjusted			As previously Reported			Adjustments			Adjusted
Restaurant labor	$	14,172		$	151		$	14,323		$	56,470		$	151		$	56,621
General and administrative expenses	$	4,359		$	22		$	4,381		$	17,920		$	22		$	17,942
Total costs and expenses	$	45,211		$	173		$	45,384		$	178,919		$	173		$	179,092
Operating (loss) income	$	(227	)	$	(173	)	$	(400	)	$	385		$	(173	)	$	212
Other (expense) income	$	(60	)	$	—		$	(60	)	$	(133	)	$	—		$	(133	)
(Loss) income before income taxes	$	(287	)	$	(173	)	$	(460	)	$	252		$	(173	)	$	79
Income tax benefit (expense)	$	97		$	68		$	165		$	(63	)	$	68		$	5
Net (loss) income	$	(190	)	$	(105	)	$	(295	)	$	189		$	(105	)	$	84
Net (loss) income per common share:
Basic	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	0.02		$	(0.01	)	$	0.01
Diluted	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	0.02		$	(0.01	)	$	0.01

Cash flows from operating, investing and financing activities for the above periods were not impacted by this immaterial correction of an error. However, net income (loss) was revised as shown above with an offset to the other receivables and accrued expenses and other liabilities captions within operating activities on the consolidated statement of cash flows.

3. CONDENSED CONSOLIDATED BALANCE SHEETS DETAIL

Condensed Consolidated Balance Sheets detail as of September 27, 2009 and December 28, 2008, respectively (in thousands) are as follows:

	September 27, 2009			December 28, 2008
OTHER RECEIVABLES:
Tenant improvement receivables	$	534		$	747
Beverage usage receivables		38			285
Credit cards		1,518			1,289
Income taxes		464			967
Food supplier receivable		247			141
Other		969			793
Allowance for doubtful accounts		(137	)		(239	)
Total	$	3,633		$	3,983

PROPERTY & EQUIPMENT - at cost:
Building and leasehold improvements	$	70,551		$	66,458
Equipment and furniture		49,577			47,491
Construction in process		1,455			2,975
		121,583			116,924
Less: accumulated depreciation and amortization		(76,750	)		(70,977	)
Total	$	44,833		$	45,947

ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation	$	3,178		$	3,441
Workers’ compensation		1,399			1,453
Sales taxes		1,588			1,208
Vacation pay		1,108			1,031
Advertising		495			319
Gift cards		317			859
Occupancy		893			975
Legal and settlement fees regarding class action litigation (Note 4)		2,755			2,600
Construction in process		478			1,608
Store closure accrual		39			45
Other		2,288			1,451
Total	$	14,538		$	14,990

DEFERRED RENT AND OTHER LIABILITIES:
Deferred rent	$	2,552		$	2,600
Deferred tenant improvement allowances		2,647			2,389
Uncertain income tax position liability (Note 6)		336			263
Legal and settlement fees regarding class action litigation (Note 4)		—			2,600
Store closure accrual		6			17
Other		448			450
Total	$	5,989		$	8,319

4. COMMITMENTS AND CONTINGENCIES

Litigation

In March 2007, the Company reached an agreement to settle a class action lawsuit related to how it classified certain employees under California overtime laws. The lawsuit was similar to numerous lawsuits filed against restaurant operators, retailers and others with operations in California. The settlement agreement, which was approved by the court in June 2007, provides for a settlement payment of $7.5 million payable in three installments. The first $2.5 million installment was distributed on August 31, 2007 and the second $2.5 million installment was paid into a qualified settlement fund on December 29, 2008. The third and final installment of $2.5 million is due on or before June 28, 2010. As of September 27, 2009, the remaining balance of $2.5 million, plus accrued interest of $255,000, was accrued in “Accrued expenses and other liabilities”. The Company learned that 140 current and former employees who qualified to participate as class members in this class action settlement were not included in the settlement list approved by the court. The Company filed a motion requesting the court to include these individuals in the approved settlement and to provide that their claims are payable out of the aggregate settlement payment, as the Company believes the parties intended when they reached a settlement. The matter has not yet been finally resolved and there is no assurance that the Company will be successful.

