UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 30, 2011

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from
            to

Commission File Number 001-35148





McCormick & Schmicks Seafood Restaurants, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-1193199                          
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|1414 NW Northrup Street, Suite 700 Portland, Oregon            |  | 97209                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(503)
226-3440

(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  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

There were
14,869,948 shares of common stock outstanding as of May 1, 2011.









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MCCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.

INDEX TO FORM 10-Q



|                               |  |                                                                                                                       |    |  |    | 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|                               |  | Page                                                                                                                  |   
|PART I - FINANCIAL INFORMATION |  |                                                                                                                       |    | 
|                               |  |                                                                                                                      
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                      |    |  |    | 
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Balance Sheets as of March 30, 2011 and December 29, 2010                                      |    |  | 1  | 
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Statements of Operations for the thirteen week periods ended March 30, 2011 and March 27, 2010 |    |  | 2  | 
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Statements of Cash Flows for the thirteen week periods ended March 30, 2011 and March 27, 2010 |    |  | 3  | 
|                               |  |                                                                                                                      
|                               |  | Notes to Condensed Consolidated Financial Statements                                                                  |    |  | 4  | 
|                               |  |                                                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                 |    |  | 6  | 
|                               |  |                                                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                            |    |  | 16 | 
|                               |  |                                                                                                                      
|Item 4.                        |  | Controls and Procedures                                                                                               |    |  | 16 | 
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                       |    | 
|                               |  |                                                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                                                     |    |  | 17 | 
|                               |  |                                                                                                                      
|Item 1A.                       |  | Risk Factors                                                                                                          |    |  | 17 | 
|                               |  |                                                                                                                      
|Item 6.                        |  | Exhibits                                                                                                              |    |  | 23 | 
|                               | 
|Signatures                     |  |                                                                                                                       | 24 | 



---

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

McCormick & Schmicks Seafood Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)



|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                  |  | March 30,2011 |         |   | December 29,2010 |  
|                                                                                                                                                                  |  | (Unaudited)   |        
|Assets                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                         |  | $             | 8,559   |   |                  | $ | 5,796   |  
|Trade accounts receivable, net                                                                                                                                    |  |               | 5,559   |   |                  |   | 6,818   |  
|Tenant improvement allowance receivables                                                                                                                          |  |               | 76      |   |                  |   | 124     |  
|Income tax receivable                                                                                                                                             |  |               | 135     |   |                  |   | 547     |  
|Inventories                                                                                                                                                       |  |               | 5,910   |   |                  |   | 5,972   |  
|Prepaid expenses and other current assets                                                                                                                         |  |               | 3,130   |   |                  |   | 3,361   |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                              |  |               | 23,369  |   |                  |   | 22,618  |  
|Property and equipment, net                                                                                                                                       |  |               | 127,406 |   |                  |   | 129,436 |  
|Other assets                                                                                                                                                      |  |               | 5,678   |   |                  |   | 5,760   |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                      |  | $             | 156,453 |   |                  | $ | 157,814 |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|                                                                                                                                                                  |  |              
|Liabilities and Stockholders Equity                                                                                                                              |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                              |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                  |  | $             | 13,853  |   |                  | $ | 15,329  |  
|Accrued expenses                                                                                                                                                  |  |               | 24,000  |   |                  |   | 25,381  |  
|Deferred income taxes                                                                                                                                             |  |               | 648     |   |                  |   | 712     |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                         |  |               | 38,501  |   |                  |   | 41,422  |  
|Revolving credit facility                                                                                                                                         |  |               | 5,500   |   |                  |   | 4,000   |  
|Capital lease obligations                                                                                                                                         |  |               | 3,433   |   |                  |   | 3,307   |  
|Deferred income taxes                                                                                                                                             |  |               | 1,651   |   |                  |   | 1,549   |  
|Other long-term liabilities                                                                                                                                       |  |               | 37,087  |   |                  |   | 37,132  |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                 |  |               | 86,172  |   |                  |   | 87,410  |  
|                                                                                                                                                                  |  |              
|Commitments and contingencies (Note 6)                                                                                                                            |  |               |         |   |                  |   |         |  
|                                                                                                                                                                  |  |              
|Stockholders equity:                                                                                                                                             |  |               |         |   |                  |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,847 and 14,835 shares issued and outstanding for March 30,
2011 and December 29, 2010, respectively |  |               | 15      |   |                  |   | 15      |  
|Additional paid-in-capital                                                                                                                                        |  |               | 149,552 |   |                  |   | 149,390 |  
|Accumulated other comprehensive income                                                                                                                            |  |               | 708     |   |                  |   | 335     |  
|Accumulated deficit                                                                                                                                               |  |               | (79,994 | ) |                  |   | (79,336 | )
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                        |  |               | 70,281  |   |                  |   | 70,404  |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                        |  | $             | 156,453 |   |                  | $ | 157,814 |  
|                                                                                                                                                                  |  |               |         |   |                  |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



1



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McCormick & Schmicks Seafood Restaurants, Inc.
and Subsidiaries

Condensed Consolidated Statements of Operations - Unaudited

(In thousands, except per share data)



|                                       |  |                                    |        |   |                |   |        |  
|-------------------------------------- |  | ---------------------------------- | ------ | - | -------------- | - | ------ | -
|                                       |  | For the Thirteen Week Period Ended |       
|                                       |  | March 30, 2011                     |        |   | March 27, 2010 |  
|Revenues                               |  | $                                  | 83,964 |   |                | $ | 84,822 |  
|Restaurant operating costs:            |  |                                    |        |   |                |   |        |  
|Food and beverage                      |  |                                    | 25,110 |   |                |   | 25,797 |  
|Labor                                  |  |                                    | 28,803 |   |                |   | 28,160 |  
|Operating                              |  |                                    | 12,881 |   |                |   | 12,574 |  
|Occupancy                              |  |                                    | 9,200  |   |                |   | 9,187  |  
|                                       |  |                                    |        |   |                |   |        |  
|Total restaurant operating costs       |  |                                    | 75,994 |   |                |   | 75,718 |  
|General and administrative expenses    |  |                                    | 4,891  |   |                |   | 4,907  |  
|Restaurant pre-opening costs           |  |                                    |       |   |                |   | 502    |  
|Depreciation and amortization          |  |                                    | 3,536  |   |                |   | 3,811  |  
|                                       |  |                                    |        |   |                |   |        |  
|Total costs and expenses               |  |                                    | 84,421 |   |                |   | 84,938 |  
|                                       |  |                                    |        |   |                |   |        |  
|Operating loss                         |  |                                    | (457   | ) |                |   | (116   | )
|Interest expense, net                  |  |                                    | 341    |   |                |   | 406    |  
|                                       |  |                                    |        |   |                |   |        |  
|Loss before income tax benefit         |  |                                    | (798   | ) |                |   | (522   | )
|Income tax benefit                     |  |                                    | (140   | ) |                |   | (82    | )
|                                       |  |                                    |        |   |                |   |        |  
|Net loss                               |  | $                                  | (658   | ) |                | $ | (440   | )
|                                       |  |                                    |        |   |                |   |        |  
|Basic net loss per share               |  | $                                  | (0.04  | ) |                | $ | (0.03  | )
|Diluted net loss per share             |  | $                                  | (0.04  | ) |                | $ | (0.03  | )
|Shares used in per share calculations: |  |                                    |        |   |                |   |        |  
|Basic                                  |  |                                    | 14,830 |   |                |   | 14,787 |  
|Diluted                                |  |                                    | 14,830 |   |                |   | 14,787 |  
|                                       |  |                                    |        |   |                |   |        |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



2



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McCormick & Schmicks Seafood Restaurants, Inc.
and Subsidiaries

