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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 April 1, 2006

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)
|                                                               | 
|720 SW Washington Street, Suite 550 Portland, Oregon           |  | 97205                               
|(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 is a large accelerated filer, accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                         |  |                     |  |                       
|------------------------ |  | ------------------- |  | ----------------------
|Large accelerated filer ̈ |  | Accelerated filer x |  | Non-accelerated filer ̈

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 14,207,975 shares of common stock outstanding as of April 1, 2006.



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INDEX



|                                                                                                           |  |   
|---------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                              |  | 3 
|                                                                                                           | 
|Item 1 - Financial Statements(Unaudited)                                                                  |  | 3 
|                                                                                                           | 
|Consolidated Balance Sheets as of December 31, 2005 and April 1, 2006                                      |  | 3 
|                                                                                                           | 
|Consolidated Statements of Income for the thirteen week periods ended March 26, 2005 and April 1, 2006     |  | 4 
|                                                                                                           | 
|Consolidated Statements of Cash Flows for the thirteen week periods ended March 26, 2005 and April 1, 2006 |  | 5 
|                                                                                                           | 
|Notes to Consolidated Financial Statements                                                                 |  | 6 
|                                                                                                           | 
|Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations             |  | 11
|                                                                                                           | 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                        |  | 17
|                                                                                                           | 
|Item 4 - Controls and Procedures                                                                           |  | 17
|                                                                                                           | 
|PART II. OTHER INFORMATION                                                                                 |  | 17
|                                                                                                           | 
|Item 1 - Legal Proceedings                                                                                 |  | 17
|                                                                                                           | 
|Item 1A - Risk Factors                                                                                     |  | 18
|                                                                                                           | 
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                                       |  | 23
|                                                                                                           | 
|Item 3 - Defaults Upon Senior Securities                                                                   |  | 23
|                                                                                                           | 
|Item 4 - Submissions of Matters to a Vote of Security Holders                                              |  | 23
|                                                                                                           | 
|Item 5 - Other Information                                                                                 |  | 23
|                                                                                                           | 
|Item 6 - Exhibits                                                                                          |  | 23
|                                                                                                           | 
|Signatures                                                                                                 |  | 24



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

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

Consolidated Balance
Sheets

(in thousands, except per share data)



|                                                                                                           |  |                  |         |              |   |        
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------
|                                                                                                           |  | December 31,2005 |         | April 1,2006
|                                                                                                           |  | (Note 2)         |         | (Unaudited) 
|Assets                                                                                                     |  |                  |         |              |   |        
|Current assets                                                                                             |  |                  |         |              |   |        
|Cash and cash equivalents                                                                                  |  | $                | 4,705   |              | $ | 4,028  
|Trade accounts receivable, net                                                                             |  |                  | 5,081   |              |   | 5,411  
|Tenant improvement allowance receivables                                                                   |  |                  | 1,780   |              |   | 1,735  
|Inventories                                                                                                |  |                  | 4,517   |              |   | 4,393  
|Prepaid expenses and other current assets                                                                  |  |                  | 3,020   |              |   | 3,487  
|Deferred income taxes                                                                                      |  |                  | 6,688   |              |   | 5,801  
|                                                                                                           |  |                  |         |              |   |        
|Total current assets                                                                                       |  |                  | 25,791  |              |   | 24,855 
|Equipment and leasehold improvements, net                                                                  |  |                  | 104,727 |              |   | 108,575
|Other assets                                                                                               |  |                  | 53,646  |              |   | 53,667 
|Goodwill                                                                                                   |  |                  | 19,996  |              |   | 19,996 
|                                                                                                           |  |                  |         |              |   |        
|Total assets                                                                                               |  | $                | 204,160 |              | $ | 207,093
|                                                                                                           |  |                  |         |              |   |        
|Liabilities and Stockholders Equity                                                                       |  |                  |         |              |   |        
|Current liabilities                                                                                        |  |                  |         |              |   |        
|Accounts payable                                                                                           |  | $                | 13,431  |              | $ | 12,966 
|Accrued expenses                                                                                           |  |                  | 18,970  |              |   | 18,985 
|Capital lease obligations, current portion                                                                 |  |                  | 368     |              |   | 374    
|                                                                                                           |  |                  |         |              |   |        
|Total current liabilities                                                                                  |  |                  | 32,769  |              |   | 32,325 
|Other long-term liabilities                                                                                |  |                  | 15,618  |              |   | 16,234 
|Capital lease obligations, noncurrent portion                                                              |  |                  | 338     |              |   | 243    
|Deferred income taxes                                                                                      |  |                  | 11,982  |              |   | 11,838 
|                                                                                                           |  |                  |         |              |   |        
|Total liabilities                                                                                          |  |                  | 60,707  |              |   | 60,640 
|                                                                                                           |  |                  |         |              |   |        
|Commitments and Contingencies (Note 8)                                                                     |  |                  |         |              |   |        
|                                                                                                           |  |                 
|Stockholders equity                                                                                       |  |                  |         |              |   |        
|Common stock, $0.001 par value, 120,000 shares authorized, 14,179 and 14,208 shares issued and outstanding |  |                  | 14      |              |   | 14     
|Additional paid in capital                                                                                 |  |                  | 136,292 |              |   | 136,986
|Retained earnings                                                                                          |  |                  | 7,147   |              |   | 9,453  
|                                                                                                           |  |                  |         |              |   |        
|Total stockholders equity                                                                                 |  |                  | 143,453 |              |   | 146,453
|                                                                                                           |  |                  |         |              |   |        
|Total liabilities and stockholders equity                                                                 |  | $                | 204,160 |              | $ | 207,093
|                                                                                                           |  |                  |         |              |   |        

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



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

Consolidated Statements
of Income-Unaudited

(in thousands, except per share data)



|                                              |  |                           |        |              |   |        |  
|--------------------------------------------- |  | ------------------------- | ------ | ------------ | - | ------ | -
|                                              |  | Thirteen week periodended |       
|                                              |  | March 26,2005             |        | April 1,2006 |  
|Revenues                                      |  | $                         | 60,385 |              | $ | 71,606 |  
|                                              |  |                           |        |              |   |        |  
|Restaurant operating costs                    |  |                           |        |              |   |        |  
|Food and beverage                             |  |                           | 17,760 |              |   | 21,022 |  
|Labor                                         |  |                           | 19,356 |              |   | 22,736 |  
|Operating                                     |  |                           | 9,017  |              |   | 10,486 |  
|Occupancy                                     |  |                           | 5,605  |              |   | 6,591  |  
|                                              |  |                           |        |              |   |        |  
|Total restaurant operating costs              |  |                           | 51,738 |              |   | 60,835 |  
|General and administrative expenses           |  |                           | 3,342  |              |   | 3,971  |  
|Restaurant pre-opening costs                  |  |                           | 529    |              |   | 763    |  
|Depreciation and amortization                 |  |                           | 2,232  |              |   | 2,659  |  
|                                              |  |                           |        |              |   |        |  
|Total costs and expenses                      |  |                           | 57,841 |              |   | 68,228 |  
|                                              |  |                           |        |              |   |        |  
|Operating income                              |  |                           | 2,544  |              |   | 3,378  |  
|Interest expense (income), net                |  |                           | 156    |              |   | (3     | )
|                                              |  |                           |        |              |   |        |  
|Income before income taxes                    |  |                           | 2,388  |              |   | 3,381  |  
|Income tax expense                            |  |                           | 741    |              |   | 1,075  |  
|                                              |  |                           |        |              |   |        |  
|Net income                                    |  | $                         | 1,647  |              | $ | 2,306  |  
|                                              |  |                           |        |              |   |        |  
|Net income per share                          |  |                           |        |              |   |        |  
|Basic                                         |  | $                         | 0.12   |              | $ | 0.16   |  
|Diluted                                       |  | $                         | 0.12   |              | $ | 0.16   |  
|Shares used in computing net income per share |  |                           |        |              |   |        |  
|Basic                                         |  |                           | 13,782 |              |   | 14,192 |  
|Diluted                                       |  |                           | 13,959 |              |   | 14,482 |  

