##### 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 June 26, 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 14,869,630 shares of common stock outstanding as of August 2, 2010.









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##### Table of Contents

MCCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.

INDEX TO FORM 10-Q



|                               |  |                                                                                                                                |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------ |  | --
|                               |  | Page                                                                                                                          
|PART I - FINANCIAL INFORMATION |  |                                                                                                                               
|                               |  |                                                                                                                               
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                               |  |   
|                               |  |                                                                                                                               
|                               |  | Condensed Consolidated Balance Sheets as of December 26, 2009 (restated) and June 26, 2010                                     |  | 2 
|                               |  |                                                                                                                               
|                               |  | Condensed Consolidated Statements of Income for the thirteen and twenty-six week periods ended June 27, 2009 and June 26, 2010 |  | 3 
|                               |  |                                                                                                                               
|                               |  | Condensed Consolidated Statements of Cash Flows for the twenty-six week periods ended June 27, 2009 and June 26, 2010          |  | 4 
|                               |  |                                                                                                                               
|                               |  | Notes to Condensed Consolidated Financial Statements                                                                           |  | 5 
|                               |  |                                                                                                                               
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 9 
|                               |  |                                                                                                                               
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 19
|                               |  |                                                                                                                               
|Item 4.                        |  | Controls and Procedures                                                                                                        |  | 19
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                               
|                               |  |                                                                                                                               
|Item 1.                        |  | Legal Proceedings                                                                                                              |  | 20
|                               |  |                                                                                                                               
|Item 1A.                       |  | Risk Factors                                                                                                                   |  | 20
|                               |  |                                                                                                                               
|Item 6.                        |  | Exhibits                                                                                                                       |  | 27
|                               |  |                                                                                                                               
|Signatures                     |  |                                                                                                                                |  | 28



1



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##### Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

McCormick & Schmicks Seafood Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - Unaudited

(In thousands, except per share data)



|                                                                                                           |  |                            |         |   |              |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                           |  | December 26,2009(Restated) |         |   | June 26,2010 |  
|Assets                                                                                                     |  |                            |         |   |              |   |         |  
|Current assets:                                                                                            |  |                            |         |   |              |   |         |  
|Cash and cash equivalents                                                                                  |  | $                          | 8,623   |   |              | $ | 6,658   |  
|Trade accounts receivable, net                                                                             |  |                            | 10,462  |   |              |   | 7,861   |  
|Tenant improvement allowance receivables                                                                   |  |                            | 496     |   |              |   | 429     |  
|Income tax receivable                                                                                      |  |                            | 1,007   |   |              |   | 1,247   |  
|Inventories                                                                                                |  |                            | 5,585   |   |              |   | 5,746   |  
|Prepaid expenses and other current assets                                                                  |  |                            | 2,854   |   |              |   | 3,305   |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total current assets                                                                                       |  |                            | 29,027  |   |              |   | 25,246  |  
|                                                                                                           |  |                           
|Property and equipment, net of accumulated depreciation and amortization of $78,153 and $85,262            |  |                            | 158,465 |   |              |   | 158,668 |  
|Other assets, net                                                                                          |  |                            | 3,600   |   |              |   | 3,854   |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total assets                                                                                               |  | $                          | 191,092 |   |              | $ | 187,768 |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|                                                                                                           |  |                           
|Liabilities and Stockholders Equity                                                                       |  |                            |         |   |              |   |         |  
|Current liabilities:                                                                                       |  |                            |         |   |              |   |         |  
|Accounts payable                                                                                           |  | $                          | 15,766  |   |              | $ | 13,264  |  
|Accrued expenses                                                                                           |  |                            | 29,561  |   |              |   | 25,005  |  
|Deferred income taxes                                                                                      |  |                            | 278     |   |              |   | 192     |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total current liabilities                                                                                  |  |                            | 45,605  |   |              |   | 38,461  |  
|                                                                                                           |  |                           
|Revolving credit facility                                                                                  |  |                            | 13,000  |   |              |   | 14,000  |  
|Deferred rent and other long-term liabilities                                                              |  |                            | 35,532  |   |              |   | 36,610  |  
|Capital lease obligations                                                                                  |  |                            | 3,038   |   |              |   | 3,123   |  
|Deferred income taxes                                                                                      |  |                            | 1,634   |   |              |   | 1,961   |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total liabilities                                                                                          |  |                            | 98,809  |   |              |   | 94,155  |  
|Commitments and contingencies - Note 7                                                                     |  |                            |         |   |              |   |         |  
|                                                                                                           |  |                           
|Stockholders equity:                                                                                      |  |                            |         |   |              |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,785 and 14,800 shares issued and outstanding |  |                            | 15      |   |              |   | 15      |  
|Additional paid-in-capital                                                                                 |  |                            | 148,630 |   |              |   | 149,044 |  
|Accumulated other comprehensive loss                                                                       |  |                            | (220    | ) |              |   | (148    | )
|Accumulated deficit                                                                                        |  |                            | (56,142 | ) |              |   | (55,298 | )
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total stockholders equity                                                                                 |  |                            | 92,283  |   |              |   | 93,613  |  
|                                                                                                           |  |                            |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                 |  | $                          | 191,092 |   |              | $ | 187,768 |  
|                                                                                                           |  |                            |         |   |              |   |         |  

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)



|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|------------------------------------------- |  | ---------------------------------- | ------ | ------------------------------------ | ------------- | - | ------------- |  | - | ------------- | - |  | - | -------
|                                            |  | For the Thirteen Week Period Ended |        | For the Twenty-Six Week Period Ended
|                                            |  | June 27, 2009                      |        |                                      | June 26, 2010 |   | June 27, 2009 |  |   | June 26, 2010
|Revenues                                    |  | $                                  | 92,742 |                                      |               | $ | 89,734        |  | $ | 184,636       |   |  | $ | 174,555
|Restaurant operating costs:                 |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Food and beverage                           |  |                                    | 27,517 |                                      |               |   | 26,883        |  |   | 55,214        |   |  |   | 52,680 
|Labor                                       |  |                                    | 30,269 |                                      |               |   | 29,399        |  |   | 60,757        |   |  |   | 57,560 
|Operating                                   |  |                                    | 14,158 |                                      |               |   | 12,879        |  |   | 28,498        |   |  |   | 25,453 
|Occupancy                                   |  |                                    | 9,501  |                                      |               |   | 9,358         |  |   | 18,990        |   |  |   | 18,544 
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Total restaurant operating costs            |  |                                    | 81,445 |                                      |               |   | 78,519        |  |   | 163,459       |   |  |   | 154,237
|                                            |  |                                    |        |                                     
|General and administrative expenses         |  |                                    | 4,947  |                                      |               |   | 4,824         |  |   | 10,793        |   |  |   | 9,731  
|Restaurant pre-opening costs                |  |                                    | 80     |                                      |               |   | 631           |  |   | 641           |   |  |   | 1,133  
|Depreciation and amortization               |  |                                    | 4,293  |                                      |               |   | 3,848         |  |   | 8,373         |   |  |   | 7,659  
|Impairment, restructuring and other charges |  |                                    | 371    |                                      |               |   |              |  |   | 552           |   |  |   |       
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Total costs and expenses                    |  |                                    | 91,136 |                                      |               |   | 87,822        |  |   | 183,818       |   |  |   | 172,760
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|                                            |  |                                    |        |                                     
|Operating Income                            |  |                                    | 1,606  |                                      |               |   | 1,912         |  |   | 818           |   |  |   | 1,795  
|                                            |  |                                    |        |                                     
|Interest expense, net                       |  |                                    | 469    |                                      |               |   | 401           |  |   | 847           |   |  |   | 806    
|Other expense, net                          |  |                                    | 13     |                                      |               |   |              |  |   | 27            |   |  |   |       
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Income (loss) before income taxes           |  |                                    | 1,124  |                                      |               |   | 1,511         |  |   | (56           | ) |  |   | 989    
|Income tax expense (benefit)                |  |                                    | (64    | )                                    |               |   | 227           |  |   | (100          | ) |  |   | 145    
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Net income                                  |  | $                                  | 1,188  |                                      |               | $ | 1,284         |  | $ | 44            |   |  | $ | 844    
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|                                            |  |                                    |        |                                     
|Basic net income per share                  |  | $                                  | 0.08   |                                      |               | $ | 0.09          |  | $ | 0.00          |   |  | $ | 0.06   
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|                                            |  |                                    |        |                                     
|Diluted net income per share                |  | $                                  | 0.08   |                                      |               | $ | 0.09          |  | $ | 0.00          |   |  | $ | 0.06   
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|                                            |  |                                    |        |                                     
|Shares used in per share calculations:      |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Basic                                       |  |                                    | 14,773 |                                      |               |   | 14,788        |  |   | 14,750        |   |  |   | 14,795 
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        
|Diluted                                     |  |                                    | 14,807 |                                      |               |   | 14,930        |  |   | 14,763        |   |  |   | 14,929 
|                                            |  |                                    |        |                                      |               |   |               |  |   |               |   |  |   |        