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



|                                                                                          |  |                                    |         |   |               |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                          |  | For the Thirteen Week Period Ended |        
|                                                                                          |  | March 30,2011                      |         |   | March 27,2010 |  
|Cash flows from operating activities:                                                     |  |                                    |         |   |               |   |         |  
|Net loss                                                                                  |  | $                                  | (658    | ) |               | $ | (440    | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                    |         |   |               |   |         |  
|Depreciation and amortization                                                             |  |                                    | 3,536   |   |               |   | 3,811   |  
|Deferred income taxes                                                                     |  |                                    | 60      |   |               |   | 104     |  
|Share-based compensation                                                                  |  |                                    | 169     |   |               |   | 215     |  
|Changes in operating assets and liabilities:                                              |  |                                    |         |   |               |   |         |  
|Trade accounts receivable, net                                                            |  |                                    | 1,275   |   |               |   | 3,268   |  
|Tenant improvement allowance receivables                                                  |  |                                    | 48      |   |               |   | (91     | )
|Income tax receivable                                                                     |  |                                    | 402     |   |               |   | (154    | )
|Inventories                                                                               |  |                                    | 78      |   |               |   | (35     | )
|Prepaid expenses and other current assets                                                 |  |                                    | 277     |   |               |   | 18      |  
|Accounts payable                                                                          |  |                                    | (122    | ) |               |   | (1,432  | )
|Accrued expenses                                                                          |  |                                    | (1,459  | ) |               |   | (6,077  | )
|Other long-term liabilities                                                               |  |                                    | 52      |   |               |   | 751     |  
|                                                                                          |  |                                    |         |   |               |   |         |  
|Net cash provided by (used in) operating activities                                       |  |                                    | 3,658   |   |               |   | (62     | )
|                                                                                          |  |                                    |         |   |               |   |         |  
|                                                                                          |  |                                   
|Cash flows from investing activities:                                                     |  |                                    |         |   |               |   |         |  
|Purchase of property and equipment                                                        |  |                                    | (2,464  | ) |               |   | (1,965  | )
|Change in other assets                                                                    |  |                                    | 12      |   |               |   | (7      | )
|                                                                                          |  |                                    |         |   |               |   |         |  
|Net cash used in investing activities                                                     |  |                                    | (2,452  | ) |               |   | (1,972  | )
|                                                                                          |  |                                    |         |   |               |   |         |  
|                                                                                          |  |                                   
|Cash flows from financing activities:                                                     |  |                                    |         |   |               |   |         |  
|Borrowings made on revolving credit facility                                              |  |                                    | 18,000  |   |               |   | 25,000  |  
|Payments made on revolving credit facility                                                |  |                                    | (16,500 | ) |               |   | (25,000 | )
|Net change in capital lease and note payable obligations                                  |  |                                    | 25      |   |               |   | 17      |  
|Deemed landlord financing payments                                                        |  |                                    | (83     | ) |               |   | (61     | )
|                                                                                          |  |                                    |         |   |               |   |         |  
|Net cash provided by (used in) financing activities                                       |  |                                    | 1,442   |   |               |   | (44     | )
|                                                                                          |  |                                    |         |   |               |   |         |  
|Effect of exchange rate changes                                                           |  |                                    | 115     |   |               |   | 102     |  
|                                                                                          |  |                                    |         |   |               |   |         |  
|Increase (decrease) in cash and cash equivalents                                          |  |                                    | 2,763   |   |               |   | (1,976  | )
|Cash and cash equivalents:                                                                |  |                                    |         |   |               |   |         |  
|Beginning of period                                                                       |  |                                    | 5,796   |   |               |   | 8,623   |  
|                                                                                          |  |                                    |         |   |               |   |         |  
|End of period                                                                             |  | $                                  | 8,559   |   |               | $ | 6,647   |  
|                                                                                          |  |                                    |         |   |               |   |         |  
|                                                                                          |  |                                   
|Supplemental Cash Flow Information:                                                       |  |                                    |         |   |               |   |         |  
|Cash paid for interest                                                                    |  | $                                  | 110     |   |               | $ | 126     |  
|Cash paid for income taxes, net of refunds                                                |  | $                                  | (382    | ) |               | $ |        |  
|Purchase of property and equipment included in accounts payable                           |  | $                                  | 1,276   |   |               | $ |        |  

The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.



3



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McCormick & Schmicks Seafood
Restaurants, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements  Unaudited

1. The Business and Organization

McCormick & Schmicks Seafood Restaurants, Inc. (referred to herein as the Company or in the first person notations we, us and our) is a
leading national seafood restaurant operator in the affordable upscale dining segment and, as of March 30, 2011, operated 96 restaurants including 89 restaurants in 25 states throughout the United States, including one pursuant to a management
agreement, and seven restaurants under The Boathouse Restaurant name in the greater Vancouver, British Columbia area. The Company has aggregated its operations into one reportable segment.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Companys financial
statements have been included. Operating results for the thirteen week period ended March 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2011. Certain amounts reported in
the previous year have been reclassified to conform to the current year presentation.

The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions, based upon all known facts and circumstances, that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could
differ materially from these estimates. Estimates are used in accounting for, among other things, useful lives for depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, share-based compensation
expense, income taxes and commitments and contingencies.

The condensed consolidated balance sheet at December 29, 2010 has been derived
from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements
and notes thereto included in the Companys Annual Report on Form 10K for the fiscal year ended December 29, 2010.

3.
Share-Based Compensation

Share-based compensation expense was $0.2 million for the thirteen week periods ended March 30, 2011 and
March 27, 2010, which related to employee stock options and restricted stock awards.

4. Comprehensive Loss

The components of comprehensive loss for the thirteen week periods ended March 30, 2011 and March 27, 2010 were as follows (in thousands):



|                                                          |  |                            |      |   |                |   |      |  
|--------------------------------------------------------- |  | -------------------------- | ---- | - | -------------- | - | ---- | -
|                                                          |  | Thirteen week period ended |     
|                                                          |  | March 30, 2011             |      |   | March 27, 2010 |  
|Net loss                                                  |  | $                          | (658 | ) |                | $ | (440 | )
|Other comprehensive income  foreign currency translation |  |                            | 373  |   |                |   | 263  |  
|                                                          |  |                            |      |   |                |   |      |  
|Total comprehensive loss                                  |  | $                          | (285 | ) |                | $ | (177 | )
|                                                          |  |                            |      |   |                |   |      |  

5. Related Party Transactions

The Company leases certain properties from landlords deemed to be related parties of the Company pursuant to Item 404(a) of Regulation S-K, promulgated pursuant to the Securities and Exchange Act of
1934, as amended. Total rent paid to these landlords was $0.1 million for the thirteen week period ended March 30, 2011 and $0.2 million for the thirteen week period ended March 27, 2010.

6. Commitments and Contingencies

The
Company is subject to various claims, possible legal actions, and other matters arising in the normal course of business. While it is difficult to accurately predict the outcome of these issues, the Company believes that adequate provision for
potential losses has been made in the accompanying condensed consolidated financial statements and that the ultimate resolution of these matters will not have a material adverse effect on the Companys financial position, results of operations
or cash flows.



4



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The Companys primary insurer in 2004 has informed the Company it believes the Company has exhausted
its insurance coverage with respect to employment claims arising in the Companys 2004 coverage year. The Company disagrees with this interpretation of the coverage, but has taken this interpretation into account in connection with the
accounting for employment related liabilities. The Company has initiated litigation to contest the insurers conclusion. If the Company is unsuccessful, and if it is determined that other existing employment claims arose in 2004 and are
therefore not covered, the resolution of those claims could negatively affect the Companys results of operations and financial position. The amount of claims currently in dispute is $1.7 million, which represents costs already incurred by the
Company in which we are seeking to recover. The Company has accounted for the litigation with the insurer in accordance with the applicable guidance for accounting for contingencies under GAAP and management has concluded that no liability should be
recorded at this time.

7. Net Loss Per Share

Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average
number of shares of common stock and potentially dilutive securities outstanding, which includes stock options and restricted stock outstanding under the Companys 2004 Stock Incentive Plan.

There were no dilutive shares for the thirteen week periods ended March 30, 2011 and March 27, 2010. For the thirteen week periods ended
March 30, 2011 and March 27, 2010, 416,965 and 414,527, respectively, of the Companys shares were excluded from the calculation due to their anti-dilutive effect.

8. Subsequent Events

On April 4, 2011, LSRI Holdings, Inc. (LSRI
Holdings), a wholly owned subsidiary of Landrys Restaurants, Inc., which is controlled by Tilman J. Fertitta, announced that it was commencing a tender offer to purchase all of the outstanding shares of common stock of the Company (other
than shares already owned by Mr. Fertitta and his affiliates). LSRI Holdings disclosed the details of the offer in a Tender Offer Statement on Schedule TO dated April 7, 2011, which included a formal offer, subject to various conditions,
to purchase the subject common stock at a purchase price of $9.25 per share, net to seller in cash without interest thereon and less any required withholding tax. On April 20, 2011, after careful consideration and consultation with its
financial and legal advisors, the Companys board of directors unanimously recommended that Company stockholders reject the offer and not tender their shares of Company common stock in the offer because the offer undervalues the Companys
current and future business prospects, is highly conditional, and is not in the best interests of the Company or its stockholders. The recommendation of the Companys board of directors is set forth in a Recommendation/Solicitation Statement on
Schedule 14D-9, as amended, originally filed with the SEC on April 20, 2011.

In addition, on April 17, 2011, after careful
consideration and consultation with the Companys financial and legal advisors, the Companys board of directors, by unanimous vote of the directors authorized the execution of the McCormick & Schmicks Seafood Restaurants,
Inc. Stockholder Rights Plan, dated as of April 18, 2011 between the Company and Computershare Trust Company, N.A., as rights agent (the Rights Plan). The Rights Plan requires any party seeking to acquire 15% or more of the
outstanding Company Common Stock to obtain the approval of the Companys board of directors or else the rights held by the Company stockholders other than the acquiror become exercisable for Company Common Stock, or common stock of the
acquiror, at a discounted price that would significantly dilute the acquirors position and likely make the acquisition prohibitively expensive. The Rights Plan will terminate automatically on April 18, 2012.

