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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A

Amendment No. 1







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

For the quarterly period ended September 26, 2009

OR



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

For the transition period from              to

Commission File Number 000-50845





McCormick & Schmicks Seafood Restaurants, Inc.

(Exact name of registrant as specified in its charter)







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

(503)
226-3440

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



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

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

There were 14,821,686 shares of common stock outstanding as of October 30, 2009.









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EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended September 26, 2009 to restate our
unaudited condensed consolidated financial statements as of and for the thirteen and thirty-nine week periods ended September 26, 2009 (the Restated Periods).

In preparing our condensed consolidated financial statements for the quarter ended June 26, 2010, we identified an error in our accounting for
discounted gift cards. We sell a portion of our gift cards at a discount to certain wholesale retailers and recognize revenue based on the discounted amount when the gift card is redeemed or when we determine the likelihood of redemption is remote
(breakage). Since we began selling discounted gift cards, we have not accounted for discounted gift card breakage properly. We erroneously recognized gift card breakage revenues related to the discounted cards at the full face value of the card,
rather than at the discounted amount. This error is only material for those periods that are being restated. The error resulted in revenues being overstated for the thirteen and thirty-nine week periods ended September 26, 2009 and the thirteen
week period and fiscal year ended December 26, 2009 by the amount of the discount. The error also affected the income tax expense (benefit), net income (loss) and net income (loss) per share for these periods as well as certain balance sheet
accounts as of September 26, 2009 and December 26, 2009. The error did not affect cash or previously reported total cash flows from operating, investing or financing activities.

In addition to the restated unaudited condensed consolidated financial information for the Restated Periods, this Quarterly Report on Form 10-Q/A also
contains revised financial discussion and analysis regarding the Restated Periods. This revised disclosure is contained in Part I - Item 1: Note 13 - Restatement  Gift Card Revenue Accounting, Item 2: Managements
Discussion and Analysis of Financial Condition and Results of Operations, Item 4: Controls and Procedures - Restated and Part II - Item 6: Exhibits.

Contemporaneously with the filing of this Form 10-Q/A, we are also filing with the Securities and Exchange Commission an amendment to our Annual Report
on Form 10-K for the year ended December 26, 2009.

In accordance with SEC regulations, new certifications of the Companys Chief
Executive Officer and Chief Financial Officer were executed in connection with this Amendment and have been filed as exhibits to this Amendment.

This Form 10-Q/A is as of the original filing date of the Form 10-Q and does not reflect events other than the restatement disclosed in Note 13 of the
Notes to Condensed Consolidated Financial Statements that may have occurred subsequent to the original filing date, and does not modify or update any other disclosures made in the Form 10-Q.



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MCCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.

INDEX TO FORM 10-Q/A



|                               |  |                                                                                                                                                   |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                                                   |  | Page
|PART I - FINANCIAL INFORMATION |  |                                                                                                                                                  
|                               |  |                                                                                                                                                  
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                                                  |  |     
|                               |  |                                                                                                                                                  
|                               |  | Condensed Consolidated Balance Sheets  December 27, 2008 and September 26, 2009 (as restated)                                                    |  | 2   
|                               |  |                                                                                                                                                  
|                               |  | Condensed Consolidated Statements of Income  Thirteen and Thirty-Nine Week Periods Ended September 27, 2008 and September 26, 2009 (as restated) |  | 3   
|                               |  |                                                                                                                                                  
|                               |  | Condensed Consolidated Statements of Cash Flows  Thirty-Nine Week Periods Ended September 27, 2008 and September 26, 2009 (as restated)          |  | 4   
|                               |  |                                                                                                                                                  
|                               |  | Notes to Condensed Consolidated Financial Statements (as restated)                                                                                |  | 5   
|                               |  |                                                                                                                                                  
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (as restated)                                               |  | 13  
|                               |  |                                                                                                                                                  
|Item 4.                        |  | Controls and Procedures (as restated)                                                                                                             |  | 25  
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                                  
|                               |  |                                                                                                                                                  
|Item 6.                        |  | Exhibits                                                                                                                                          |  | 27  
|                               |  |                                                                                                                                                  
|Signatures                     |  |                                                                                                                                                   |  | 28  



1



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##### Table of Contents

PART I - FINANCIAL INFORMATION



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

McCormick & Schmicks Seafood Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets -
Unaudited

(In thousands, except per share data)



|                                                                                                           |  |                  |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                           |  | December 27,2008 |         |   | September 26,2009 |  
|                                                                                                           |  |                  |         |   | Restated (1)      |  
|Assets                                                                                                     |  |                  |         |   |                   |   |         |  
|Current assets:                                                                                            |  |                  |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                  |  | $                | 4,428   |   |                   | $ | 4,974   |  
|Trade accounts receivable, net                                                                             |  |                  | 9,283   |   |                   |   | 7,441   |  
|Tenant improvement allowance receivables                                                                   |  |                  | 2,344   |   |                   |   | 55      |  
|Income tax receivable                                                                                      |  |                  | 3,789   |   |                   |   | 567     |  
|Inventories                                                                                                |  |                  | 6,028   |   |                   |   | 5,286   |  
|Prepaid expenses and other current assets                                                                  |  |                  | 2,690   |   |                   |   | 3,509   |  
|Deferred income taxes                                                                                      |  |                  | 97      |   |                   |   |        |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total current assets                                                                                       |  |                  | 28,659  |   |                   |   | 21,832  |  
|                                                                                                           |  |                 
|Property and equipment, net                                                                                |  |                  | 185,171 |   |                   |   | 178,741 |  
|Other assets                                                                                               |  |                  | 3,689   |   |                   |   | 3,661   |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total assets                                                                                               |  | $                | 217,519 |   |                   | $ | 204,234 |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                                                       |  |                  |         |   |                   |   |         |  
|Current liabilities:                                                                                       |  |                  |         |   |                   |   |         |  
|Accounts payable                                                                                           |  | $                | 18,919  |   |                   | $ | 15,484  |  
|Accrued expenses                                                                                           |  |                  | 31,361  |   |                   |   | 21,714  |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total current liabilities                                                                                  |  |                  | 50,280  |   |                   |   | 37,198  |  
|                                                                                                           |  |                 
|Revolving credit facility                                                                                  |  |                  | 24,000  |   |                   |   | 18,500  |  
|Deferred rent and other long-term liabilities                                                              |  |                  | 33,158  |   |                   |   | 35,671  |  
|Capital lease obligations                                                                                  |  |                  | 2,526   |   |                   |   | 2,895   |  
|Deferred income taxes                                                                                      |  |                  | 1,760   |   |                   |   | 1,598   |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total liabilities                                                                                          |  |                  | 111,724 |   |                   |   | 95,862  |  
|                                                                                                           |  |                 
|Commitments and contingencies (Note 10)                                                                    |  |                  |         |   |                   |   |         |  
|                                                                                                           |  |                 
|Stockholders equity:                                                                                      |  |                  |         |   |                   |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,721 and 14,785 shares issued and outstanding |  |                  | 15      |   |                   |   | 15      |  
|Additional paid-in-capital                                                                                 |  |                  | 148,030 |   |                   |   | 148,531 |  
|Accumulated other comprehensive loss                                                                       |  |                  | (1,675  | ) |                   |   | (653    | )
|Accumulated deficit                                                                                        |  |                  | (40,575 | ) |                   |   | (39,521 | )
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total stockholders equity                                                                                 |  |                  | 105,795 |   |                   |   | 108,372 |  
|                                                                                                           |  |                  |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                 |  | $                | 217,519 |   |                   | $ | 204,234 |  
|                                                                                                           |  |                  |         |   |                   |   |         |  



|(1) | See Note 13, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



2



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

Condensed Consolidated Statements of Operations - Unaudited

(In thousands, except per share data)



|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|----------------------------------------------------- |  | ---------------------------------- | ------ | - | ------------------------------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                      |  | For the Thirteen Week Period Ended |        |   | For the Thirty-Nine Week Period Ended |  
|                                                      |  | September 27,2008                  |        |   | September 26,2009                     |   |        | September 27,2008 |  |   | September 26,2009 |  
|                                                      |  |                                    |        |   | Restated (1)                          |   |        |                   |  |   | Restated (1)      |  
|Revenues                                              |  | $                                  | 99,897 |   |                                       | $ | 85,984 |                   |  | $ | 291,937           |   |  | $ | 270,620 |  
|Restaurant operating costs:                           |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Food and beverage                                     |  |                                    | 30,117 |   |                                       |   | 25,053 |                   |  |   | 88,226            |   |  |   | 80,267  |  
|Labor                                                 |  |                                    | 32,403 |   |                                       |   | 27,761 |                   |  |   | 94,895            |   |  |   | 88,518  |  
|Operating                                             |  |                                    | 15,674 |   |                                       |   | 13,131 |                   |  |   | 45,559            |   |  |   | 41,629  |  
|Occupancy                                             |  |                                    | 9,263  |   |                                       |   | 9,200  |                   |  |   | 27,358            |   |  |   | 28,190  |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Total restaurant operating costs                      |  |                                    | 87,457 |   |                                       |   | 75,145 |                   |  |   | 256,038           |   |  |   | 238,604 |  
|                                                      |  |                                    |        |  
|General and administrative expenses                   |  |                                    | 5,169  |   |                                       |   | 4,826  |                   |  |   | 15,881            |   |  |   | 15,619  |  
|Restaurant pre-opening costs                          |  |                                    | 1,460  |   |                                       |   | 109    |                   |  |   | 3,335             |   |  |   | 750     |  
|Depreciation and amortization                         |  |                                    | 3,932  |   |                                       |   | 4,241  |                   |  |   | 10,978            |   |  |   | 12,614  |  
|Impairment, restructuring and other charges (Note 11) |  |                                    |       |   |                                       |   | 42     |                   |  |   | 452               |   |  |   | 594     |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Total costs and expenses                              |  |                                    | 98,018 |   |                                       |   | 84,363 |                   |  |   | 286,684           |   |  |   | 268,181 |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|                                                      |  |                                    |        |  
|Operating Income                                      |  |                                    | 1,879  |   |                                       |   | 1,621  |                   |  |   | 5,253             |   |  |   | 2,439   |  
|                                                      |  |                                    |        |  
|Interest expense, net                                 |  |                                    | 278    |   |                                       |   | 469    |                   |  |   | 694               |   |  |   | 1,316   |  
|Other income, net                                     |  |                                    | (50    | ) |                                       |   | (37    | )                 |  |   | (308              | ) |  |   | (10     | )
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Income before income taxes                            |  |                                    | 1,651  |   |                                       |   | 1,189  |                   |  |   | 4,867             |   |  |   | 1,133   |  
|Income tax expense                                    |  |                                    | 291    |   |                                       |   | 179    |                   |  |   | 1,032             |   |  |   | 78      |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Net income                                            |  | $                                  | 1,360  |   |                                       | $ | 1,010  |                   |  | $ | 3,835             |   |  | $ | 1,055   |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|                                                      |  |                                    |        |  
|Basic net income per share                            |  | $                                  | 0.09   |   |                                       | $ | 0.07   |                   |  | $ | 0.26              |   |  | $ | 0.07    |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|                                                      |  |                                    |        |  
|Diluted net income per share                          |  | $                                  | 0.09   |   |                                       | $ | 0.07   |                   |  | $ | 0.26              |   |  | $ | 0.07    |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|                                                      |  |                                    |        |  
|Shares used in per share calculations:                |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Basic                                                 |  |                                    | 14,716 |   |                                       |   | 14,785 |                   |  |   | 14,702            |   |  |   | 14,764  |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  
|Diluted                                               |  |                                    | 14,721 |   |                                       |   | 14,848 |                   |  |   | 14,705            |   |  |   | 14,780  |  
|                                                      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         |  



