##### Table of Contents





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 27, 2010

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 000-50845





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 14,845,246 shares of common stock outstanding as of April 29, 2010.









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##### Table of Contents

Table of Contents

INDEX



|                                                                                                                       |  |   
|---------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                          |  |   
|                                                                                                                       | 
|Item 1 - Financial Statements - (Unaudited)                                                                            |  | 3 
|Condensed Consolidated Balance Sheets as of December 26, 2009 and March 27,
2010                                       |  | 3 
|Condensed Consolidated Statements of Operations for the thirteen week periods ended March 
28, 2009 and March 27, 2010 |  | 4 
|Condensed Consolidated Statements of Cash Flows for the thirteen week periods ended March 
28, 2009 and March 27, 2010 |  | 5 
|Notes to Condensed Consolidated Financial Statements                                                                   |  | 6 
|Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 9 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 14
|Item 4 - Controls and Procedures                                                                                       |  | 14
|                                                                                                                       | 
|PART II. OTHER INFORMATION                                                                                             |  |   
|                                                                                                                       | 
|Item 1 - Legal Proceedings                                                                                             |  | 14
|Item 1A - Risk Factors                                                                                                 |  | 14
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 18
|Item 3 - Defaults Upon Senior Securities                                                                               |  | 18
|Item 4 - Reserved                                                                                                      |  | 18
|Item 5 - Other Information                                                                                             |  | 18
|Item 6 - Exhibits                                                                                                      |  | 19
|Signatures                                                                                                             |  | 20



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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)



|                                                                                                           |  |                  |         |   |               |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                           |  | December 26,2009 |         |   | March 27,2010 |  
|                                                                                                           |  |                  |         |   | (Unaudited)   |  
|Assets                                                                                                     |  |                  |         |   |               |   |         |  
|Current assets                                                                                             |  |                  |         |   |               |   |         |  
|Cash and cash equivalents                                                                                  |  | $                | 8,623   |   |               | $ | 6,647   |  
|Trade accounts receivable, net                                                                             |  |                  | 10,462  |   |               |   | 7,203   |  
|Tenant improvement allowance receivables                                                                   |  |                  | 496     |   |               |   | 588     |  
|Income tax receivable                                                                                      |  |                  | 937     |   |               |   | 1,091   |  
|Inventories                                                                                                |  |                  | 5,585   |   |               |   | 5,629   |  
|Prepaid expenses and other current assets                                                                  |  |                  | 2,854   |   |               |   | 2,841   |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total current assets                                                                                       |  |                  | 28,957  |   |               |   | 23,999  |  
|Property and equipment, net                                                                                |  |                  | 158,465 |   |               |   | 156,915 |  
|Other assets                                                                                               |  |                  | 3,600   |   |               |   | 3,543   |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total assets                                                                                               |  | $                | 191,022 |   |               | $ | 184,457 |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Liabilities and Stockholders Equity                                                                       |  |                  |         |   |               |   |         |  
|Current liabilities                                                                                        |  |                  |         |   |               |   |         |  
|Accounts payable                                                                                           |  | $                | 15,766  |   |               | $ | 14,344  |  
|Accrued expenses                                                                                           |  |                  | 28,639  |   |               |   | 22,605  |  
|Deferred income taxes                                                                                      |  |                  | 278     |   |               |   | 192     |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total current liabilities                                                                                  |  |                  | 44,683  |   |               |   | 37,141  |  
|Revolving credit facility                                                                                  |  |                  | 13,000  |   |               |   | 13,000  |  
|Deferred rent and other long-term liabilities                                                              |  |                  | 35,532  |   |               |   | 36,211  |  
|Capital lease obligations                                                                                  |  |                  | 3,038   |   |               |   | 3,134   |  
|Deferred income taxes                                                                                      |  |                  | 1,634   |   |               |   | 1,823   |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total liabilities                                                                                          |  |                  | 97,887  |   |               |   | 91,309  |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Commitments and contingencies (Note 10)                                                                    |  |                  |         |   |               |   |         |  
|Stockholders equity                                                                                       |  |                  |         |   |               |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,785 and 14,788 shares issued and outstanding |  |                  | 15      |   |               |   | 15      |  
|Additional paid in capital                                                                                 |  |                  | 148,630 |   |               |   | 148,820 |  
|Accumulated other comprehensive income (loss)                                                              |  |                  | (220    | ) |               |   | 43      |  
|Accumulated deficit                                                                                        |  |                  | (55,290 | ) |               |   | (55,730 | )
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total stockholders equity                                                                                 |  |                  | 93,135  |   |               |   | 93,148  |  
|                                                                                                           |  |                  |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                 |  | $                | 191,022 |   |               | $ | 184,457 |  
|                                                                                                           |  |                  |         |   |               |   |         |  

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



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

Condensed Consolidated Statements of Operations-Unaudited

(in thousands, except per share data)



|                                                      |  |                            |        |   |               |   |        |  
|----------------------------------------------------- |  | -------------------------- | ------ | - | ------------- | - | ------ | -
|                                                      |  | Thirteen week period ended |       
|                                                      |  | March 28,2009              |        |   | March 27,2010 |  
|Revenues                                              |  | $                          | 91,894 |   |               | $ | 84,822 |  
|                                                      |  |                            |        |   |               |   |        |  
|Restaurant operating costs                            |  |                            |        |   |               |   |        |  
|Food and beverage                                     |  |                            | 27,696 |   |               |   | 25,797 |  
|Labor                                                 |  |                            | 30,489 |   |               |   | 28,160 |  
|Operating                                             |  |                            | 14,340 |   |               |   | 12,574 |  
|Occupancy                                             |  |                            | 9,489  |   |               |   | 9,187  |  
|                                                      |  |                            |        |   |               |   |        |  
|Total restaurant operating costs                      |  |                            | 82,014 |   |               |   | 75,718 |  
|General and administrative expenses                   |  |                            | 5,845  |   |               |   | 4,907  |  
|Restaurant pre-opening costs                          |  |                            | 562    |   |               |   | 502    |  
|Depreciation and amortization                         |  |                            | 4,080  |   |               |   | 3,811  |  
|Impairment, restructuring and other charges (Note 11) |  |                            | 181    |   |               |   |       |  
|                                                      |  |                            |        |   |               |   |        |  
|Total costs and expenses                              |  |                            | 92,682 |   |               |   | 84,938 |  
|                                                      |  |                            |        |   |               |   |        |  
|Operating loss                                        |  |                            | (788   | ) |               |   | (116   | )
|Interest expense, net                                 |  |                            | 378    |   |               |   | 406    |  
|Other income, net                                     |  |                            | 14     |   |               |   |       |  
|                                                      |  |                            |        |   |               |   |        |  
|Loss before income taxes                              |  |                            | (1,180 | ) |               |   | (522   | )
|Income tax benefit                                    |  |                            | (36    | ) |               |   | (82    | )
|                                                      |  |                            |        |   |               |   |        |  
|Net loss                                              |  | $                          | (1,144 | ) |               | $ | (440   | )
|                                                      |  |                            |        |   |               |   |        |  
|Net loss per share                                    |  |                            |        |   |               |   |        |  
|Basic and diluted                                     |  | $                          | (0.08  | ) |               | $ | (0.03  | )
|Shares used in computing net loss per share           |  |                            |        |   |               |   |        |  
|Basic and diluted                                     |  |                            | 14,728 |   |               |   | 14,787 |  