On May 2, 2011, the Companys board of directors announced that it had determined to engage in a sale process as well as a broad evaluation of
the Companys other strategic alternatives, with the assistance of its financial and legal advisors, to enhance value for all of the Companys stockholders. In addition, the Companys board of directors announced that management will
continue to refine and execute the Companys previously announced strategic revitalization plan.



5



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

FORWARD-LOOKING STATEMENTS

This information should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q. This discussion highlights key information as determined by management, but may not contain all of the information
that is important to you. For a more complete understanding, the following should be read in conjunction with the Companys 2010 Annual Report on Form 10-K, including the audited financial statements therein (and notes to such financial
statements) and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in that report.

This
quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. These forward-looking statements include those regarding anticipated restaurant
openings, anticipated costs and sizes of future restaurants, anticipated cost savings and the adequacy of anticipated sources of cash to fund our future capital requirements. Our actual results may differ materially from those discussed in the
forward-looking statements. Words such as believes, anticipates, expects, intends, plans and similar expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. These statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. Some of the statements that are forward-looking include: our ability to continue
to successfully implement our previously announced revitalization program, the impact of Landrys unsolicited tender offer on our operations and business; our expectations about capital expenditures and business interruptions associated with
our renovation initiatives; our expectations for the effects of that program; our estimates of revenues and of other expenses associated with our operations; our ability to anticipate and respond adequately to changes in guest preference; our
ability to respond to increasing competition and to changes in consumer preferences in the restaurant industry; our ability to generate sufficient cash flows and maintain adequate sources of liquidity to finance our ongoing operations and our
capital expenditures; our ability to comply with governmental regulations; our ability to absorb increasing labor costs, particularly including but not limited to increasing benefits costs associated with the pending healthcare legislation; our
ability to implement our cost control initiatives without adversely impacting either product quality or guest experiences; and our ability to maintain a positive image for our brands. As with any business, there are a large number of factors that
can cause us to deviate from our plans or to fall short of our expectations. Of course, our business as a whole is subject to a number of risks, and to the extent we know those risks to be material, we have listed and discussed them in Item 1A
Risk Factors of this Quarterly Report on Form 10-Q. Please remember also that forward-looking statements are current as of today. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent required by law.

OVERVIEW

Our company was founded in 1972 with our acquisition of Jakes Famous Crawfish in Portland, Oregon. As of March 30, 2011 we have expanded our
restaurant base to 96 restaurants, including one restaurant operated pursuant to a management contract and seven restaurants operating in Canada under The Boathouse Restaurant name.

We offer our guests a daily-printed menu in most of our locations, with a broad selection of affordable, quality fresh seafood in an upscale environment, serviced by knowledgeable and professional
management and staff. Our revenues are generated by sales at our restaurants, including banquets.

We utilize a broad-based marketing approach
to drive guest traffic, which includes in-house marketing campaigns, including our preferred guest program and e-marketing programs. We have successfully grown our preferred guest program to over 110,000 primary members and over 85,000 secondary
members since its inception in 2006, and our online marketing e-mail club database includes over 405,000 members.

We measure performance
using key operating indicators such as comparable restaurant sales, comparable traffic counts, food and beverage costs, and restaurant operating expenses, with a focus on labor as a percentage of revenues, and total occupancy costs. We also track
trends in average weekly revenues at both the restaurant level and on a consolidated basis as an indicator of our performance. The key financial measure used by management in evaluating our operating results is operating income. Operating income is
calculated by deducting restaurant operating costs, general and administrative expenses, restaurant pre-opening costs, depreciation and amortization and other corporate costs from revenues. We monitor general and administrative expenses as a
percentage of revenues against budgeted levels. Restaurant pre-opening costs are analyzed based on the number and timing of restaurant openings and by comparison to budgeted amounts, with an overall target of approximately $0.3 million to $0.4
million per restaurant opening.

Our most significant restaurant operating costs are food and beverage costs and labor and related employee
benefits. We believe our national and regional presence allow us to achieve better quality and pricing on key products than most of our competitors. We closely monitor food and beverage costs and regularly review our selection of preferred vendors
on the basis of several key metrics, including pricing. In addition, because we print our menu daily in most of our locations, we are able to adapt the seafood items we offer to changes in vendor pricing to optimize our revenue mix and mitigate the
impact of cost increases in any particular seafood item by substituting a lower-cost alternative on our menu or by adjusting the price. Our employee benefits include health insurance, the cost of which continues to increase faster than the general
rate of inflation. We monitor this cost and review strategies to effectively control increases, but we are subject to the overall trend of increases in healthcare costs. General and administrative expenses are controlled in absolute amounts and
monitored as a percentage of revenues.



6



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Identification of appropriate new restaurant sites is essential to our growth strategy. We evaluate and
invest in new restaurants based on site-specific projected returns on investment. We believe our restaurant model and flexible real estate strategy provide us with continued opportunities to find attractive real estate locations on favorable terms.
We evaluate acquisition opportunities as they arise, paying particular attention to how restaurants or restaurant groups would fit with our existing restaurants and our business plan.

STRATEGIC FOCUS AND OPERATING OUTLOOK

Our primary business focus for more than 39 years
has been to consistently offer a broad selection of high quality, fresh seafood, which we believe commands strong loyalty from our guests. We have successfully expanded our McCormick & Schmicks seafood restaurant concept throughout
the United States and have competed effectively with both national and regional restaurant chains as well as with local operators.

Our
objective is to continue to prudently expand the McCormick & Schmicks seafood restaurant base in existing and new markets. Earlier in 2011, following a comprehensive review of McCormick & Schmicks business, the Company
announced a strategic revitalization plan that includes a multi-year service, hospitality and portfolio upgrade program designed to increase restaurant revenue and profitability, while also enhancing the overall guest experience. This plan includes
initiatives to improve service and hospitality, continue to elevate our culinary program, further advance our private dining program, better align our brand with local market guest preferences, expand our social/digital marketing reach, add strength
to the executive team and board of directors and upgrade selected units. The Company expects the plan will improve revenue per location and provide strong returns on invested capital. The Company is also continuing to consider expanding The
Boathouse Restaurant concept in Canada, as well as utilizing it as a complementary concept within the United States.

Part of the
revitalization program as outlined, is the reinvestment back into certain properties to improve top-line sales and restaurant level margins in those locations. We expect the restaurant designs that blend traditional elements that have been
instrumental to our success over the past four decades with more updated features that will better connect with guest preferences.

The
Company has identified eight restaurants to update in 2011, for an aggregate cost of approximately $6.5 million, some of which will be offset by landlord contributions, instead of the previously announced $10 to $15 million. The expected cost of
this years remodel program is significantly lower than our original guidance for the following three reasons: (i) further refinement of the scope of the work to be done in each project combined with value engineering; (ii) two larger
remodels we were considering for 2011 have been put on hold because of permitting and landlord approval delays; and (iii) better than expected landlord support, which has been committed in some locations, as they see the upside in making
improvements to their facilities. With the refined cost structure of these remodels and modest sales increases, the Company expects it can deliver returns in excess of 20% in year one. In addition, the Company expects to have significantly less
downtime during the 2011 remodels. The Company now estimates temporary closure of impacted locations for approximately 20 operating weeks during the scheduled remodels, which is roughly half the earlier estimate, as the Company has shifted the
implementation process to minimize both closure times and adverse impacts on guests. The upgrade program is expected to impact earnings by ($0.04) in 2011.



7



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FINANCIAL PERFORMANCE OVERVIEW

The following are highlights of our financial performance for the thirteen week period ended March 30, 2011 compared to the thirteen week period ended March 27, 2010:



| |  |  | Revenues of $84.0 million for Q1 2011 from $84.8 million for Q1 2010
| | - |  | --------------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 3.2% from March 27, 2010 to March 30, 2011
| | - |  | --------------------------------------------------------------------------------



| |  |  | Operating loss of $0.5 million for Q1 2011 from $0.1 million for Q2 2010
| | - |  | ------------------------------------------------------------------------



| |  |  | Net loss of $0.7 million for Q1 2011 from $0.4 million for Q1 2010
| | - |  | ------------------------------------------------------------------



| |  |  | Diluted net loss per share of $0.04 for Q1 2011 from $0.03 per share for Q1 2010
| | - |  | --------------------------------------------------------------------------------

RECENT DEVELOPMENTS

Foodservice
Distribution Agreement

We terminated our existing food service distribution agreement with Sysco Corporation upon the expiration of
the term of that agreement on January 31, 2011. We entered into a new agreement with Distribution Market Advantage, Inc. The Agreement became effective on January 31, 2011 and expires on January 31, 2014.