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



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

Consolidated Statements
of Cash Flows-Unaudited

(in thousands)



|                                                                                 |  |                           |        |   |              |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ------------ | - | ------ | -
|                                                                                 |  | Thirteen week periodended |       
|                                                                                 |  | March 26,2005             |        |   | April 1,2006 |  
|Operating activities                                                             |  |                           |        |   |              |   |        |  
|Net income                                                                       |  | $                         | 1,647  |   |              | $ | 2,306  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                           |        |   |              |   |        |  
|Depreciation and amortization                                                    |  |                           | 2,232  |   |              |   | 2,659  |  
|Deferred income taxes                                                            |  |                           | 741    |   |              |   | 854    |  
|Equity based compensation                                                        |  |                           |       |   |              |   | 227    |  
|Changes in operating assets and liabilities                                      |  |                           |        |   |              |   |        |  
|Trade accounts receivable                                                        |  |                           | 572    |   |              |   | (330   | )
|Tenant improvement allowance receivables                                         |  |                           | (2,493 | ) |              |   | 45     |  
|Inventories                                                                      |  |                           | (148   | ) |              |   | 124    |  
|Prepaid expenses and other current assets                                        |  |                           | (96    | ) |              |   | (467   | )
|Accounts payable                                                                 |  |                           | (827   | ) |              |   | (465   | )
|Accrued expenses                                                                 |  |                           | 481    |   |              |   | 15     |  
|Other long-term liabilities                                                      |  |                           | 1,467  |   |              |   | 616    |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Net cash provided by operating activities                                        |  |                           | 3,576  |   |              |   | 5,584  |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Investing activities                                                             |  |                           |        |   |              |   |        |  
|Acquisition of equipment and leasehold improvements                              |  |                           | (5,394 | ) |              |   | (6,460 | )
|Other assets                                                                     |  |                           | 11     |   |              |   | (68    | )
|                                                                                 |  |                           |        |   |              |   |        |  
|Net cash used in investing activities                                            |  |                           | (5,383 | ) |              |   | (6,528 | )
|                                                                                 |  |                           |        |   |              |   |        |  
|Financing activities                                                             |  |                           |        |   |              |   |        |  
|Decrease in book overdraft                                                       |  |                           | (429   | ) |              |   |       |  
|Borrowings made on revolving credit facility                                     |  |                           | 5,500  |   |              |   |       |  
|Payments made on revolving credit facility                                       |  |                           | (3,000 | ) |              |   |       |  
|Payments on capital lease obligations                                            |  |                           | (108   | ) |              |   | (89    | )
|Proceeds from stock options exercised                                            |  |                           |       |   |              |   | 356    |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Net cash provided by financing activities                                        |  |                           | 1,963  |   |              |   | 267    |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Net increase (decrease) in cash and cash equivalents                             |  |                           | 156    |   |              |   | (677   | )
|Cash and cash equivalents, beginning of period                                   |  |                           | 451    |   |              |   | 4,705  |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Cash and cash equivalents, end of period                                         |  | $                         | 607    |   |              | $ | 4,028  |  
|                                                                                 |  |                           |        |   |              |   |        |  
|Supplemental disclosure of cash flow information                                 |  |                           |        |   |              |   |        |  
|Cash paid during the period                                                      |  |                           |        |   |              |   |        |  
|Interest                                                                         |  | $                         | 229    |   |              | $ | 96     |  
|Income taxes                                                                     |  |                           | 54     |   |              |   | 236    |  

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



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

Notes to Consolidated
Financial Statements-Unaudited



|1. | The Business and Organization
|-- | -----------------------------

McCormick & Schmicks
Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining segment. McCormick & Schmicks Seafood Restaurants, Inc. is the survivor of a merger with McCormick &
Schmick Holdings LLC (the LLC) that occurred on July 20, 2004, prior to the Companys initial public offering.



|2. | Basis of Presentation
|-- | ---------------------

As of April 1, 2006 the Company owned
and operated 61 restaurants in 24 states and the District of Columbia, including two pursuant to management agreements.

The accompanying unaudited
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair statement have been included. Operating results for the thirteen week period ended April 1, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 30, 2006.

The consolidated balance sheet at December 31, 2005 has been derived from the audited consolidated financial statements at that date, but does not
include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005.



|3. | Summary of Selected Accounting Policies
|-- | ---------------------------------------

Principles of
Consolidation

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

Management
Estimates

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

Revenue Recognition

Revenues are
recognized at the point of delivery of products and services. A deferred liability is recognized for gift certificates that have been sold but not yet redeemed. The Company recognizes revenue and reduces the related deferred liability when the gift
certificates are redeemed.

Equity-Based Compensation Plan

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Share Based Payment (revised 2004) (SFAS 123R). SFAS 123R revises Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123) and requires companies to expense the fair value of employee stock options and other forms of share-based compensation. The Company adopted SFAS 123R as of
January 1, 2006. SFAS 123R supersedes the Companys previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) for periods beginning in fiscal 2006.
In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

The Company adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the
first day of the Companys fiscal year 2006. The Companys consolidated financial statements as of and for the thirteen week period ended April 1, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective



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transition method, the Companys consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact
of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the thirteen week period ended April 1, 2006 was $227,000, which consisted of share-based compensation expense related to employee stock options. There was no
share-based compensation expense recognized related to stock awards during the thirteen week period ended March 26, 2005.

SFAS 123R requires
companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service
periods in the Companys consolidated statements of income. Prior to the adoption of SFAS 123R, the Company accounted for share-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under
SFAS 123. Under the intrinsic value method, no share-based compensation expense had been recognized in the Companys consolidated income statement.

Share-based compensation expense recognized in the Companys consolidated income statement for the thirteen week period ended April 1, 2006 included compensation expense for share-based payment awards granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123. Because share-based compensation expense recognized in the consolidated statement of income for the thirteen
week period ended April 1, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.