On March 24, 2005, a former employee of the Company filed a California state court action alleging that the Company failed to provide the former employee with certain meal and rest period breaks and overtime pay. The parties moved the matter into arbitration, and the former employee amended the complaint to claim that the former employee represents a class of potential plaintiffs. The amended complaint alleges that current and former shift leaders who worked in the Company's California restaurants during specified time periods worked off the clock and missed meal and rest breaks. This case is still in the pre-class certification discovery stage, and no class has been certified. The Company denies the former employee’s claims, and intends to continue to vigorously defend this action. A recent decision by the California Court of Appeals in Brinker Restaurant Corporation v. Superior Court (Hohnbaum) last year held that employers do not need to affirmatively ensure employees actually take their meal and rest breaks but need only make meal and rest breaks “available” to employees. The Brinker case was recently taken up for review by the California Supreme Court. At this time, the Company has no assurances of how the California Supreme Court will rule in the Brinker case. Regardless of merit or eventual outcome, this arbitration may cause a diversion of the Company’s management’s time and attention and the expenditure of legal fees and expenses.

On October 16, 2009, Sanjay Israni, a stockholder of the Company, filed a class action lawsuit against the Company, the Company’s directors and officers and Alex Meruelo, a stockholder of the Company, in California Superior Court alleging a breach of fiduciary duties by the Company’s officers and directors arising out of the Company’s receipt of an unsolicited proposal to acquire all of the Company’s outstanding common stock by a group consisting of Mr. Meruelo and his affiliates and Levine Leichtman Capital Partners IV, L.P. (collectively, the “Meruelo Group”) for $8 per share. The lawsuit seeks to enjoin the Company and its directors and officers from consummating a sale of the Company to the Meruelo Group, and does not seek any monetary damages. The Company believes this lawsuit is without merit. On October 29, 2009, the Company announced that its Board of Directors had rejected the unsolicited proposal from the Meruelo Group after unanimously determining that the proposal was not in the best interests of the Company’s stockholders. The Company intends to vigorously defend against this lawsuit. The Company maintains directors’ and officers’ liability insurance, and has tendered the defense of this lawsuit to its insurance carrier.

The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

5. NET INCOME PER SHARE

A reconciliation of basic and diluted income per share is as follows (in thousands, except per share data):

	13 Weeks Ended				39 Weeks Ended
	September 27, 2009		September 28, 2008		September 27, 2009		September 28, 2008
Numerator
Net income	$	487	$	789	$	1,244	$	379

Denominator
Basic:
Weighted average common shares outstanding		10,021		9,951		9,979		9,951
Diluted:
Effect of dilutive securities:
Common stock options and restricted stock awards		66		88		45		62
Total weighted average common and potential common shares outstanding		10,087		10,039		10,024		10,013

Net income per share:
Basic and Diluted	$	0.05	$	0.08	$	0.12	$	0.04

For the 13 and 39 weeks ended September 27, 2009, common stock options of 1,418,148 and 1,540,635, respectively, were not included in the computation of diluted earnings per share as their impact would have been anti-dilutive. For the 13 and 39 weeks September 28, 2008, common stock options of 1,617,621 and 1,591,129, respectively, were not included in the computation of diluted earnings per share as their impact would have been anti-dilutive.

6. INCOME TAXES

The IRS is currently examining the Company's 2006 and 2007 tax years. During the second quarter of 2009, the IRS proposed an adjustment related to inventory capitalization with a proposed tax assessment of $837,000. After considering restaurant specific company operations, the IRS issued a revised proposed adjustment with a proposed tax assessment of $321,000. The Company subsequently submitted one additional revision to the calculation resulting in a proposed tax assessment of $161,000. The IRS is currently reviewing this revised calculation.

The Company has recorded a tax liability of $161,000 related to the IRS proposed adjustment. It has also recorded unrecognized tax benefits for the impact of the uncertain tax position on inventory capitalization on other years following the examination period and on the Company's filings in states where the Company does business. As a result of the uncertain tax position on inventory capitalization and minor changes in other unrecognized tax benefits, the Company's ending balance of unrecognized tax benefits is $587,000.

The Company has unrecognized tax benefits of approximately $247,000 that should be resolved within the next year. The IRS indicated that it will not propose any additional adjustments for the 2006 and 2007 years and, as of the end of the quarter, the Company was not under examination by any other major tax jurisdiction. Therefore, the Company is not aware of any other events that might significantly impact the balance of unrecognized tax benefits during the next twelve months.

The Company classifies interest expense and penalties from income tax liabilities and interest income from income tax refunds as additional income tax expense or benefit, respectively. During the first three quarters, the Company incurred interest expense and interest income that net to $10,000. The balance of the Company's net accrued interest expense at the end of the quarter was $64,000.