Unsolicited Tender Offer

On
April 4, 2011, LSRI Holdings, Inc. (LSRI Holdings), a wholly owned subsidiary of Landrys Restaurants, Inc., which is controlled by Tilman J. Fertitta, announced that it was commencing a tender offer to purchase all of the
outstanding shares of our common stock (other than shares already owned by Mr. Fertitta and his affiliates). LSRI Holdings disclosed the details of the offer in a Tender Offer Statement on Schedule TO dated April 7, 2011, which included a
formal offer, subject to various conditions, to purchase the subject common stock at a purchase price of $9.25 per share, net to seller in cash without interest thereon and less any required withholding tax. On April 20, 2011, after careful
consideration and consultation with our financial and legal advisors, our board of directors unanimously recommended that our stockholders reject the offer and not tender their shares of our common stock in the offer because the offer undervalues
our current and future business prospects, is highly conditional, and is not in the best interests of our company or our stockholders. The recommendation of our board of directors is set forth in a Recommendation/Solicitation Statement on Schedule
14D-9 filed with the SEC on April 20, 2011.

In addition, on April 17, 2011, after careful consideration and consultation with our
financial and legal advisors, our board of directors, by unanimous vote of the directors, decided that it was in the best interests of our company and our stockholders to adopt a stockholder rights plan and authorized the execution of the
McCormick & Schmicks Seafood Restaurants, Inc., Stockholder Rights Plan, dated as of April 18, 2011 between our company and Computershare Trust Company, N.A., as rights agent (the Rights Plan). The purpose of the
Rights Plan is to prevent the accumulation in excess of 15% of our company Common Stock by a stockholder whose interest may not be aligned with the best interest of our other stockholders. The Rights Plan requires any party seeking to acquire 15% or
more of our outstanding common stock to obtain the approval of our board of directors or else the rights held by our stockholders other than the acquiror become exercisable for our common stock, or common stock of the acquiror, at a discounted price
that would significantly dilute the acquirors position and likely make the acquisition prohibitively expensive. The Rights Plan has been tailored in a manner that our board of directors believes appropriately balances the interests of our
stockholders in connection with what our board of directors considers an opportunistic, illusory and disadvantageous proposal, against the need to avoid excessive anti-takeover protections that ultimately may adversely impact stockholder value. To
that end, our board of directors has provided in the Rights Plan that the device will terminate automatically on April 18, 2012.

On
May 2, 2011, our board of directors announced that it had determined to engage in a sale process as well as a broad evaluation of our other strategic alternatives, with the assistance of its financial and legal advisors, to enhance value for
all our stockholders. In addition, our board of directors announced that management will continue to refine and execute our previously announced strategic revitalization plan. There can be no assurance that the sale process, or the evaluation of
other strategic alternatives, will result in any transaction or otherwise modify or replace our current strategic plan.



8



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RESULTS OF OPERATIONS: Thirteen week period ended March 30, 2011 compared to thirteen week period
ended March 27, 2010



|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|----------------------------------- |  | ------------------------------ | ------ | - | -------------- |  | ----- | ------- |  | - | ------------ | - |  |  | ----- | --
|                                    |  | Thirteen Week Period Ended
(1) |       
|                                    |  | March 30, 2011                 |        |   | March 27, 2010 | 
|(Dollars in thousands)              |  | Dollars                        |        |   | % ofrevenues   |  |       | Dollars |  |   | % ofrevenues |  
|Revenues                            |  | $                              | 83,964 |   |                |  | 100.0 | %       |  | $ | 84,822       |   |  |  | 100.0 | % 
|Restaurant operating costs:         |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Food and beverage                   |  |                                | 25,110 |   |                |  | 29.9  |         |  |   | 25,797       |   |  |  | 30.4  |   
|Labor                               |  |                                | 28,803 |   |                |  | 34.3  |         |  |   | 28,160       |   |  |  | 33.2  |   
|Operating                           |  |                                | 12,881 |   |                |  | 15.3  |         |  |   | 12,574       |   |  |  | 14.8  |   
|Occupancy                           |  |                                | 9,200  |   |                |  | 11.0  |         |  |   | 9,187        |   |  |  | 10.8  |   
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Total restaurant operating costs    |  |                                | 75,994 |   |                |  | 90.5  |         |  |   | 75,718       |   |  |  | 89.3  |   
|General and administrative expenses |  |                                | 4,891  |   |                |  | 5.8   |         |  |   | 4,907        |   |  |  | 5.8   |   
|Restaurant pre-opening costs        |  |                                |       |   |                |  |      |         |  |   | 502          |   |  |  | 0.6   |   
|Depreciation and amortization       |  |                                | 3,536  |   |                |  | 4.2   |         |  |   | 3,811        |   |  |  | 4.5   |   
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Total costs and expenses            |  |                                | 84,421 |   |                |  | 100.5 |         |  |   | 84,938       |   |  |  | 100.1 |   
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Operating loss                      |  |                                | (457   | ) |                |  | (0.5  | )       |  |   | (116         | ) |  |  | (0.1  | ) 
|Interest expense, net               |  |                                | 341    |   |                |  | 0.4   |         |  |   | 406          |   |  |  | 0.5   |   
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Loss before income tax benefit      |  |                                | (798   | ) |                |  | (1.0  | )       |  |   | (522         | ) |  |  | (0.6  | ) 
|Income tax benefit                  |  |                                | (140   | ) |                |  | (0.2  | )       |  |   | (82          | ) |  |  | (0.1  | ) 
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   
|Net loss                            |  | $                              | (658   | ) |                |  | (0.8  | )%      |  | $ | (440         | ) |  |  | (0.5  | )%
|                                    |  |                                |        |   |                |  |       |         |  |   |              |   |  |  |       |   



|(1) | Percentages may not add due to rounding.
|--- | ----------------------------------------



9



---

Revenues and Restaurant Operating Costs



|                                 |  |                            |        |  |               |   |        |              |  |   |         |   |  |  |      |   
|-------------------------------- |  | -------------------------- | ------ |  | ------------- | - | ------ | ------------ |  | - | ------- | - |  |  | ---- | --
|                                 |  | Thirteen Week Period Ended |        |  |               |   |        |              | 
|(Dollars in thousands)           |  | March 30,2011              |        |  | March 27,2010 |   |        | DollarChange |  |   | %Change |  
|Revenues                         |  | $                          | 83,964 |  |               | $ | 84,822 |              |  | $ | (858    | ) |  |  | (1.0 | )%
|Restaurant operating costs:      |  |                            |        |  |               |   |        |              |  |   |         |   |  |  |      |   
|Food and beverage                |  | $                          | 25,110 |  |               | $ | 25,797 |              |  | $ | (687    | ) |  |  | (2.7 | )%
|Labor                            |  |                            | 28,803 |  |               |   | 28,160 |              |  |   | 643     |   |  |  | 2.3  | % 
|Operating                        |  |                            | 12,881 |  |               |   | 12,574 |              |  |   | 307     |   |  |  | 2.4  | % 
|Occupancy                        |  |                            | 9,200  |  |               |   | 9,187  |              |  |   | 13      |   |  |  | 0.1  | % 
|                                 |  |                            |        |  |               |   |        |              |  |   |         |   |  |  |      |   
|Total restaurant operating costs |  | $                          | 75,994 |  |               | $ | 75,718 |              |  | $ | 276     |   |  |  | 0.4  | % 
|                                 |  |                            |        |  |               |   |        |              |  |   |         |   |  |  |      |   



|                                                                |  |                           |       |  |               |  |       | 
|--------------------------------------------------------------- |  | ------------------------- | ----- |  | ------------- |  | ----- | 
|                                                                |  | Thirteen WeekPeriod
Ended |      
|                                                                |  | March 30,2011             |       |  | March 27,2010 | 
|Store operating weeks                                           |  |                           | 1,235 |  |               |  | 1,203 | 
|Number of company owned restaurants operating during the period |  |                           | 95    |  |               |  | 93    | 

Revenues

Our revenues are derived primarily from food and beverage sales.

Revenues decreased $0.9 million, or 1.0% to $84.0 million in the thirteen week period ended March 30, 2011 compared to $84.8 million in the comparable period of 2010. The decrease in revenues was
primarily attributable to a 3.2% decrease in comparable restaurant sales. This decrease was partially offset by a beneficial shift in product mix. Revenues were also positively affected by the increase in store operating weeks as a result of the
additional restaurants open compared to comparable period of 2010.

Income from gift card breakage was $0.1 million for the thirteen week
period ended March 30, 2011 compared to no income from gift card breakage in the comparable period of 2010.

Food and Beverage
Costs

Food and beverage costs include the cost of all food and beverage utilized in our restaurant operations.