Upon adoption of SFAS 123R (see Note 6), the Company determined the fair value of share-based payment
awards on the date of grant using the Black-Scholes option-pricing model. The model is affected by the Companys stock price as well as the Companys assumptions regarding a number of complex and subjective variables, including but not
limited to the Companys expected stock price volatility over the term of the awards, option life of the option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield. The
Companys expected stock price volatility was based on historical volatility of the Companys stock price and expected future changes in the Companys stock price volatility. The option life was based on the contractual life of the
option. The expected term of the option was based on an average of selected peer companies in the Companys industry and our expectation of average time until exercise of the options by the grantees. The estimated forfeiture rate was based on
historical data and estimated future terminations over the vesting period of the award. The risk-free interest rate was based on the implied yield available at the time of grant on U.S. Treasury zero-coupon issues. Dividend yield is based on
managements estimation of dividends to be paid in the future.

The fair value of the Companys options was estimated on the date of grant using
the Black-Scholes option pricing model, with the following assumptions:

|                          |  |                            |   |  |               |  
|------------------------- |  | -------------------------- | - |  | ------------- | -
|                          |  | Thirteen week period ended |  
|                          |  | March 26, 2005             |   |  | April 1, 2006 |  
|Expected volatility       |  | 24.3                       | % |  | 24.3          | %
|Option life               |  | 10 years                   |   |  | 10 years      |  
|Expected term             |  | 5.5 years                  |   |  | 5.5 years     |  
|Estimated forfeiture rate |  | 9                          | % |  | 9             | %
|Risk-free interest rate   |  | 3.9                        | % |  | 3.9           | %
|Dividend yield            |  | 0                          | % |  | 0             | %



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The following table represents the effect on net income and net income per share if the Company had applied the fair
value based method and recognition provisions of SFAS 123 to share-based compensation (in thousands, except per share amounts).



|                                                             |  |                                          |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | -
|                                                             |  | Thirteen weekperiod ended March 26, 2005 |       
|Net income, as reported                                      |  | $                                        | 1,647  |  
|Compensation cost based on the fair value method, net of tax |  |                                          | (216   | )
|                                                             |  |                                          |        |  
|Pro forma net income                                         |  | $                                        | 1,431  |  
|                                                             |  |                                          |        |  
|Basic net income per share                                   |  |                                          |        |  
|As reported                                                  |  | $                                        | 0.12   |  
|Pro forma                                                    |  | $                                        | 0.10   |  
|Fully diluted net income per share                           |  |                                          |        |  
|As reported                                                  |  | $                                        | 0.12   |  
|Pro forma                                                    |  | $                                        | 0.10   |  
|Shares used in computing net income per share                |  |                                          |        |  
|As reported                                                  |  |                                          |        |  
|Basic                                                        |  |                                          | 13,782 |  
|Fully diluted                                                |  |                                          | 13,959 |  
|Pro forma                                                    |  |                                          |        |  
|Basic                                                        |  |                                          | 13,782 |  
|Fully diluted                                                |  |                                          | 13,959 |  

Results may vary depending on the assumptions applied within the model.

Basic and Diluted Net Income per Share

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

Statement of Financial Accounting Standards No. 128, Earnings per
Share, requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding
include the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock
options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to
repurchase shares.

Operating Leases

The
Company generally operates its restaurants in leased premises. The Company records the minimum base rents for its operating leases using the straight-line method over the life of the lease term, including option periods which are reasonably assured
of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term commences on the date the lessee obtains control of the property, which is normally when the property is ready for normal
tenant improvements (build-out period). For certain leases the Company only has the right to exercise its option for renewal if certain sales targets are achieved at or near the renewal date. These renewal option periods have been included in the
lease term when the Company determines at lease inception or at the acquisition date of the restaurant, if later, that the sales targets are nonsubstantive and achievement of such sales targets is virtually certain. The difference between rent
expense calculated using the straight-line method and minimum rent paid is recorded as a deferred rent liability. The Company receives certain tenant improvement allowances, which are considered lease incentives and are amortized as reduction of
rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability for the straightlining of rents and lease incentives, which is included in other long-term liabilities, of $12.3 million and $15.2 million as of
March 26, 2005 and April 1, 2006, respectively.



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|4. | Recent Accounting Pronouncements
|-- | --------------------------------

In October 2005, the FASB issued
FASB Staff Position No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (FSP 13-1). FSP 13-1 requires rental costs associated with ground or building operating leases incurred during a construction
period to be recognized as rental expense. FSP 13-1 is effective for reporting periods beginning after December 15, 2005. Retroactive application is permitted, but not required. The Company adopted of this standard as of January 1, 2006.
The adoption of this standard has not had a material effect on the Companys financial position or results of operations.

In May 2005, the FASB
issued SFAS No. 154, Accounting Changes and Error Correctionsa Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154), which requires retrospective application to prior
periods financial statements of every voluntary change in accounting principle unless it is impracticable to do so. SFAS 154 is effective for accounting changes and corrections of errors beginning in fiscal 2006. The Company adopted this
standard as of January 1, 2006. The adoption of this standard has not had any effect on the Companys financial position or results of operations.



|5. | Long-Term Debt and Standby Letters of Credit
|-- | --------------------------------------------

The Company has a
$50.0 million revolving credit facility under which borrowings are collateralized by a first priority security interest in all of the Companys assets and matures on July 23, 2009. As of April 1, 2006, there was no outstanding
balance on the credit facility. The interest rate on the credit facility is based on the financial institutions prime rate plus a margin of 0.25% to 0.75% or the Eurodollar rate plus a margin of 1.75% to 2.25%, with margins determined by
certain financial ratios.

The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the
normal course of business operations. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods and
services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of April 1,
2006 and December 31, 2005 the maximum exposure under these standby letters of credit was $1.5 million, and there were no amounts drawn upon these letters of credit. At April 1, 2006, the Company had $48.5 million available under its
revolving credit facility.

Under the revolving credit facility agreement, the Company is subject to certain financial and non-financial covenants,
including an adjusted leverage ratio, a consolidated cash flow ratio, and a growth capital expenditures limitation. The Company was in compliance with these covenants as of April 1, 2006.



|6. | Share-Based Compensation
|-- | ------------------------

On June 16, 2004, the Company
adopted its 2004 Stock Incentive Plan (the Plan) under which 1,500,000 shares were reserved for issuance. Under the Plan, the Company may grant stock options and other awards to employees, directors, and consultants of the Company and of
any parent or subsidiary of the Company. On July 20, 2004, the Company issued to officers and employees options to purchase an aggregate of 879,600 shares of common stock at $12.00 per share. These options become exercisable over a three-year
period and are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. The Company issues new shares upon exercise of stock options. Additional awards granted under the Plan may be in the form of
nonqualified stock options, incentive stock options, stock appreciation rights (SARs), restricted stock, stock bonuses and performance-based awards.