7. CREDIT FACILITY

On May 13, 2008, the Company 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 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 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 assets of the Company and guaranteed by its subsidiaries. In addition, both lines require the Company to maintain its 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 September 27, 2009, there were no funded borrowings outstanding under the Credit Facility. At September 27, 2009, the Company had $2.4 million of availability under the revolving line of credit, net of $2.6 million of outstanding letters of credit, and $15.0 million of availability under the non-revolving line of credit.

8. IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Codification 360.10 and 205.20, Authoritative Guidance for Property, Plant and Equipment (ASC 360.10 and ASC 205.20), long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the 13-week and 39-week periods ended September 27, 2009, the Company recorded impairment charges of $26,000 and $385,000, respectively, related to five under-performing stores.

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

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 September 27, 2009, we have grown to 197 restaurants, including 192 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 3.1% to $48.4 million in the third quarter of 2009, compared to $47.0 million in the third quarter of 2008. Comparable store sales for the quarter decreased 2.7%, due primarily to a 5.4% decrease in transactions offset by a 2.8% higher check average. On a year-to-date basis, revenues increased 6.8% to $143.4 million in 2009, compared to $134.3 million in 2008. Comparable store sales on a year-to-date basis decreased 0.1%, due primarily to a 5.9% decrease in transactions offset by a 6.1% higher check average. 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 $1,003,000 as of September 27, 2009, compared to $1,010,000 as of September 28, 2008, due to comparable store sales decreases compared to 2008.

Restaurant Development. We opened nine company-owned restaurants in the first three quarters quarter of 2009 and had one more under construction at the end of the third 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 26.5% in the third quarter of 2009 from 28.3% in the third quarter of 2008. Year-to-date cost of sales was 26.7% of restaurant sales as compared to 28.7% 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 which we were able to leverage through favorable supply agreements and product reformulation efforts. Restaurant labor cost as a percentage of restaurant sales for the quarter increased to 31.8% in the third quarter of 2009 compared to 30.5% in the third quarter of 2008. Year-to-date restaurant labor increased to 32.3% as compared to 31.5% in 2008. The impact of our menu price increases on restaurant labor 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. In addition, during the third quarter of 2008, we recorded a favorable adjustment to our worker’s compensation reserve of approximately $181,000 that resulted primarily from the closure of a large number of cases and our continued focus on safety in our restaurants. Restaurant occupancy and other costs as a percentage of restaurant sales for the third quarter and year-to-date increased to 25.6% and 24.8%, respectively, in 2009, compared to 23.6% and 23.6%, respectively, in 2008. The increase in restaurant occupancy and other costs was primarily due to higher advertising expenditures, including the cost of a segmentation study designed to help us better understand our target guests, as well as higher repair and service contracts expense associated with a preventative maintenance program implemented during the fourth quarter of 2008 that focused on better maintaining restaurant equipment. We are also 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 $4.5 million or 9.3% of revenues in the third quarter of 2009 compared to $4.5 million or 9.6% of revenues in the third quarter of 2008. Year-to-date general and administrative expenses decreased to $13.1 million and 9.1% of revenue in 2009 compared to $13.6 million and 10.1% of revenue in 2008. The decrease in general and administrative expenses as a percentage of revenue in the 2009 quarter and year-to-date periods is primarily due to a decrease in non-cash share-based compensation, legal and professional 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 39-week (“year-to-date”) periods ended September 27, 2009 and September 28, 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						39 Weeks Ended
	September 27, 2009			September 28, 2008			September 27, 2009			September 28, 2008
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Cost of sales (1)		26.5			28.3			26.7			28.7
Restaurant labor (1)		31.8			30.5			32.3			31.5
Restaurant occupancy and other (1)		25.6			23.6			24.8			23.6
General and administrative expenses		9.3			9.6			9.1			10.1
Depreciation and amortization		5.1			5.1			5.2			5.2
Pre-opening expenses		0.1			0.3			0.2			0.4
Asset impairment and store closure expense (reversal)		0.1			—			0.3			—
Loss on disposal/sale of property		0.2			0.1			0.2			0.2
Operating income		1.4			2.6			1.3			0.5
Other (expense) income, net		—			(0.1	)		(0.1	)		(0.1	)
Income before income taxes		1.3			2.6			1.2			0.4
Income tax expense		0.3			0.9			0.4			0.1
Net income		1.0			1.7			0.9			0.3

(1) As a percentage of restaurant sales

The following table summarizes the number of restaurants:

	September 27, 2009		September 28, 2008
Company-operated		192		181
Franchised		3		2
Licensed		2		2
Total		197		185