Food and beverage costs decreased $0.7 million or 2.7%, to $25.1 million in the thirteen week period ended March 30, 2011 compared to $25.8 million
in the comparable period of 2010. The decrease in food and beverage costs was primarily due to lower restaurant sales. The decrease in food and beverage costs as a percentage of revenues was primarily due to proactive management of these costs
despite the impact of higher commodity costs.

Labor Costs

Labor costs include salaries and wages and related payroll costs for employees engaged in the direct operations of the restaurants.

Labor costs increased $0.6 million or 2.3%, to $28.8 million in the thirteen week period ended March 30, 2011 compared to $28.2 million in the comparable period of 2010. The increase in labor costs
was primarily related to two additional restaurants in operation and the investment in our service and hospitality initiative during the thirteen week period ending March 30, 2011 as compared to the comparable period of 2010.



10



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Operating Costs

Operating expenses consist primarily of various restaurant-level costs such as repairs and maintenance, janitorial, utilities, marketing and advertising, certain of which are variable and may fluctuate
with revenues. Also, expenditures associated with marketing programs are discretionary in nature and the timing and amount of marketing expenses will vary.

Operating costs increased $0.3 million or 2.4%, to $12.9 million in the thirteen week period ended March 30, 2011 compared to $12.6 million in the comparable period of 2010. The increase in operating
costs was primarily related to two additional restaurants in operation in the thirteen week period ending March 30, 2011 as compared to the comparable period of 2010. The increase in operating costs as a percentage of revenue was a result of
deleveraging in the comparable sales base.

Occupancy Costs

Occupancy costs include both fixed and variable portions of rent, common area maintenance charges and property taxes.

Occupancy costs remained consistent at $9.2 million for the thirteen week period ended March 30, 2011 and in the comparable period of 2010. An increase in occupancy costs due to two additional units
in operation in 2011 was offset by a decrease in occupancy costs due to a decline in percentage rent. The increase in occupancy costs as a percentage of revenues was primarily a result of a significant portion of our occupancy costs being fixed and
a decrease in our revenues.

General and Administrative Expenses, Restaurant Pre-Opening Costs and Depreciation and Amortization



|                                   |  |                            |       |  |               |   |       |              |  |   |         |   |  |  |      |   
|---------------------------------- |  | -------------------------- | ----- |  | ------------- | - | ----- | ------------ |  | - | ------- | - |  |  | ---- | --
|                                   |  | Thirteen Week Period Ended |       |  |               |   |       |              | 
|(Dollars in thousands)             |  | March 30,2011              |       |  | March 27,2010 |   |       | DollarChange |  |   | %Change |  
|General and administrative expense |  | $                          | 4,891 |  |               | $ | 4,907 |              |  | $ | (16     | ) |  |  | (0.3 | )%
|Restaurant pre-opening costs       |  |                            |      |  |               |   | 502   |              |  |   | (502    | ) |  |  | *    |   
|Depreciation and amortization      |  |                            | 3,536 |  |               |   | 3,811 |              |  |   | (275    | ) |  |  | (7.2 | )%



|* | Not meaningful
|- | --------------

General and
Administrative Expenses

General and administrative expenses consist of expenses associated with corporate administrative functions
that support development and restaurant operations including management and staff compensation, employee benefits, travel, legal fees, professional fees and technology expense.

General and administrative expenses costs remained consistent at $4.9 million for the thirteen week period ended March 30, 2011 and in the comparable period of 2010.

Restaurant Pre-Opening Costs

Restaurant pre-opening costs, which are expensed as incurred, consist of costs incurred prior to opening a new restaurant and are comprised principally of
manager salaries, relocation, employee payroll and related training costs for new employees, including practice and rehearsal of service activities and local marketing costs. Restaurant pre-opening costs also include rent expense during the
construction period.

We did not incur any restaurant pre-opening costs for the thirteen week period ended March 30, 2011 and incurred
$0.5 million in the comparable period of 2010.

Depreciation and Amortization

Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of intangible and other assets.

Depreciation and amortization decreased $0.3 million, or 7.2%, to $3.5 million in the thirteen week period ended March 30, 2011 compared to $3.8
million in the comparable period of 2010. The decrease in depreciation and amortization was primarily due to the reduction of expense attributable to assets impaired in fiscal 2010, partially offset by an increase in depreciation as a result of two
new restaurants that were opened in the second quarter of 2010.



11



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Operating Loss, Interest Expense, Net, Income Tax Benefit and Net Loss



|                       |  |                            |      |   |               |  |      |              |  |  |         |   |  |  |       |   
|---------------------- |  | -------------------------- | ---- | - | ------------- |  | ---- | ------------ |  |  | ------- | - |  |  | ----- | --
|                       |  | Thirteen week period ended |      |   |               |  |      |              | 
|(Dollars in thousands) |  | March 30,2011              |      |   | March 27,2010 |  |      | DollarChange |  |  | %Change |  
|Operating loss         |  |                            | (457 | ) |               |  | (116 | )            |  |  | (341    | ) |  |  | *     |   
|Interest expense, net  |  |                            | 341  |   |               |  | 406  |              |  |  | (65     | ) |  |  | (16.0 | )%
|Income tax benefit     |  |                            | (140 | ) |               |  | (82  | )            |  |  | (58     | ) |  |  | (70.7 | )%
|Net loss               |  |                            | (658 | ) |               |  | (440 | )            |  |  | (218    | ) |  |  | (49.5 | )%



|* | Not meaningful
|- | --------------

Operating Loss

Operating loss increased by $0.3 million to $0.5 million in the thirteen week period ended March 30, 2011 compared to $0.1
million in the comparable period of 2010.

Interest Expense, Net

Interest expense, net, was $0.3 million for the thirteen week period ended March 30, 2011, compared to $0.4 million in the comparable period of 2010. The decrease is primarily attributed to a decline
in the balance of our revolving credit facility, partially offset by an increase in our effective interest rate.

Income Tax Benefit

Our effective tax rate was a benefit of 17.5% in the thirteen week period ended March 30, 2011, compared to a benefit of 15.7% in
the comparable period of 2010. The effective tax rate in fiscal 2011 is expected to be affected by the release of a portion of the valuation allowance against deferred tax assets as we project modest taxable income for the fiscal year in certain tax
jurisdictions.

Net Loss

Net loss increased by $0.2 million to $0.7 million in the thirteen week period ended March 30, 2011, compared to $0.4 million in the comparable period of 2010 primarily due to a decline in revenue.



12



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LIQUIDITY AND CAPITAL RESOURCES

Our primary cash needs have been for new restaurant construction, restaurant acquisition, working capital and general corporate purposes, including payments under our credit facility. Our main sources of
cash have been net cash provided by operating activities, borrowings under our credit facility and cash from tenant improvement allowances. The following table summarizes our sources and uses of cash and cash equivalents from our unaudited condensed
consolidated statements of cash flows.



|                                                             |  |                            |        |   |               |   |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------- | - | ------ | -
|                                                             |  | Thirteen Week Period Ended |       
|(Dollars in thousands)                                       |  | March 30,2011              |        |   | March 27,2010 |  
|Net cash provided by (used in) operating activities          |  | $                          | 3,658  |   |               | $ | (62    | )
|Net cash used in investing activities                        |  |                            | (2,452 | ) |               |   | (1,972 | )
|Net cash provided by (used in) financing activities          |  |                            | 1,442  |   |               |   | (44    | )
|Effect of exchange rate changes on cash and cash equivalents |  |                            | 115    |   |               |   | 102    |  
|                                                             |  |                            |        |   |               |   |        |  
|Net increase (decrease) in cash and cash equivalents         |  | $                          | 2,763  |   |               | $ | (1,976 | )
|                                                             |  |                            |        |   |               |   |        |  

For much of our history, we have successfully operated with a negative working capital balance. Our operations have not
required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital because we are able to sell many of our food inventory items before payment is due to our suppliers. Credit card
receivables, our primary type of receivable, are collected within a few business days of a guests payment by credit card. We have operated successfully with levels of working capital deficit similar to the deficit as of March 30, 2011 as
this level does not fluctuate greatly from year to year. For the reasons state above, we believe this is the appropriate level to support our operations. Funds available from revenues not needed immediately for working capital purposes historically
have been used for capital expenditures or to repay debt.

We had a working capital deficit of $15.1 million at March 30, 2011, compared
to $13.1 million at March 27, 2010 and our current ratio was 0.61 at March 30, 2011, compared to 0.65 at March 27, 2010. We utilize our credit facility to cover working capital shortfalls by drawing on our facility daily as needed and
then repaying promptly as funds become available.