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



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

Condensed Consolidated Statements of Cash Flows-Unaudited

(in thousands)



|                                                                                         |  |                            |         |   |               |   |         |  
|---------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                         |  | Thirteen week period ended |        
|                                                                                         |  | March 28,2009              |         |   | March 27,2010 |  
|Operating activities                                                                     |  |                            |         |   |               |   |         |  
|Net loss                                                                                 |  | $                          | (1,144  | ) |               | $ | (440    | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities |  |                            |         |   |               |   |         |  
|Depreciation and amortization                                                            |  |                            | 4,080   |   |               |   | 3,811   |  
|Deferred income taxes                                                                    |  |                            | (37     | ) |               |   | 104     |  
|Share based compensation                                                                 |  |                            | 365     |   |               |   | 215     |  
|Changes in operating assets and liabilities                                              |  |                            |         |   |               |   |         |  
|Trade accounts receivable, net                                                           |  |                            | 1,585   |   |               |   | 3,268   |  
|Tenant improvement allowance receivables                                                 |  |                            | 1,961   |   |               |   | (91     | )
|Income tax receivable                                                                    |  |                            | 2,424   |   |               |   | (154    | )
|Inventories                                                                              |  |                            | 15      |   |               |   | (35     | )
|Prepaid expenses and other current assets                                                |  |                            | 6       |   |               |   | 18      |  
|Accounts payable                                                                         |  |                            | (1,795  | ) |               |   | (1,432  | )
|Accrued expenses                                                                         |  |                            | (5,672  | ) |               |   | (6,077  | )
|Deferred rent and other long-term liabilities                                            |  |                            | 825     |   |               |   | 779     |  
|                                                                                         |  |                            |         |   |               |   |         |  
|Net cash provided by (used in) operating activities                                      |  |                            | 2,613   |   |               |   | (34     | )
|                                                                                         |  |                            |         |   |               |   |         |  
|Investing activities                                                                     |  |                            |         |   |               |   |         |  
|Purchase of property and equipment                                                       |  |                            | (3,060  | ) |               |   | (1,965  | )
|Additions to other assets                                                                |  |                            | (230    | ) |               |   | (7      | )
|                                                                                         |  |                            |         |   |               |   |         |  
|Net cash used in investing activities                                                    |  |                            | (3,290  | ) |               |   | (1,972  | )
|                                                                                         |  |                            |         |   |               |   |         |  
|Financing activities                                                                     |  |                            |         |   |               |   |         |  
|Borrowings made on revolving credit facility                                             |  |                            | 46,000  |   |               |   | 25,000  |  
|Payments made on revolving credit facility                                               |  |                            | (47,000 | ) |               |   | (25,000 | )
|Payments made on capital lease obligations                                               |  |                            | (9      | ) |               |   | (11     | )
|Deemed landlord financing proceeds (in the form of tenant improvement allowances)        |  |                            | 674     |   |               |   |        |  
|Deemed landlord financing payments                                                       |  |                            | (60     | ) |               |   | (61     | )
|                                                                                         |  |                            |         |   |               |   |         |  
|Net cash used in financing activities                                                    |  |                            | (395    | ) |               |   | (72     | )
|                                                                                         |  |                            |         |   |               |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                             |  |                            | (18     | ) |               |   | 102     |  
|                                                                                         |  |                            |         |   |               |   |         |  
|Net decrease in cash and cash equivalents                                                |  |                            | (1,090  | ) |               |   | (1,976  | )
|Cash and cash equivalents, beginning of period                                           |  |                            | 4,428   |   |               |   | 8,623   |  
|                                                                                         |  |                            |         |   |               |   |         |  
|Cash and cash equivalents, end of period                                                 |  | $                          | 3,338   |   |               | $ | 6,647   |  
|                                                                                         |  |                            |         |   |               |   |         |  
|Supplemental disclosure of cash flow information                                         |  |                            |         |   |               |   |         |  
|Cash paid during the period                                                              |  |                            |         |   |               |   |         |  
|Interest                                                                                 |  | $                          | 309     |   |               | $ | 126     |  
|Income taxes, net of refunds                                                             |  | $                          | (2,405  | ) |               | $ |        |  

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



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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 and Schmicks Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining
segment and, as of March 27, 2010, operated 94 restaurants including 88 restaurants in 25 states throughout the United States, including one pursuant to a management agreement, and six restaurants under The Boathouse 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 in the United States 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 27, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2010.

The condensed consolidated balance sheet at December 26, 2009 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 in the United States 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 26, 2009.

3. Summary of Significant Accounting
Policies

Principles of Consolidation

The condensed consolidated financial statements include the assets, liabilities and results of operations of McCormick &
Schmicks Seafood Restaurants, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on
historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates under different assumptions or conditions.

Revenue Recognition

Revenues are recognized at the point of delivery of products and services. The Company recognizes income from gift cards when the gift
card is redeemed by the customer; or the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and the Company determines there is no legal obligation to remit the value of unredeemed gift cards to the relevant
jurisdictions. The Company determines the gift card breakage rate based upon historical redemption patterns. Gift card income is included in revenues. Revenues are presented net of sales tax and the related tax obligation is recorded as a liability
until the taxes are remitted to the appropriate taxing authorities.

Share-Based Compensation

The Company determines the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes model is affected by the Companys stock price as well as the Companys assumptions regarding a number of complex and subjective variables, including but not limited to the Companys expected stock price volatility over
the term of the awards, life of the option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield.

Basic and Diluted Net Income per Share

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net
income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of employee stock options and restricted stock.

Equity share options, non-vested shares and similar equity instruments granted by the Company are treated as potential common shares
outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options and is calculated based on the average share price for each fiscal period using the treasury stock method. Under the
treasury stock method, assumed proceeds include the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits, if any, that
would be credited to additional paid-in capital upon the exercise of the options or vesting of the restricted stock.

Operating Leases

The Company generally operates its restaurants in leased premises. The Company records the minimum base rents for its
operating leases using the straight-line method over the life of the lease term, including option periods which are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the
lease term commences on the date the Company obtains control of the property, which is normally when the property is ready for normal tenant improvements (build-out-period). For certain leases the Company only has the right to exercise its option
for renewal if certain sales targets are achieved at or near the renewal date. These renewal option periods have been included in the lease term when the Company determines at lease inception or at the acquisition date of the restaurant, if later,
that the sales targets are non-substantive and achievement of such sales targets is virtually certain. The difference between rent expense calculated using the straight-line method and rent paid is recorded as a deferred rent liability.

The Company receives certain tenant improvement allowances which are considered lease incentives and are amortized over the life of the
lease term as a reduction of rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in
deferred rent and other long-term liabilities of $26.3 million and $27.0 million as of December 26, 2009 and



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March 27, 2010, respectively. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space and the lease agreement for the amounts paid for
structural components during the construction period are recorded as construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for leases that
meet the criteria and for those leases that do not qualify for sale leaseback treatment, the landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease
agreement.

Foreign Currency

The Canadian dollar is the functional currency of the Companys subsidiary in Canada. Assets and liabilities related to the
Companys operations in Canada are translated into U.S. dollars at the rate of exchange at the end of the applicable fiscal reporting period. Revenues and expenses are translated at the average rate of exchange for the applicable fiscal
reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included in accumulated other comprehensive income or loss. Equity accounts are translated at historical rates, except for the
change in retained earnings during the year which is the result of the income statement translation process. Gains and losses resulting from foreign currency transactions are included in the Companys results of operations.

4. Recent Accounting Pronouncements

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures for assets and liabilities, which
requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value
measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance
also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair
value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect
adoption of the updated guidance to have a material impact on its consolidated results of operations or financial condition.