Revenues

Total revenues were $48.4 million in the third quarter of 2009 as compared to $47.0 million in the third quarter of 2008. Year-to-date revenues increased to $143.4 million in 2009, compared to $134.3 million in 2008. The quarter over quarter increase in revenue of $1.4 million was primarily the result of three factors: first, 12 restaurant openings in fiscal 2008 and nine in 2009 contributed sales of $3.0 million; second, one restaurant closure in fiscal 2008 and two in fiscal 2009 offset the increase by $370,000; and third, decreased comparable store sales of $1.2 million, or 2.7% in the current year. The third quarter comparable store sales decrease was due to an increase in average check size of 2.8% offset by a decrease in the number of transactions of 5.4%.

Costs and Expenses

Cost of sales as a percentage of restaurant sales decreased to 26.5% in the third quarter of 2009 as compared to 28.3% in the third quarter of 2008. Year-to-date cost of sales was 26.7% of restaurant sales as compared to 28.7% for the same period last year. The quarter over quarter and year-to-date decreases as a percentage of sales are 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, which we were able to leverage through favorable supply agreements and product reformulation efforts, offset by continued food cost inflation pressure. In addition, menu engineering efforts allowed us to reduce food costs while maintaining quality and flavor profiles.

Restaurant labor as a percentage of sales increased to 31.8% in the third quarter of 2009 compared to 30.5% in the third quarter of 2008. Year-to-date restaurant labor increased to 32.3% as compared to 31.5% in 2008. The increase in restaurant labor was primarily attributable to increased bonus expense associated with our short and long term incentive plans. In order to retain the most talented people, we provide our restaurant managers with a combination of short term and long term incentives that are based on improvement in restaurant profitability. In addition, during the third quarter of 2008, we recorded a favorable adjustment to our worker’s compensation reserve of approximately $181,000 that resulted primarily from the closure of a large number of cases and our continued focus on safety in our restaurants.

Restaurant occupancy and other costs as a percentage of restaurant sales for the third quarter and year-to-date increased to 25.6% and 24.8%, respectively, in 2009, compared to 23.6% and 23.6%, respectively, in 2008. The quarter-to-quarter and year-to-date increases are primarily due to higher advertising expenditures, including the cost of a segmentation study designed to help us better understand our target guests, as well as higher repair and service contracts expense associated with a preventative maintenance program implemented during the fourth quarter of 2008 that focused on better maintaining restaurant equipment.

General and administrative expenses were $4.5 million or 9.3% of revenues in the third quarter of 2009 compared to $4.5 million or 9.6% of revenues in the third quarter of 2008. Year-to-date general and administrative expenses decreased to $13.1 million and 9.1% of revenue in 2009 compared to $13.6 million and 10.1% of revenue in 2008. The decrease in general and administrative expenses as a percentage of revenue in the 2009 quarter and year-to-date periods is primarily due to a decrease in non-cash share-based compensation costs, legal and professional fees, offset by an increase in wages and wage-related expenses. 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 $2.5 million and $7.4 million for the third quarter and year-to-date 2009, respectively, as compared with $2.4 million and $7.0 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 nine in the first three quarters of 2009.

Pre-opening expenses decreased to $63,000 in the third quarter of 2009, compared to $130,000 in the third quarter of 2008. On a year-to-date basis, pre-opening expenses decreased to $339,000 in 2009 from $488,000 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 $385,000 asset impairment in the year-to-date period in 2009, compared to a $46,000 store closure reversal in the year-to-date period in 2008. In the 2009 year-to-date period, the asset impairment charge related to the carrying amount of certain long-lived assets exceeding the fair value of the assets at five under-performing stores. 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 $75,000 in the third quarter of 2009 and $259,000 for year-to-date 2009, compared to $57,000 and $219,000, 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 $21,000 for the third quarter and $92,000 for year-to-date in 2009, as compared to expense of $42,000 and $73,000 for the same time periods in 2008, respectively. The increase in interest expense in the 2008 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 27.6%. The 2008 income tax provision reflects the projected annual tax rate of 35.4%. We report interest accruals for uncertain income tax positions as additional income tax expense and, in the first three quarters of 2009, we accrued $9,000 of additional interest. This accrual increased the 2009 year-to-date rate to 29.3%. 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 $7.8 million in cash flows from operating activities for the 39 weeks ended September 27, 2009, and generated $9.1 million for the 39 weeks ended September 28, 2008. The decrease in cash flows from operating activities for the 39 weeks ended September 27, 2009 is due to the second of three $2.5 million installment payments associated with the 2007 settlement of a class action lawsuit, changes in operating assets and liabilities, and non-cash expenses, including depreciation, amortization and non-cash share-based compensation, offset by higher net income.