Incentive stock options must have an exercise price that is at least equal to the fair market value of the common stock, or 110% of fair market value of the common stock for any greater than 10% owner of the Companys common stock, on
the date of grant. Vesting of awards under the Plan may vary. Each award granted under the Plan may, at the discretion of the board of directors of the Company, become fully exercisable or payable, as applicable, upon a change of control of the
Company.

Each award expires on the date determined at the date of grant; however, the maximum term of options, SARs and other rights to acquire common
stock under the Plan is 10 years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. These and other awards may also be issued solely or in part for services. Any shares subject to
awards that are not paid or exercised before they expire or are terminated will become available for other award grants under the Plan. If not sooner terminated by the Companys board of directors, the Plan will terminate on June 16, 2014.
As of April 1, 2006, options to acquire a total of 879,600 shares of the Companys common stock have been granted under the Plan at a price equal to $12.00.



9



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##### Table of Contents

The table below summarizes the status of the Companys share-based compensation plan as of
April 1, 2006:



|                                     |  |         |  |                                |       |                         |   |           
|------------------------------------ |  | ------- |  | ------------------------------ | ----- | ----------------------- | - | ----------
|                                     |  | Shares  |  | Weighted AverageExercise Price |       | AggregateIntrinsicValue
|Outstanding at July 17, 2004         |  |        |  | $                              |      |                         |   |           
|Awards granted                       |  | 879,600 |  |                                | 12.00 |                         |   |           
|Awards forfeited                     |  | 9,100   |  |                                | 12.00 |                         |   |           
|                                     |  |         |  |                                |       |                         |   |           
|Outstanding at December 25, 2004     |  | 870,500 |  |                                | 12.00 |                         |   |           
|                                     |  |         |  |                                |       |                         |   |           
|Awards granted                       |  |        |  |                                |       |                         |   |           
|Awards exercised                     |  | 16,856  |  |                                | 12.00 |                         |   |           
|Awards forfeited                     |  | 20,798  |  |                                | 12.00 |                         |   |           
|                                     |  |         |  |                                |       |                         |   |           
|Outstanding at December 31, 2005     |  | 832,846 |  |                                | 12.00 |                         |   |           
|                                     |  |         |  |                                |       |                         |   |           
|Awards granted                       |  |        |  |                                |       |                         | $ | 326,736   
|Awards exercised                     |  | 29,637  |  |                                | 12.00 |                         |   |           
|Awards forfeited                     |  | 2,600   |  |                                | 12.00 |                         |   |           
|                                     |  |         |  |                                |       |                         |   |           
|Outstanding at April 1, 2006         |  | 800,609 |  |                                | 12.00 |                         | $ | 10,784,203
|                                     |  |         |  |                                |       |                         |   |           
|Options exercisable at April 1, 2006 |  | 236,804 |  |                                | 12.00 |                         | $ | 3,189,750 

The table below summarizes information about stock options outstanding at April 1, 2006:



|                         |  |                   |  |                                                    |  |                                |  |                   |  |                               
|------------------------ |  | ----------------- |  | -------------------------------------------------- |  | ------------------------------ |  | ----------------- |  | ------------------------------
|Outstanding              |  | Exercisable      
|Range of Exercise Prices |  | Number of Options |  | Weighted AverageRemaining Yearsof Contractual
Life |  | Weighted AverageExercise price |  | Number of Options |  | Weighted AverageExercise price
|$12.00                   |  | 800,609           |  | 8.3                                                |  | $12.00                         |  | 236,804           |  | $12.00                        

Share-based compensation expense recognized under SFAS 123R for the thirteen week period ended
April 1, 2006 was $227,000, which consisted of share-based compensation expense related to employee stock options. There was no share-based compensation expense recognized related to stock awards during the thirteen week period ended
March 26, 2005. As of April 1, 2006, the total unamortized compensation cost related to stock options granted to employees under the Companys stock option plan was $1.1 million.



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##### Table of Contents

The following table summarizes share-based compensation expense related to employee stock options under
SFAS 123R for the thirteen weeks ended March 26, 2005 and April 1, 2006 (in thousands):



|                                                                               |  |                            |   |              |   |    
|------------------------------------------------------------------------------ |  | -------------------------- | - | ------------ | - | ---
|                                                                               |  | Thirteen week period ended
|                                                                               |  | March 26,2005              |   | April 1,2006
|Restaurant operating costs                                                     |  |                            |   |              |   |    
|Food and beverage                                                              |  | $                          |  |              | $ |   
|Labor                                                                          |  |                            |  |              |   | 19 
|Operating                                                                      |  |                            |  |              |   |   
|Occupancy                                                                      |  |                            |  |              |   |   
|                                                                               |  |                            |   |              |   |    
|Share-based compensation expense included in restaurant operating costs        |  |                            |  |              |   | 19 
|General and administrative expenses                                            |  |                            |  |              |   | 208
|Restaurant pre-opening costs                                                   |  |                            |  |              |   |   
|Depreciation and amortization                                                  |  |                            |  |              |   |   
|                                                                               |  |                            |   |              |   |    
|Share-based compensation expense included in total costs and expenses          |  |                            |  |              |   | 227
|                                                                               |  |                            |   |              |   |    
|Income tax benefit related to share-based compensation                         |  |                            |  |              |   | 31 
|                                                                               |  |                            |   |              |   |    
|Share-based compensation expense related to employee stock options, net of tax |  | $                          |  |              | $ | 196
|                                                                               |  |                            |   |              |   |    



|7. | Related Party Transactions
|-- | --------------------------

The Company leases properties from
landlords controlled by certain stockholders of the Company. Total rent paid to these landlords was $0.2 million for each of the thirteen week periods ended April 1, 2006 and March 26, 2005.



|8. | Commitments and Contingencies
|-- | -----------------------------

The Company is subject to various
claims, possible legal actions, and other matters arising out of the normal course of business. While it is not possible to predict the outcome of these issues, management is of the opinion that adequate provision for potential losses has been
made in the accompanying 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.



|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 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 31, 2005 contained in our 2005 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 and the adequacy of anticipated sources of cash to
fund our future capital requirements. Our actual results may differ materially from those discussed in the forward-looking statements. Words such as believes, anticipates, expects, intends,
plans and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

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

Overview

Our Company was founded in 1972 with William P. McCormicks acquisition of Jakes Famous Crawfish in Portland, Oregon. We grew our family of restaurants slowly
through the next two decades and in 1994, when we owned 14 restaurants, a majority interest in our Company was purchased by Castle Harlan Partners II, L.P., a private investment firm. Avado Brands purchased us in 1997. We operated as a division of
Avado Brands and added 18 new restaurants in just under four and a half years. In August 2001, Avado Brands sold our Company to Castle Harlan Partners III, L.P. and Bruckmann, Rosser, Sherrill & Co. II, L.P., private equity investment
firms that actively invest in restaurant companies. We have expanded our restaurant base to 61 restaurants as of April 1, 2006, including two restaurants operated pursuant to management contracts.