|(1) | See Note 13, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



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

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



|                                                                                  |  |                                       |         |   |                   |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ----------------- | - | -------- | -
|                                                                                  |  | For the Thirty-Nine Week Period Ended |        
|                                                                                  |  | September 27,2008                     |         |   | September 26,2009 |  
|                                                                                  |  |                                       |         |   | Restated (1)      |  
|Cash flows from operating activities:                                             |  |                                       |         |   |                   |   |          |  
|Net income                                                                        |  | $                                     | 3,835   |   |                   | $ | 1,055    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                       |         |   |                   |   |          |  
|Depreciation and amortization                                                     |  |                                       | 10,978  |   |                   |   | 12,614   |  
|Deferred income taxes                                                             |  |                                       | 886     |   |                   |   | 132      |  
|Share-based compensation                                                          |  |                                       | 829     |   |                   |   | 559      |  
|Impairment, restructuring and other charges                                       |  |                                       |        |   |                   |   | 277      |  
|Changes in operating assets and liabilities:                                      |  |                                       |         |   |                   |   |          |  
|Trade accounts receivable, net                                                    |  |                                       | 401     |   |                   |   | 1,880    |  
|Tenant improvement allowance receivables                                          |  |                                       | 2,929   |   |                   |   | 2,289    |  
|Income tax receivable                                                             |  |                                       | 1,527   |   |                   |   | 3,135    |  
|Inventories                                                                       |  |                                       | (318    | ) |                   |   | 770      |  
|Prepaid expenses and other current assets                                         |  |                                       | (1,660  | ) |                   |   | (810     | )
|Accounts payable                                                                  |  |                                       | (1,271  | ) |                   |   | (3,486   | )
|Accrued expenses                                                                  |  |                                       | (5,389  | ) |                   |   | (10,168  | )
|Other long-term liabilities                                                       |  |                                       | 2,029   |   |                   |   | 2,187    |  
|                                                                                  |  |                                       |         |   |                   |   |          |  
|Net cash provided by operating activities                                         |  |                                       | 14,776  |   |                   |   | 10,434   |  
|                                                                                  |  |                                      
|Cash flows from investing activities:                                             |  |                                       |         |   |                   |   |          |  
|Purchase of property and equipment                                                |  |                                       | (38,491 | ) |                   |   | (4,983   | )
|Additions to other assets                                                         |  |                                       | (367    | ) |                   |   | (185     | )
|                                                                                  |  |                                       |         |   |                   |   |          |  
|Net cash used in investing activities                                             |  |                                       | (38,858 | ) |                   |   | (5,168   | )
|                                                                                  |  |                                      
|Cash flows from financing activities:                                             |  |                                       |         |   |                   |   |          |  
|Borrowings made on revolving credit facility                                      |  |                                       | 106,000 |   |                   |   | 95,000   |  
|Payments made on revolving credit facility                                        |  |                                       | (91,500 | ) |                   |   | (100,500 | )
|Payments made on capital lease obligations                                        |  |                                       | (28     | ) |                   |   | (31      | )
|Deemed landlord financing proceeds (in the form of tenant improvement allowances) |  |                                       | 6,029   |   |                   |   | 675      |  
|Deemed landlord financing payments                                                |  |                                       | (50     | ) |                   |   | (179     | )
|Tax effect of share based compensation                                            |  |                                       | (69     | ) |                   |   |         |  
|Issuance of restricted stock                                                      |  |                                       |        |   |                   |   | 21       |  
|                                                                                  |  |                                       |         |   |                   |   |          |  
|Net cash provided by (used in) financing activities                               |  |                                       | 20,382  |   |                   |   | (5,014   | )
|                                                                                  |  |                                      
|Effect of exchange rate changes                                                   |  |                                       | (70     | ) |                   |   | 294      |  
|                                                                                  |  |                                       |         |   |                   |   |          |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                       | (3,770  | ) |                   |   | 546      |  
|                                                                                  |  |                                      
|Cash and cash equivalents:                                                        |  |                                       |         |   |                   |   |          |  
|Beginning of period                                                               |  |                                       | 7,343   |   |                   |   | 4,428    |  
|                                                                                  |  |                                       |         |   |                   |   |          |  
|End of period                                                                     |  | $                                     | 3,573   |   |                   | $ | 4,974    |  
|                                                                                  |  |                                       |         |   |                   |   |          |  
|                                                                                  |  |                                      
|Supplemental Cash Flow Information:                                               |  |                                       |         |   |                   |   |          |  
|Cash paid for interest                                                            |  | $                                     | 755     |   |                   | $ | 1,127    |  
|Cash (paid for) received from income taxes, net                                   |  | $                                     | (648    | ) |                   | $ | 3,049    |  



|(1) | See Note 13, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



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

Notes to Condensed Consolidated Financial Statements-Unaudited

1. The Business and Organization

McCormick and Schmicks Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining segment and, as
of September 26, 2009, operated 93 restaurants including 87 restaurants in 25 states throughout the United States, including one pursuant to a management agreement, and six restaurants under The Boathouse name in the greater Vancouver, British
Columbia area. The Company has aggregated its operations into one reportable segment.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(GAAP) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP in
the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Companys financial statements have been included. Operating results for the thirteen week
period ended September 26, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2009.

The condensed consolidated balance sheet at December 27, 2008 has been derived from the audited consolidated financial statements at that date, but
does not include all of the information and footnotes required by GAAP in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Companys
Annual Report on Form 10-K for the fiscal year ended December 27, 2008.

3. Summary of Significant Accounting Policies

Principles of Consolidation

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

Management Estimates

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

Revenue Recognition

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

Share-Based Compensation

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



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##### Table of Contents

Basic and Diluted Net Income per Share

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

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

Operating Leases

The Company generally operates its restaurants in leased premises. The Company records the minimum base rents for its operating leases
using the straight-line method over the life of the lease term, including option periods which are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term
commences on the date the 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 non-substantive and achievement of such sales targets is virtually certain. The difference between rent expense calculated using the straight-line method and rent paid is recorded as deferred rent liability.

The Company receives certain tenant improvement allowances which are considered lease incentives and are amortized over the life of the lease term as a
reduction of rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in deferred rent and
other long-term liabilities of $23.7 million and $25.6 million as of December 27, 2008 and September 26, 2009, respectively. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space and
the lease agreement for the amounts paid for structural components during the construction period are recorded as construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon
completion of construction for leases that meet the criteria and for those leases that do not qualify for sale leaseback treatment, the landlord financing liability is amortized under the effective interest rate method over the lease term based on
the rent payments designated in the lease agreement.

Foreign Currency

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



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4. Recent Accounting Pronouncements

In May 2009, the FASB issued ASC 855-10-25-01 (formally known as SFAS No. 165, Subsequent Events), to establish general standards of
accounting for disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard is effective for interim or annual financial periods ending after June 15, 2009.
The Company adopted ASC 855-10-25-01 (formally known as SFAS 165) effective with this interim report for the period ending September 26, 2009. The Company has performed an evaluation of subsequent events through November 4, 2009, which is
the issued date for the financial statements. No recognized or non-recognized subsequent events were noted.

In June 2009, FASB approved
the FASB Accounting Standards Codification (the Codification) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants,
Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (SEC), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not
included in the Codification has become non-authoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The
Codification is effective for interim or annual periods ending after September 15, 2009. There have been no changes to the content of the Companys financial statements or disclosures as a result of implementing the Codification during the
quarter ended September 26, 2009.

5. Long-Term Debt

As of September 26, 2009, the outstanding balance on the Companys revolving credit facility was $18.5 million. On January 29, 2009 the
revolving credit facility was amended. In conjunction with the amendment, the availability under the facility was reduced from $150.0 million to $90.0 million, with an additional $50.0 million available at the Companys request if specified
conditions are met. The amended facility also makes certain financial covenants less restrictive, including the minimum fixed charge ratio and the maximum adjusted leverage ratio covenants. The interest rate on U.S. borrowings is based on the
financial institutions base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin between 1.25% and 2.50%, with margins determined by certain financial ratios. The terms of the facility also allow the Company to
borrow up to $10.0 million in Canadian dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins
determined by certain financial ratios.

Under the revolving credit facility, the Company is required to comply with certain financial
covenants, including a maximum adjusted leverage ratio and a minimum fixed charge ratio. The Company was in compliance with these covenants as of September 26, 2009. As of September 26, 2009, the Companys effective interest rate on
its borrowings was 2.8%, which was calculated using the financial institutions calculated base rate of 0.3%.