Net cash used in investing activities was $6.5 million for the 39 weeks ended September 27, 2009 compared to $6.3 million for the 39 weeks ended September 28, 2008. Net cash used in investing activities for the 39 weeks ended September 27, 2009 and September 28, 2008 included $6.5 million and $9.4 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 provided by (used in) financing activities was $323,000 provided for the 39 weeks ended September 27, 2009 compared to $243,000 used for the 39 weeks ended September 28, 2008. Financing activities for the 2009 period consisted of proceeds from the exercise of common stock options in addition to excess tax benefits from share-based compensation. 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 September 27, 2009, there were no funded borrowings outstanding under the Credit Facility. At September, 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 $7.4 million as of September 27, 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 uncertain income tax position 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

As of September 27, 2009, we adopted the Financial Accounting Standards Board (FASB) authoritative guidance on the Accounting Standards Codification (“Codification” or “ASC”) and the hierarchy of U.S. GAAP (ASC 105.10), which establishes the Codification as the sole source of authoritative guidance recognized by the FASB to be applied by nongovernmental entities. Accordingly we have revised references to legacy U.S. GAAP to be consistent with the Codification in our publicly issued consolidated financial statements, starting with the accompanying unaudited condensed consolidated financial statements and disclosures for the periods ended September 27, 2009. Adoption of this authoritative guidance did not have a material impact on our unaudited condensed consolidated financial statements.

In May 2009, the FASB issued Codification 855.10, Authoritative Guidance for Subsequent Events (ASC 855.10), 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”). ASC 855.10 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. ASC 855.10 is effective for interim or annual periods ending after June 15, 2009. We implemented ASC 855.10 during the quarter ended June 28, 2009. We evaluated for subsequent events through November 4, 2009, the issuance date of our financial statements, and no recognized or non-recognized subsequent events were noted.

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 September 27, 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.

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, insurance and utility expense has had a material impact on our results of operations in both the third quarters of 2009 and 2008.

Item 4T. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the rules of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act Rules 13a-15(e). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting:

In April 2009, as previously reported in our Form 10-Q for the quarterly period ended March 29, 2009, we identified errors related to the recording and payment of our payroll taxes and, as a result, misstatements in our payroll tax accruals in the periods identified in Note 2 to our condensed consolidated unaudited financial statements included in this quarterly report. We believe that these errors, although immaterial to the prior periods in which they occurred, resulted from a combination of deficiencies in our internal control over financial reporting existing during these prior periods which constituted a material weakness in our internal control over financial reporting.

Following our management’s discovery and investigation of the errors related to our payroll tax accruals described above, our Chief Executive Officer and Chief Financial Officer concluded that there were the following deficiencies in our internal control over financial reporting:

·	an operating deficiency resulting from an accounting manager failing to compare all of the payroll tax information recorded in our financial statements with our actual payroll tax returns;
·	a design deficiency resulting from the accounting manager responsible for both receiving notices and correspondence from the Internal Revenue Service (“IRS”) and reviewing our payroll tax returns; and
·	an operating deficiency resulted from the review of the monthly balance reconciliation not detecting the errors.

Unrelated to the discovery of the material weakness, we had previously retained and outsourced all of our payroll processing and payroll tax preparation functions to Automatic Data Processing, Inc. (“ADP”) and ADP Tax Services, Inc. beginning with the first payroll run in our 2009 fiscal year. In response to the discovery of the material weakness, we implemented additional and revised internal control policies and procedures during the second quarter of 2009 focused on improving the segregation of duties in our accounting staff so that no one employee is responsible for both receiving notices and correspondence from the IRS and providing the information necessary to prepare our payroll tax returns. These measures, as well as our retention of ADP, remediated the above identified material weakness and strengthened our control processes and procedures. We have operated with and tested these remedial procedures through the date of this quarterly report, and our Chief Executive Officer and Chief Financial Officer have concluded that they are operating effectively. These controls have not been subject to audit by our independent registered public accounting firm.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On October 16, 2009, Sanjay Israni, a stockholder of the Company, filed a class action lawsuit against the Company, the Company’s directors and officers and Alex Meruelo, a stockholder of the Company, in California Superior Court alleging a breach of fiduciary duties by the Company’s officers and directors arising out of the Company’s receipt of an unsolicited proposal to acquire all of the Company’s outstanding common stock by a group consisting of Mr. Meruelo and his affiliates and Levine Leichtman Capital Partners IV, L.P. (collectively, the “Meruelo Group”) for $8 per share. The lawsuit seeks to enjoin the Company and its directors and officers from consummating a sale of the Company to the Meruelo Group, and does not seek any monetary damages. The Company believes this lawsuit is without merit. The Company does not have, and has never had, an agreement or arrangement to sell any stock or assets to the Meruelo Group. On October 29, 2009, the Company announced that its Board of Directors had rejected the unsolicited proposal from the Meruelo Group after unanimously determining that the proposal was not in the best interests of the Company’s stockholders. The Company intends to vigorously defend against this lawsuit. The Company maintains directors’ and officers’ liability insurance, and has tendered the defense of this lawsuit to its insurance carrier.