We have grown our business by offering our customers a daily-printed menu 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.



11



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##### Table of Contents

We measure performance using key operating indicators such as comparable restaurant sales, food and beverage costs, labor
costs, restaurant operating expenses, and total occupancy costs, with a focus on these costs and expenses as a percentage of revenues. For purposes of comparable restaurant sales, a restaurant is included in the comparable restaurant base in the
first full quarter following the eighteenth month of operations. 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 operating 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. 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 to $0.4 million per restaurant
opening, which may include up to $0.1 million in non-cash rent expense during the construction period.

The 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 at least once daily in most of our restaurants, 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. With respect to labor costs, we believe
the combination of future growth in revenues and the resulting greater leverage of our vice presidents of operations and regional managers will allow us to better leverage payroll expenses over time. Our employee benefits include health insurance,
the cost of which continues to increase faster than the general rate of inflation. We continually monitor this cost and review strategies to effectively control increases.

General and administrative expenses are controlled in absolute amounts and monitored as a percentage of revenues. As we have continued our growth, we have incurred substantial training costs and made significant
investments in infrastructure, including our information systems. As we continue to grow and are able to leverage investments made in our people and systems, we expect these expenses to decrease as a percentage of revenues over time.

Identification of appropriate new restaurant sites is essential to our growth strategy. We evaluate and invest in new restaurants based on site-specific projected
returns on investment. We believe our store model and flexible real estate strategy provide us with continued opportunities to find attractive real estate locations on favorable terms.

Strategic Focus and Operating Outlook

Our primary business focus for over 34 years has been to consistently offer a
broad selection of high quality, fresh seafood, which we believe commands strong loyalty from our customers. We have successfully expanded our McCormick & Schmicks Seafood Restaurant concept throughout the United States and have
competed effectively with national and regional restaurant chains and with local restaurant operators.

Our objective is to continue to prudently grow
McCormick & Schmicks seafood restaurants in existing and new markets. Our 2006 plan includes opening eight new restaurants, two of which were opened as of April 1, 2006. In addition to new unit growth, we are committed to
improving comparable restaurant sales and operating margins over the levels achieved in 2005.

Financial Performance Overview

The following are highlights of our financial performance for the thirteen week period ended April 1, 2006 compared to the thirteen week period ended March 26,
2005:



| |  |  | Comparable restaurant sales increased 4.1% compared to an increase of 1.2%.
| | - |  | ---------------------------------------------------------------------------



| |  |  | Revenues increased $11.2 million, to $71.6 million, compared to revenues of $60.4 million. The increase was primarily due to a comparable restaurant sales increase of 4.1% coupled
with revenues generated by the restaurants not included in the comparable base.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net income increased $0.7 million, to $2.3 million, compared to net income of $1.6 million, primarily due to an operating income increase of $0.8 million driven by an increase in
revenues of $11.2 million, and improved labor, operating and occupancy costs as a percentage of revenues. These amounts were offset by an increase in depreciation and amortization of $0.4 million, and pre-opening costs of $0.2 million due to the
increased number of restaurant openings or restaurants under construction in the thirteen week period ended April 1, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Thirteen
Week Period Ended March 26, 2005 Compared to Thirteen Week Period Ended April 1, 2006

The following table sets forth our operating results
and our operating results expressed as a percentage of revenues for the thirteen week periods ended March 26, 2005 and April 1, 2006.



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##### Table of Contents

|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|----------------------------------- |  | -------------------------- | ------ |  | ------------- | - |  | - | ------ | - |  | ----- | -
|                                    |  | Thirteen week period ended |       
|                                    |  | March 26, 2005             |        |  | April 1, 2006 |  
|                                    |  | (in thousands)             |       
|Revenues                            |  | $                          | 60,385 |  | 100.0         | % |  | $ | 71,606 |   |  | 100.0 | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Restaurant operating costs          |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Food and beverage                   |  |                            | 17,760 |  | 29.4          | % |  |   | 21,022 |   |  | 29.4  | %
|Labor                               |  |                            | 19,356 |  | 32.1          | % |  |   | 22,736 |   |  | 31.8  | %
|Operating                           |  |                            | 9,017  |  | 14.9          | % |  |   | 10,486 |   |  | 14.6  | %
|Occupancy                           |  |                            | 5,605  |  | 9.3           | % |  |   | 6,591  |   |  | 9.2   | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Total restaurant operating costs    |  |                            | 51,738 |  | 85.7          | % |  |   | 60,835 |   |  | 85.0  | %
|General and administrative expenses |  |                            | 3,342  |  | 5.5           | % |  |   | 3,971  |   |  | 5.5   | %
|Restaurant pre-opening costs        |  |                            | 529    |  | 0.9           | % |  |   | 763    |   |  | 1.1   | %
|Depreciation and amortization       |  |                            | 2,232  |  | 3.7           | % |  |   | 2,659  |   |  | 3.7   | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Total costs and expenses            |  |                            | 57,841 |  | 95.8          | % |  |   | 68,228 |   |  | 95.3  | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Operating income                    |  |                            | 2,544  |  | 4.2           | % |  |   | 3,378  |   |  | 4.7   | %
|Interest expense (income), net      |  |                            | 156    |  | 0.3           | % |  |   | (3     | ) |  |      | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Income before income taxes          |  |                            | 2,388  |  | 3.9           | % |  |   | 3,381  |   |  | 4.7   | %
|Income tax expense                  |  |                            | 741    |  | 1.2           | % |  |   | 1,075  |   |  | 1.5   | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  
|Net income                          |  | $                          | 1,647  |  | 2.7           | % |  | $ | 2,306  |   |  | 3.2   | %
|                                    |  |                            |        |  |               |   |  |   |        |   |  |       |  

Revenues and Restaurant Operating Costs

The following table sets forth revenues and restaurant operating costs, including food and beverage, labor, operating and occupancy costs from our unaudited consolidated
statements of income.



|                                 |  |                            |        |                |   |        |  |   |        |  |      |  
|-------------------------------- |  | -------------------------- | ------ | -------------- | - | ------ |  | - | ------ |  | ---- | -
|                                 |  | Thirteen week period ended |        | Change         |  
|                                 |  | March 26,2005              |        | April 1,2006   |   | $      |  | % |       
|                                 |  |                            |        | (in thousands) |   |        |  |   |       
|Revenues                         |  | $                          | 60,385 |                | $ | 71,606 |  | $ | 11,221 |  | 18.6 | %
|                                 |  |                            |        |                |   |        |  |   |        |  |      |  
|Restaurant operating costs       |  |                            |        |                |   |        |  |   |        |  |      |  
|Food and beverage                |  | $                          | 17,760 |                | $ | 21,022 |  | $ | 3,262  |  | 18.4 | %
|Labor                            |  |                            | 19,356 |                |   | 22,736 |  |   | 3,380  |  | 17.5 | %
|Operating                        |  |                            | 9,017  |                |   | 10,486 |  |   | 1,469  |  | 16.3 | %
|Occupancy                        |  |                            | 5,605  |                |   | 6,591  |  |   | 986    |  | 17.6 | %
|                                 |  |                            |        |                |   |        |  |   |        |  |      |  
|Total restaurant operating costs |  | $                          | 51,738 |                | $ | 60,835 |  | $ | 9,097  |  | 17.6 | %
|                                 |  |                            |        |                |   |        |  |   |        |  |      |  

Revenues. Revenues increased $11.2 million, or 18.6%, to $71.6 million in the thirteen week period
ended April 1, 2006 from $60.4 million in the thirteen week period ended March 26, 2005. This increase was primarily attributable to an increase in comparable restaurant sales of 4.1% coupled with revenues generated by the restaurants
not included in the comparable base. The comparable restaurant sales increase was primarily the result of increased guest counts.