We are engaged in a number of ongoing initiatives to enhance our facilities, including the
previously announced revitalization plan and we regularly invest in our information technology systems to support future growth and development of our restaurant operations. From time to time we also evaluate programs that, if adopted, would require
us to make additional capital expenditures, some of which may be material. Capital expenditures would be managed to balance liquidity and working capital needs with any extraordinary expenses and capital expenditures, taking into account any
additional resources such as borrowings under existing or future credit arrangements. Capital expenditures for 2011 are expected to be between $12 million and $14 million.

Cash Flow from Operating Activities

We believe the net cash provided by operating
activities and funds available from our revolving credit facility will be sufficient to satisfy our working capital and capital expenditure requirements, including restaurant construction, our revitalization plan and pre-opening costs and potential
initial operating losses related to new restaurant openings, for at least the next 12 month period. However, circumstances could change, perhaps significantly, if the economic downturn does not improve or worsens. In addition, our revitalization
plan will require the temporary closure of individual restaurants, which will eliminate revenues for the affected sites for a period of time. If one or more site closures are longer than expected, our revenues and cash flow from operations for such
sites are likely to fall short of our expectations for those sites.

Net cash provided by operating activities was $3.7 million in the
thirteen week period ended March 30, 2011, compared to net cash used in operating activities of $0.1 in the thirteen week period ended March 27, 2010. This increase was primarily a result of the timing of payroll payments compared to the
comparable period in the prior year. Guests pay for food and beverage purchases at the time of sale in cash or by credit card, which are converted to cash within a few business days. Our primary uses of cash are for inventory purchases, labor and
occupancy which closely approximate the cash basis of accounting as these items are settled in cash within a short period of time.



13



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Cash Flow from Investing Activities

Net cash used in investing activities in the thirteen week period ended March 30, 2011 was $2.5 million and consisted of capital expenditures. Cash was used primarily for equipment purchases and to
upgrade existing restaurants.

Cash Flow from Financing Activities

Net cash provided by financing activities was $1.4 million in the thirteen week period ended March 30, 2011 and consisted primarily of net borrowings on our revolving credit facility. We utilize our
revolving credit facility to fund capital expenditures as well as fund our ongoing operations.

We have a $40 million revolving credit
facility, with an additional $20 million available at our request if specified conditions are met. As of March 30, 2011, the outstanding balance on our revolving credit facility was $5.5 million at an effective interest rate of 4.2% and we had
maximum exposure under standby letters of credit of $2.8 million. As of March 30, 2011, there was $31.7 million available for future borrowings under the credit facility. Under the revolving credit facility agreement, we are subject to certain
financial covenants. We were in compliance with these covenants as of March 30, 2011.

On July 30, 2008, our Board of Directors
authorized the repurchase of up to $20.0 million of our common stock. Such repurchases may be made from time to time in open market transactions or through privately negotiated transactions. As of March 30, 2011 we had not repurchased any
shares.



14



---

SEASONALITY

Our business is subject to seasonal fluctuations. Historically, sales are highest in the fourth quarter. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes
seasonally in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

OFF-BALANCE SHEET ARRANGEMENTS

We do
not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

We reaffirm the critical accounting policies and estimates as reported in the managements discussion and analysis of financial condition and results
of operations in Form 10-K for the year ended December 29, 2010.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We reaffirm the significant accounting policies in our notes to consolidated financial statements reported in Form 10-K for the year ended
December 29, 2010.

RECENT ACCOUNTING PRONOUNCEMENTS

There are no recent accounting pronouncements that we believe will have a material effect on our results of operations, cash flows or financial position.



15



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There have been no material changes in our reported market risks since the filing of our Form 10-K (Item 7A) for the year ended December 29, 2010.



|Item 4. | Controls and Procedures
|------- | -----------------------

Disclosure
Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our chief executive officer
and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rules 13a-15(e) and 15-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring
that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and
(2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our chief executive
officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of March 30, 2011.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



16



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Occasionally, we are a
defendant in litigation arising in the ordinary course of our business, including claims resulting from slip and fall accidents, employment related claims and claims from guests or employees alleging illness, injury or other food
quality, health or operational concerns. These may include claims brought against us by private party plaintiffs and various government agencies, including federal, state and local taxing agencies, various state and local health departments, and the
Equal Employment Opportunity Commission and other employment related agencies, among others. In certain instances we may settle claims if management concludes that future costs to defend the suits outweigh the costs to settle the claims. We are
currently a defendant in several disputes that may be litigated in court. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse
effect on our financial position, results of operations or cash flows.

Our primary insurer in 2004 has informed us it believes we have
exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year, which it believes includes the litigation in California and possibly similar future claims. Furthermore, the insurer has also taken the position
that several claims arising in the 2005 through 2008 coverage years are related to certain 2004 claims, and therefore not eligible for coverage. We disagree with this interpretation of the coverage, but have taken this interpretation into account in
connection with the accounting for employment claims. In fiscal 2008, we initiated litigation to contest the insurers conclusion. The amount of claims currently in dispute with our insurer is $1.7 million which represents costs we already
incurred in which we are seeking to recover. We have accounted for the litigation with our insurer in accordance with the applicable guidance for accounting for contingencies under GAAP and determined that no liability should be recorded at this
time.



|Item 1A. | Risk Factors
|-------- | ------------

Financial Risk
Factors

Our operating results may fluctuate significantly. The failure of our existing or new restaurants to achieve expected
results could have a negative impact on our revenues and financial results, including potential impairment of long-lived assets. Our results could fall below the expectations of securities analysts and investors due to seasonality and other factors,
resulting in a decline in our stock price.

The results achieved by our restaurants may not be indicative of longer term performance
or the potential market acceptance of restaurants in other locations. New restaurants we open may not have operating results similar to those of previously opened restaurants. The failure of restaurants to perform as predicted could result in an
impairment charge, which could negatively impact our results of operations. Our operating results may fluctuate significantly because of several factors, including:



| |  |  | Our ability to implement our previously announced revitalization plan;
| | - |  | ----------------------------------------------------------------------



| |  |  | Our ability to achieve market acceptance, particularly in new markets;
| | - |  | ----------------------------------------------------------------------



| |  |  | Our ability to raise capital, or the availability of expansion capital generally;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Changes in the availability and costs of food;
| | - |  | ----------------------------------------------



| |  |  | The loss of key management personnel;
| | - |  | -------------------------------------



| |  |  | The concentration of our restaurants in specific geographic areas;
| | - |  | ------------------------------------------------------------------



| |  |  | Our ability to protect our name and logo and other proprietary information;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Changes in consumer preferences or discretionary spending;
| | - |  | ----------------------------------------------------------



| |  |  | Fluctuations in the number of visitors or business travelers to our restaurants;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Health concerns about seafood or other foods;
| | - |  | ---------------------------------------------



| |  |  | Our ability to attract, motivate and retain qualified employees;
| | - |  | ----------------------------------------------------------------



| |  |  | Increases in labor costs;
| | - |  | -------------------------



| |  |  | The impact of federal, state or local government regulations relating to our employees or the sale or preparation of food and the sale of alcoholic
beverages;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The impact of litigation;
| | - |  | -------------------------



| |  |  | The effect of competition in the restaurant industry;
| | - |  | -----------------------------------------------------



| |  |  | The effect of widespread adverse weather conditions;
| | - |  | ----------------------------------------------------



| |  |  | Economic trends generally;
| | - |  | --------------------------



| |  |  | The ability of real estate developers, landlords and co-tenants, to meet commitments to fill space in developments where our restaurants are to be
located, which would decrease guest traffic to our restaurants; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduced corporate expenditures on meetings and/or conventions may impact our private dining business.
| | - |  | -----------------------------------------------------------------------------------------------------



17



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Our business also is subject to seasonal fluctuations. Historically, sales in most of our restaurants have
been higher during the second and fourth quarter of each year. As a result, our quarterly and annual operating results and restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above. Accordingly, results
for any one fiscal quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. Our operating results may be different than the
expectations of securities analysts and investors. In that event, the price of our common stock may fluctuate.

Failure to establish,
maintain and apply adequate internal control over our financial reporting could affect our reported results of operations.

We are
subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. These provisions provide for the identification of material weaknesses in internal control over financial reporting, which is a process to
provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. If we experience a material weakness in internal controls,
there can be no assurance that we will be able to remediate that material weakness in a timely manner or maintain all of the controls necessary to remain in compliance which may impact our ability to detect and prevent fraud. Any failure to
maintain an effective system of internal controls over financial reporting could limit the ability to report our financial results accurately and timely which could affect our reported results of operations.

The terms of our revolving credit facility impose financial restrictions that may be affected as we respond to changing business and economic
conditions.