Under the Companys
revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company and mature on December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of
credit arrangements in the normal course of business operations. The Companys commercial bank issues standby letters of credit to secure its obligations to pay or perform when required to do so pursuant to the requirements of an underlying
agreement or the provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in
accordance with its terms. As of September 26, 2009, the maximum exposure under these standby letters of credit was $3.0 million. As of September 26, 2009, the Company had $68.5 million available, subject to the conditions of the
agreement, under its $90.0 million revolving credit facility.



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##### Table of Contents

6. Share-Based Compensation

Share-based compensation expense for the thirteen week periods ended September 27, 2008 and September 26, 2009 was $0.3 million and $0.1
million, respectively.

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



|                          |  |                                            |   |  |                   |  
|------------------------- |  | ------------------------------------------ | - |  | ----------------- | -
|                          |  | Thirteen and Thirty-Nine WeekPeriods
Ended |  
|                          |  | September 27,2008                          |   |  | September 26,2009 |  
|Expected volatility       |  | 24.8                                       | % |  | 51.1              | %
|Option life               |  | 10 years                                   |   |  | 10 years          |  
|Expected term             |  | 5.5 years                                  |   |  | 5.5 years         |  
|Estimated forfeiture rate |  | 14                                         | % |  | 0                 | %
|Risk-free interest rate   |  | 3.9                                        | % |  | 1.1               | %
|Dividend yield            |  | 0                                          | % |  | 0                 | %

In conjunction with the hiring
of the Companys Chief Executive Officer on January 12, 2009, the Company issued 250,000 stock options at an exercise price per share of $3.92, the fair market value of the stock on the date of grant. One-third of the options vest on each
of the three anniversary dates following the grant date if the grantee is then employed by the Company. As of September 26, 2009, there were 549,912 shares subject to options outstanding under the Companys 2004 Stock Incentive Plan (the
Plan), of which 244,913 were exercisable.

The Company has issued 232,725 shares of restricted stock at an average price of $18.42
to employees, directors and executive officers. Grants are issued at fair market value on the date of the grant. Typically, one-third of the restricted stock grants vest on each of the three anniversary dates following the grant date if the grantee
is then employed by the Company. In April 2008, the Company issued 15,765 shares of restricted stock to the independent members of the Board of Directors at a price equal to $11.10, the fair market value of the stock on the date of grant. The
restricted stock granted vests one year from the date of grant, if the Director is still serving the Company as of the anniversary date. As of September 26, 2009, there were 36,901 shares of restricted stock outstanding still subject to
vesting.

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

Each award expires on the date determined at the
date of grant; however, the maximum term of options, SARs and other rights to acquire common stock under the Plan is ten years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances.
These and other awards may also be issued solely or in part for services. Any shares subject to awards that are not paid or exercised before they expire or are terminated become available for other award grants under the Plan. If not sooner
terminated by the Companys board of directors, the Plan will terminate on June 16, 2014. As of September 26, 2009, there were 290,752 shares of common stock available for grant under the Plan.



8



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##### Table of Contents

The following table summarizes the status of the Companys share-based compensation plans, including
stock options and restricted stock grants, as of September 26, 2009.



|                                  |  |              |  |                              |       |                 |         |                      |       |             |         |                         |   |          
|--------------------------------- |  | ------------ |  | ---------------------------- | ----- | --------------- | ------- | -------------------- | ----- | ----------- | ------- | ----------------------- | - | ---------
|                                  |  | StockOptions |  | WeightedAverageExercisePrice |       | RestrictedStock |         | StockCompensation(1) |       | TotalShares |         | AggregateIntrinsicValue
|Outstanding at December 27, 2008  |  | 319,311      |  | $                            | 12.62 |                 | 115,388 |                      |      |             | 434,699 |                         |   |          
|Awards granted                    |  | 250,000      |  |                              | 3.92  |                 |        |                      | 5,105 |             | 255,105 |                         | $ | 1,091,453
|Awards exercised                  |  |             |  |                              |      |                 | 66,090  |                      | 5,105 |             | 71,195  |                         |   | 359,184  
|Awards forfeited                  |  | 19,399       |  |                              | 18.55 |                 | 12,397  |                      |      |             | 31,796  |                         |   | 100,664  
|                                  |  |              |  |                              |       |                 |         |                      |       |             |         |                         |   |          
|Outstanding at September 26, 2009 |  | 549,912      |  |                              | 8.46  |                 | 36,901  |                      |      |             | 586,813 |                         | $ | 1,349,636
|                                  |  |              |  |                              |       |                 |         |                      |       |             |         |                         |   |          
|                                  |  |              |  |                              |       |                
|Exercisable at September 26, 2009 |  | 244,913      |  | $                            | 12.19 |                 |        |                      |      |             | 244,913 |                         |   |          



|(1) | Directors may elect to receive their cash compensation for service as a director in the form of company stock, with the number of shares to be received determined by
the closing price of the Company stock at the end of each fiscal quarter related to that quarters Board fee payments. A total of 5,105 shares were issued to board members for services in the quarter ended March 28, 2009 based on a price
per share of $4.16.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The aggregate intrinsic value of stock options represents the difference between the Companys closing
stock price of $8.12 as of September 26, 2009 and the exercise price multiplied by the number of shares subject to options outstanding as of that date. In the case of the restricted stock, the aggregate intrinsic value is calculated using the
closing price of the stock at September 26, 2009 multiplied by the number of shares outstanding as of that date still subject to vesting.

The following table summarizes additional information about stock options outstanding at September 26, 2009.



|                         |  |                   |  |                                                     |  |                                 |  |                   |  |                                
|------------------------ |  | ----------------- |  | --------------------------------------------------- |  | ------------------------------- |  | ----------------- |  | -------------------------------
|Outstanding              |  | Exercisable      
|Range of
Exercise
Prices |  | Number
of
Options |  | Weighted AverageRemaining Years
of Contractual
Life |  | Weighted
Average
Exercise Price |  | Number of
Options |  | Weighted
Average
Exercise
Price
|$3.92 - $26.81           |  | 549,912           |  | 6.8                                                 |  | $8.46                           |  | 244,913           |  | $12.19                         

As of September 26, 2009,
unamortized compensation expense related to stock options and restricted stock under the Plan was $0.9 million.

The following table
summarizes share-based compensation expense related to employee stock options and restricted stock awards for the thirteen and thirty-nine week periods ended September 27, 2008 and September 26, 2009 (in thousands).



|                                                                      |  |                            |     |                               |   |                   |  |                   |     |  |   |    
|--------------------------------------------------------------------- |  | -------------------------- | --- | ----------------------------- | - | ----------------- |  | ----------------- | --- |  | - | ---
|                                                                      |  | Thirteen Week Period Ended |     | Thirty-Nine Week Period Ended
|                                                                      |  | September 27,2008          |     | September 26,2009             |   | September 27,2008 |  | September 26,2009
|Labor                                                                 |  | $                          | 2   |                               | $ |                  |  | $                 | 7   |  | $ |   
|General and administrative                                            |  |                            | 304 |                               |   | 80                |  |                   | 822 |  |   | 528
|                                                                      |  |                            |     |                               |   |                   |  |                   |     |  |   |    
|Share-based compensation expense included in total costs and expenses |  |                            | 306 |                               |   | 80                |  |                   | 829 |  |   | 528
|Income tax benefit related to share-based compensation                |  |                            | 118 |                               |   | 26                |  |                   | 318 |  |   | 200
|                                                                      |  |                            |     |                               |   |                   |  |                   |     |  |   |    
|Share-based compensation expense, net of tax                          |  | $                          | 188 |                               | $ | 54                |  | $                 | 511 |  | $ | 328
|                                                                      |  |                            |     |                               |   |                   |  |                   |     |  |   |    

7. Income Taxes

As of September 26, 2009, there had been no material changes to the Companys uncertain tax position disclosure as provided in the 2008
Annual Report on Form 10-K. The Company does not anticipate any significant changes to the balance of unrecognized tax benefits in the next twelve months. It is the Companys policy to recognize interest and penalties related to uncertain tax
positions in income tax expense.



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##### Table of Contents

8. Comprehensive Income

The components of comprehensive income for the thirteen and thirty-nine week periods ended September 27, 2008 and September 26, 2009 are as
follows (in thousands):



|                                                                 |  |                            |       |                               |                   |   |                   |  |   |                   |   |  |   |      
|---------------------------------------------------------------- |  | -------------------------- | ----- | ----------------------------- | ----------------- | - | ----------------- |  | - | ----------------- | - |  | - | -----
|                                                                 |  | Thirteen Week Period Ended |       | Thirty-Nine Week Period Ended
|                                                                 |  | September 27,2008          |       |                               | September 26,2009 |   | September 27,2008 |  |   | September 26,2009
|                                                                 |  |                            |       |                               | Restated          |   |                   |  |   | Restated         
|Net income                                                       |  | $                          | 1,360 |                               |                   | $ | 1,010             |  | $ | 3,835             |   |  | $ | 1,055
|Other comprehensive income (loss)  foreign currency translation |  |                            | (476  | )                             |                   |   | 537               |  |   | (1,118            | ) |  |   | 1,022
|                                                                 |  |                            |       |                               |                   |   |                   |  |   |                   |   |  |   |      
|Total comprehensive income                                       |  | $                          | 884   |                               |                   | $ | 1,547             |  | $ | 2,717             |   |  | $ | 2,077
|                                                                 |  |                            |       |                               |                   |   |                   |  |   |                   |   |  |   |      

9. Related Party Transactions

The Company leases certain properties from landlords deemed to be related parties of the Company. Total rent paid to these landlords was $0.3 million for
both the thirteen week period ended September 27, 2008 and the thirteen week period ended September 26, 2009. Total rent paid to these landlords was $0.7 million for each thirty-nine week periods ended September 27, 2008 and
September 26, 2009.

10. Commitments and Contingencies

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

In 2006, the Company was
named in a class action complaint regarding employment practices filed in the U.S. District Court for the Northern District of California. The Company contested the claims and negotiated with the plaintiffs to reach a settlement. The settlement was
approved by the court, and the settlement amount was paid, in April 2008.