Food and Beverage
Costs. Food and beverage costs increased $3.3 million, or 18.4%, to $21.0 million in the thirteen week period ended April 1, 2006 from $17.8 million in the thirteen week period ended March 26, 2005. This increase was primarily
attributable to the eight company-owned restaurants opened in the last forty weeks of 2005 and the first thirteen weeks of 2006. Food and beverage costs as a percentage of revenues was 29.4% in the thirteen week period ended April 1, 2006 and
March 26, 2005.

Labor Costs. Labor costs increased $3.4 million, or 17.5%, to $22.7 million in the thirteen week period ended
April 1, 2006, from $19.4 million in thirteen week period ended March 26, 2005. This increase was primarily attributable to the eight company-owned restaurants opened in the last forty weeks of 2005 and the first thirteen weeks of 2006.
Labor costs as a percentage of revenues decreased to 31.8 % in the thirteen week period ended April 1, 2006 from 32.1% in the thirteen week period ended March 26, 2005. The decrease in labor costs as a percentage of revenues was
primarily due to the leverage resulting from higher average weekly sales volumes in the thirteen week period ended April 1, 2006.

Operating
Costs. Operating costs increased $1.5 million, or 16.3%, to $10.5 million in the thirteen week period ended April 1, 2006 from $9.0 million in the thirteen week period ended March 26, 2005. This increase was primarily attributable
to the eight company-owned restaurants opened in the last forty weeks of 2005 and the first thirteen weeks of 2006. Operating costs as a percentage of



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##### Table of Contents

revenues decreased to 14.6% in the thirteen week period ended April 1, 2006 from 14.9% in the thirteen week period ended March 26, 2005 primarily
due to leverage resulting from higher average weekly sales volumes in the thirteen week period ended April 1, 2006.

Occupancy
Costs. Occupancy costs increased $1.0 million, or 17.6%, to $6.6 million in the thirteen week period ended April 1, 2006 from $5.6 million in the thirteen week period ended March 26, 2005, primarily due to the eight company-owned
restaurants opened in the last forty weeks of 2005 and the first thirteen weeks of 2006. Occupancy costs as a percentage of revenues decreased to 9.2% in the thirteen week period ended April 1, 2006 from 9.3% in the thirteen week period ended
March 26, 2005 primarily due to leverage resulting from higher average weekly sales volumes in the thirteen week period ended April 1, 2006.

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

The following table sets forth
general and administrative, restaurant pre-opening, and depreciation and amortization costs from our unaudited consolidated statements of income.



|                                    |  |                            |       |                |   |       |  |   |     |  |      |  
|----------------------------------- |  | -------------------------- | ----- | -------------- | - | ----- |  | - | --- |  | ---- | -
|                                    |  | Thirteen week period ended |       | Change         |  
|                                    |  | March 26,2005              |       | April 1, 2006  |   | $     |  | % |    
|                                    |  |                            |       | (in thousands) |   |       |  |   |    
|General and administrative expenses |  | $                          | 3,342 |                | $ | 3,971 |  | $ | 629 |  | 18.8 | %
|Restaurant pre-opening costs        |  |                            | 529   |                |   | 763   |  |   | 234 |  | 44.2 | %
|Depreciation and amortization       |  |                            | 2,232 |                |   | 2,659 |  |   | 427 |  | 19.1 | %

General and Administrative Expenses. General and administrative expenses increased $0.6 million, or
18.8%, to $4.0 million in the thirteen week period ended April 1, 2006 from $3.3 million in the thirteen week period ended March 26, 2005. General and administrative expenses as a percentage of revenues were 5.5% in both the thirteen week
period ended April 1, 2006 and March 26, 2005. The increase in general and administrative expenses was primarily due to the increase in the number of restaurants coupled with share-based compensation expenses of $0.2 million recognized as
a result of the adoption of SFAS 123R.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs increased $0.2 million, or 44.2%, to $0.8
million in the thirteen week period ended April 1, 2006 from $0.5 million in the thirteen week period ended March 26, 2005, primarily due to the increased number of restaurant openings and restaurants under construction in the thirteen
week period ended April 1, 2006 compared to the thirteen week period ended March 26, 2005.

Depreciation and
Amortization. Depreciation and amortization increased $0.4 million, or 19.1%, to $2.7 million in the thirteen week period ended April 1, 2006 from $2.2 million in the thirteen week period ended March 26, 2005. The increase was
primarily due to the addition of eight company-owned restaurants in the last forty weeks of 2005 and the first thirteen weeks of 2006.

Interest
Expense (Income), Income Tax Expense and Net Income

The following table sets forth interest expense (income), income tax expense and net income
from our unaudited consolidated statements of income.



|                               |  |                            |       |                |        |       |   |  |   |      |   |  |      |  
|------------------------------ |  | -------------------------- | ----- | -------------- | ------ | ----- | - |  | - | ---- | - |  | ---- | -
|                               |  | Thirteen week period ended |       |                | Change |      
|                               |  | March 26,2005              |       | April 1, 2006  |        |       | $ |  |   | %    |  
|                               |  |                            |       | (in thousands) |        |       |   |  |   |      |  
|Interest expense (income), net |  | $                          | 156   |                | $      | (3    | ) |  | $ | (159 | ) |  | NM   | *
|                               |  |                            |       |                |        |       |   |  |   |      |   |  |      |  
|Income before income taxes     |  | $                          | 2,388 |                | $      | 3,381 |   |  | $ | 993  |   |  | 41.6 | %
|Income tax expense             |  |                            | 741   |                |        | 1,075 |   |  |   | 334  |   |  | 45.1 | %
|                               |  |                            |       |                |        |       |   |  |   |      |   |  |      |  
|Net income                     |  | $                          | 1,647 |                | $      | 2,306 |   |  | $ | 659  |   |  | 40.0 | %
|                               |  |                            |       |                |        |       |   |  |   |      |   |  |      |  



|* | Percentage is non-meaningful
|- | ----------------------------

Interest Expense (Income),
Net. Interest income was $3,000 in the thirteen week period ended April 1, 2006 compared to interest expense of $156,000 in the thirteen week period ended March 26, 2005. This was primarily due to the paydown of our revolving
credit facility in December 2005, and cash provided by operating activities coupled with interest income on our investment cash.