On November 17, 2010, the existing revolving credit facility was amended. In conjunction with the amendment, the
availably under the facility was reduced from $90.0 million to $40.0 million, with an additional $20.0 million available at our request if specified conditions are met. We and our subsidiaries have agreed to a negative pledge on assets, with certain
customary exceptions, and the credit facility places certain restrictions on our activities, including financial covenants and restrictions on certain payments to related parties and on capital expenditures. Our ability to comply with these
provisions may be affected by events outside of our control. A breach of any of these provisions or our inability to comply with required financial ratios could result in a default under the credit facility. If that were to occur, the lenders have
the right to declare all borrowings to be immediately due and payable.

The unsolicited tender offer to which we are currently subject
may pose additional risks to our business.

The unsolicited proposal to acquire our company announced on April 4, 2011 by LSRI
Holdings, Inc., (LSRI Holdings) a wholly owned subsidiary of Landrys Restaurants, Inc., may expose us to a number of risks, including:



| |  |  | our stock price could fluctuate significantly;
| | - |  | ----------------------------------------------



| |  |  | if the tender offer results in a change in control, it could result in a significant change in our business;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | increased legal fees and associated costs incurred in connection with responding to the offer;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | potential increases in legal fees associated with defending lawsuits that may be brought in connection with this offer and our response to it;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | losses of revenue occasioned by the distraction of management in responding to the offer and to the related litigation;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on our ability to execute effectively upon our business plans because of competing demands on managements time and attention;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in hiring, retaining and motivating key personnel during the uncertainties generated by the tender offer;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | substantial increases in general and administrative expense associated with increasing staffing needs and with the need to retain and compensate
outside consultants;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in maintaining relationships with key suppliers, landlords and other parties whose actions have significant influence over our business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks arising in connection with our attempts to assess our strategic alternatives to the tender offer;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | difficulties in preserving the commercially sensitive confidential information that may need to be disclosed to competitors and other persons in
connection with an assessment of our strategic alternatives; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | disruption of and instability in our employee and customer bases.
| | - |  | -----------------------------------------------------------------



18



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Our Rights Plan makes it difficult for a third party to acquire control of our company. This could
have a negative effect on the price of our common stock.

We adopted a stockholder rights plan which could discourage potential
acquisition proposals and could delay or prevent a change in control of our company. These deterrents could adversely affect the price of our common stock and make it difficult to remove or replace members of the board of directors or management of
our company.

Macro Economic Risk Factors

The global economic crisis adversely impacted our business and financial results during recent years. Challenging economic factors such as a decline in business travelers, changes in consumer
preferences spending, labor shortages or increases in labor costs and increases in food costs could adversely affect our business.

The restaurant industry is being adversely affected by economic factors, including changes in national, regional, and local economic conditions,
employment levels and consumer spending patterns. The increased concerns about the economy and financial markets have reduced consumer confidence and decreased restaurant traffic, particularly at upscale restaurants, which is harmful to our business
and results of operations.

We depend on both local residents and business travelers to frequent our locations. If the number of visitors who
frequent our locations declines due to economic or other conditions, changes in consumer preferences, changes in discretionary consumer spending or for other reasons, our revenues could decline significantly and our results of operations could be
adversely affected.

The restaurant industry is characterized by the introduction of new concepts and is subject to rapidly changing consumer
preferences, tastes and purchasing habits. Our continued success depends in part upon the popularity of seafood and the style of dining we offer. Shifts in consumer preferences away from this cuisine or dining style could materially and adversely
affect our operating results.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified
employees, including regional operational managers and regional chefs, restaurant general managers and executive chefs, necessary to continue our operations and keep pace with our growth. If we are unable to recruit and retain sufficient
qualified individuals, our business and our growth could be adversely affected. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. If our labor costs increase, our
results of operations will be negatively affected.

Our profitability depends significantly on our ability to anticipate and react to changes
in food costs. We rely on local, regional and national suppliers to provide our seafood, produce, beef and other ingredients. Increases in distribution costs or sale prices or failure to perform by these suppliers could cause our food costs to
increase. We could also experience significant short-term disruptions in our supply if a significant supplier failed to meet its obligations.

Adverse weather conditions could unfavorably affect our restaurant sales.

Many of our restaurants are located in regions that may be susceptible to severe weather conditions. Adverse weather conditions can impact guest traffic at our restaurants, cause the temporary
underutilization of outdoor patio seating, and cause temporary closures, sometimes for prolonged periods.

Many of our restaurants are
concentrated in local or regional areas and, as a result, we are sensitive to economic and other trends and developments in these areas.

As of March 30, 2011, we operated five restaurants in the Seattle, Washington area, six in the Portland, Oregon area, 14 in California, and seven in the greater Vancouver, British Columbia area; our
East Coast restaurants are concentrated in and around Washington, D.C. and Baltimore. As a result, adverse economic conditions, weather and labor markets in any of these areas could have a material adverse effect on our overall results of
operations. In addition, given our geographic concentrations, negative publicity or events outside of our control regarding any of our restaurants in these areas could have a material adverse effect on our business and operations.

Growth Risk Factors

We may
not be able to successfully integrate into our business the operations of restaurants that we acquire, which may adversely affect our business, financial condition and results of operations.

We may seek to selectively acquire existing restaurants and integrate them into our business operations. Achieving the expected benefits of any
restaurants that we acquire will depend in large part on our ability to successfully integrate the operations of the acquired restaurants and personnel in a timely and efficient manner. The risks involved in such restaurant acquisitions and
integration include:



| |  |  | Challenges and costs associated with the acquisition and integration of restaurant operations located in markets where we have limited or no
experience;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Possible disruption to our business as a result of the diversion of managements attention from its normal operational responsibilities and
duties; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



19



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| |  |  | Consolidation of the corporate, information technology, accounting and administrative infrastructure and resources of the acquired restaurants into our
business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

We may be unable to successfully integrate the operations, or realize the anticipated benefits, of any
restaurants that we acquire. If we cannot overcome the challenges and risks that we face in integrating the operations of newly acquired restaurants, our business, financial condition and results of operations could be adversely affected.

Our failure to drive sufficient profitable sales growth through brand relevance, operating excellence, opening new restaurants,
successfully refining existing restaurants and developing or acquiring new restaurants could adversely affect our results of operations.

As part of our business strategy, we intend to drive profitable sales growth by increasing same-restaurant sales at existing restaurants, continuing to expand our current portfolio of restaurant brands,
and developing or acquiring additional brands that can be expanded profitably. This strategy involves numerous risks, and we may not be able to achieve our growth objectives. We may not be able to maintain brand relevance and restaurant operating
excellence at existing brands to achieve sustainable same-restaurant sales growth and warrant new unit growth. In addition, we may not be able to open all of our planned new restaurants, and the new restaurants that we open may not be profitable or
as profitable as our existing restaurants. New restaurants typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly-opened restaurants generally do not make a significant
contribution to profitability in their initial months of operation. The opening of new restaurants can also have an adverse effect on sales levels at existing restaurants. Furthermore, we may not be able to develop or acquire additional brands that
are as profitable as our existing restaurants.

Our business may suffer if we do not successfully, timely and economically implement our
revitalization plan.

In early 2011, following a comprehensive review of McCormick & Schmicks business, the Company
announced a strategic revitalization plan that includes a multi-year service, hospitality and portfolio upgrade program designed to increase restaurant revenue and profitability, while also enhancing the overall guest experience. This plan includes
initiatives to improve service and hospitality, continue to elevate our culinary program, further advance our private dining program, better align our brand with local market guest preferences, expand our social/digital marketing reach, add strength
to the executive team and board of directors and upgrade selected units. The Company expects the plan will improve revenue per location and provide strong returns on invested capital. The Company is also continuing to consider expanding The
Boathouse Restaurant concept in Canada, as well as utilizing it as a complementary concept within the United States. If we fail to implement this program effectively, we may be unable to strengthen our customer base (which would represent a failure
to reap the intended results of our investments) or we may alienate a significant portion of our existing customer base (which would harm our revenues).

Moreover, we have budgeted significant capital expenditures toward enhancing our restaurant portfolio, including up to $6.5 million for 2011. A significant majority of those investments are targeting
upgrades to individual properties based upon a variety of factors, with a goal of enhancing the dining experience, growing our customer base and traffic counts, and improving per-site revenues. Some of these projects will require the temporary
closure of individual restaurants, which will eliminate revenues for the affected sites for a period of time. If one or more site closures are longer than expected, our revenues for such sites are likely to fall short of our expectations for those
sites. Any of these potential outcomes, alone or in combination, may materially and adversely affect our financial condition, results of operations or cash flows.

Operational Risk Factors

We rely on information technology in our operations,
and any material failure, inadequacy or interruption could harm our ability to effectively operate our business.

We rely on
information systems across our operations, including for management of our supply chain, point-of-sale processing system in our restaurants, and various other processes and transactions. Our ability to effectively manage our business and coordinate
the production, distribution and sale of our products depends on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in
security of these systems could cause delays in customer service and reduce efficiency in our operations, and significant capital investments could be required to remediate the problem.