5. Long-Term
Debt

As of March 27, 2010, the outstanding balance on the Companys revolving credit facility was $13.0 million.
The availability under the facility is $90.0 million, with an additional $50.0 million available at the Companys request if specified conditions are met. The interest rate on U.S. borrowings is based on the financial institutions base
rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin between 1.25% and 2.50%, with margins determined by certain financial ratios. The terms of the facility also allow the Company to borrow up to $10.0 million in Canadian
dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins determined by certain financial ratios.

Under the revolving credit facility, the Company is required to comply with certain financial covenants, including a maximum
adjusted leverage ratio, a minimum fixed charge ratio and a maximum growth capital expenditures. The Company was in compliance with these covenants as of March 27, 2010. As of March 27, 2010, the Companys effective interest rate on
its borrowings was 3.0%, which was calculated using the financial institutions base rates of 0.23% for LIBOR and 3.25% for Prime.

Under the Companys revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company
and mature on December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business operations. The Companys commercial bank issues
standby letters of credit to secure its obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods and services. The standby letters of credit are cancelable only at the
option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of March 27, 2010, the maximum exposure under these standby letters of credit
was $3.0 million. As of March 27, 2010, the Company had $74.0 million available, subject to the conditions of the agreement, under its $90.0 million revolving credit facility.

6. Share-Based Compensation

Share-based compensation expense for the thirteen week periods ended March 28, 2009 and March 27, 2010 was $0.4 million and $0.2
million, respectively.

The fair value of the Companys stock options was estimated using the following assumptions:



|                          |  |                            |   |  |               |  
|------------------------- |  | -------------------------- | - |  | ------------- | -
|                          |  | Thirteen week period ended |  
|                          |  | March 28,2009              |   |  | March 27,2010 |  
|Expected volatility       |  | 51.1                       | % |  | 60.3          | %
|Option life               |  | 10 years                   |   |  | 10 years      |  
|Expected term             |  | 5.5 years                  |   |  | 5.5 years     |  
|Estimated forfeiture rate |  | 0                          | % |  | 0             | %
|Risk-free interest rate   |  | 1.12                       | % |  | 2.32          | %
|Dividend yield            |  | 0                          | % |  | 0             | %

In conjunction
with the hiring of the Companys Chief Financial Officer on January 6, 2010, the Company issued 100,000 stock options at an exercise price per share of $7.53, the fair market value of the stock on the date of grant. One-fourth of the
options vest on each of the four anniversary dates following the grant date if the grantee is then employed by the Company. As of March 27, 2010, there were 643,547 shares subject to options outstanding under the Companys 2004 Stock
Incentive Plan (the Plan), of which 349,215 were exercisable.

The Company has issued 260,961 shares of restricted
stock at an average price of $17.11 to employees, directors and executive officers. Grants are issued at fair market value on the date of the grant. Typically, one-third of the restricted stock grants vest on each of the three anniversary dates
following the grant date if the grantee is then employed by the Company. In November 2009, the Company issued 27,955 shares of restricted stock to the non-employee members of the Board of Directors, the fair market value of the stock on the date of
grant was $6.26 per share. The restricted stock granted vests nine months from the date of grant, if the Director is still serving the Company at that date. As of March 27, 2010, there were 44,682 shares of restricted stock outstanding still
subject to vesting.



7



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##### Table of Contents

Additional awards granted under the Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights (SARs), restricted stock, stock bonuses and performance-based awards. Vesting of awards under the Plan may vary. Each award granted under the Plan may, at the discretion of the board of
directors of the Company, become fully exercisable or payable, as applicable, upon a change of control of the Company.

Each
award expires on the date determined at the date of grant; however, the maximum term of options, SARs and other rights to acquire common stock under the Plan is ten years after the initial date of the award, subject to provisions for further
deferred payment in certain circumstances. These and other awards may also be issued solely or in part for services. Any shares subject to awards that are not paid or exercised before they expire or are terminated become available for other award
grants under the Plan. If not sooner terminated by the Companys Board of Directors, the Plan will terminate on June 16, 2014. As of March 27, 2010, there were 174,112 shares of common stock available for grant under the Plan.

The following table summarizes the status of the Companys share-based compensation plans, including stock options and
restricted stock grants, as of March 27, 2010.



|                                 |  |              |  |                                |       |                 |        |             |         |                         |   |          
|-------------------------------- |  | ------------ |  | ------------------------------ | ----- | --------------- | ------ | ----------- | ------- | ----------------------- | - | ---------
|                                 |  | StockOptions |  | Weighted AverageExercise Price |       | RestrictedStock |        | TotalShares |         | AggregateIntrinsicValue
|Outstanding at December 26, 2009 |  | 543,547      |  | $                              | 8.41  |                 | 64,301 |             | 607,848 |                         |   |          
|Awards granted                   |  | 100,000      |  |                                | 7.53  |                 | 281    |             | 100,281 |                         | $ | 238,779  
|Awards exercised                 |  |             |  |                                |      |                 | 18,066 |             | 18,066  |                         |   | 168,917  
|Awards forfeited                 |  |             |  |                                |      |                 | 1,834  |             | 1,834   |                         |   | 18,138   
|                                 |  |              |  |                                |       |                 |        |             |         |                         |   |          
|Outstanding at March 27, 2010    |  | 643,547      |  |                                | 8.28  |                 | 44,682 |             | 688,229 |                         | $ | 2,170,405
|                                 |  |              |  |                                |       |                 |        |             |         |                         |   |          
|Exercisable at March 27, 2010    |  | 349,215      |  | $                              | 10.23 |                 |       |             | 349,215 |                         |   | 497,504  

The aggregate
intrinsic value of stock options represents the difference between the Companys closing stock price of $9.89 as of March 27, 2010 and the exercise price multiplied by the number of shares subject to options outstanding as of that date. In
the case of the restricted stock, the aggregate intrinsic value is calculated using the closing price of the stock at March 27, 2010 multiplied by the number of shares outstanding as of that date still subject to vesting.

The following table summarizes additional information about stock options outstanding at March 27, 2010.



|                         |  |                   |  |                                                      |  |                                 |  |                   |  |                                
|------------------------ |  | ----------------- |  | ---------------------------------------------------- |  | ------------------------------- |  | ----------------- |  | -------------------------------
|Outstanding              |  | Exercisable      
|Range of Exercise Prices |  | Number of Options |  | Weighted Average
Remaining Years
of Contractual Life |  | Weighted Average
Exercise price |  | Number of Options |  | Weighted Average
Exercise price
|$3.92  $26.81           |  | 643,547           |  | 6.9                                                  |  | $8.28                           |  | 349,215           |  | $10.23                         

As of
March 27, 2010, unamortized compensation expense related to stock options and restricted stock under the Plan was $1.4 million.

The following table summarizes share-based compensation expense related to employee stock options and restricted stock awards for the
thirteen week periods ended March 28, 2009 and March 27, 2010 (in thousands).



|                                                                      |  |                            |     |               |   |    
|--------------------------------------------------------------------- |  | -------------------------- | --- | ------------- | - | ---
|                                                                      |  | Thirteen week period ended
|                                                                      |  | March 28,2009              |     | March 27,2010
|Labor                                                                 |  | $                          |    |               | $ |   
|General and administrative expenses                                   |  |                            | 365 |               |   | 215
|                                                                      |  |                            |     |               |   |    
|Share-based compensation expense included in total costs and expenses |  |                            | 365 |               |   | 215
|Income tax benefit related to share-based compensation                |  |                            | 149 |               |   | 70 
|                                                                      |  |                            |     |               |   |    
|Share-based compensation expense, net of tax                          |  | $                          | 216 |               | $ | 145
|                                                                      |  |                            |     |               |   |    

7. Income Taxes

As of March 27, 2010, there had been no material changes to the Companys uncertain tax position disclosure as provided in
the 2009 Annual Report on Form 10-K. The Company does not anticipate any significant changes to the balance of unrecognized tax benefits in the next twelve months. It is the Companys policy to recognize interest and penalties related to
uncertain tax positions in income tax expense.