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)



|                                                                                  |  |                                      |         |   |               |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------- | - | ------- | -
|                                                                                  |  | For the Twenty-Six Week Period Ended |        
|                                                                                  |  | June 27, 2009                        |         |   | June 26, 2010 |  
|Cash flows from operating activities:                                             |  |                                      |         |   |               |   |         |  
|Net income                                                                        |  | $                                    | 44      |   |               | $ | 844     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                      |         |   |               |   |         |  
|Depreciation and amortization                                                     |  |                                      | 8,373   |   |               |   | 7,659   |  
|Deferred income taxes                                                             |  |                                      | (134    | ) |               |   | 241     |  
|Share-based compensation                                                          |  |                                      | 448     |   |               |   | 439     |  
|Impairment, restructuring and other charges                                       |  |                                      | 277     |   |               |   |        |  
|Changes in operating assets and liabilities:                                      |  |                                      |         |   |               |   |         |  
|Trade accounts receivable, net                                                    |  |                                      | 2,025   |   |               |   | 2,603   |  
|Tenant improvement allowance receivables                                          |  |                                      | 2,061   |   |               |   | 67      |  
|Income tax receivable                                                             |  |                                      | 3,263   |   |               |   | (240    | )
|Inventories                                                                       |  |                                      | 273     |   |               |   | (158    | )
|Prepaid expenses and other current assets                                         |  |                                      | 244     |   |               |   | (352    | )
|Accounts payable                                                                  |  |                                      | (2,092  | ) |               |   | (2,506  | )
|Accrued expenses                                                                  |  |                                      | (7,792  | ) |               |   | (5,136  | )
|Deferred rent and other long-term liabilities                                     |  |                                      | 1,575   |   |               |   | 1,314   |  
|                                                                                  |  |                                      |         |   |               |   |         |  
|Net cash provided by operating activities                                         |  |                                      | 8,565   |   |               |   | 4,775   |  
|                                                                                  |  |                                     
|Cash flows from investing activities:                                             |  |                                      |         |   |               |   |         |  
|Purchase of property and equipment                                                |  |                                      | (3,975  | ) |               |   | (7,100  | )
|Other assets                                                                      |  |                                      | (231    | ) |               |   | (491    | )
|                                                                                  |  |                                      |         |   |               |   |         |  
|Net cash used in investing activities                                             |  |                                      | (4,206  | ) |               |   | (7,591  | )
|                                                                                  |  |                                     
|Cash flows from financing activities:                                             |  |                                      |         |   |               |   |         |  
|Borrowings made on revolving credit facility                                      |  |                                      | 71,500  |   |               |   | 48,000  |  
|Payments made on revolving credit facility                                        |  |                                      | (74,500 | ) |               |   | (47,000 | )
|Payments made on capital lease obligations                                        |  |                                      | (20     | ) |               |   | (22     | )
|Deemed landlord financing proceeds (in the form of tenant improvement allowances) |  |                                      | 672     |   |               |   |        |  
|Deemed landlord financing payments                                                |  |                                      | (116    | ) |               |   | (153    | )
|Issuance of restricted stock                                                      |  |                                      | 21      |   |               |   |        |  
|                                                                                  |  |                                      |         |   |               |   |         |  
|Net cash provided by (used in) financing activities                               |  |                                      | (2,443  | ) |               |   | 825     |  
|                                                                                  |  |                                     
|Effect of exchange rate changes                                                   |  |                                      | 113     |   |               |   | 26      |  
|                                                                                  |  |                                      |         |   |               |   |         |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                      | 2,029   |   |               |   | (1,965  | )
|                                                                                  |  |                                     
|Cash and cash equivalents:                                                        |  |                                      |         |   |               |   |         |  
|Beginning of period                                                               |  |                                      | 4,428   |   |               |   | 8,623   |  
|                                                                                  |  |                                      |         |   |               |   |         |  
|End of period                                                                     |  | $                                    | 6,457   |   |               | $ | 6,658   |  
|                                                                                  |  |                                      |         |   |               |   |         |  
|                                                                                  |  |                                     
|Supplemental Cash Flow Information:                                               |  |                                      |         |   |               |   |         |  
|Cash paid for interest                                                            |  | $                                    | 752     |   |               | $ | 456     |  
|Cash (paid for) received from income taxes, net                                   |  | $                                    | (3,069  | ) |               | $ | 214     |  
|Non-cash financing                                                                |  | $                                    |        |   |               | $ | 481     |  

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 & Schmicks Seafood Restaurants, Inc. (referred to herein as the Company or in the first person notations
we, us and our) is a leading national seafood restaurant operator in the affordable upscale dining segment and, as of June 26, 2010, operated 96 restaurants including 89 restaurants in 25 states throughout
the United States, including one pursuant to a management agreement, and seven restaurants under The Boathouse name in the greater Vancouver, British Columbia area. The Company has aggregated its operations into one reportable segment.

2. Basis of Presentation

The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the Companys financial statements have been included. Operating results for the thirteen and twenty-six week periods ended June 26, 2010 are not necessarily indicative of the results that may be
expected for the fiscal year ended 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 for complete financial statements. As disclosed in the Companys current report on Form 8-K
dated July 28, 2010, the Company intends to restate its financial statements as of and for the fiscal year ended December 26, 2009. See Note 8, Restatement  Gist Card Accounting, for a more comprehensive discussion of the
restatement.

3. Share-Based Compensation

As a regular component of their annual compensation, the five individual members of the Companys Board of Directors were granted a total of 18,420
shares of restricted stock in May 2010. The restricted stock vests in May 2011. The fair value of the restricted stock was $0.2 million and will be recognized over the vesting period of the shares, with approximately $0.1 million being recognized in
fiscal year 2010.