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##### Table of Contents

Income Tax Expense. Income tax expense was $1.1 million in the thirteen week period ended April 1, 2006,
which reflects an estimated effective annualized tax rate of approximately 31.8%. In the thirteen week period ended March 26, 2005, income tax expense was $0.7 million, which reflects an estimated effective annualized tax rate of 31.0%.

Net Income.Net income increased $0.7 million to $2.3 million compared to net income of $1.6 million in the thirteen week period ended
March 26, 2005, primarily due to an operating income increase of $0.8 million driven by an increase in revenues of $11.2 million, and improved labor, operating and occupancy costs as a percentage of revenues. These amounts were offset by
increases in depreciation and amortization expense of $0.4 million, and pre-opening costs of $0.2 million

Liquidity and Capital
Resources

Our primary cash needs have been for new restaurant construction, working capital and general corporate purposes, including payments under
credit facilities. Our main sources of cash have been issuance of common stock, net cash provided by operating activities and borrowings under credit facilities.

The following table summarizes our sources and uses of cash and cash equivalents from our unaudited consolidated statements of cash flows:



|                                                     |  |                            |        |   |              |   |        |  
|---------------------------------------------------- |  | -------------------------- | ------ | - | ------------ | - | ------ | -
|                                                     |  | Thirteen week period ended |       
|                                                     |  | March 26,2005              |        |   | April 1,2006 |  
|                                                     |  | (in thousands)             |       
|Net cash provided by operating activities            |  | $                          | 3,576  |   |              | $ | 5,584  |  
|Net cash used in investing activities                |  |                            | (5,383 | ) |              |   | (6,528 | )
|Net cash provided by financing activities            |  |                            | 1,963  |   |              |   | 267    |  
|                                                     |  |                            |        |   |              |   |        |  
|Net increase (decrease) in cash and cash equivalents |  | $                          | 156    |   |              | $ | (677   | )
|                                                     |  |                            |        |   |              |   |        |  

Net cash provided by operating activities was $5.6 million in the thirteen week period ended April 1, 2006
compared to $3.6 million in the thirteen week period ended March 26, 2005. The increase in net cash provided by operating activities was primarily due to an increase in the change in tenant improvement allowance receivables of $2.5 million and
an increase in net income of $0.7 million.

Net cash used in investing activities was $6.5 million in the thirteen week period ended April 1, 2006
compared to $5.4 million in the thirteen week period ended March 26, 2005. We use cash for tenant improvements and equipment to open new restaurants and to upgrade and add capacity to existing restaurants. Net cash used in investing activities
varied in the periods presented based on the number of new restaurants opened and the expansion of existing restaurant capacity during the period. We opened two restaurants in the thirteen week period ended April 1, 2006 and we opened one
restaurant in the thirteen week period ended March 26, 2005. Purchases of property and equipment also include purchases of information technology systems and expenditures relating to our corporate headquarters.

Net cash provided by financing activities was $0.3 million in the thirteen week period ended April 1, 2006. The net cash provided by financing activities was
primarily a result of proceeds from stock options exercised of $0.4 million, partially offset by payments made on capital lease obligations of $0.1 million. Net cash provided by financing activities was $2.0 million in the thirteen week period ended
March 26, 2005. The net cash provided by financing activities was primarily a result of net borrowings on our credit facility of $2.5 million.

As of
April 1, 2006, we had no borrowings on our $50.0 million revolving credit facility. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business
operations. As of April 1, 2006, the maximum exposure under these standby letters of credit was $1.5 million. As of April 1, 2006, there were no amounts drawn upon these letters of credit and we had $48.5 million available under our
revolving credit facility.

Under our revolving credit facility, we are subject to certain financial and non-financial covenants, including an adjusted
leverage ratio, a consolidated cash flow ratio and growth capital expenditures limitation. We were in compliance with these covenants as of April 1, 2006.

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,
pre-opening costs and potential initial operating losses related to new restaurant openings, for at least the next 12 months.

Critical Accounting
Policies and Use of Estimates

Our significant accounting policies are those that we believe are both important to the portrayal of our financial
condition and results



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

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost less accumulated depreciation and
amortization. Equipment consists primarily of restaurant equipment, furniture, fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term as defined in Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases (SFAS 13), as amended, or the
estimated useful life of the asset. As discussed in SFAS 13, the lease term includes any period covered by a renewal option where the renewal is reasonably assured because failure to renew the lease would impose an economic penalty to the lessee.
Repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Estimated useful lives are generally as follows: equipment3 to 10 years; furniture and fixtures5 to 10 years and leasehold
improvements7 to 30 years. Judgments and estimates made by us related to the expected useful lives of these assets are affected by factors such as changes in economic conditions and changes in operating performance. If these assumptions change
in the future, we may be required to record impairment charges for these assets.

Impairment of Long-Lived Assets

We review property and equipment (which includes leasehold improvements) for impairment when events or circumstances indicate these assets might be impaired. We test
impairment using historical cash flow and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. The analysis is performed at the restaurant level for indicators of permanent impairment. In determining
future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term. If assets are determined to be impaired, the impairment charge is measured by calculating the amount
by which the asset-carrying amount exceeds its fair value. The determination of asset fair value is also subject to significant judgment. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If
these assumptions change in the future, we may be required to record impairment charges for these assets.

Goodwill and Other Indefinite Lived Assets

Goodwill and other intangible assets with indefinite lives are not subject to amortization. However, such assets must be tested for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and at least annually. In assessing the recoverability of goodwill and other indefinite lived assets, market values and projections regarding
estimated future cash flows and other factors are used to determine the fair value of the respective assets. The estimated future cash flows were projected using significant assumptions, including future revenues and expenses. If these estimates or
related projections change in the future, we may be required to record impairment charges for these assets.

Insurance Liability

We maintain various insurance policies for workers compensation, employee health, general liability, and property damage. Pursuant to those policies, we are
responsible for losses up to certain limits and are required to estimate a liability that represents our ultimate exposure for aggregate losses below those limits. This liability is based on managements estimates of the ultimate costs to be
incurred to settle known claims and claims not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic
conditions. If actual trends differ from our estimates, our financial results could be impacted.

Income Taxes

We have accounted for, and currently account for, income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. This Statement establishes
financial accounting and reporting standards for the effects of income taxes that result from an enterprises activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting
of income taxes. We recognize deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. In the event the future consequences of differences between
financial reporting bases and tax bases of our assets and liabilities result in a net deferred tax asset, an evaluation is made of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to
a deferred tax asset is recorded when it is more likely than not that some portion of or all deferred tax asset will not be realized. The realization of such net deferred tax asset will generally depend on whether we will have sufficient taxable
income of an appropriate character within the carryforward period permitted by the tax law. Without sufficient taxable income to offset the deductible amounts and carryforwards, the related tax



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benefits will expire unused. We have evaluated both positive and negative evidence in making a determination as to whether it is more likely than not that
all or some portion of the deferred tax asset will not be realized. Measurement of deferred items is based on enacted tax laws. No deferred tax asset valuation allowance has been recorded as of April 1, 2006.