8. Comprehensive Income

The components of comprehensive income for the thirteen week periods ended March 28, 2009 and March 27, 2010 are as follows (in
thousands):



|                                                                 |  |                            |        |   |               |   |      |  
|---------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------- | - | ---- | -
|                                                                 |  | Thirteen week period ended |       
|                                                                 |  | March 28,2009              |        |   | March 27,2010 |  
|Net loss                                                         |  | $                          | (1,144 | ) |               | $ | (440 | )
|Other comprehensive income (loss)  foreign currency translation |  |                            | (96    | ) |               |   | 263  |  
|                                                                 |  |                            |        |   |               |   |      |  
|Total comprehensive income (loss)                                |  | $                          | (1,240 | ) |               | $ | (177 | )
|                                                                 |  |                            |        |   |               |   |      |  



8



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9. Related Party Transactions

The Company leases certain properties from landlords deemed to be related parties of the Company. Total rent paid to these landlords was
$0.2 million for both the thirteen week periods ended March 28, 2009 and March 27, 2010.

10. 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.

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 claims.
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 be more expensive.

11. Impairment, Restructuring and Other Charges

During the first quarter of the fiscal year 2009 the Company incurred $0.2 million in restructuring charges related to termination
benefits paid to employees effected by headcount reductions at both the Corporate office and in the restaurants.

12. Net Income Per Share

Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during
the period. Diluted net income (loss) per share is computed based on the weighted average number of shares of common stock and potentially dilutive securities, which includes 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 28, 2009 and
March 27, 2010. For the thirteen week periods ended March 28, 2009 and March 27, 2010, 522,247 and 414,527, respectively, of the Companys shares were excluded from the calculation due to their anti-dilutive effect.



|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 and the audited consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations for the year ended
December 26, 2009 contained in our 2009 Annual Report on Form 10-K.

The following section contains
forward-looking statements which are subject to risks and uncertainties. These forward-looking statements include those regarding anticipated restaurant openings, anticipated costs and sizes of future restaurants, anticipated costs 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.

Important factors that could cause actual results to differ materially from our expectations include those discussed below under
Risk Factors. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.

Overview

Our company
was founded in 1972 with our acquisition of Jakes Famous Crawfish in Portland, Oregon. As of March 27, 2010 we have expanded our restaurant base to 94 restaurants, including one restaurant operated pursuant to a management contract and
six restaurants operating in Canada under The Boathouse name.

We have expanded our business by offering our guests a twice
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 106,000 primary members and nearly 80,000 secondary members since its inception in 2006 and our
online marketing e-mail club database includes over 331,000 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. Comparable restaurant sales represent sales at
all the restaurants owned by us in operation at least eighteen months from the beginning of the year being discussed, and exclude the impact of currency translation. 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 allows 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 twice daily in most of our locations, we



9



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##### Table of Contents

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 closely and periodically review
strategies to effectively provide a worthwhile benefit to our employees while controlling increases in expense, but we are adversely subjected 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. We expect these
expenses to decrease as a percentage of revenues over time as revenues increase.

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 38 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. Our plan for 2010 includes the opening of two McCormick & Schmicks seafood restaurants, one of which has already opened, as well as one The Boathouse restaurant.
Based on capital availability and depending on economic conditions, we may open additional restaurants in new or existing markets in 2010. In addition to new restaurant growth, we are committed to maximizing comparable restaurant sales and guest
counts as well as restaurant level operating margins.

We continue to consider expanding the Boathouse Restaurants concept
further in Canada, as well as the possibility of utilizing it as a complementary concept within the United States.

We believe
we have the opportunity to build revenues through new restaurant development and building traffic at existing restaurants. We believe we have the opportunity to increase profitability through the opening of new restaurants, as well as operating
existing restaurants more efficiently.

Financial Performance Overview

The following are results of our financial performance for the thirteen week period ended March 27, 2010 compared to the thirteen
week period ended March 28, 2009:



| |  |  | Revenues decreased 7.7% to $84.8 million from $91.9 million
| | - |  | -----------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 9.6%
| | - |  | ------------------------------------------



| |  |  | Comparable restaurant traffic decreased 6.2%
| | - |  | --------------------------------------------



| |  |  | Operating loss decreased to $0.1 million from $0.8 million
| | - |  | ----------------------------------------------------------



| |  |  | Net loss decreased to $0.4 million from $1.1 million
| | - |  | ----------------------------------------------------



| |  |  | Diluted loss per share decreased to $0.03 from $0.08
| | - |  | ----------------------------------------------------

Thirteen Week Period Ended March 28, 2009 Compared to Thirteen Week Period Ended March 27, 2010

The following table sets forth our operating results from our unaudited condensed consolidated statements of operations.



|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|------------------------------------------- |  | -------------------------- | ------ | - | ------------- | ----- | -- |  | - | ------ | - |  | ----- | --
|                                            |  | Thirteen week period ended |       
|                                            |  | March 28,2009              |        |   | March 27,2010 |      
|                                            |  | (in thousands)             |       
|Revenues                                    |  | $                          | 91,894 |   |               | 100.0 | %  |  | $ | 84,822 |   |  | 100.0 | % 
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Restaurant operating costs                  |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Food and beverage                           |  |                            | 27,696 |   |               | 30.1  | %  |  |   | 25,797 |   |  | 30.4  | % 
|Labor                                       |  |                            | 30,489 |   |               | 33.2  | %  |  |   | 28,160 |   |  | 33.2  | % 
|Operating                                   |  |                            | 14,340 |   |               | 15.6  | %  |  |   | 12,574 |   |  | 14.8  | % 
|Occupancy                                   |  |                            | 9,489  |   |               | 10.3  | %  |  |   | 9,187  |   |  | 10.8  | % 
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Total restaurant operating costs            |  |                            | 82,014 |   |               | 89.2  | %  |  |   | 75,718 |   |  | 89.3  | % 
|General and administrative expenses         |  |                            | 5,845  |   |               | 6.4   | %  |  |   | 4,907  |   |  | 5.8   | % 
|Restaurant pre-opening costs                |  |                            | 562    |   |               | 0.6   | %  |  |   | 502    |   |  | 0.6   | % 
|Depreciation and amortization               |  |                            | 4,080  |   |               | 4.4   | %  |  |   | 3,811  |   |  | 4.5   | % 
|Impairment, restructuring and other charges |  |                            | 181    |   |               | 0.2   | %  |  |   |       |   |  |      |   
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Total costs and expenses                    |  |                            | 92,682 |   |               | 100.9 | %  |  |   | 84,938 |   |  | 100.1 | % 
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Operating loss                              |  |                            | (788   | ) |               | (0.9  | )% |  |   | (116   | ) |  | (0.1  | )%
|Interest expense, net                       |  |                            | 378    |   |               | 0.4   | %  |  |   | 406    |   |  | 0.5   | % 
|Other income, net                           |  |                            | 14     |   |               |      |    |  |   |       |   |  |      |   
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Loss before income taxes                    |  |                            | (1,180 | ) |               | (1.3  | )% |  |   | (522   | ) |  | (0.6  | )%
|Income tax benefit                          |  |                            | (36    | ) |               |      |    |  |   | (82    | ) |  | (0.1  | )%
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   
|Net loss                                    |  | $                          | (1,144 | ) |               | (1.2  | )% |  | $ | (440   | ) |  | (0.5  | )%
|                                            |  |                            |        |   |               |       |    |  |   |        |   |  |       |   