The Companys primary insurer in 2004 has informed the Company
it believes the Company has exhausted its insurance coverage with respect to claims arising in the Companys 2004 coverage year. The Company disagrees with this interpretation of the coverage, but has taken this interpretation into account in
connection with the charge taken related to the settlement of class action claims. The Company has initiated litigation to contest the insurers conclusion. If the Company is unsuccessful, and if it is determined that other existing employment
claims arose in 2004 and are therefore not covered, the resolution of those claims could be more expensive.

11. Impairment, Restructuring
and Other Charges

During the third quarter of fiscal year 2009, the Company incurred $42,000 of impairment, restructuring and other
charges, primarily related to severance costs and other termination benefits paid to employees. For the thirty-nine week period ended September 26, 2009, the Company incurred net impairment, restructuring and other charges of $594,000. The net
charges were comprised of $603,000 related to severance costs and other termination benefits paid to employees, exit costs of $132,000 associated with the closing of our Oak St. location in Portland, OR, and a net credit of $141,000 attributable to
the subleasing and sale of leasehold improvements of our Restaurant K in Washington D.C. All of the leasehold improvements related to Restaurant K were written off as of the end of fiscal year 2007. During the second quarter of fiscal year 2008 the
Company incurred a charge of $452,000 as impairment, restructuring and other charges, related to the closure of Restaurant K in Washington D.C. The charge was related to exit costs, including the estimated liability on the Companys operating
lease.



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##### Table of Contents

12. Net Income Per Share

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

There were 4,777 and 2,822 dilutive shares for the thirteen and thirty-nine week periods ended September 27, 2008, respectively. There were 63,377
and 15,345 dilutive shares for the thirteen and thirty-nine week periods ended September 26, 2009, respectively. For the thirteen and thirty-nine week periods ended September 27, 2008 and September 26, 2009, 325,977 and 299,912,
respectively, of the Companys shares were excluded from the calculation due to their anti-dilutive effect.

13. Restatement - Gift
Card Revenue Accounting

In conjunction with the preparation of the condensed consolidated financial statements for the quarter ended
June 26, 2010, Company management identified an error in the accounting for discounted gift cards that resulted in an overstatement of revenue and understatement of gift card liabilities. As a result of the error, on July 28, 2010 the
Audit Committee of the Companys Board of Directors, upon the recommendation of management, concluded that the Company should restate its consolidated financial statements for the thirteen and thirty-nine week periods ended September 26,
2009.

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

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

(In thousands, except per share amounts)



|                                               |  |                                                          |        |             |   |       |            |  |   |       
|---------------------------------------------- |  | -------------------------------------------------------- | ------ | ----------- | - | ----- | ---------- |  | - | ------
|                                               |  | Thirteen week period
endedSeptember 26, 2009 (unaudited)
|                                               |  | AsPreviouslyReported                                     |        | Adjustments |   |       | AsRestated
|Condensed Consolidated Statement of Operations |  |                                                          |        |             |   |       |            |  |   |       
|Revenues                                       |  | $                                                        | 86,312 |             | $ | (328  | )          |  | $ | 85,984
|Income before income taxes                     |  |                                                          | 1,517  |             |   | (328  | )          |  |   | 1,189 
|Income tax expense                             |  |                                                          | 206    |             |   | (27   | )          |  |   | 179   
|Net income                                     |  |                                                          | 1,311  |             |   | (301  | )          |  |   | 1,010 
|Net income per share - basic                   |  |                                                          | 0.09   |             |   | (0.02 | )          |  |   | 0.07  
|Net income per share - diluted                 |  | $                                                        | 0.09   |             | $ | (0.02 | )          |  | $ | 0.07  



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##### Table of Contents

|                                               |  |                                                             |         |   |             |   |       |            |  |   |         |  
|---------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | ----------- | - | ----- | ---------- |  | - | ------- | -
|                                               |  | Thirty-nine week period
endedSeptember 26, 2009 (unaudited) |        
|                                               |  | AsPreviouslyReported                                        |         |   | Adjustments |   |       | AsRestated | 
|Condensed Consolidated Statement of Operations |  |                                                             |         |   |             |   |       |            |  |   |         |  
|Revenues                                       |  | $                                                           | 270,948 |   |             | $ | (328  | )          |  | $ | 270,620 |  
|Income before income taxes                     |  |                                                             | 1,461   |   |             |   | (328  | )          |  |   | 1,133   |  
|Income tax expense                             |  |                                                             | 105     |   |             |   | (27   | )          |  |   | 78      |  
|Net income                                     |  |                                                             | 1,356   |   |             |   | (301  | )          |  |   | 1,055   |  
|Net income per share - basic                   |  |                                                             | 0.09    |   |             |   | (0.02 | )          |  |   | 0.07    |  
|Net income per share - diluted                 |  | $                                                           | 0.09    |   |             | $ | (0.02 | )          |  | $ | 0.07    |  
|                                               |  |                                                             |        
|Condensed Consolidated Statement of Cash Flows |  |                                                             |         |   |             |   |       |            |  |   |         |  
|Net income                                     |  | $                                                           | 1,356   |   |             | $ | (301  | )          |  | $ | 1,055   |  
|Income tax receivable                          |  |                                                             | 3,162   |   |             |   | (27   | )          |  |   | 3,135   |  
|Accrued expenses                               |  | $                                                           | (10,496 | ) |             | $ | 328   |            |  | $ | (10,168 | )
|                                               | 
|                                               |  | September 26, 2009 (unaudited)                              |        
|                                               |  | AsPreviouslyReported                                        |         |   | Adjustments |   |       | AsRestated | 
|Condensed Consolidated Balance Sheet           |  |                                                             |         |   |             |   |       |            |  |   |         |  
|Income tax receivable                          |  | $                                                           | 540     |   |             | $ | 27    |            |  | $ | 567     |  
|Total current assets                           |  |                                                             | 21,805  |   |             |   | 27    |            |  |   | 21,832  |  
|Total assets                                   |  |                                                             | 204,207 |   |             |   | 27    |            |  |   | 204,234 |  
|Accrued expenses                               |  |                                                             | 21,386  |   |             |   | 328   |            |  |   | 21,714  |  
|Total liabilities                              |  |                                                             | 95,534  |   |             |   | 328   |            |  |   | 95,862  |  
|Accumulated deficit                            |  |                                                             | (39,220 | ) |             |   | (301  | )          |  |   | (39,521 | )
|Total stockholders equity                     |  |                                                             | 108,673 |   |             |   | (301  | )          |  |   | 108,372 |  
|Total liabilities and stockholders equity     |  | $                                                           | 204,207 |   |             | $ | 27    |            |  | $ | 204,234 |  



12



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##### Table of Contents

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

FORWARD-LOOKING STATEMENTS

This
information should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Amended 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 27, 2008 contained in our 2008 Annual Report on Form 10-K.

The following section contains forward-looking statements which are subject to risks and uncertainties. These forward-looking statements include
those regarding anticipated restaurant openings, anticipated costs and sizes of future restaurants, anticipated costs savings and the adequacy of anticipated sources of cash to fund our future capital requirements. Our actual results may differ
materially from those discussed in the forward-looking statements. Words such as believes, anticipates, expects, intends, plans and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such statements.

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

Restatement - Gift Card Revenue Accounting

In conjunction with the preparation of the condensed consolidated financial statements for the quarter ended June 26, 2010, Company management
identified an error in the accounting for discounted gift cards that resulted in an overstatement of revenue and understatement of gift card liabilities. As a result of the error, on July 28, 2010 the Audit Committee of the Companys Board
of Directors, upon the recommendation of management, concluded that the Company should restate its consolidated financial statements for the thirteen and thirty-nine week periods ended September 26, 2009 and the thirteen week period and fiscal
year ended December 26, 2009.

Summary of the Restatement Adjustments

For the thirteen weeks ended September 26, 2009, as shown in the table below, restated revenues are $86.0 million compared to previously reported
revenues of $86.3 million and net income per share decreased to $0.07 from $0.09. The restatement adjustments did not affect cash or previously reported total cash flows from operating, investing or financing activities. See Note 13 to the notes to
the condensed consolidated financial statements for more information.

In thousands, except per share amounts)



|                                               |  |                                                          |        |             |   |       |            |  |   |       
|---------------------------------------------- |  | -------------------------------------------------------- | ------ | ----------- | - | ----- | ---------- |  | - | ------
|                                               |  | Thirteen week period
endedSeptember 26, 2009 (unaudited)
|                                               |  | AsPreviouslyReported                                     |        | Adjustments |   |       | AsRestated
|Condensed Consolidated Statement of Operations |  |                                                          |        |             |   |       |            |  |   |       
|Revenues                                       |  | $                                                        | 86,312 |             | $ | (328  | )          |  | $ | 85,984
|Income before income taxes                     |  |                                                          | 1,517  |             |   | (328  | )          |  |   | 1,189 
|Income tax expense                             |  |                                                          | 206    |             |   | (27   | )          |  |   | 179   
|Net income                                     |  |                                                          | 1,311  |             |   | (301  | )          |  |   | 1,010 
|Net income per share - basic                   |  |                                                          | 0.09   |             |   | (0.02 | )          |  |   | 0.07  
|Net income per share - diluted                 |  | $                                                        | 0.09   |             | $ | (0.02 | )          |  | $ | 0.07  



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##### Table of Contents

|                                               |  |                                                             |         |             |   |       |            |  |   |        
|---------------------------------------------- |  | ----------------------------------------------------------- | ------- | ----------- | - | ----- | ---------- |  | - | -------
|                                               |  | Thirty-nine week period
endedSeptember 26, 2009 (unaudited)
|                                               |  | AsPreviouslyReported                                        |         | Adjustments |   |       | AsRestated
|Condensed Consolidated Statement of Operations |  |                                                             |         |             |   |       |            |  |   |        
|Revenues                                       |  | $                                                           | 270,948 |             | $ | (328  | )          |  | $ | 270,620
|Income before income taxes                     |  |                                                             | 1,461   |             |   | (328  | )          |  |   | 1,133  
|Income tax expense                             |  |                                                             | 105     |             |   | (27   | )          |  |   | 78     
|Net income                                     |  |                                                             | 1,356   |             |   | (301  | )          |  |   | 1,055  
|Net income per share  basic                   |  |                                                             | 0.09    |             |   | (0.02 | )          |  |   | 0.07   
|Net income per share - diluted                 |  | $                                                           | 0.09    |             | $ | (0.02 | )          |  | $ | 0.07   

Overview

As of September 26, 2009, we operated 93 restaurants, including 87 restaurants in the United States, of which one was operated pursuant to a
management agreement, and six restaurants operated in Canada under The Boathouse name.