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4. Comprehensive Income

The components of comprehensive income for the thirteen and twenty-six week periods ended June 27, 2009 and June 26, 2010 were as follows (in
thousands):



|                                                                 |  |                           |       |              |                              |       |              |  |              |     |  |   |    
|---------------------------------------------------------------- |  | ------------------------- | ----- | ------------ | ---------------------------- | ----- | ------------ |  | ------------ | --- |  | - | ---
|                                                                 |  | Thirteen week periodended |       |              | Twenty-six week 
periodended
|                                                                 |  | June 27,2009              |       | June 26,2010 |                              |       | June 27,2009 |  | June 26,2010
|Net income                                                       |  | $                         | 1,188 |              | $                            | 1,284 |              |  | $            | 44  |  | $ | 844
|Other comprehensive income (loss)  foreign currency translation |  |                           | 581   |              |                              | (191  | )            |  |              | 485 |  |   | 72 
|                                                                 |  |                           |       |              |                              |       |              |  |              |     |  |   |    
|Total comprehensive income                                       |  | $                         | 1,769 |              | $                            | 1,093 |              |  | $            | 529 |  | $ | 916
|                                                                 |  |                           |       |              |                              |       |              |  |              |     |  |   |    

5. 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
each of the thirteen week periods ended June 27, 2009 and June 26, 2010 and $0.5 million for each of the twenty-six week periods ended June 27, 2009 and June 26, 2010.

6. Commitments and Contingencies

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

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 negatively affect the Companys results of operations and financial position.

7. 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 outstanding, which includes stock options and restricted stock outstanding under the Companys
2004 Stock Incentive Plan. A reconciliation of the shares used for basic and diluted shares follows (in thousands):



|                                                                                      |  |                           |  |                              |  |              |  |             
|------------------------------------------------------------------------------------- |  | ------------------------- |  | ---------------------------- |  | ------------ |  | ------------
|                                                                                      |  | Thirteen week periodended |  | Twenty-six week 
periodended
|                                                                                      |  | June 27,2009              |  | June 26,2010                 |  | June 27,2009 |  | June 26,2010
|Shares used for basic net income per share                                            |  | 14,773                    |  | 14,788                       |  | 14,750       |  | 14,795      
|Dilutive effect of stock options and restricted stock                                 |  | 34                        |  | 142                          |  | 13           |  | 134         
|                                                                                      |  |                           |  |                              |  |              |  |             
|Shares used for diluted net income per share                                          |  | 14,807                    |  | 14,930                       |  | 14,763       |  | 14,929      
|                                                                                      |  |                           |  |                              |  |              |  |             
|Shares not included in dilutive per share calculations because they were antidilutive |  | 304                       |  | 284                          |  | 304          |  | 284         
|                                                                                      |  |                           |  |                              |  |              |  |             



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8. Restatement  Gift Card Revenue Accounting

In conjunction with the preparation of the condensed consolidated financial statements for the quarter ended June 26, 2010, the Companys
management identified an error in the accounting for discounted gift cards that resulted in an overstatement of revenue and understatement of gift card liabilities. As a result of the error, on July 28, 2010 the Audit Committee of the
Companys Board of Directors, upon the recommendation of management, concluded that the Company must restate its consolidated financial statements for the thirteen and thirty-nine week periods ended September 26, 2009 and the thirteen week
period and fiscal year ended December 26, 2009. The Company will file amendments to its Quarterly Report for the period ended September 26, 2009 on Form 10-Q/A and its Annual Report for the fiscal year ended December 26, 2009 on Form
10-K/A to restate its financial statements for these periods as soon as practicable.

In accordance with the Companys revenue
recognition policies, revenue from gift cards is recognized when the gift card is redeemed or the likelihood of the gift card being redeemed is determined to be remote (gift card breakage). The Company sells a portion of its gift cards at a discount
to certain wholesale retailers and recognizes revenue based on the discounted amount at the time of redemption or breakage. Since the Company began selling discounted gift cards, it has not accounted for discounted gift card breakage properly. The
Company erroneously recognized gift card breakage revenues related to the discounted cards at the full face value of the card, rather than at the discounted amount. This error is only material for those periods that will be restated and the impact
on the consolidated financial statements for the thirteen week period ended March 27, 2010 was insignificant. The error resulted in revenues being overstated for the thirteen and thirty-nine week periods ended September 26, 2009 and
thirteen week period and fiscal year ended December 26, 2009 by the amount of the discount. The error also affected the income tax expense (benefit), net income (loss) and net income (loss) per share for these periods as well as certain balance
sheet accounts as of September 26, 2009 and December 26, 2009. The error did not affect cash or previously reported total cash flows from operating or investing activities.

The following tables present the impact of the correction of the error on the consolidated statements of operations for the thirteen and thirty-nine week
periods ended September 26, 2009 and fiscal year ended December 26, 2009.

(in thousands, except per share
amounts)



|                                               |  |                                                             |         |   |            |   |       |            |  |   |         |  
|---------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | ---------- | - | ----- | ---------- |  | - | ------- | -
|                                               |  | Thirteen week period
endedSeptember 26, 2009 (unaudited)    |        
|                                               |  | AsPreviouslyReported                                        |         |   | Adjustment |   |       | AsRestated | 
|Condensed Consolidated Statement of Operations |  |                                                             |         |   |            |   |       |            |  |   |         |  
|Revenues                                       |  | $                                                           | 86,312  |   |            | $ | (328  | )          |  | $ | 85,984  |  
|Income before income taxes                     |  |                                                             | 1,517   |   |            |   | (328  | )          |  |   | 1,189   |  
|Income tax expense                             |  |                                                             | 206     |   |            |   | (27   | )          |  |   | 179     |  
|Net income                                     |  |                                                             | 1,311   |   |            |   | (301  | )          |  |   | 1,010   |  
|Net income per share  basic                   |  |                                                             | 0.09    |   |            |   | (0.02 | )          |  |   | 0.07    |  
|Net income per share - diluted                 |  |                                                             | 0.09    |   |            |   | (0.02 | )          |  |   | 0.07    |  
|                                               | 
|                                               |  | Thirty-nine week period endedSeptember
26, 2009 (unaudited) |        
|                                               |  | AsPreviouslyReported                                        |         |   | Adjustment |   |       | AsRestated | 
|Condensed Consolidated Statement of Operations |  |                                                             |         |   |            |   |       |            |  |   |         |  
|Revenues                                       |  | $                                                           | 270,948 |   |            | $ | (328  | )          |  | $ | 270,620 |  
|Income before income taxes                     |  |                                                             | 1,461   |   |            |   | (328  | )          |  |   | 1,133   |  
|Income tax expense                             |  |                                                             | 105     |   |            |   | (27   | )          |  |   | 78      |  
|Net income                                     |  |                                                             | 1,356   |   |            |   | (301  | )          |  |   | 1,055   |  
|Net income per share  basic                   |  |                                                             | 0.09    |   |            |   | (0.02 | )          |  |   | 0.07    |  
|Net income per share - diluted                 |  |                                                             | 0.09    |   |            |   | (0.02 | )          |  |   | 0.07    |  
|                                               |  |                                                             |        
|Condensed Consolidated Statement of Cash Flows |  |                                                             |         |   |            |   |       |            |  |   |         |  
|Net income                                     |  |                                                             | 1,356   |   |            |   | (301  | )          |  |   | 1,055   |  
|Income tax receivable                          |  |                                                             | 3,162   |   |            |   | (27   | )          |  |   | 3,135   |  
|Accrued expenses                               |  |                                                             | (10,496 | ) |            |   | 328   |            |  |   | (10,168 | )