10



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##### Table of Contents

Revenues and Restaurant Operating Costs

The following table sets forth revenues and restaurant operating costs, including food and beverage, labor, operating and occupancy costs.



|                                 |  |                            |        |               |   |        |  |   |        |   |  |       |   
|-------------------------------- |  | -------------------------- | ------ | ------------- | - | ------ |  | - | ------ | - |  | ----- | --
|                                 |  | Thirteen week period ended |        | Change        |  
|                                 |  | March 28,2009              |        | March 27,2010 |   | $      |  |   | %      |  
|                                 |  | (in thousands)             |       
|Revenues                         |  | $                          | 91,894 |               | $ | 84,822 |  | $ | (7,072 | ) |  | (7.7  | )%
|                                 |  |                            |        |               |   |        |  |   |        |   |  |       |   
|Restaurant operating costs       |  |                            |        |               |   |        |  |   |        |   |  |       |   
|Food and beverage                |  | $                          | 27,696 |               | $ | 25,797 |  | $ | (1,899 | ) |  | (6.9  | )%
|Labor                            |  |                            | 30,489 |               |   | 28,160 |  |   | (2,329 | ) |  | (7.6  | )%
|Operating                        |  |                            | 14,340 |               |   | 12,574 |  |   | (1,766 | ) |  | (12.3 | )%
|Occupancy                        |  |                            | 9,489  |               |   | 9,187  |  |   | (302   | ) |  | (3.2  | )%
|                                 |  |                            |        |               |   |        |  |   |        |   |  |       |   
|Total restaurant operating costs |  | $                          | 82,014 |               | $ | 75,718 |  | $ | (6,296 | ) |  | (7.7  | )%
|                                 |  |                            |        |               |   |        |  |   |        |   |  |       |   

Revenues. Revenues decreased $7.1 million, or 7.7%, to $84.8 million in the thirteen week period ended
March 27, 2010 from $91.9 million in the thirteen week period ended March 28, 2009. The decrease was primarily due to a 9.6% decrease in comparable restaurants sales, which was partially attributable to weather related issues. The
decline in the comparable restaurant sales was partially offset by increased sales by restaurants not included in the comparable base. The decrease in comparable restaurant sales of 9.6% was a result of a 6.2% decrease in traffic, which was coupled
with a net decrease in pricing and product mix of 3.4%. The decrease in our net pricing and product mix is a result of our strategic initiative to increase the value proposition for our guests and drive traffic by decreasing our average check while
preserving the guest experience. We had a total of 1,203 store operating weeks for the quarter ended March 27, 2010 compared to a total of 1,195 store operating weeks for the quarter ended March 28, 2009.

Food and Beverage Costs. Food and beverage costs decreased $1.9 million, or 6.9%, to $25.8 million in the thirteen week period ended
March 27, 2010 from $27.7 million in the thirteen week period ended March 28, 2009. This decrease was primarily due to lower restaurant sales. Food and beverage costs as a percentage of revenues increased to 30.4% in the thirteen week
period ended March 27, 2010 from 30.1% in the thirteen week period ended March 28, 2009, primarily due to increased costs at the comparable restaurants, partially offset by lower costs at the restaurants not included in the comparable
base, as a percentage of revenues.

Labor Costs. Labor costs decreased $2.3 million, or 7.6%, to $28.2 million in the thirteen
week period ended March 27, 2010 from $30.5 million in thirteen week period ended March 28, 2009, primarily due to decreases in staffing as a result of declines in guest traffic. Labor costs as a percentage of revenues were 33.2% for both
the thirteen week periods ended March 27, 2010 and March 28, 2009.

Operating Costs. Operating costs decreased $1.8
million, or 12.3%, to $12.6 million in the thirteen week period ended March 27, 2010 from $14.3 million in the thirteen week period ended March 28, 2009. This decrease was primarily due to lower janitorial and utilities costs as a result
of our cost saving initiatives implemented throughout fiscal year 2009. Operating costs as a percentage of revenues decreased to 14.8% in the thirteen week period ended March 27, 2010 from 15.6% in the thirteen week period ended
March 28, 2009, primarily due to the reasons stated above.

Occupancy Costs. Occupancy costs decreased $0.3 million, or 3.2%,
to $9.2 million in the thirteen week period ended March 27, 2010 from $9.5 million in the thirteen week period ended March 28, 2009, primarily due to lower common area maintenance charges and percentage rent as a result of decreased sales.
Occupancy costs as a percentage of revenues increased to 10.8% in the thirteen week period ended March 27, 2010 from 10.3% in the thirteen week period ended March 28, 2009, primarily due to deleveraging of fixed occupancy costs.

General and Administrative Expenses, Restaurant Pre-Opening Costs, Depreciation and Amortization and Impairment, Restructuring and
Other Charges

The following table sets forth general and administrative expenses, restaurant pre-opening costs, depreciation and
amortization, and impairment, restructuring and other charges.



|                                            |  |                            |       |                |   |       |  |   |      |   |  |        |    |  | 
|------------------------------------------- |  | -------------------------- | ----- | -------------- | - | ----- |  | - | ---- | - |  | ------ | -- |  | 
|                                            |  | Thirteen week period ended |       | Change         |  
|                                            |  | March 28,2009              |       | March 27,2010  |   | $     |  |   | %    |  
|                                            |  |                            |       | (in thousands) |  
|General and administrative expenses         |  | $                          | 5,845 |                | $ | 4,907 |  | $ | (938 | ) |  | (16.0  | )%
|Restaurant pre-opening costs                |  |                            | 562   |                |   | 502   |  |   | (60  | ) |  | (10.7  | )%
|Depreciation and amortization               |  |                            | 4,080 |                |   | 3,811 |  |   | (269 | ) |  | (6.6   | )%
|Impairment, restructuring and other charges |  |                            | 181   |                |   |      |  |   | (181 | ) |  | (100.0 | )%

General and Administrative
Expenses. General and administrative expenses decreased $0.9 million, or 16.0%, to $4.9 million in the thirteen week period ended March 27, 2010 from $5.8 million in the thirteen week period ended March 28, 2009, primarily due to
decreases in compensation expense, share based compensation and consulting fees. General and administrative expenses as a percentage of revenues decreased to 5.8% in the thirteen week period ended March 27, 2010 from 6.4% in the thirteen week
period ended March 28, 2009, primarily due to a decreases in compensation expense, legal fees, and share based compensation.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs decreased $0.1 million, to $0.5 million, in the thirteen week period ended
March 27, 2010 from $0.6 million in the thirteen week period ended March 28, 2009, primarily due to the timing of restaurant openings.

Depreciation and Amortization. Depreciation and amortization decreased $0.3 million, or 6.6%, to $3.8 million in the thirteen week period
ended March 27, 2010 from $4.1 million in the thirteen week period ended March 28, 2009. The decrease was primarily due to the impairment charge recorded in fiscal 2009. Depreciation and amortization as a percentage of revenues increased
to 4.5% in the thirteen week period ended March 27, 2010 from 4.4% in the thirteen week period ended March 28, 2009, primarily due to the deleveraging of sales.

Impairment, restructuring and other charges. During the first quarter of fiscal year 2009, impairment, restructuring and other charges included
charges of $0.2 million, primarily related to severance costs and other termination benefits paid to employees.