Item 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 28, 2008, which we filed with the SEC on March 24, 2009, together with all other information contained or incorporated by reference in this report before you decide to invest in our common stock.

Except as set forth below, the risks described in our annual report have not materially changed. If any of the risks described in our annual report actually occurs, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A RESULT, CURRENT AND POTENTIAL INVESTORS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH COULD HARM OUR BUSINESS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required annually to furnish a report by our management on our internal control over financial reporting. Such report must contain, among other matters, an assessment by our Chief Executive Officer and our Chief Financial Officer on the effectiveness of our internal control over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective as of the end of our fiscal year. This assessment must include disclosure of any material weakness in our internal control over financial reporting identified by management. In addition, we will be required to obtain an audit report from our independent registered public accounting firm that covers the effectiveness of our internal controls over financial reporting as early as our annual report on Form 10-K for our fiscal year ending December 26, 2010. Performing the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. We have in the past discovered, and may in the future discover, areas of internal controls that need improvement. For example, in April 2009, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For a detailed description of this material weakness see “Part I — Item 4T — Controls and Procedures” of this quarterly report on Form 10-Q. Although we remediated this material weakness prior to the end of the second quarter of 2009, if we identify another material weakness in our internal control over financial reporting in the future, neither our management nor our independent registered public accounting firm will be able to assert that our internal control over financial reporting and/or our disclosure controls and procedures are effective, and we could be required to further implement expensive and time-consuming remedial measures. In addition, our internal control over financial reporting may not be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. If we fail to maintain effective internal control over financial reporting we could lose investor confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on our stock price.

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

Item 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

The following matters were submitted to a vote of the Company’s stockholders at the annual meeting of stockholders held on July 30, 2009:

(1)

Election of two directors of the Company to hold office until the 2012 annual meeting of the stockholders and until their respective successors are duly elected and qualified. The following nominees were elected by the following votes:

Nominee	For		Withheld

Ralph Rubio		9,556,696	4,805
Kyle A. Anderson		9,555,802	5,699

The following individuals are continuing directors with terms expiring upon the 2010 Annual Meeting of Stockholders: Daniel E. Pittard and Timothy J. Ryan.

The following individuals are continuing directors with terms expiring upon the 2011 Annual Meeting of Stockholders: Craig S. Andrews, J.D, William R. Bensyl and Loren C. Pannier.

(2)

Ratification of the selection of KPMG, LLP as the Company’s independent registered public accounting firm for the year ending December 27, 2009, as follows:

For	Against	Abstain

9,521,402	36,449	3,527

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

Set forth below is a list of the exhibits included as part of this quarterly report.

Exhibit No.		Description
3.1(1)		Third Amended and Restated Certificate of Incorporation.
3.2(2)		Restated Bylaws (Exhibit 3.4).
3.4(3)		Certificate of Amendment of the Bylaws (Exhibit 3.4).
4.1(2)		Specimen common stock certificate (Exhibit 4.1).
31.1		Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

(1)

Incorporated by reference to our annual report on Form 10-K filed with the SEC on April 8, 2005.

(2)

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.

(3)

Incorporated by reference to our annual report on Form 10-K filed with the SEC on April 2, 2001.

These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Rubio’s Restaurants, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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.

RUBIO'S RESTAURANTS, INC.

Dated: November 4, 2009
		/s/ Dan Pittard
		Dan Pittard
		President and Chief Executive Officer
		(principal executive officer)
Dated: November 4, 2009
		/s/ Frank Henigman
		Frank Henigman
		Chief Financial Officer
		(principal financial and accounting officer)

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Rubios Restaurants (RUBO) Inactive 10-Q2009 Q3 Quarterly report

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