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##### Table of Contents

|                                           |  |                                |         |   |            |   |      |            |  |   |         |  
|------------------------------------------ |  | ------------------------------ | ------- | - | ---------- | - | ---- | ---------- |  | - | ------- | -
|                                           |  | September 26, 2009 (unaudited) |        
|                                           |  | AsPreviouslyReported           |         |   | Adjustment |   |      | AsRestated | 
|Consolidated Balance Sheet                 |  |                                |         |   |            |   |      |            |  |   |         |  
|Income tax receivable                      |  | $                              | 540     |   |            | $ | 27   |            |  | $ | 567     |  
|Total current assets                       |  |                                | 21,805  |   |            |   | 27   |            |  |   | 21,832  |  
|Total assets                               |  |                                | 204,207 |   |            |   | 27   |            |  |   | 204,234 |  
|Accrued expenses                           |  |                                | 21,386  |   |            |   | 328  |            |  |   | 21,714  |  
|Accumulated deficit                        |  |                                | (39,220 | ) |            |   | (301 | )          |  |   | (39,521 | )
|Total stockholders equity                 |  |                                | 108,673 |   |            |   | (301 | )          |  |   | 108,372 |  
|Total liabilities and stockholders equity |  |                                | 204,207 |   |            |   | 27   |            |  |   | 204,234 |  



|                                                                      |  |                                         |         |   |            |   |       |            |  |   |         |  
|--------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---------- | - | ----- | ---------- |  | - | ------- | -
|                                                                      |  | Year ended December 26,
2009(unaudited) |        
|                                                                      |  | AsPreviouslyReported                    |         |   | Adjustment |   |       | AsRestated | 
|Consolidated Statement of Operations                                  |  |                                         |         |   |            |   |       |            |  |   |         |  
|Revenues                                                              |  | $                                       | 360,129 |   |            | $ | (922  | )          |  | $ | 359,207 |  
|Loss before income taxes                                              |  |                                         | (15,371 | ) |            |   | (922  | )          |  |   | (16,293 | )
|Income tax benefit                                                    |  |                                         | (656    | ) |            |   | (70   | )          |  |   | (726    | )
|Net loss                                                              |  |                                         | (14,715 | ) |            |   | (852  | )          |  |   | (15,567 | )
|Net loss per share  basic                                            |  |                                         | (1.00   | ) |            |   | (0.05 | )          |  |   | (1.05   | )
|Net loss per share - diluted                                          |  |                                         | (1.00   | ) |            |   | (0.05 | )          |  |   | (1.05   | )
|                                                                      |  |                                         |        
|Consolidated Statement of Stockholders Equity and Comprehensive
Loss |  |                                         |         |   |            |   |       |            |  |   |         |  
|Net loss                                                              |  |                                         | (14,715 | ) |            |   | (852  | )          |  |   | (15,567 | )
|Total comprehensive loss                                              |  |                                         | (13,260 | ) |            |   | (852  | )          |  |   | (14,112 | )
|                                                                      |  |                                         |        
|Consolidated Statement of Cash Flows                                  |  |                                         |         |   |            |   |       |            |  |   |         |  
|Net loss                                                              |  |                                         | (14,715 | ) |            |   | (852  | )          |  |   | (15,567 | )
|Income tax receivable                                                 |  |                                         | 2,852   |   |            |   | (70   | )          |  |   | 2,782   |  
|Accrued expenses                                                      |  |                                         | (3,062  | ) |            |   | 922   |            |  |   | (2,140  | )
|                                                                      | 
|                                                                      |  | December 26, 2009 (unaudited)           |        
|                                                                      |  | AsPreviouslyReported                    |         |   | Adjustment |   |       | AsRestated | 
|Consolidated Balance Sheet                                            |  |                                         |         |   |            |   |       |            |  |   |         |  
|Income tax receivable                                                 |  | $                                       | 937     |   |            | $ | 70    |            |  | $ | 1,007   |  
|Total current assets                                                  |  |                                         | 28,957  |   |            |   | 70    |            |  |   | 29,027  |  
|Total assets                                                          |  |                                         | 191,022 |   |            |   | 70    |            |  |   | 191,092 |  
|Accrued expenses                                                      |  |                                         | 28,639  |   |            |   | 922   |            |  |   | 29,561  |  
|Accumulated deficit                                                   |  |                                         | (55,290 | ) |            |   | (852  | )          |  |   | (56,142 | )
|Total stockholders equity                                            |  |                                         | 93,135  |   |            |   | (852  | )          |  |   | 92,283  |  
|Total liabilities and stockholders equity                            |  |                                         | 191,022 |   |            |   | 70    |            |  |   | 191,092 |  



8



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##### Table of Contents

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.



9



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##### Table of Contents

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 June 26, 2010 we have expanded our restaurant base to 96 restaurants, including one restaurant operated pursuant to a management contract and seven restaurants
operating in Canada under The Boathouse Restaurant name.

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

We utilize a broad-based marketing approach to drive guest traffic, which includes in-house marketing campaigns, including our preferred
guest program and e-marketing programs. We have successfully grown our preferred guest program to over 110,000 primary members and nearly 83,000 secondary members since its inception in 2006 and our online marketing e-mail club database includes
over 340,000 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 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.

Identification of appropriate new restaurant sites is integral 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.



10



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##### Table of Contents

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, as well as one The Boathouse Restaurant, all of which have been opened. 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 Restaurant concept in Canada, as well as the possibility of utilizing it as a complementary concept in the United States.

We believe we have the opportunity to build revenues through new restaurant development and building traffic at existing restaurants. We also 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 June 26, 2010 compared to the thirteen week period ended June 27, 2009:



| |  |  | Revenues decreased 3.2% to $89.7 million from $92.7 million;
| | - |  | ------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 4.0%;
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 4.6%;
| | - |  | ---------------------------------------------



| |  |  | Operating income increased to $1.9 million from $1.6 million;
| | - |  | -------------------------------------------------------------



| |  |  | Net income increased to $1.3 million from $1.2 million; and
| | - |  | -----------------------------------------------------------



| |  |  | Diluted net income per share increased to $0.09 per share from $0.08 per share.
| | - |  | -------------------------------------------------------------------------------

RESULTS OF OPERATIONS

Thirteen
Week Period Ended June 27, 2009 Compared to Thirteen Week Period Ended June 26, 2010