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##### Table of Contents

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

The following table sets forth interest expense, net, other income, net, income tax benefit and net loss from our unaudited condensed consolidated
statements of income.



|                         |  |                            |        |   |               |   |      |   |  |   |     |   |  |        |   
|------------------------ |  | -------------------------- | ------ | - | ------------- | - | ---- | - |  | - | --- | - |  | ------ | --
|                         |  | Thirteen week period ended |        |   | Change        |  
|                         |  | March 28,2009              |        |   | March 27,2010 |   |      | $ |  |   | %   |  
|                         |  | (in thousands)             |       
|Interest expense, net    |  | $                          | 378    |   |               | $ | 406  |   |  | $ | 28  |   |  | 7.4    | % 
|Other income, net        |  |                            | 14     |   |               |   |     |   |  |   | (14 | ) |  | (100.0 | )%
|                         |  |                            |        |   |               |   |      |   |  |   |     |   |  |        |   
|Loss before income taxes |  | $                          | (1,180 | ) |               | $ | (522 | ) |  | $ | 658 |   |  | 55.8   | % 
|Income tax benefit       |  |                            | (36    | ) |               |   | (82  | ) |  |   | (46 | ) |  | (127.8 | )%
|                         |  |                            |        |   |               |   |      |   |  |   |     |   |  |        |   
|Net loss                 |  | $                          | (1,144 | ) |               | $ | (440 | ) |  | $ | 704 |   |  | (61.5  | )%
|                         |  |                            |        |   |               |   |      |   |  |   |     |   |  |        |   

Interest Expense, Net. Interest expense, net, was $0.4 million for both the thirteen week periods
ended March 27, 2010 and March 28, 2009.

Other Income, Net. Other income, net, for the thirteen week period ended
March 28, 2009 represented business interruption insurance proceeds net of expenses.

Income Tax Benefit. Our effective tax
rate from continuing operations, including discrete items, was 15.7% for the thirteen week period ended March 27, 2010, compared to 3.1% for the thirteen week period ended March 28, 2009. We maintain a valuation allowance related to
deferred tax assets since we believe realization is uncertain. Any change in our deferred tax asset position is offset by a similar change in the valuation allowance. Due to our projection of modest taxable income for the year in certain taxing
jurisdictions, and due to the expected decrease in our deferred tax assets and corresponding change in the valuation allowance, our effective annual tax rate is expected to be between 10.0% and 15.0%. However, minimal differences between our
estimates and actual taxable income realized may have a material effect on our projected effective annual tax rate.

Net Loss.Net
loss decreased $0.7 million, or 61.5%, to $0.4 million in the thirteen week period ended March 27, 2010 from $1.1 million in the thirteen week period ended March 28, 2009, primarily due to reductions in expenses greater than the decrease
in comparable restaurant sales of 9.6%.

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, cash from tenant improvement allowances, and issuance of common stock. The following
table summarizes our sources and uses of cash and cash equivalents from our unaudited condensed consolidated statements of cash flows:



|                                                             |  |                              |        |   |               |   |        |  
|------------------------------------------------------------ |  | ---------------------------- | ------ | - | ------------- | - | ------ | -
|                                                             |  | Thirty-nineweek period ended |       
|                                                             |  | March 28,2009                |        |   | March 27,2010 |  
|                                                             |  | (in thousands)               |       
|Net cash provided by (used in) operating activities          |  | $                            | 2,613  |   |               | $ | (34    | )
|Net cash used in investing activities                        |  |                              | (3,290 | ) |               |   | (1,972 | )
|Net cash used in financing activities                        |  |                              | (395   | ) |               |   | (72    | )
|Effect of exchange rate changes on cash and cash equivalents |  |                              | (18    | ) |               |   | 102    |  
|                                                             |  |                              |        |   |               |   |        |  
|Net decrease in cash and cash equivalents                    |  | $                            | (1,090 | ) |               | $ | (1,976 | )
|                                                             |  |                              |        |   |               |   |        |  

The reduction in net cash provided by (used in) operating activities of $2.6 million in the thirteen week
period ended March 28, 2009, to a use of $34,000 in the thirteen week period ended March 27, 2010 was primarily due to changes in operating assets and liabilities of $3.1 million and a decrease in depreciation and amortization of $0.3
million, which was partially offset by the reduction in net loss between periods of $0.7 million.

Net cash used in investing
activities was $2.0 million in the thirteen week period ended March 27, 2010 compared to $3.3 million in the thirteen week period ended March 28, 2009. Cash is used primarily for equipment purchases and construction costs related to new
restaurant openings and to upgrade and add capacity to existing restaurants. During the thirteen week periods ended March 27, 2010 and March 28, 2009, we opened one and two restaurants, respectively.

Net cash used in financing activities was $0.1 million in the thirteen week period ended March 27, 2010 compared to $0.4 million in
the thirteen week period ended March 28, 2009. Net cash used in financing activities is primarily related to the borrowings and payments on our revolving credit facility. We utilize our revolving credit facility to fund our construction of new
restaurants, remodeling of existing restaurants, as well as fund our ongoing operations.

As of March 27, 2010, the
outstanding balance on our revolving credit facility was $13.0 million. The availability under the facility is $90.0 million, with an additional $50.0 million available at the Companys request if specified conditions are met. The interest rate
on U.S. borrowings is based on the financial institutions base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin between 1.25% and 2.50%, with margins determined by certain financial ratios. The terms of the
facility also allow us to borrow up to $10.0 million in Canadian dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of
1.35% to 2.60%, with margins determined by certain financial ratios. As of March 27, 2010, our effective interest rate on our borrowings was 3.0%. Under our revolving credit facility agreement, we are subject to certain financial covenants,
including a maximum adjusted leverage ratio and a minimum fixed charge ratio. We were in compliance with these covenants as of March 27, 2010.

Under our revolving credit facility agreement, loans are collateralized by the stock of our subsidiaries and are scheduled to mature on
December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business operations. Our commercial bank issues standby letters of credit to secure
our obligations to pay or perform when required to do so, pursuant to the requirements of an underlying agreement or the provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is
authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of March 27, 2010, the maximum exposure under these standby letters of credit was $3.0 million. At
March 27, 2010 we had $74.0 million available, subject to the conditions of the agreement, under our revolving credit facility.



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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 27, 2010 we had not repurchased any shares.

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 and pre-opening costs and potential initial operating losses related to new restaurant openings, for at least the next twelve months.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are those that we believe are both important to the portrayal of our financial condition and results
and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting policies and estimates used in the
preparation of our condensed consolidated financial statements are the following:

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment consists primarily of restaurant
equipment, furniture, fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Equipment under capitalized leases are amortized over the shorter of the useful life of
the asset or the length of the related lease term. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, or the estimated useful life of the asset. The lease term includes any period covered by a
renewal option where the renewal is reasonably assured because failure to renew the lease would impose an economic penalty to the lessee. Repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Estimated useful
lives are generally as follows: equipment3 to 10 years; furniture and fixtures5 to 10 years; buildings39 years; and leasehold improvements7 to 30 years. Judgments and estimates made by us related to the expected
useful lives of these assets are affected by factors such as changes in economic conditions and changes in operating performance. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated undiscounted future cash flows of the asset.