McCormick & Schmicks has successfully
grown over the past 37 years by offering our customers menus that, at most restaurants, are printed twice daily with a broad selection of affordable, quality, and fresh seafood in an upscale environment, serviced by knowledgeable and professional
management and staff. McCormick & Schmicks inviting atmosphere and high quality, diverse menu offerings and compelling price-value proposition appeals to a diverse base of casual diners, families, travelers and the business community.
Our revenues are primarily generated by sales at our restaurants, including banquets.

We utilize a broad-based marketing approach to drive
guest traffic, which includes in-house marketing campaigns, including our preferred guest program and e-marketing programs. We have successfully grown our preferred guest program to over 91,000 primary members and over 68,000 secondary members since
its inception in 2006 and our online marketing e-mail club database to nearly 217,000 members.

We measure performance using key operating
indicators such as comparable restaurant sales, guest traffic counts, food and beverage costs, labor costs, restaurant operating expenses, and 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. Comparable sales exclude the impact of currency translation. We also track trends in
average weekly revenues at both the restaurant level and on a condensed 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 total 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 million to $0.4 million per restaurant opening, which may include non-cash rent expense during the construction period.

The most significant restaurant operating costs are food and beverage costs, labor costs and employee benefit costs. We believe our national
and regional presence allows us to achieve better quality and pricing on key products than most of our competitors. We closely monitor food and beverage costs and regularly review our selection of preferred vendors on the basis of several key
metrics, including pricing. In addition, because we print our menu twice daily in most of our 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 actively manage our fixed and variable labor costs to closely align our costs with our projected
sales volumes on a week-to-week basis. We leverage the experience and expertise of our vice presidents of operations and regional managers to help our restaurant managers diligently manage our restaurant payroll expenses. Our employee benefits
include health insurance, the cost of which has increased faster than the general rate of inflation. We continually monitor this cost and review and implement strategies to effectively control increases.



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##### Table of Contents

General and administrative expenses are controlled in absolute amounts and monitored as a percentage of
revenues. As we have grown, we have incurred substantial training costs and made significant investments in infrastructure, including our information systems. Identification of appropriate new restaurant sites is essential to our growth strategy. We
evaluate and invest in new restaurants based on site-specific projected returns on investment. We believe our restaurant model and flexible real estate strategy provide us with continued opportunities to find attractive real estate locations on
favorable terms.

Strategic Focus and Operating Outlook

Our primary business focus for over 37 years has been to consistently offer a broad selection of high quality, fresh seafood, which we believe commands
strong loyalty from our guests. We complement our seafood offerings with a variety of other menu choices, including a variety of beef offerings. Beef entrée sales were approximately 19% of our dinner entrée sales in the third quarter
of 2009. We promote everyday value on our menu with our 10 lunch entrées under $10 and a selection of dinner entrée items starting at $19.95. We are evolving our bar and happy hour menus to incorporate more contemporary elements,
including small plate offerings and seasonal cocktails, while maintaining our core foundation of traditional mixology.

We continue to
evaluate all areas of our business and closely manage restaurant operations, including implementing new menu management programs and various cost reduction measures, in order to ensure that we are efficiently managing our operations in this
difficult economic environment. We take advantage of areas where we feel we can reduce costs without affecting the guest experience, including leveraging our size and experience to maximize our purchasing power in order to reduce costs.

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 and The Boathouse restaurants in existing and new
markets. We also consider acquisitions of additional restaurants or restaurant groups when opportunities arise. Our stated long term growth strategy is to grow restaurant units at a prudent pace with economic conditions factored into our growth
decisions. Because of the current economic environment, particularly uncertainty regarding consumer spending, and in line with our disciplined capital utilization, we are being more cautious when selecting new restaurant locations and in 2009 have
opened both of our planned new restaurants for this fiscal year.

Financial Performance Overview

The following are results of our financial performance for the thirteen week period ended September 26, 2009 compared to the thirteen week period
ended September 27, 2008:



| |  |  | Revenues decreased 13.9% to $86.0 million from $99.9 million
| | - |  | ------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 18.8%
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 14.2%
| | - |  | ---------------------------------------------



| |  |  | Restaurant pre-opening costs decreased to $0.1 million from $1.5 million
| | - |  | ------------------------------------------------------------------------



| |  |  | Operating income was $1.6 million compared to $1.9 million
| | - |  | ----------------------------------------------------------



| |  |  | Net income decreased to $1.0 million from $1.4 million
| | - |  | ------------------------------------------------------



| |  |  | Diluted earnings per share was $0.07 compared to $0.09
| | - |  | ------------------------------------------------------



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##### Table of Contents

Thirteen Week Period Ended September 27, 2008 Compared to Thirteen Week Period Ended
September 26, 2009

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



|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|------------------------------------------- |  | -------------------------- | ------ | - | ------------------ | ----- | - | -------- | - | ------ | ------------ |  | ----- | -
|                                            |  | Thirteen Week Period Ended |       
|                                            |  | September 27, 2008         |        |   | September 26, 2009 |      
|                                            |  |                            |        |   |                    |       |   | Restated |  
|(Dollars in thousands)                      |  | Dollars                    |        |   | % ofrevenues       |       |   | Dollars  |   |        | % ofrevenues | 
|Revenues                                    |  | $                          | 99,897 |   |                    | 100.0 | % |          | $ | 85,984 |              |  | 100.0 | %
|Restaurant operating costs:                 |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Food and beverage                           |  |                            | 30,117 |   |                    | 30.1  |   |          |   | 25,053 |              |  | 29.1  |  
|Labor                                       |  |                            | 32,403 |   |                    | 32.4  |   |          |   | 27,761 |              |  | 32.3  |  
|Operating                                   |  |                            | 15,674 |   |                    | 15.7  |   |          |   | 13,131 |              |  | 15.3  |  
|Occupancy                                   |  |                            | 9,263  |   |                    | 9.3   |   |          |   | 9,200  |              |  | 10.7  |  
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Total restaurant operating costs            |  |                            | 87,457 |   |                    | 87.5  |   |          |   | 75,145 |              |  | 87.4  |  
|General and administrative expenses         |  |                            | 5,169  |   |                    | 5.2   |   |          |   | 4,826  |              |  | 5.6   |  
|Restaurant pre-opening costs                |  |                            | 1,460  |   |                    | 1.5   |   |          |   | 109    |              |  | 0.1   |  
|Depreciation and amortization               |  |                            | 3,932  |   |                    | 3.9   |   |          |   | 4,241  |              |  | 4.9   |  
|Impairment, restructuring and other charges |  |                            |       |   |                    |      |   |          |   | 42     |              |  |      |  
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Total costs and expenses                    |  |                            | 98,018 |   |                    | 98.1  |   |          |   | 84,363 |              |  | 98.1  |  
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Operating income                            |  |                            | 1,879  |   |                    | 1.9   |   |          |   | 1,621  |              |  | 1.9   |  
|Interest expense, net                       |  |                            | 278    |   |                    | 0.3   |   |          |   | 469    |              |  | 0.5   |  
|Other income, net                           |  |                            | (50    | ) |                    | (0.1  | ) |          |   | (37    | )            |  |      |  
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Income before income taxes                  |  |                            | 1,651  |   |                    | 1.7   |   |          |   | 1,189  |              |  | 1.4   |  
|Income tax expense                          |  |                            | 291    |   |                    | 0.3   |   |          |   | 179    |              |  | 0.2   |  
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  
|Net income                                  |  | $                          | 1,360  |   |                    | 1.4   | % |          | $ | 1,010  |              |  | 1.2   | %
|                                            |  |                            |        |   |                    |       |   |          |   |        |              |  |       |  



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##### Table of Contents

Revenues and Restaurant Operating Costs

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



|                                 |  |                            |        |                   |   |              |  |   |         |   |  |       |   
|-------------------------------- |  | -------------------------- | ------ | ----------------- | - | ------------ |  | - | ------- | - |  | ----- | --
|                                 |  | Thirteen Week Period Ended |        |                   |   |              |  |  
|(Dollars in thousands)           |  | September 27,2008          |        | September 26,2009 |   | DollarChange |  |   | %Change |  
|                                 |  |                            |        | Restated          |   |              |  |   |         |  
|Revenues                         |  | $                          | 99,897 |                   | $ | 85,984       |  | $ | (13,913 | ) |  | (13.9 | )%
|                                 |  |                            |        |                   |   |              |  |   |         |   |  |       |   
|Restaurant operating costs:      |  |                            |        |                   |   |              |  |   |         |   |  |       |   
|Food and beverage                |  | $                          | 30,117 |                   | $ | 25,053       |  | $ | (5,064  | ) |  | (16.8 | )%
|Labor                            |  |                            | 32,403 |                   |   | 27,761       |  |   | (4,642  | ) |  | (14.3 | )%
|Operating                        |  |                            | 15,674 |                   |   | 13,131       |  |   | (2,543  | ) |  | (16.2 | )%
|Occupancy                        |  |                            | 9,263  |                   |   | 9,200        |  |   | (63     | ) |  | (0.7  | )%
|                                 |  |                            |        |                   |   |              |  |   |         |   |  |       |   
|Total restaurant operating costs |  | $                          | 87,457 |                   | $ | 75,145       |  | $ | (12,312 | ) |  | (14.1 | )%
|                                 |  |                            |        |                   |   |              |  |   |         |   |  |       |   

Revenues. Revenues decreased $13.9 million, or 13.9%, to $86.0 million in the thirteen week period
ended September 26, 2009 from $99.9 million in the thirteen week period ended September 27, 2008. The decrease was primarily due to an 18.8% decrease in comparable restaurants sales, which was partially offset by increased sales by
restaurants not included in the comparable base. We had a total of 1,196 store operating weeks for the quarter ended September 26, 2009 compared to a total of 1,123 store operating weeks for the quarter ended September 27, 2008. The
decrease in comparable restaurant sales of 18.8% was a result of a 14.2% decrease in traffic, which was coupled with a net decrease in pricing and product mix of 4.6%. The decrease in our net pricing and product mix is a result of our strategic
initiative to increase the value proposition for our guests and drive traffic by decreasing our average check.