|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|------------------------------------------- |  | ------------------------------ | ------ | - | ------------- | ----- | - | ------- | - | ------------ |  | ----- | -
|                                            |  | Thirteen week period ended
(1) |       
|                                            |  | June 27, 2009                  |        |   | June 26, 2010 |      
|(Dollars in thousands)                      |  | Dollars                        |        |   | % ofrevenues  |       |   | Dollars |   | % ofrevenues | 
|Revenues                                    |  | $                              | 92,742 |   |               | 100.0 | % |         | $ | 89,734       |  | 100.0 | %
|Restaurant operating costs:                 |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Food and beverage                           |  |                                | 27,517 |   |               | 29.7  |   |         |   | 26,883       |  | 30.0  |  
|Labor                                       |  |                                | 30,269 |   |               | 32.6  |   |         |   | 29,399       |  | 32.8  |  
|Operating                                   |  |                                | 14,158 |   |               | 15.3  |   |         |   | 12,879       |  | 14.4  |  
|Occupancy                                   |  |                                | 9,501  |   |               | 10.2  |   |         |   | 9,358        |  | 10.4  |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Total restaurant operating costs            |  |                                | 81,445 |   |               | 87.8  |   |         |   | 78,519       |  | 87.5  |  
|General and administrative expenses         |  |                                | 4,947  |   |               | 5.3   |   |         |   | 4,824        |  | 5.4   |  
|Restaurant pre-opening costs                |  |                                | 80     |   |               | 0.1   |   |         |   | 631          |  | 0.7   |  
|Depreciation and amortization               |  |                                | 4,293  |   |               | 4.6   |   |         |   | 3,848        |  | 4.3   |  
|Impairment, restructuring and other charges |  |                                | 371    |   |               | 0.4   |   |         |   |             |  |      |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Total costs and expenses                    |  |                                | 91,136 |   |               | 98.3  |   |         |   | 87,822       |  | 97.9  |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Operating income                            |  |                                | 1,606  |   |               | 1.7   |   |         |   | 1,912        |  | 2.1   |  
|Interest expense, net                       |  |                                | 469    |   |               | 0.5   |   |         |   | 401          |  | 0.4   |  
|Other expense, net                          |  |                                | 13     |   |               |      |   |         |   |             |  |      |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Income before income taxes                  |  |                                | 1,124  |   |               | 1.2   |   |         |   | 1,511        |  | 1.7   |  
|Income tax expense (benefit)                |  |                                | (64    | ) |               | (0.1  | ) |         |   | 227          |  | 0.3   |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Net income                                  |  | $                              | 1,188  |   |               | 1.3   | % |         | $ | 1,284        |  | 1.4   | %
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|                                            |  |                                |        |  
|Basic net income per share                  |  | $                              | 0.08   |   |               |       |   |         | $ | 0.09         |  |       |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Diluted net income per share                |  | $                              | 0.08   |   |               |       |   |         | $ | 0.09         |  |       |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Shares used in per share calculations:      |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Basic                                       |  |                                | 14,773 |   |               |       |   |         |   | 14,788       |  |       |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  
|Diluted                                     |  |                                | 14,807 |   |               |       |   |         |   | 14,930       |  |       |  
|                                            |  |                                |        |   |               |       |   |         |   |              |  |       |  



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



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##### Table of Contents

Revenues and Restaurant Operating Costs



|                                 |  |                            |        |              |   |        |         |   |        |   |  |      |   
|-------------------------------- |  | -------------------------- | ------ | ------------ | - | ------ | ------- | - | ------ | - |  | ---- | --
|                                 |  | Thirteen week period ended |        | DollarChange |   |        | %Change |  
|(dollars in thousands)           |  | June 27,2009               |        | June 26,2010 |   |       
|Revenues                         |  | $                          | 92,742 |              | $ | 89,734 |         | $ | (3,008 | ) |  | (3.2 | )%
|                                 |  |                            |        |              |   |        |         |   |        |   |  |      |   
|Restaurant operating costs:      |  |                            |        |              |   |        |         |   |        |   |  |      |   
|Food and beverage                |  | $                          | 27,517 |              | $ | 26,883 |         | $ | (634   | ) |  | (2.3 | )%
|Labor                            |  |                            | 30,269 |              |   | 29,399 |         |   | (870   | ) |  | (2.9 | )%
|Operating                        |  |                            | 14,158 |              |   | 12,879 |         |   | (1,279 | ) |  | (9.0 | )%
|Occupancy                        |  |                            | 9,501  |              |   | 9,358  |         |   | (143   | ) |  | (1.5 | )%
|                                 |  |                            |        |              |   |        |         |   |        |   |  |      |   
|Total restaurant operating costs |  | $                          | 81,445 |              | $ | 78,519 |         | $ | (2,926 | ) |  | (3.6 | )%
|                                 |  |                            |        |              |   |        |         |   |        |   |  |      |   



|                                                                |  |                           |  |             
|--------------------------------------------------------------- |  | ------------------------- |  | ------------
|                                                                |  | Thirteen week periodended
|                                                                |  | June 27,2009              |  | June 26,2010
|Store operating weeks                                           |  | 1,209                     |  | 1,215       
|Number of company owned restaurants operating during the period |  | 92                        |  | 95          

Revenues

Our revenues are derived primarily from food and beverage sales.

Revenues decreased $3.0 million, or 3.2%, to $89.7 million in the thirteen week period ended June 26, 2010 compared to $92.7 million in the
comparable period of 2009. The decrease in revenues was primarily due to the decline in comparable restaurant sales driven by a decrease in restaurant traffic of 4.6% partially offset by a slight increase in net pricing and product mix. Revenues
were also positively affected by the increase in store operating weeks as a result of the additional restaurants opened in the fiscal 2010 period compared to the fiscal 2009 period.

Food and Beverage Costs

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

Food and beverage costs decreased $0.6
million, or 2.3%, to $26.9 million in the thirteen week period ended June 26, 2010 compared to $27.5 million in the comparable period of 2009. The decrease in food and beverage costs was primarily due to lower restaurant sales. The increase in
food and beverage costs as a percentage of revenues was primarily due to our strategic initiative to offer more attractively priced wines to better connect with our guest and expand our guest population, which resulted in higher cost of goods sold
as a percentage of revenue.

Labor Costs

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

Labor costs decreased $0.9 million, or 2.9%, to $29.4 million in the thirteen week period ended June 26, 2010 compared to $30.3 million in the
comparable period of 2009. The decrease in labor costs was primarily due to a decrease in staffing hours as a result of our sales decline, as well as lower bonus expense in the fiscal 2010 period compared to the fiscal 2009 period. We are typically
able to increase or decrease our workforce hours as needed, which allows us to match a significant portion of our labor costs with fluctuations in revenue. These factors were partially offset by increases in workers compensation expense.

Operating Costs

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



12



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##### Table of Contents

Operating costs decreased $1.3 million, or 9.0%, to $12.9 million in the thirteen week period ended
June 26, 2010 compared to $14.2 million in the comparable period of 2009. The decrease in operating costs, both in dollars and as a percentage of revenues, was primarily due to lower janitorial costs as restaurants continued to see benefit from
in-house janitor labor compared to outsourced labor and lower costs related to other operating expenses.

Occupancy Costs

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

Occupancy costs decreased $0.1 million, or 1.5%, to $9.4 million in the thirteen week period ended
June 26, 2010 compared to $9.5 million in the comparable period of 2009. The decrease in occupancy costs was primarily due to lower common area maintenance charges (from renegotiated leases) and reduced percentage rent as a result of decreased
sales, partially offset by an overall increase in lease expense as additional restaurants were opened. The increase in occupancy costs as a percentage of revenues occurs since a significant portion of our occupancy costs are fixed and, accordingly,
as revenues decrease, occupancy costs as a percentage of revenues increase.