Insurance Liability

We maintain various insurance policies including workers compensation, employee health, and general liability. Pursuant to those
policies, we are responsible for losses up to certain limits and are required to estimate a liability that represents our ultimate exposure for aggregate losses below those limits. This liability is based on managements estimates of the
ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial
assumptions, and economic conditions. If actual trends differ from our estimates, our financial results could be impacted. In addition, we may exceed our insurance coverage for specified matters. 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 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 are not eligible for coverage. We disagree with this interpretation of our coverage, but we have taken this
interpretation into account in connection with our accounting for employment claims under the policy. See PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS.

Income Taxes

We
account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between our financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In
making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Deferred tax
assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some potion or all of the deferred tax assets will not be realized.

Operating Leases

We generally operate our restaurants in leased premises. We record the minimum base rents for our operating leases on a straight-line
basis over the life of the lease term, including option periods which are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term commences on the date the
Company obtains control of the property, which is normally when the property is ready for normal tenant improvements (build-out-period). For certain leases we only have the right to exercise our option for renewal if certain sales targets are
achieved at or near the renewal date. These renewal option periods have been included in the lease term when we determine at lease inception or at the acquisition date of the restaurant, if later, that the sales targets are non-substantive and
achievement of such sales targets is virtually certain. The difference between rent expense calculated on the straight-line method and rent paid is recorded as a deferred rent liability.

We receive certain tenant improvement allowances which are considered lease incentives and are amortized over the life of the lease term,
as a reduction of rent expense over the lease term. Accordingly, we have recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in deferred rent and other
long-term liabilities. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space and the lease agreement for the amounts paid for structural components during the construction period are recorded
as construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for leases that meet the criteria and for those leases that do not qualify for sale
leaseback treatment, the landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease agreement.



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Share-Based Compensation

We determine the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model. The model is
affected by our stock price as well as our assumptions regarding a number of complex and subjective variables, including but not limited to our expected stock price volatility over the term of the awards, life of the option, expected term of the
option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Our foreign exchange
rate risk relates to our operations in Canada.

Our market risk exposure for changes in interest rates relates to our cash and
cash equivalents and revolving credit facility. We invest any excess cash in highly liquid short-term investments with maturities of less than one year. These investments are not held for trading or other speculative purposes. Changes in
interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations.

We are exposed to market risk from changes in interest rates on borrowings, which, under the terms of our revolving credit facility at
March 27, 2010, bear interest at the financial institutions prime rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin between 1.25% and 2.50%, with margins determined by certain financial ratios. At our option,
we may convert loans under our revolving credit facility from one type of rate to the other. The terms of the facility also allow us to borrow up to $10.0 million in Canadian dollars, with an interest rate based on the Canadian Eurodollar Rate plus
a margin between 1.35% and 2.60%, with margins determined by certain financial ratios. As of March 27, 2010, there was an outstanding balance of $13.0 million under our revolving credit facility. A hypothetical 30 basis point change in our
effective borrowing rate would not have a material effect on our results of operations.

A portion of our revenue is generated
in Canada. As a result, we conduct some transactions in Canadian currency, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. For the thirteen week period ended March 27, 2010 we have
incurred a $0.3 million currency translation gain, which is included in other comprehensive income. A hypothetical 10% decline in the foreign exchange rate of the Canadian dollar to the U.S. dollar, based on year to date, through the first quarter
of 2010, results of operations would not have a material adverse affect on our financial statements.



|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 our chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934
(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 are effective in
ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our chief executive
officer and interim chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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.

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.

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
year 2008, we initiated litigation to contest the insurers conclusion.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Continued or
worsening economic conditions and disruptions in the financial markets may adversely impact our business, results of operations, including potential impairment of the long-lived assets of our restaurants, and could increase our cost of borrowing.

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. If these conditions continue or worsen, deteriorating financial performance could affect the financial ratios and covenants under our credit agreement, which, in turn, could affect our ability to
borrow, increase our cost of borrowing or result in accelerated payment of outstanding loans.

In addition, adverse general
economic conditions have affected and are likely to continue to affect:



| |  |  | Our vendors and suppliers, some of which are local or regional and may be less able to survive in a difficult economic environment than national
suppliers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our guests, who may have less disposable income or who may decrease discretionary spending; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Real estate developers, landlords and co-tenants, who may be unable to meet commitments to fill space in developments where our restaurants are
located, which would decrease guest traffic to our restaurants.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If our vendors, guests or service providers
are adversely affected, our business and results of operations may also be adversely affected.



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Restaurant companies have been the target of class-actions and other lawsuits alleging, among other
things, violation of federal and state law.

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.

Failure of our existing or new restaurants to achieve predicted results could have a negative impact on our
revenues and performance results.

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 ability to expand our restaurant base is
influenced by factors beyond our control and therefore we may not be able to achieve our planned growth.

Our growth
strategy depends in large part on our ability to open new restaurants and to operate these restaurants profitably. Delays or failures in opening new restaurants could impair our ability to meet our growth objectives. We have in the past experienced
delays in restaurant openings and may experience similar delays in the future. Our ability to expand our business successfully will depend upon numerous factors, including:



| |  |  | hiring, training and retaining skilled management, chefs and other qualified personnel to open, manage and operate new restaurants;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | locating and securing a sufficient number of suitable new restaurant sites in new and existing markets on acceptable financial terms;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | managing the length of time and construction and development costs associated with the opening of new restaurants;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | obtaining adequate financing for the construction of new restaurants;
| | - |  | ---------------------------------------------------------------------



| |  |  | securing governmental approvals and permits required to open new restaurants in a timely manner, if at all;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Real estate developers, landlords and co-tenants, may be unable to meet commitments to fill space in developments where our restaurants are to be
located, which would decrease guest traffic to our planned restaurants;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | successfully promoting our new restaurants and competing in the markets in which our new restaurants are located; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

Some of these factors are beyond our control. We may not be able to achieve our expansion goals and our new restaurants may not be able
to achieve operating results similar to those of our existing restaurants. Due to the economic outlook, we opened two restaurants for 2009, which is fewer than in the last several years.

Our operating results may fluctuate significantly and could fall above or below the expectations of securities analysts and investors due to
seasonality and other factors, which may result in fluctuations in our stock price.

Our operating results may
fluctuate significantly because of several factors, including:



| |  |  | our ability to achieve and manage our planned expansion;
| | - |  | --------------------------------------------------------



| |  |  | 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;
| | - |  | --------------------------



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| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------

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.

Our operations are susceptible to changes in food
availability and costs, which could adversely affect our operating results.

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. The supply of seafood, produce and beef are more volatile
than other types of food. The type, variety, quality and price of seafood, produce and beef are subject to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which may affect our food costs
or cause a disruption in our supply. Some climatologists predict that the long-term effects of climate change may result in more severe, volatile weather. Changes in the price or availability of certain types of seafood and beef could affect our
ability to offer a broad menu and price offering to guests and could materially adversely affect our profitability.

Low market
acceptance could adversely affect the profitability of restaurants that we open in new markets.

Our growth strategy
includes opening restaurants in markets where we have little or no operating experience and in which potential guests may not be familiar with our restaurants. The success of these new restaurants may be affected by different competitive conditions,
consumer tastes and discretionary spending patterns, and our ability to generate market awareness and acceptance of the McCormick & Schmicks brand and our other brands. As a result, we may incur costs related to the opening, operation
and promotion of these new restaurants that are greater than those incurred in other areas. Even though we may incur substantial additional costs with these new restaurants, they may attract fewer guests than our more established restaurants in
existing markets. Sales at restaurants we open in new markets may take longer to reach our average annual sales, if at all. As a result, the results of operations at our new restaurants may be inferior to those of our existing restaurants. We may
not be able to profitably open restaurants in new markets.

Our growth may strain our infrastructure and resources, which could slow our
development of new restaurants and adversely affect our ability to manage our existing restaurants.