A failure to develop and recruit effective leaders or the loss of key personnel could harm our ability to effectively operate our business.

Our future growth depends substantially on the contributions and abilities of key executives and other employees. Our future growth also depends
substantially on our ability to recruit and retain high-quality employees to work in and manage our restaurants. We must continue to recruit, retain and motivate management and other employees in order to maintain our current business and support
our projected growth. A failure to maintain leadership excellence and build adequate bench strength, a loss of key employees or a significant shortage of high-quality restaurant employees could jeopardize our ability to meet our growth targets.

We occupy most of our restaurants under long-term non-cancelable leases which may limit our flexibility as economic conditions change.

Most of our restaurants are located in leased premises with long-term non-cancelable leases. If we close restaurants, we may be
obligated to continue making rental payments or make a lump-sum payment to exit the lease, which could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a
restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we are unable to renew our restaurant leases, we would have to close or relocate a restaurant, which could subject us to construction and other costs
and risks, and could have a material adverse effect on our business and results of operations.



20



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Legal, Regulatory and Health Risk Factors

Restaurant companies have been the target of class-actions and other lawsuits alleging, among other things, violation of federal and state law.
Litigation could have a material adverse effect on our business.

We are subject to a variety of claims arising in the ordinary course
of our business brought by or on behalf of our guests or employees, including personal injury claims, contract claims, and employment-related claims. In recent years, a number of restaurant companies have been subject to lawsuits, including
class-action lawsuits, alleging violations of federal and state law regarding workplace, employment and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been
instituted against us from time to time. In 2007, we incurred a $2.2 million charge for a class action legal settlement relating to an employment claim. Regardless of whether any claims against us are valid or whether we are ultimately determined to
be liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially adversely affect our financial
condition or results of operations, and adverse publicity resulting from these allegations may materially adversely affect our business. We may incur substantial damages and expenses resulting from lawsuits, which could have a material adverse
effect on our business.

Our insurance policies may not provide adequate levels of coverage against all claims.

We believe we maintain insurance coverage that is customary for businesses of our size and type. However, there are types of losses we may incur that
cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Our primary insurer in 2004 has informed us it
believes we have exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year and that several claims arising in 2005 through 2008 coverage years are related to the 2004 coverage year. We disagree with this
interpretation of our coverage, but we have taken this interpretation into account in connection with the charge we have taken related to our settlement of class action claims in California. We may not succeed in our contest of our insurers
conclusion. If we are unsuccessful, and if it is determined that other existing employment claims arose in 2004 and are therefore not covered, our resolution of those claims would be more expensive.

Health concerns relating to the consumption of seafood or other foods could affect consumer preferences and could negatively impact our results of
operations.

We may lose customers based on health concerns about the consumption of seafood or negative publicity concerning food
quality, illness and injury generally, such as negative publicity concerning the accumulation of mercury or other carcinogens in seafood, e-coli, mad cow or foot-and-mouth disease, publication of government or industry
findings about food products served by us, regulatory required disclosure of calorie or nutritional information or other health concerns or operating issues stemming from one of our restaurants. In addition, our operational controls and training may
not be fully effective in preventing all food-borne illnesses. Some food-borne illness incidents could be caused by food suppliers and transporters and would be outside of our control. Any negative publicity, health concerns or specific outbreaks of
food-borne illnesses attributed to one or more of our restaurants, or the perception of an outbreak, could result in a decrease in guest traffic to our restaurants and could have a material adverse effect on our business.

We may incur costs or liabilities and lose revenue, and our growth strategy may be adversely impacted, as a result of government regulation.

Our restaurants are subject to various federal, state and local government regulations, including those relating to employees, the
preparation and sale of food and the sale of alcoholic beverages. These regulations affect our restaurant operations and our ability to open new restaurants.

Each of our restaurants must obtain licenses from regulatory authorities to sell liquor, beer and wine, and each restaurant must obtain a food service license from local health authorities. Each liquor
license must be renewed annually and may be revoked at any time for cause, including violation by us or our employees of any laws and regulations relating to the minimum drinking age, advertising, wholesale purchasing and inventory control. In
certain jurisdictions where we operate the number of alcoholic beverage licenses available is limited and licenses are traded at market prices.

The failure to maintain our food and liquor licenses and other required licenses, permits and approvals could adversely affect our operating results.
Difficulties or failure in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants.

We are subject to dram shop statutes in some states. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated person. A judgment substantially in excess of our insurance coverage could harm our operating results and financial condition.



21



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Various federal and state labor laws govern our relationship with our employees and affect operating costs.
These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers compensation rates, and citizenship requirements. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and
mandated health benefits, increased tax reporting and tax payment requirements for employees who receive gratuities, or a reduction in the number of states that allow tips to be credited toward minimum wage requirements would increase our labor
costs and could harm our operating results and financial condition. We may be unable to increase our prices in order to pass these increased labor costs on to our guests, in which case our margins would be negatively affected. Because our labor
costs are, as a percentage of revenues, higher than other industries, we may be significantly harmed by labor cost increases.

The Federal
Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our
restaurants to provide service to, or make reasonable accommodations for, disabled persons.

We may become subject to litigation
relating to our adoption of a stockholder rights plan.

On April 4, 2011, LSRI Holdings, a wholly owned subsidiary of
Landrys Restaurants, Inc., which is controlled by Tilman J. Fertitta, announced that it was commencing a tender offer to purchase all of the outstanding shares of common stock of our company (other than shares already owned by
Mr. Fertitta and his affiliates). LSRI Holdings disclosed the details of the offer in a Tender Offer Statement on Schedule TO dated April 7, 2011, which included a formal offer, subject to various conditions, to purchase the subject common
stock at a purchase price of $9.25 per share, net to seller in cash without interest thereon and less any required withholding tax. After careful consideration and consultation with financial and legal advisors, effective April 18, 2011, our
board of directors unanimously adopted a Stockholders Rights Plan dated April 18, 2011, between our company and Computershare Trust Company, N.A., as rights agent (the Rights Plan) in order to restrict the accumulation in excess of
15% of our common stock by a stockholder whose interest may not be aligned with the best interest of our other stockholders. The Rights Plan requires any party seeking to acquire 15% or more of our outstanding common stock to obtain the approval of
our board of directors or else the rights held by our stockholders other than the acquiror become exercisable for our common stock, or common stock of the acquiror, at a discounted price that would significantly dilute the acquirors position
and likely make the acquisition prohibitively expensive. The Rights Plan has been tailored in a manner that our board of directors believes appropriately balances the interests of our stockholders in connection with what our board of directors
considers an opportunistic, illusory and disadvantageous proposal, against the need to avoid excessive anti-takeover protections that ultimately may adversely impact stockholder value. However, there can be no assurance that the adoption of the
Rights Plan will not result in litigation against us.

Before noon on April 4, 2011 no fewer than three self-described stockholder
rights law firms had announced investigations into our board of directors response to the proposed tender offer. In a number of analogous situations in the past, stockholders represented by such firms have brought lawsuits
against companies and boards of directors, often claiming that a defendant or group of defendants should have acted in a manner differently than they actually acted, and that in so doing, they breached some duty that resulted in harm to the
stockholders. Our companys board of directors believes that it has behaved properly and that it has relied appropriately upon the advice of legal counsel, financial advisors and other professionals in responding to the tender offer, and it
would expect to defend any such lawsuits vigorously. Moreover, we maintain insurance covering a substantial portion of any such risks. However, there can be no assurance that any such litigation will not result in additional and uninsured costs or
that such actions, alone or in combination with other factors, will not divert our attention in a manner that results in an adverse impact upon our financial condition, results of operations, or cash flows.



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|Item 6. | Exhibits
|------- | --------

The following exhibits are
filed herewith or incorporated by reference hereto and this list is intended to constitute the exhibit index:



|     |  |                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Certificate of Incorporation of McCormick & Schmicks Seafood Restaurants, Inc., as amended. Incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1, File No. 333-114977.
|     | 
|3.2  |  | Amended and Restated Bylaws of McCormick & Schmicks Seafood Restaurants, Inc., as amended (incorporated by reference to Exhibit 3.1 to our current report on Form
8-K filed April 17, 2009)                   
|     | 
|31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                          
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                          
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                         
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                         



23



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



|    |  |                              
|--- |  | -----------------------------
|By: |  | /s/    WILLIAM T.
FREEMAN    
|    |  | William T. Freeman           
|    |  | Chief Executive Officer      
|    |  | (principal executive officer)

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



|    |  |                                             
|--- |  | --------------------------------------------
|By: |  | /s/    MICHELLE M.
LANTOW                   
|    |  | Michelle M. Lantow                          
|    |  | Chief Financial Officer                     
|    |  | (principal financial and accounting officer)

Date: May 6, 2011



24