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



|                                            |  |                            |       |              |   |       |         |   |      |   |  |        |   
|------------------------------------------- |  | -------------------------- | ----- | ------------ | - | ----- | ------- | - | ---- | - |  | ------ | --
|                                            |  | Thirteen week period ended |       | DollarChange |   |       | %Change |  
|(dollars in thousands)                      |  | June 27,2009               |       | June 26,2010 |   |      
|General and administrative expenses         |  | $                          | 4,947 |              | $ | 4,824 |         | $ | (123 | ) |  | (2.5   | )%
|Restaurant pre-opening costs                |  |                            | 80    |              |   | 631   |         |   | 551  |   |  |        | * 
|Depreciation and amortization               |  |                            | 4,293 |              |   | 3,848 |         |   | (445 | ) |  | (10.4  | )%
|Impairment, restructuring and other charges |  |                            | 371   |              |   |      |         |   | (371 | ) |  | (100.0 | %)



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

General and
Administrative Expenses

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

General and administrative expenses decreased $0.1 million, or 2.5%, to $4.8 million in the thirteen week period ended June 26, 2010 compared to
$4.9 million in the comparable period of 2009. The decrease was primarily due to a reduction in headcount.

Restaurant Pre-Opening Costs

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

Restaurant pre-opening costs increased $0.5 million to $0.6 million in the thirteen week period ended
June 26, 2010 compared to $0.1 million in the comparable period of 2009. The increase in restaurant pre-opening costs was due to the timing of restaurant openings. We opened two restaurants in the second quarter of fiscal 2010 and no
restaurants in the comparable period of 2009.

Depreciation and Amortization

Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of intangible assets, software and non-transferable
liquor license fees.

Depreciation and amortization decreased $0.4 million, or 10.4%, to $3.8 million in the thirteen week period ended
June 26, 2010 compared to $4.3 million in the comparable period of 2009. The decrease in depreciation and amortization was primarily due to the reduction of expense attributable to assets written down in fiscal 2009.



13



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##### Table of Contents

Impairment, Restructuring and Other Charges

Impairment, restructuring and other charges of $0.4 million in the thirteen week period ended June 27, 2009 primarily related to severance costs and
other termination benefits paid to employees.

Operating Income, Interest Expense, Net, Other Expense, Net, Income Tax Expense (Benefit)
and Net income



|                             |  |                            |       |              |              |   |         |  |   |     |   |  |        |   
|---------------------------- |  | -------------------------- | ----- | ------------ | ------------ | - | ------- |  | - | --- | - |  | ------ | --
|                             |  | Thirteen week period ended |       | DollarChange |              |   | %Change | 
|(dollars in thousands)       |  | June 27,2009               |       |              | June 26,2010 |   |        
|Operating income             |  | $                          | 1,606 |              |              | $ | 1,912   |  | $ | 306 |   |  | 19.1   | % 
|Interest expense, net        |  |                            | 469   |              |              |   | 401     |  |   | (68 | ) |  | (14.5  | )%
|Other expense, net           |  |                            | 13    |              |              |   |        |  |   | (13 | ) |  | (100.0 | )%
|Income tax expense (benefit) |  |                            | (64   | )            |              |   | 227     |  |   | 291 |   |  |        | * 
|Net income                   |  |                            | 1,188 |              |              |   | 1,284   |  |   | 96  |   |  | 8.1    | % 



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

Operating Income

Operating income increased $0.3 million, or 19.1%, to $1.9 million in the thirteen week period ended June 26, 2010 compared to $1.6
million in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and expenses.

Income Tax Expense (Benefit)

Our
effective tax rate was an expense of 15.0% in the thirteen week period ended June 26, 2010 and a benefit of 5.7 % in the comparable period of 2009. The effective tax rate in fiscal 2010 is expected to be positively affected by the
utilization of net operating loss carryforward credits for which no benefit had previously been recognized. The effective tax rate in the fiscal 2009 period was positively affected by a tax benefit related to our Canadian subsidiary.

Net Income

Net income increased
$0.1 million, or 8.1%, to $1.3 million in the thirteen week period ended June 26, 2010 compared to $1.2 million in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and expenses.

Twenty-six Week Period Ended June 27, 2009 Compared to Twenty-six Week Period Ended June 26, 2010

The following are results of our financial performance for the twenty-six week period ended June 26, 2010 compared to the twenty-six week period
ended June 27, 2009:



| |  |  | Revenues decreased 5.5% to $174.6 million from $184.6 million;
| | - |  | --------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 7.0%;
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 5.4%;
| | - |  | ---------------------------------------------



| |  |  | Operating income increased to $1.8 million from $0.8 million;
| | - |  | -------------------------------------------------------------



| |  |  | Net income increased to $0.8 million from $44,000; and
| | - |  | ------------------------------------------------------



| |  |  | Diluted net income per share increased to $0.06 per share from $0.00 per share.
| | - |  | -------------------------------------------------------------------------------



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##### Table of Contents

|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|------------------------------------------- |  | -------------------------------- | ------- | - | ------------- | ----- | - | ------- | - | ------------ |  | ----- | -
|                                            |  | Twenty-six week period ended
(1) |        
|                                            |  | June 27, 2009                    |         |   | June 26, 2010 |      
|(dollars in thousands)                      |  | Dollars                          |         |   | % ofrevenues  |       |   | Dollars |   | % ofrevenues | 
|Revenues                                    |  | $                                | 184,636 |   |               | 100.0 | % |         | $ | 174,555      |  | 100.0 | %
|Restaurant operating costs:                 |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Food and beverage                           |  |                                  | 55,214  |   |               | 29.9  |   |         |   | 52,680       |  | 30.2  |  
|Labor                                       |  |                                  | 60,757  |   |               | 32.9  |   |         |   | 57,560       |  | 33.0  |  
|Operating                                   |  |                                  | 28,498  |   |               | 15.4  |   |         |   | 25,453       |  | 14.6  |  
|Occupancy                                   |  |                                  | 18,990  |   |               | 10.3  |   |         |   | 18,544       |  | 10.6  |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Total restaurant operating costs            |  |                                  | 163,459 |   |               | 88.5  |   |         |   | 154,237      |  | 88.4  |  
|General and administrative expenses         |  |                                  | 10,793  |   |               | 5.8   |   |         |   | 9,731        |  | 5.6   |  
|Restaurant pre-opening costs                |  |                                  | 641     |   |               | 0.3   |   |         |   | 1,133        |  | 0.6   |  
|Depreciation and amortization               |  |                                  | 8,373   |   |               | 4.5   |   |         |   | 7,659        |  | 4.4   |  
|Impairment, restructuring and other charges |  |                                  | 552     |   |               | 0.3   |   |         |   |             |  |      |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Total costs and expenses                    |  |                                  | 183,818 |   |               | 99.6  |   |         |   | 172,760      |  | 99.0  |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Operating income                            |  |                                  | 818     |   |               | 0.4   |   |         |   | 1,795        |  | 1.0   |  
|Interest expense, net                       |  |                                  | 847     |   |               | 0.5   |   |         |   | 806          |  | 0.5   |  
|Other expense, net                          |  |                                  | 27      |   |               |      |   |         |   |             |  |      |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Income (loss) before income taxes           |  |                                  | (56     | ) |               |      |   |         |   | 989          |  | 0.6   |  
|Income tax expense (benefit)                |  |                                  | (100    | ) |               | (0.1  | ) |         |   | 145          |  | 0.1   |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Net income                                  |  | $                                | 44      |   |               |      | % |         | $ | 844          |  | 0.5   | %
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|                                            |  |                                  |         |  
|Basic net income per share                  |  | $                                |        |   |               |       |   |         | $ | 0.06         |  |       |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Diluted net income per share                |  | $                                |        |   |               |       |   |         | $ | 0.06         |  |       |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Shares used in per share calculations:      |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Basic                                       |  |                                  | 14,750  |   |               |       |   |         |   | 14,795       |  |       |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  
|Diluted                                     |  |                                  | 14,763  |   |               |       |   |         |   | 14,929       |  |       |  
|                                            |  |                                  |         |   |               |       |   |         |   |              |  |       |  