Food and Beverage
Costs. Food and beverage costs decreased $5.1 million, or 16.8%, to $25.1 million in the thirteen week period ended September 26, 2009 from $30.1 million in the thirteen week period ended September 27, 2008. This decrease was
primarily due to lower restaurant sales. Food and beverage costs as a percentage of revenues decreased to 29.1% in the thirteen week period ended September 26, 2009 from 30.1% in the thirteen week period ended September 27, 2008, primarily
due our overall increased focus on operating efficiencies related to food costs.

Labor Costs. Labor costs decreased $4.6 million,
or 14.3%, to $27.8 million in the thirteen week period ended September 26, 2009 from $32.4 million in thirteen week period ended September 27, 2008, primarily due to decreases in staffing as a result of declines in guest traffic. Labor
costs as a percentage of revenues decreased to 32.3% in the thirteen week period ended September 26, 2009 from 32.4% in the thirteen week period ended September 27, 2008, primarily due to lower employee benefit costs, partially offset by
deleveraging of fixed labor costs due to the lower sales volumes. During the thirteen week period ended September 26, 2009, we have maintained our commitment not to impact the guest experience, resulted in deleveraging in hourly labor costs as
a percentage of revenues. Deleveraging occurs when sales decline and fixed costs have a relatively larger impact as a percentage of revenues.

Operating Costs. Operating costs decreased $2.5 million, or 16.2%, to $13.1 million in the thirteen week period ended September 26, 2009
from $15.7 million in the thirteen week period ended September 27, 2008. This decrease was primarily due to lower advertising, janitorial and utilities costs as a result of our cost saving initiatives implemented throughout the fiscal year
2009. Operating costs as a percentage of revenues decreased to 15.3% in the thirteen week period ended September 26, 2009 from 15.7% in the thirteen week period ended September 27, 2008, primarily due to lower janitorial and
advertising costs as a percentage of revenues.



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Occupancy Costs. Occupancy costs decreased $0.1 million, or 0.7%, to $9.2 million in the
thirteen week period ended September 26, 2009 from $9.3 million in the thirteen week period ended September 27, 2008, primarily due to lower percentage rent as a result of lower sales volumes, partially offset by the increased costs
associated with the five restaurants opened since September 27, 2008. Occupancy costs as a percentage of revenues increased to 10.7% in the thirteen week period ended September 26, 2009 from 9.3% in the thirteen week period ended
September 27, 2008, primarily due to deleveraging of fixed occupancy costs.

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

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



|                                            |  |                            |       |                   |   |              |  |   |         |   |  |       |   
|------------------------------------------- |  | -------------------------- | ----- | ----------------- | - | ------------ |  | - | ------- | - |  | ----- | --
|                                            |  | Thirteen Week Period Ended |       |                   |   |              |  |  
|(Dollars in thousands)                      |  | September 27,2008          |       | September 26,2009 |   | DollarChange |  |   | %Change |  
|General and administrative expense          |  | $                          | 5,169 |                   | $ | 4,826        |  | $ | (343    | ) |  | (6.6  | )%
|Restaurant pre-opening costs                |  |                            | 1,460 |                   |   | 109          |  |   | (1,351  | ) |  | (92.5 | )%
|Depreciation and amortization               |  |                            | 3,932 |                   |   | 4,241        |  |   | 309     |   |  | 7.9   | % 
|Impairment, restructuring and other charges |  |                            |      |                   |   | 42           |  |   | 42      |   |  |      |   

General and
Administrative Expenses. General and administrative expenses decreased $0.3 million, or 6.6%, to $4.8 million in the thirteen week period ended September 26, 2009 from $5.2 million in the thirteen week period ended September 27,
2008, primarily due to decreases in travel costs, share based compensation and employee benefit costs, partially offset by higher variable compensation costs and legal fees. A significant portion of the higher legal fees were related to certain
litigation in which a verdict was reached in our favor at the end of July 2009. General and administrative expenses as a percentage of revenues increased to 5.6% in the thirteen week period ended September 26, 2009 from 5.2% in the thirteen
week period ended September 27, 2008, primarily due to the deleveraging of revenues, coupled with an increase in variable compensation and legal fees, partially offset by lower share-based compensation and travel costs, as a percentage of
revenues.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs decreased $1.4 million, to $0.1 million, in the thirteen
week period ended September 26, 2009 from $1.5 million in the thirteen week period ended September 27, 2008, primarily due to the timing of restaurant openings and fewer restaurants under construction.

Depreciation and Amortization. Depreciation and amortization increased $0.3 million, or 7.9%, to $4.2 million in the thirteen week period
ended September 26, 2009 from $3.9 million in the thirteen week period ended September 27, 2008. The increase was primarily due to the five restaurants opened since September 27, 2008. Depreciation and amortization as a percentage of
revenues increased to 4.9% in the thirteen week period ended September 26, 2009 from 3.9% in the thirteen week period ended September 27, 2008, primarily due to the deleveraging of sales and the five restaurants opened since
September 27, 2008.

Impairment, restructuring and other charges. During the third quarter of fiscal year 2009, impairment,
restructuring and other charges included $42,000, primarily related to severance costs and other termination benefits paid to employees.



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##### Table of Contents

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

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



|                           |  |                            |       |   |                   |   |       |              |  |   |         |   |  |       |   
|-------------------------- |  | -------------------------- | ----- | - | ----------------- | - | ----- | ------------ |  | - | ------- | - |  | ----- | --
|                           |  | Thirteen Week Period Ended |       |   |                   |   |       |              | 
|(Dollars in thousands)     |  | September 27,2008          |       |   | September 26,2009 |   |       | DollarChange |  |   | %Change |  
|                           |  |                            |       |   | Restated          |   |       |              |  |   |         |  
|Interest expense, net      |  | $                          | 278   |   |                   | $ | 469   |              |  | $ | 191     |   |  | 68.7  | % 
|Other income, net          |  |                            | (50   | ) |                   |   | (37   | )            |  |   | (13     | ) |  | (26.0 | )%
|                           |  |                            |       |  
|Income before income taxes |  | $                          | 1,651 |   |                   | $ | 1,189 |              |  | $ | (462    | ) |  | (28.0 | )%
|Income tax expense         |  |                            | 291   |   |                   |   | 179   |              |  |   | (112    | ) |  | (38.5 | )%
|                           |  |                            |       |   |                   |   |       |              |  |   |         |   |  |       |   
|Net income                 |  | $                          | 1,360 |   |                   | $ | 1,010 |              |  | $ | (350    | ) |  | (25.7 | )%
|                           |  |                            |       |   |                   |   |       |              |  |   |         |   |  |       |   

Interest Expense, Net. Interest expense, net, was $0.5 million for the thirteen week period ended
September 26, 2009, compared to $0.3 million in the thirteen week period ended September 27, 2008. The change was primarily due to a decrease in the amount of interest capitalized related to construction costs and an increase in interest
related to deemed landlord financing.

Other Income, Net. Other income, net for the thirteen week periods ended September 27, 2008
and September 26, 2009 represents business interruption insurance proceeds net of expenses.

Income Tax Expense. Our
effective tax rate from continuing operations, including discrete items was 15.1% for the thirteen week period ended September 26, 2009, compared to 17.6% for the thirteen week period ended September 27, 2008. We maintain a valuation
allowance related to deferred tax assets since we believe realization is uncertain. Any change in our deferred tax asset position is offset by a similar change in the valuation allowance. Due to our projection of modest taxable income for the year
in certain taxing jurisdictions, and due to the expected decrease in our deferred tax assets and corresponding change in the valuation allowance, our effective annual tax rate is expected to be between 5% and 10%.

Net Income.Net income decreased $0.4 million, or 25.7%, to $1.0 million in the thirteen week period ended September 26, 2009 from $1.4
million in the thirteen week period ended September 27, 2008, primarily due to a decrease in comparable restaurant sales of 18.8%, partially offset by decreases in previously discussed line items.

Thirty-nine Week Period Ended September 27, 2008 Compared to Thirty-nine Week Period Ended September 26, 2009

The following are results of our financial performance for the thirty-nine week period ended September 26, 2009 compared to the thirty-nine week
period ended September 27, 2008:



| |  |  | Revenues decreased 7.3% to $270.6 million from $291.9 million
| | - |  | -------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 16.5%
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 15.6%
| | - |  | ---------------------------------------------



| |  |  | Restaurant pre-opening costs decreased to $0.8 million from $3.3 million
| | - |  | ------------------------------------------------------------------------



| |  |  | Operating income decreased to $2.4 million from $5.3 million
| | - |  | ------------------------------------------------------------



| |  |  | Net income decreased to $1.1 million from $3.8 million
| | - |  | ------------------------------------------------------



| |  |  | Diluted earnings per share decreased to $0.07 from $0.26
| | - |  | --------------------------------------------------------