Operating Leases

Rent expense for our operating leases, which
generally have escalating rentals over the term of the lease, is recorded using the straight-line method over the lease term as defined in SFAS No. 13. The lease term is determined to commence on the date which is normally when the property is
ready for normal tenant improvements (build-out period), when no rent payments are typically due under the terms of the lease. The difference between rent expense using the straight-line method and minimum rent paid is recorded as a deferred rent
liability and is included in the consolidated balance sheets.

Share-Based Compensation

We account for share-based compensation in accordance with the fair value recognition provisions of SFAS 123R. We adopted SFAS 123R using the modified
prospective transition method as of January 1, 2006, the first day of our fiscal year 2006. Under SFAS 123R, we determined the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model. The model is
affected by the Companys stock price as well as the Companys assumptions regarding a number of complex and subjective variables, including but not limited to the Companys expected stock price volatility over the term of the awards,
option life of the option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield.



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

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

Under
our revolving credit facility, we are exposed to market risk from changes in interest rates on borrowings, which bear interest at the financial institutions prime rate plus a margin of 0.25% to 0.75% or the Eurodollar rate plus a margin of
1.75% to 2.25%, with margins determined by certain financial ratios. At our option, we may convert loans under our revolving credit facility from one type of rate to the other. As of April 1, 2006, we had no outstanding borrowings. Loans under
our revolving credit facility mature on July 23, 2009.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Disclosure Controls and
Procedures.Our management has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of
the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely
manner, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

Occasionally, we are a defendant in litigation
arising in the ordinary course of our business, including claims resulting from slip and fall accidents, employment related claims and claims from guests or employees alleging illness, injury or other food quality, health or operational
concerns. None of these types of litigation, most of which are covered by insurance, has had a material effect on our business, results of operations, financial position or cash flows.



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

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 customers 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. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, claims may be expensive to defend and may divert time and money away from our
operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially adversely affect our financial condition or results of operations, and adverse publicity resulting from these
allegations may materially adversely affect our business. We may incur substantial damages and expenses resulting from lawsuits, which could have a material adverse effect on our business.

Our 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 lease terms;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | 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.

Unexpected expenses and 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 customers 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. As a result, we may
incur costs related to the opening, operation and promotion of these new



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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 customers 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 seven company-owned restaurants in 2005 and we plan to open eight in 2006 and ten in 2007. Our expansion and 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.

Our ability to raise capital in the future may be
limited, which could adversely impact our growth.

Changes in our operating plans, acceleration of our expansion plans, lower than anticipated
sales, increased expenses or other events described in this section may require us to seek additional debt or equity financing. Financing may not be available on acceptable terms and our failure to raise capital when needed could negatively impact
our growth and our financial condition and results of operations. Additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve significant cash payment obligations and covenants that
restrict our ability to operate our business.

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 seafood costs. We rely on
local, regional and national suppliers to provide our seafood. 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 is more volatile than other types of food. The type, variety, quality and price of seafood is 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. Changes in the price or availability of certain types of seafood could affect our ability to offer a broad
menu and price offering to customers and could materially adversely affect our profitability.

Our operating results may fluctuate significantly and
could fall below the expectations of securities analysts and investors due to seasonality and other factors, resulting in a decline 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 in the future;
| | - |  | -------------------------------------------



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



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| |  |  | fluctuations in the number of visitors or business travelers to downtown locations;
| | - |  | -----------------------------------------------------------------------------------



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



| |  |  | economic trends generally.
| | - |  | --------------------------

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 also fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

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

Many of our restaurants are located in downtown areas. We depend on both local residents and business travelers to frequent these locations. If the number of visitors to downtown areas 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 management personnel, including Saed Mohseni, our chief executive officer, and Douglas L. Schmick, our president. 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.

We operate five restaurants in the Seattle, Washington area, seven in the Portland, Oregon area and ten in California; our East Coast
restaurants are concentrated in and around Washington, D.C. 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, M&S Grill and other of our service marks are federally registered trademarks with the United States Patent and Trademark Office,
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 current 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.

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

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

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

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



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



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



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

Future acquisitions of existing restaurants, which may be accomplished through a cash purchase transaction or the issuance of our equity
securities, or a combination of both, could result in dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our
business and financial condition.

We may be unable to successfully integrate the operations, or realize the anticipated benefits, of any restaurant 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 customers alleging illness, injury or other food quality,
health or



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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 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.

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

The restaurant industry is characterized
by the introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and purchasing habits. Our continued success depends in part upon the popularity of seafood and the style of dining we offer. Shifts in consumer
preferences away from this cuisine or dining style could materially and adversely affect our operating results. Our success will depend in part on our ability to anticipate and respond to changing consumer preferences, tastes and purchasing habits,
and to other factors affecting the restaurant industry, including new market entrants and demographic changes. If we change our concept and menu to respond to changes in consumer tastes or dining patterns, we may lose customers who do not like the
new concept or menu, and may not be able to attract a sufficient new customer base to produce the revenue needed to make the restaurant profitable. Our success also depends to a significant extent on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and consumer confidence. 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 California, where we operate 10 restaurants, 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.



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Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws
include minimum wage requirements, overtime pay, unemployment tax rates, workers compensation rates, and citizenship requirements. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated
health benefits, increased tax reporting and tax payment requirements for employees who receive gratuities or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could harm our operating results and
financial condition.

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

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

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

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

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

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

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



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

None



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

None



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None



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

None



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

EXHIBITS.



|     |  |                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of the Company, 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  |  | Bylaws of the Company, as amended (incorporated by reference to Exhibits 3.2 and 3.2a to our Registration Statement on Form S-1, File No. 333-114977).                                                                                                                                                                              
|     | 
|4.1  |  | Registration Rights Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan
Partners III, L.P. and certain other parties thereto (incorporated by reference to Exhibit 4.2 to our registration statement on Form S-1, file No. 333-114977).
|     | 
|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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##### Table of Contents

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/ SAED MOHSENISaed MohseniChief Executive Officer(principal executive officer)By:

/s/ EMANUEL N. HILARIOEmanuel N. HilarioChief Financial Officer(principal financial and accounting officer)


Date: May 9, 2006



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##### Table of Contents

EXHIBITS.

|     |  |                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Certificate of Incorporation of the Company, 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  |  | Bylaws of the Company, as amended (incorporated by reference to Exhibits 3.2 and 3.2a to our Registration Statement on Form S-1, File No. 333-114977).                                                                                                                                                                              
|     | 
|4.1  |  | Registration Rights Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan
Partners III, L.P. and certain other parties thereto (incorporated by reference to Exhibit 4.2 to our registration statement on Form S-1, file No. 333-114977).
|     | 
|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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