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

Revenues and Restaurant Operating Costs



|                                 |  |                              |         |              |   |         |         |   |         |   |  |       |   
|-------------------------------- |  | ---------------------------- | ------- | ------------ | - | ------- | ------- | - | ------- | - |  | ----- | --
|                                 |  | Twenty-six week period ended |         | DollarChange |   |         | %Change |  
|(dollars in thousands)           |  | June 27,2009                 |         | June 26,2010 |   |        
|Revenues                         |  | $                            | 184,636 |              | $ | 174,555 |         | $ | (10,081 | ) |  | (5.5  | )%
|                                 |  |                              |         |              |   |         |         |   |         |   |  |       |   
|Restaurant operating costs:      |  |                              |         |              |   |         |         |   |         |   |  |       |   
|Food and beverage                |  | $                            | 55,214  |              | $ | 52,680  |         | $ | (2,534  | ) |  | (4.6  | )%
|Labor                            |  |                              | 60,757  |              |   | 57,560  |         |   | (3,197  | ) |  | (5.3  | )%
|Operating                        |  |                              | 28,498  |              |   | 25,453  |         |   | (3,045  | ) |  | (10.7 | )%
|Occupancy                        |  |                              | 18,990  |              |   | 18,544  |         |   | (446    | ) |  | (2.3  | )%
|                                 |  |                              |         |              |   |         |         |   |         |   |  |       |   
|Total restaurant operating costs |  | $                            | 163,459 |              | $ | 154,237 |         | $ | (9,222  | ) |  | (5.6  | )%
|                                 |  |                              |         |              |   |         |         |   |         |   |  |       |   



|                                                                |  |                              |  |             
|--------------------------------------------------------------- |  | ---------------------------- |  | ------------
|                                                                |  | Twenty-six week 
periodended
|                                                                |  | June 27,2009                 |  | June 26,2010
|Store operating weeks                                           |  | 2,404                        |  | 2,418       
|Number of company owned restaurants operating during the period |  | 92                           |  | 95          

Revenues

Revenues decreased $10.1 million, or 5.5%, to $174.6 million in the twenty-six week period ended June 26, 2010 compared to $184.6 million in the
comparable period of 2009. The decrease in revenues was primarily due to the decline in comparable restaurant sales driven by decreases in traffic of 5.4 % and net pricing and product mix of 1.6%. Revenues were positively affected by the
increase in store operating weeks as a result of the addition of restaurants in the fiscal 2010 period compared to the fiscal 2009 period.



15



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##### Table of Contents

Food and Beverage Costs

Food and beverage costs decreased $2.5 million, or 4.6%, to $52.7 million in the twenty-six week period ended June 26, 2010 compared to $55.2 million
in the comparable period of 2009. The decrease in food and beverage costs was primarily due to lower restaurant sales. The increase in food and beverage costs as a percentage of revenues was due to increases in commodity prices on seafood and our
strategic initiative to offer more attractively priced wines to better connect with our guest and expand our guest population.

Labor
Costs

Labor costs decreased $3.2 million, or 5.3%, to $57.6 million in the twenty-six week period ended June 26, 2010 compared to
$60.8 million in the comparable period of 2009. The decrease in labor costs was primarily due to a decrease in staffing hours as a result of our sales decline, as well as lower bonus expense in the fiscal 2010 period compared to the fiscal 2009
period. We are typically able to increase or decrease our workforce hours as needed, which allows us to match a significant portion of our labor costs with fluctuations in revenue. These factors were partially offset by increases in workers
compensation expense.

Operating Costs

Operating costs decreased $3.0 million, or 10.7%, to $25.5 million in the twenty-six week period ended June 26, 2010 compared to $28.5 million in the
comparable period of 2009. The decrease in operating costs, both in dollars and as a percentage of revenues, was primarily due to lower janitorial costs as restaurants continued to see benefit from in-house janitor labor compared to outsourced labor
and lower utility and laundry costs.

Occupancy Costs

Occupancy costs decreased $0.4 million, or 2.3%, to $18.5 million in the twenty-six week period ended June 26, 2010 compared to $19.0 million in the
comparable period of 2009. The decrease in occupancy costs was primarily due to lower percentage rent as a result of decreased sales, decreased base rent and common area maintenance charges on certain renegotiated leases partially offset by an
overall increase in leases as additional restaurants were opened. The increase in occupancy costs as a percentage of revenues occurs since a significant portion of our occupancy costs are fixed and, accordingly, as revenues decrease, occupancy costs
as a percentage of revenues increases.

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



|                                            |  |                              |        |              |   |       |         |   |        |   |  |        |   
|------------------------------------------- |  | ---------------------------- | ------ | ------------ | - | ----- | ------- | - | ------ | - |  | ------ | --
|                                            |  | Twenty-six week 
periodended |        | DollarChange |   |       | %Change |  
|(dollars in thousands)                      |  | June 27,2009                 |        | June 26,2010 |   |      
|General and administrative expenses         |  | $                            | 10,793 |              | $ | 9,731 |         | $ | (1,062 | ) |  | (9.8   | )%
|Restaurant pre-opening costs                |  |                              | 641    |              |   | 1,133 |         |   | 492    |   |  | 76.8   | % 
|Depreciation and amortization               |  |                              | 8,373  |              |   | 7,659 |         |   | (714   | ) |  | (8.5   | )%
|Impairment, restructuring and other charges |  |                              | 552    |              |   |      |         |   | (552   | ) |  | (100.0 | %)

General and
Administrative Expenses

General and administrative costs decreased $1.1 million, or 9.8%, to $9.7 million in the twenty-six week
period ended June 26, 2010 compared to $10.8 million in the comparable period of 2009. The decrease in general and administrative expenses was primarily due to decreases in travel costs, legal and consulting fees and reductions in headcount as
a result of cost saving initiatives.

Restaurant Pre-Opening Costs

Restaurant pre-opening costs increased $0.5 million, or 76.8%, to $1.1 million in the twenty-six week period ended June 26, 2010 compared to $0.6
million in the comparable period of 2009. The increase in restaurant pre-opening costs was due to the timing of restaurant openings. We opened three restaurants in the first twenty-six weeks of fiscal 2010 compared to the opening of two restaurants
in the first twenty-six weeks of fiscal 2009.



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##### Table of Contents

Depreciation and Amortization

Depreciation and amortization decreased $0.7 million, or 8.5%, to $7.7 million in the twenty-six week period ended June 26, 2010 compared to $8.4
million in the comparable period of 2009. The decrease in depreciation and amortization was primarily due to the reduction of expense attributable to assets written down fiscal 2009.

Impairment, Restructuring and Other Charges

Impairment, restructuring and other charges of $0.6 million in the twenty-six week period ended June 27, 2009 primarily related to severance costs
and other termination benefits paid to employees.