19



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##### Table of Contents

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



|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|------------------------------------------- |  | ----------------------------- | ------- | - | ------------------ | ----- | - | ------- | - | ------- | ------------ |  | ----- | -
|                                            |  | Thirty-Nine Week Period Ended |        
|                                            |  | September 27, 2008            |         |   | September 26, 2009 |      
|                                            |  |                               |         |   | Restated           |      
|(Dollars in thousands)                      |  | Dollars                       |         |   | % ofrevenues       |       |   | Dollars |   |         | % ofrevenues | 
|Revenues                                    |  | $                             | 291,937 |   |                    | 100.0 | % |         | $ | 270,620 |              |  | 100.0 | %
|Restaurant operating costs:                 |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Food and beverage                           |  |                               | 88,226  |   |                    | 30.2  |   |         |   | 80,267  |              |  | 29.7  |  
|Labor                                       |  |                               | 94,895  |   |                    | 32.5  |   |         |   | 88,518  |              |  | 32.7  |  
|Operating                                   |  |                               | 45,559  |   |                    | 15.6  |   |         |   | 41,629  |              |  | 15.4  |  
|Occupancy                                   |  |                               | 27,358  |   |                    | 9.4   |   |         |   | 28,190  |              |  | 10.4  |  
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Total restaurant operating costs            |  |                               | 256,038 |   |                    | 87.7  |   |         |   | 238,604 |              |  | 88.2  |  
|General and administrative expenses         |  |                               | 15,881  |   |                    | 5.4   |   |         |   | 15,619  |              |  | 5.8   |  
|Restaurant pre-opening costs                |  |                               | 3,335   |   |                    | 1.1   |   |         |   | 750     |              |  | 0.3   |  
|Depreciation and amortization               |  |                               | 10,978  |   |                    | 3.8   |   |         |   | 12,614  |              |  | 4.7   |  
|Impairment, restructuring and other charges |  |                               | 452     |   |                    | 0.2   |   |         |   | 594     |              |  | 0.2   |  
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Total costs and expenses                    |  |                               | 286,684 |   |                    | 98.2  |   |         |   | 268,181 |              |  | 99.1  |  
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Operating income                            |  |                               | 5,253   |   |                    | 1.8   |   |         |   | 2,439   |              |  | 0.9   |  
|Interest expense, net                       |  |                               | 694     |   |                    | 0.2   |   |         |   | 1,316   |              |  | 0.5   |  
|Other income, net                           |  |                               | (308    | ) |                    | (0.1  | ) |         |   | (10     | )            |  |      |  
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Income before income taxes                  |  |                               | 4,867   |   |                    | 1.7   |   |         |   | 1,133   |              |  | 0.4   |  
|Income tax expense                          |  |                               | 1,032   |   |                    | 0.4   |   |         |   | 78      |              |  |      |  
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  
|Net income                                  |  | $                             | 3,835   |   |                    | 1.3   | % |         | $ | 1,055   |              |  | 0.4   | %
|                                            |  |                               |         |   |                    |       |   |         |   |         |              |  |       |  

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.



|                                 |  |                               |         |                   |   |              |  |   |         |   |  |      |   
|-------------------------------- |  | ----------------------------- | ------- | ----------------- | - | ------------ |  | - | ------- | - |  | ---- | --
|                                 |  | Thirty-Nine Week Period Ended |         |                   |   |              |  |  
|(Dollars in thousands)           |  | September 27,2008             |         | September 26,2009 |   | DollarChange |  |   | %Change |  
|                                 |  |                               |         | Restated          |   |              |  |   |         |  
|Revenues                         |  | $                             | 291,937 |                   | $ | 270,620      |  | $ | (21,317 | ) |  | (7.3 | )%
|                                 |  |                               |         |                   |   |              |  |   |         |   |  |      |   
|Restaurant operating costs:      |  |                               |         |                   |   |              |  |   |         |   |  |      |   
|Food and beverage                |  | $                             | 88,226  |                   | $ | 80,267       |  | $ | (7,959  | ) |  | (9.0 | )%
|Labor                            |  |                               | 94,895  |                   |   | 88,518       |  |   | (6,377  | ) |  | (6.7 | )%
|Operating                        |  |                               | 45,559  |                   |   | 41,629       |  |   | (3,930  | ) |  | (8.6 | )%
|Occupancy                        |  |                               | 27,358  |                   |   | 28,190       |  |   | 832     |   |  | 3.0  | % 
|                                 |  |                               |         |                   |   |              |  |   |         |   |  |      |   
|Total restaurant operating costs |  | $                             | 256,038 |                   | $ | 238,604      |  | $ | (17,434 | ) |  | (6.8 | )%
|                                 |  |                               |         |                   |   |              |  |   |         |   |  |      |   

Revenues. Revenues decreased $21.3 million, or 7.3%, to $270.6 million in the thirty-nine week period
ended September 26, 2009 from $291.9 million in the thirty-nine week period ended September 27, 2008. This decrease was primarily due to the decrease in comparable restaurant sales of 16.5%, partially offset by the sales generated by
the restaurants not included in the comparable base. We had a total of 3,595 store operating weeks for the thirty-nine week period ended September 26, 2009 compared to a total of 3,277 store operating weeks for the thirty-nine week period ended
September 27, 2008. The comparable restaurant sales decrease of 16.5% was comprised of a 15.6% decrease in traffic, which was coupled with a net decrease in pricing and product mix of 0.9%. The decrease in our net pricing and product mix is a
result of our strategic initiative to increase the value proposition for our guests and drive traffic by decreasing our average check.

Food and Beverage Costs. Food and beverage costs decreased $8.0 million, or 9.0%, to $80.3 million in the thirty-nine week period ended
September 26, 2009 from $88.2 million in the thirty-nine week period ended September 27, 2008. This decrease was primarily attributable to the decrease in sales. Food and beverage costs as a percentage of revenues decreased to 29.7% in the
thirty-nine week period ended September 26, 2009 from 30.2% in the thirty-nine week period ended September 27, 2008, primarily due to our overall increased focus on operating efficiencies related to food costs.



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Labor Costs. Labor costs decreased $6.4 million, or 6.7%, to $88.5 million in the thirty-nine
week period ended September 26, 2009 from $94.9 million in thirty-nine week period ended September 27, 2008, primarily due to decreases in staffing as a result of declines in guest traffic. Labor costs as a percentage of revenues increased
to 32.7 % in the thirty-nine week period ended September 26, 2009 from 32.5% in the thirty-nine week period ended September 27, 2008, primarily due to the deleveraging of sales at the comparable restaurants.

Operating Costs. Operating costs decreased $3.9 million, or 8.6%, to $41.6 million in the thirty-nine week period ended September 26,
2009 from $45.6 million in the thirty-nine week period ended September 27, 2008. This decrease was primarily attributable to the decrease in revenues, coupled with lower advertising, janitorial, and renewals costs as a result of our cost saving
initiatives we have implemented this year. Operating costs as a percentage of revenues decreased to 15.4% in the thirty-nine week period ended September 26, 2009 from 15.6% in the thirty-nine week period ended September 27, 2008,
primarily due to decreases in advertising, janitorial, and renewals costs as a percentage of revenues, partially offset by increases in utilities and repairs and maintenance costs as a percentage of revenues.

Occupancy Costs. Occupancy costs increased $0.8 million, or 3.0%, to $28.2 million in the thirty-nine week period ended September 26,
2009 from $27.4 million in the thirty-nine week period ended September 27, 2008, primarily due to the nine restaurants opened since September 27, 2008, partially offset by lower percentage rent as a result of lower revenues. Occupancy
costs as a percentage of revenues increased to 10.4% in the thirty-nine week period ended September 26, 2009 from 9.4% in the thirty-nine week period ended September 27, 2008, primarily due to deleveraging of fixed occupancy costs at the
comparable restaurants.

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

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



|                                            |  |                               |        |                   |   |              |  |   |         |   |  |       |   
|------------------------------------------- |  | ----------------------------- | ------ | ----------------- | - | ------------ |  | - | ------- | - |  | ----- | --
|                                            |  | Thirty-Nine Week Period Ended |        |                   |   |              |  |  
|(Dollars in thousands)                      |  | September 27,2008             |        | September 26,2009 |   | DollarChange |  |   | %Change |  
|General and administrative expense          |  | $                             | 15,881 |                   | $ | 15,619       |  | $ | (262    | ) |  | (1.6  | )%
|Restaurant pre-opening costs                |  |                               | 3,335  |                   |   | 750          |  |   | (2,585  | ) |  | (77.5 | )%
|Depreciation and amortization               |  |                               | 10,978 |                   |   | 12,614       |  |   | 1,636   |   |  | 14.9  | % 
|Impairment, restructuring and other charges |  |                               | 452    |                   |   | 594          |  |   | 142     |   |  | 31.4  | % 

General and Administrative
Expenses. General and administrative expenses decreased $0.3 million, or 1.6%, to $15.6 million in the thirty-nine week period ended September 26, 2009 from $15.9 million in the thirty-nine week period ended September 27, 2008,
primarily due to a decrease in travel, variable compensation, and share based compensation costs, partially offset by increased legal fees, management wages, and consulting costs. The higher legal fees were primarily related to certain litigation in
which a verdict was reached in our favor at the end of July 2009. General and administrative expenses as a percentage of revenues increased to 5.8% in the thirty-nine week period ended September 26, 2009 from 5.4% in the thirty-nine week period
ended September 27, 2008, primarily due to deleveraging of revenues.

Restaurant Pre-Opening Costs. Restaurant pre-opening
costs decreased $2.6 million, or 77.5%, to $0.8 million in the thirty-nine week period ended September 26, 2009 from $3.3 million in the thirty-nine week period ended September 27, 2008, primarily due to the timing of restaurant openings
and fewer restaurants under construction.



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Depreciation and Amortization. Depreciation and amortization increased $1.6 million, or 14.9%,
to $12.6 million in the thirty-nine week period ended September 26, 2009 from $11.0 million in the thirty-nine week period ended September 27, 2008. The increase was primarily due to the addition of five restaurants since
September 27, 2008. Depreciation and amortization as a percentage of revenues increased to 4.7% in the thirty-nine week period ended September 26, 2009 from 3.8% in the thirty-nine week period ended September 27, 2008, primarily due
to the deleveraging of sales.

Impairment, Restructuring and Other Charges. For the thirty-nine week period ended September 26,
2009 we have incurred a total of $594,000 related to impairment, restructuring and other charges. The net charges were comprised of $603,000 related to severance costs and other termination benefits paid to employees, exit costs of $132,000
associated with the closing of our Oak St. location in Portland, OR, and a net credit of $141,000 attributable to the subleasing and sale of leasehold improvements of our Restaurant K in Washington D.C. All of the leasehold improvements related to
Restaurant K were written off as of the end of fiscal year 2007.