We opened twelve
company-owned restaurants and acquired five The Boathouse restaurants in 2007, and in 2008 we opened eleven company-owned restaurants. We opened two company-owned restaurants in 2009 and one during the first quarter of 2010. Our future growth may
strain our restaurant management systems and resources, financial controls and information systems. Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing restaurants. If we fail to continue to
improve our infrastructure or to manage other factors necessary for us to meet our expansion objectives, our operating results could be materially and adversely affected.

A decline in visitors or business travelers to areas where our restaurants are located could negatively affect our restaurant sales.

We depend on both local residents and business travelers to frequent our locations. If the number of visitors which
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.

If we lose the services of any of our key management personnel our business could suffer.

We depend on the services of our key senior management personnel. If we lose the services of any members of our senior management or key
personnel for any reason, we may be unable to replace them with qualified personnel, which could have a material adverse effect on our business and growth. We do not carry key person life insurance on any of our executive officers.

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 27, 2010, we operated five restaurants in the Seattle, Washington area,
six in the Portland, Oregon area, fourteen in California, and six 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 regarding any of our restaurants in these areas could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, oil
spills, terrorist attacks, energy shortages or increases in energy prices, droughts or earthquakes or other natural disasters.

Our
success depends on our ability to protect our proprietary information. Failure to protect our trademarks, service marks or trade secrets could adversely affect our business.

Our business prospects depend in part on our ability to develop favorable consumer recognition of the McCormick & Schmicks
name. Although McCormick & Schmicks Seafood Restaurants, M&S Grill, The Boathouse Restaurants, and other of our service marks are registered trademarks, our trademarks could be imitated in ways that we cannot prevent. In addition,
we rely on trade secrets, proprietary know-how, concepts and recipes. Our methods of protecting this information may not be adequate, however, and others could independently develop similar know-how or obtain access to our trade secrets, know-how,
concepts and recipes.

Moreover, we may face claims of misappropriation or infringement of third parties rights that
could interfere with our use of our proprietary know-how, concepts, recipes or trade secrets. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future, and may result
in a judgment or monetary damages.

We do not maintain confidentiality and non-competition agreements with all of our
executives, key personnel or suppliers. If competitors independently develop or otherwise obtain access to our know-how, concepts, recipes or trade secrets, the appeal of our restaurants could be reduced and our business could be harmed.



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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 our accounting for employment claims. See Item 1, Legal Proceedings. 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.

Expanding our restaurant base by opening new restaurants in existing markets could reduce the business of our existing restaurants.

Our growth strategy includes opening restaurants in markets in which we already have existing restaurants. We may be
unable to attract enough guests to the new restaurants for them to operate at a profit. Even if we are able to attract enough guests to the new restaurants to operate them at a profit, some of those guests may be former guests of one of our existing
restaurants in that market, thus the opening of new restaurants in the existing market could reduce the revenue of our existing restaurants in that market.

Any acquisition of new restaurants could strain our financial resources or result in dilution to our existing stockholders.

Future acquisitions of existing restaurants, which may be accomplished with cash or through the issuance of our equity securities, or a
combination of both, could result in dilutive issuances of our equity securities and/or the incurrence of debt and contingent liabilities, either of which could harm our business, financial condition or results of operations.

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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.

Negative publicity concerning food quality, health and other issues and costs or liabilities resulting from litigation may have a
material adverse effect on our results of operations.

We are sometimes the subject of complaints or litigation from
guests alleging illness, injury or other food quality, health or operational concerns. Litigation or adverse publicity resulting from these allegations may materially and adversely affect us or our restaurants, regardless of whether the allegations
are valid or whether we are liable. Further, these claims may divert our financial and management resources from revenue-generating activities and business operations.

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.

Increased regulation relating to nutritional disclosures and food composition could increase our costs.

Federal legislation, and state and local legislation in some areas where we operate restaurants has been adopted that will require us to
provide nutritional information to our customers. Similar legislation has been proposed in other areas where we operate. Laws in several states and local jurisdictions require specific classes of restaurants to publish nutritional information on
menus or to make that information available to customers. The federal Patient Protection and Affordable Care Act, signed into law March 23, 2010, will require restaurants with 20 or more locations operating under the same trade name to publish
calorie counts and other information on menus and menu boards, and to make detailed nutritional information about standard menu items available to customers upon request. Compliance with the new law will not be required until after the Food and Drug
Administration (FDA) issues regulations. The FDA is required to publish proposed regulations by March 23, 2011.

To the extent
these laws are or become applicable to our restaurants, we face significant compliance and litigation costs associated with nutritional labeling and other disclosure practices. These costs and risks could disproportionally impact us, compared to
other restaurants, because our daily menu changes and because of variations in food preparation among our restaurants, where dishes are prepared from scratch.

Changes in consumer preferences or discretionary consumer spending could negatively impact our results of operations.

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 will depend in part on our ability to anticipate and respond to changing consumer preferences, tastes and purchasing habits, and to other factors affecting the restaurant industry, including new market entrants and
demographic changes. If we change our concept and menu to respond to changes in consumer tastes or dining patterns, we may lose customers who do not like the new concept or menu, and may not be able to attract a sufficient new customer base to
produce the revenue needed to make the restaurant profitable. Our success also depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer
confidence. Changes in consumer discretionary spending could more dramatically affect upscale restaurant concepts than casual restaurant concepts. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing,
either of which could harm our results of operations.



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Labor shortages or increases in labor costs could slow our growth or harm our business.

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. Qualified individuals are in short supply and competition for
these employees is intense. 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.

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.

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.

Our operations and profitability are susceptible to the
effects of violence, war and economic trends.

Terrorist attacks and other acts of violence or war and U.S. military
reactions to such attacks may negatively affect our operations and an investment in our shares of common stock. The terrorist attacks in New York and Washington, D.C. on September 11, 2001 led to a temporary interruption in deliveries from some
of our suppliers and, we believe, contributed to the decline in average annual comparable restaurant sales in 2001 and 2002.

Future acts of violence or war could cause a decrease in travel and in consumer confidence, decrease consumer spending, result in
increased volatility in the United States and worldwide financial markets and economy, or result in an economic recession in the United States or abroad. They could also impact consumer leisure habits, for example, by increasing time spent watching
television news programs at home, and may reduce the number of times consumers dine out, which could adversely impact our revenue. Any of these occurrences could harm our business, financial condition or results of operations, and may result in the
volatility of the market price for our securities and on the future price of our securities.

Terrorist attacks could also
directly impact our physical facilities or those of our suppliers, and attacks or armed conflicts may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect our revenues.

We may not be able to compete successfully with other restaurants, which could adversely affect our results of operations.

The restaurant industry is intensely competitive with respect to price, service, location, food quality, ambiance and the overall dining
experience. Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators to well capitalized national restaurant companies. Some of our competitors have been in
existence for a substantially longer period than we have and may be better established in the markets where our restaurants are or may be located. Some of our competitors may have substantially greater financial, marketing and other resources than
we do. If our restaurants are unable to compete successfully with other restaurants in new and existing markets, our results of operations will be adversely affected. We also compete with other restaurants for experienced management personnel and
hourly employees, and with other restaurants and retail establishments for quality restaurant sites.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | RESERVED
|------- | --------



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

Items identified with an
asterisk (*) are management contracts or compensatory plan arrangements.



|     |  |                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                   
|     | 
|10.1 |  | Termination of Severance and Change of Control Agreement with Douglas L. Schmick effective January 12, 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.                                                         



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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 5, 2010



20