Operating Income, Interest Expense, Net, Other Expense, Net, Income Tax Expense
(Benefit) and Net income



|                             |  |                              |      |              |              |   |         |  |   |     |   |  |        |   
|---------------------------- |  | ---------------------------- | ---- | ------------ | ------------ | - | ------- |  | - | --- | - |  | ------ | --
|                             |  | Twenty-six week 
periodended |      | DollarChange |              |   | %Change | 
|(dollars in thousands)       |  | June 27,2009                 |      |              | June 26,2010 |   |        
|Operating income             |  | $                            | 818  |              |              | $ | 1,795   |  | $ | 977 |   |  | 119.4  | % 
|Interest expense, net        |  |                              | 847  |              |              |   | 806     |  |   | (41 | ) |  | (4.8   | )%
|Other expense, net           |  |                              | 27   |              |              |   |        |  |   | (27 | ) |  | (100.0 | )%
|Income tax expense (benefit) |  |                              | (100 | )            |              |   | 145     |  |   | 245 |   |  |        | * 
|Net income                   |  |                              | 44   |              |              |   | 844     |  |   | 800 |   |  |        | * 



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

Operating Income

Operating income increased $1.0 million, or 119.4%, to $1.8 million in the twenty-six week period ended June 26, 2010 compared to $0.8
million in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and expenses.

Income Tax Expense (Benefit)

Our
effective tax rate was an expense of 14.7% in the first twenty-six weeks of fiscal 2010 and a benefit of 178.6% in the first twenty-six weeks of fiscal 2009. The effective tax rate in fiscal 2010 is expected to be positively affected by the
utilization of net operating loss carryforward credits for which no benefit had previously been recognized. The effective tax rate in the fiscal 2009 period was positively affected by a tax benefit related to our Canadian subsidiary.

Net Income

Net income increased
to $0.8 million in the twenty-six week period ended June 26, 2010 compared to $44,000 in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and expenses.



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##### Table of Contents

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 issuances 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.



|                                                             |  |                              |        |   |              |   |        |  
|------------------------------------------------------------ |  | ---------------------------- | ------ | - | ------------ | - | ------ | -
|                                                             |  | Twenty-six week period ended |       
|(dollars in thousands)                                       |  | June 27,2009                 |        |   | June 26,2010 |  
|Net cash provided by operating activities                    |  | $                            | 8,565  |   |              | $ | 4,775  |  
|Net cash used in investing activities                        |  |                              | (4,206 | ) |              |   | (7,591 | )
|Net cash provided by (used in) financing activities          |  |                              | (2,443 | ) |              |   | 825    |  
|Effect of exchange rate changes on cash and cash equivalents |  |                              | 113    |   |              |   | 26     |  
|                                                             |  |                              |        |   |              |   |        |  
|Net increase (decrease) in cash and cash equivalents         |  | $                            | 2,029  |   |              | $ | (1,965 | )
|                                                             |  |                              |        |   |              |   |        |  

We had a working capital deficit of $13.2 million at June 26, 2010 compared to $16.6 million at December 26, 2009
and our current ratio was 0.66 at June 26, 2010 compared to 0.64 at December 26, 2009. We utilize our credit facility to cover working capital shortfalls by drawing on our facility daily as needed and then repaying promptly as funds become
available.

We 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 from
June 26, 2010.

Net cash provided by operating activities of $4.8 million in the twenty-six week period ended June 26, 2010 was
primarily a result of net income of $0.8 million, non-cash expenses of $8.3 million and changes in our operating assets and liabilities.

Net
cash used in investing activities in the twenty-six week period ended June 26, 2010 was $7.6 million and primarily consisted of capital expenditures of $7.1 million. Cash was used primarily for equipment purchases, the purchase of leasehold
assets and construction costs related to new restaurant openings and to upgrade and add capacity to existing restaurants. During the twenty-six week period ended June 26, 2010, we opened three new restaurants.

Net cash provided by financing activities was $0.8 million in the twenty-six week period ended June 26, 2010 and consisted primarily of net
borrowings 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.

We have a $90 million revolving credit facility, with an additional $50.0 million available at our request if specified conditions are met. As of
June 26, 2010, we had $14.0 million outstanding on the facility at an effective interest rate of 2.98%. Under the revolving credit facility agreement, we are subject to certain financial covenants, including a maximum adjusted leverage ratio
and a minimum fixed charge ratio. We are in compliance with these covenants as of June 26, 2010. Amounts outstanding under the revolving credit facility agreement are collateralized by the stock of our subsidiaries 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. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform as required pursuant to the requirements of an underlying agreement for 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 June 26,
2010, the maximum exposure under these standby letters of credit was $2.9 million.

At June 26, 2010 there was $73.1 million available
for future borrowings under the revolving credit facility.

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 June 26, 2010 we had not repurchased any shares.



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##### Table of Contents

SEASONALITY

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

We reaffirm the critical accounting policies and estimates as reported in our Form 10-K for the year ended December 26, 2009, which was filed with
the Securities and Exchange Commission on March 8, 2010.

RECENT ACCOUNTING PRONOUNCEMENTS

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks since the filing of our Form 10-K for the year ended December 26, 2009, which was
filed with the Securities and Exchange Commission on March 8, 2010.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our chief executive officer and 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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the Exchange Act), which are
designed to ensure 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 chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our chief executive officer and chief financial officer have concluded as of the end of the period
covered by this report, that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 26, 2010.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis.

During the quarter ended June 26, 2010, management determined that our consolidated financial statements for the thirteen and thirty-nine weeks
ended September 26, 2009 and the thirteen week period and fiscal year ended December 26, 2009 were affected by an error in the recording of gift card breakage income and that a restatement was needed. As disclosed in Note 8 to Condensed
Consolidated Financial Statements, the accounts impacted were revenues, accrued liabilities and the related impact on our income tax accounts.



19



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##### Table of Contents

In connection with this restatement management has reassessed the companys controls and procedures
including internal control over financial reporting and determined that a material weakness exists.

Management concluded that a key internal
control, providing for the review of the gift card account reconciliation, was not properly designed or operating effectively. Specifically, the reconciliation of the gift card discount account was not designed to match breakage dates associated
with the corresponding breakage income on discounted gift cards which affected the accuracy of our reported revenues and gift card liability. Additionally, the quality of the independent review was not effective. Consequently, the company did not
timely identify the gift card breakage error that first became material in the third quarter of fiscal year 2009.

Based on the above
findings, management performed an in-depth review of all account reconciliations during the second quarter of fiscal year 2010 and found no other material weaknesses, significant deficiencies or deficiencies in internal controls.

Remediation Plan

Management has
taken immediate action to remediate the material weakness identified. First, the reconciliation of the gift card discount account has been redesigned to properly capture the breakage dates of discounted gift cards. Additionally, a more robust
account analytic has been added to our monthly closing process to identify unusual trends in the gift card discount account. The company has also strengthened the process of reviewing the account reconciliations and is in the process of hiring a new
accounting manager with more extensive technical accounting knowledge. Until management has satisfactorily completed its testing of the new controls, it has not concluded that the material weakness noted above has been remediated. However, we do
believe these enhancements to our system of internal controls are adequate to provide reasonable assurance that the control objectives will be met.

Changes in Internal Control Over Financial Reporting

As described above, there have been 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 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 and results of operations,
including potential impairment of the long-lived assets of our restaurants, and could increase our cost of borrowing.



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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.

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;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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 positively affect 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 in 2009 and three in 2010 to date, 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;
| | - |  | --------------------------



| |  |  | 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 affect 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.



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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 three during the first two quarters 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 June 26, 2010, we operated five restaurants in
the Seattle, Washington area, six in the Portland, Oregon area, fourteen in California, and seven 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.



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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.

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.

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 includes:



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



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| |  |  | 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



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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.

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.



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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 6. Exhibits

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



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



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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: August 4, 2010



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