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

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



|                           |  |                               |       |   |                   |   |       |              |  |   |         |   |  |       |   
|-------------------------- |  | ----------------------------- | ----- | - | ----------------- | - | ----- | ------------ |  | - | ------- | - |  | ----- | --
|                           |  | Thirty-Nine Week Period Ended |       |   |                   |   |       |              | 
|(Dollars in thousands)     |  | September 27,2008             |       |   | September 26,2009 |   |       | DollarChange |  |   | %Change |  
|                           |  |                               |       |   | Restated          |   |       |              |  |   |         |  
|Interest expense, net      |  | $                             | 694   |   |                   | $ | 1,316 |              |  | $ | 622     |   |  | 89.6  | % 
|Other income, net          |  |                               | (308  | ) |                   |   | (10   | )            |  |   | (298    | ) |  | (96.8 | )%
|                           |  |                               |       |  
|Income before income taxes |  | $                             | 4,867 |   |                   | $ | 1,133 |              |  | $ | (3,734  | ) |  | (76.7 | )%
|Income tax expense         |  |                               | 1,032 |   |                   |   | 78    |              |  |   | (954    | ) |  | (92.4 | )%
|                           |  |                               |       |   |                   |   |       |              |  |   |         |   |  |       |   
|Net income                 |  | $                             | 3,835 |   |                   | $ | 1,055 |              |  | $ | (2,780  | ) |  | (72.5 | )%
|                           |  |                               |       |   |                   |   |       |              |  |   |         |   |  |       |   

Interest Expense, Net. Interest expense, net was $1.3 million in the thirty-nine week period ended
September 26, 2009 compared to $0.7 million in the thirty-nine week period ended September 27, 2008. The change was primarily due to a decrease in the amount of interest capitalized related to construction costs and an increase in
interest related to deemed landlord financing.

Other Income, Net. Other income, net for the thirty-nine week periods ended
September 27, 2008 and September 26, 2009 represents business interruption insurance proceeds net of expenses.

Income Tax
Expense. Our estimated effective annualized tax rate from continuing operations, including discrete items, was 6.9% for the thirty-nine week period ended September 26, 2009, as compared to 21.2% for thirty-nine week period ended
September 27, 2008. We maintain a valuation allowance related to deferred tax assets since we believe realization is uncertain. Any change in our deferred tax asset position is offset by a similar change in the valuation allowance. Due to our
projection of modest taxable income for the year in certain taxing jurisdictions, and due to the expected decrease in our deferred tax assets and corresponding change in the valuation allowance, our effective annual tax rate is expected to be
between 5% and 10%.

Net Income.Net income decreased $2.8 million, to $1.1 million, in the thirty-nine week period ended
September 26, 2009, from $3.8 million in the thirty-nine week period ended September 27, 2008, primarily due to a decrease in comparable restaurant sales of 16.5%, partially offset by decreases in previously discussed line items.

Liquidity and Capital Resources

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



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



|                                                             |  |                               |         |   |                   |   |        |  
|------------------------------------------------------------ |  | ----------------------------- | ------- | - | ----------------- | - | ------ | -
|                                                             |  | Thirty-Nine Week Period Ended |        
|(Dollars in thousands)                                       |  | September 27,2008             |         |   | September 26,2009 |  
|Net cash provided by operating activities                    |  | $                             | 14,776  |   |                   | $ | 10,434 |  
|Net cash used in investing activities                        |  |                               | (38,858 | ) |                   |   | (5,168 | )
|Net cash provided by (used in) financing activities          |  |                               | 20,382  |   |                   |   | (5,014 | )
|Effect of exchange rate changes on cash and cash equivalents |  |                               | (70     | ) |                   |   | 294    |  
|                                                             |  |                               |         |   |                   |   |        |  
|Net increase (decrease) in cash and cash equivalents         |  | $                             | (3,770  | ) |                   | $ | 546    |  
|                                                             |  |                               |         |   |                   |   |        |  

The reduction in net cash provided by operating activities of $4.3 million, to $10.4 million, in the thirty-nine week period
ended September 26, 2009 compared to net cash provided by operating activities of $14.8 million in the thirty-nine week period ended September 27, 2008 was primarily due to the reduction in net income between periods of $2.8 million, which
was partially offset by an increase in depreciation and amortization of $1.6 million, and a decrease in operating assets and liabilities of $2.5 million.

Net cash used in investing activities was $5.2 million in the thirty-nine week period ended September 26, 2009 compared to $38.9 million in the
thirty-nine week period ended September 27, 2008. We use cash primarily for equipment purchases and construction costs related to new restaurant openings, to purchase restaurants, and to upgrade and add capacity to existing restaurants. During
the thirty-nine week periods ended September 26, 2009 and September 27, 2008, we opened two and nine restaurants, respectively.

Net
cash used in financing activities was $5.0 million in the thirty-nine week period ended September 26, 2009 compared to net cash provided by financing activities of $20.4 million in the thirty-nine week period ended September 27, 2008. Net
cash provided by or used in financing activities is primarily related to the borrowings and payments on our revolving credit facility. We utilize our revolving credit facility to fund our construction of new restaurants, remodeling of existing
restaurants, as well as fund our ongoing operations.

As of September 26, 2009, the outstanding balance on our revolving credit facility
was $18.5 million. On January 29, 2009, we amended our revolving credit facility. In conjunction with the amendment, the maximum availably under the facility was reduced from $150.0 million to $90.0 million, with an additional $50.0 million
available at our request if specified conditions are met. Among other things, the amendment also affected our covenants and interest rates on borrowings under the facility. The interest rate on U.S. borrowings is based on the financial
institutions base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin between 1.25% and 2.50%, with margins determined by certain financial ratios. The terms of the facility also allow us to borrow up to $10.0
million in Canadian dollars, which reduces the limit available for borrowings under the credit facility by an equal amount, with an interest rate based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins determined by
certain financial ratios. As of September 26, 2009, our effective interest rate on our borrowings was 2.8%. Under our revolving credit facility agreement, we are subject to certain financial covenants, including a maximum adjusted leverage
ratio and a minimum fixed charge ratio. We were in compliance with these covenants as of September 26, 2009.

Under our revolving credit
facility agreement, loans are collateralized by the stock of our subsidiaries and are scheduled to mature on December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit
arrangements in the normal course of business operations. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform when required to do so, pursuant to the requirements of an underlying agreement or the
provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its
terms. As of September 26, 2009, the maximum exposure under these standby letters of credit was $3.0 million. At September 26, 2009 we had $68.5 million available, subject to the conditions of the agreement, under our revolving credit
facility.



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On July 30, 2008, our Board of Directors authorized the repurchase of up to $20.0 million of our common
stock. Such repurchases may be made from time to time in open market transactions or through privately negotiated transactions. As of September 26, 2009 we had not repurchased any shares.

We believe the net cash provided by operating activities and funds available from our revolving credit facility will be sufficient to satisfy our working
capital and capital expenditure requirements, including restaurant construction and pre-opening costs and potential initial operating losses related to new restaurant openings, for at least the next twelve months.

Critical Accounting Policies and Use of Estimates

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

Impairment of Long-Lived Assets

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

Insurance Liability

We maintain
various insurance policies including workers compensation, employee health, and general liability. Pursuant to those policies, we are responsible for losses up to certain limits and are required to estimate a liability that represents our
ultimate exposure for aggregate losses below those limits. This liability is based on managements estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. Our estimated
liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends differ from our estimates, our financial results could be impacted. In
addition, we may exceed our insurance coverage for specified matters. Our primary insurer in 2004 has informed us it believes we have exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year, which it
believes includes litigation in California and possibly similar future claims. Furthermore, the insurer has also taken the position that several claims arising in the 2005 through 2008 coverage years are related to certain 2004 claims, and therefore
are not eligible for coverage. We disagree with this interpretation of our coverage, but we have taken this interpretation into account in connection with our accounting for claims under the policy.

Income Taxes

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

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination,
we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we
would not be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would increase the provision for income taxes.



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Operating Leases

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

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

Share-Based Compensation

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



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

Evaluation of Disclosure Controls and Procedures

Our management initially evaluated, under the supervision and with the participation of our chief executive officer and our chief financial officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act),
which are designed to ensure that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that initial evaluation, our chief executive officer and chief financial officer concluded that, as of the end
of the period covered by this report, our disclosure controls and procedures were effective as of September 26, 2009.

In connection with
the restatement described in this Amendment, management re-evaluated the effectiveness of our disclosure controls and procedures as of September 26, 2009 and identified certain control deficiencies as of September 26, 2009 that constituted
a material weakness in our internal control over financial reporting. Because of this material weakness, management subsequently concluded that we did not maintain effective disclosure controls and procedures as of September 26, 2009. The
accounts impacted were revenues, accrued liabilities and the related impact on our income tax accounts, as well as on our reported net income and net income per share.



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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. This control deficiency could result in misstatements of the
aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

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

Based on the above findings, management re-evaluated our account reconciliation procedures during the second quarter of fiscal year
2010 and has concluded that the condensed consolidated financial statements included in this Quarter Report on Form 10-Q/A are fairly stated, in accordance with accounting principles generally accepted in the United States of America.

For additional information regarding the restatement and the material weakness identified by management, see Note 13 of Notes to Condensed Consolidated
Financial Statements included in Part I, Item 1 of this Form 10-Q/A.

Remediation Plan

No steps were taken to remediate this material weakness during the third quarter ended September 26, 2009 as these circumstances had not yet been
identified by management. However, during the second quarter ended June 26, 2010, management took immediate action to remediate the material weakness identified. First, the reconciliation of the gift card discount account was re-designed to
properly capture the breakage dates of discounted gift cards. Additionally, a more robust account analytic was added to our monthly closing process to identify unusual trends in the gift card discount account. We also strengthened the process of
reviewing the gift card account reconciliations and hired a new accounting manager with more extensive technical accounting knowledge. Until management has satisfactorily completed its testing of the new controls, it will not be able to conclude
that the material weakness noted above has been remediated. We believe these enhancements to our system of internal controls will be adequate to provide reasonable assurance that the control objectives will be met. As we continue to evaluate and
work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 26, 2009 that materially
affected, or was reasonably likely to materially affect, our internal control over financial reporting. However, as described above, there have been changes in our internal control over financial reporting during the quarter ended June 26, 2010
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II - OTHER INFORMATION



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

The following exhibits are
filed herewith and this list is intended to constitute the exhibit index:



|     |  |                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                               
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                               



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



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

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



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

Date: August 20, 2010



28