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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2006

OR



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

For the transition period from  to

Commission
File Number 000-50845

McCormick & Schmicks Seafood Restaurants, Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-1193199                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|720 SW Washington Street, Suite 550 Portland, Oregon           |  | 97205                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(503) 226-3440

(Registrants telephone number, including area code)

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

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

Large accelerated filer ̈Accelerated filer  x                Non-accelerated filer ̈

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

There were 14,238,213 shares of common stock outstanding as of September 30, 2006.



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INDEX



|                                                                                                                                |  |   
|------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                                   |  | 2 
|Item 1 - Financial Statements - (Unaudited)                                                                                     |  | 2 
|Consolidated Balance Sheets as of December 31, 2005 and September 30, 2006                                                      |  | 2 
|Consolidated Statements of Income for the thirteen and thirty-nine week periods ended September 24, 2005 and September 30, 2006 |  | 3 
|Consolidated Statements of Cash Flows for the thirty-nine week period ended September 24, 2005 and September 30, 2006           |  | 4 
|Notes to Consolidated Financial Statements                                                                                      |  | 5 
|Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 8 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                                             |  | 14
|Item 4 - Controls and Procedures                                                                                                |  | 14
|PART II. OTHER INFORMATION                                                                                                      |  | 15
|Item 1 - Legal Proceedings                                                                                                      |  | 15
|Item 1A - Risk Factors                                                                                                          |  | 15
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  | 18
|Item 3 - Defaults Upon Senior Securities                                                                                        |  | 18
|Item 4 - Submissions of Matters to a Vote of Security Holders                                                                   |  | 18
|Item 5 - Other Information                                                                                                      |  | 18
|Item 6 - Exhibits                                                                                                               |  | 18
|Signatures                                                                                                                      |  | 20



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##### Table of Contents

PART I  FINANCIAL INFORMATION



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

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

Consolidated Balance
Sheets

(in thousands, except per share data)



|                                                                                                           |  |                  |         |                   |   |        
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- | - | -------
|                                                                                                           |  | December 31,2005 |         | September 30,2006
|                                                                                                           |  |                  |         | (Unaudited)      
|Assets                                                                                                     |  |                  |         |                   |   |        
|Current assets                                                                                             |  |                  |         |                   |   |        
|Cash and cash equivalents                                                                                  |  | $                | 4,705   |                   | $ | 3,455  
|Trade accounts receivable, net                                                                             |  |                  | 5,081   |                   |   | 6,072  
|Tenant improvement allowance receivables                                                                   |  |                  | 1,780   |                   |   | 1,194  
|Inventories                                                                                                |  |                  | 4,517   |                   |   | 4,376  
|Prepaid expenses and other current assets                                                                  |  |                  | 3,020   |                   |   | 4,363  
|Deferred income taxes                                                                                      |  |                  | 6,688   |                   |   | 2,697  
|                                                                                                           |  |                  |         |                   |   |        
|Total current assets                                                                                       |  |                  | 25,791  |                   |   | 22,157 
|Property and equipment                                                                                     |  |                  | 104,727 |                   |   | 119,429
|Other assets                                                                                               |  |                  | 53,646  |                   |   | 53,663 
|Goodwill                                                                                                   |  |                  | 19,996  |                   |   | 19,996 
|                                                                                                           |  |                  |         |                   |   |        
|Total assets                                                                                               |  | $                | 204,160 |                   | $ | 215,245
|                                                                                                           |  |                  |         |                   |   |        
|Liabilities and Stockholders Equity                                                                       |  |                  |         |                   |   |        
|Current liabilities                                                                                        |  |                  |         |                   |   |        
|Accounts payable                                                                                           |  | $                | 13,431  |                   | $ | 12,428 
|Accrued expenses                                                                                           |  |                  | 18,970  |                   |   | 20,904 
|Capital lease obligations, current portion                                                                 |  |                  | 368     |                   |   | 386    
|                                                                                                           |  |                  |         |                   |   |        
|Total current liabilities                                                                                  |  |                  | 32,769  |                   |   | 33,718 
|Other long-term liabilities                                                                                |  |                  | 15,618  |                   |   | 17,439 
|Capital lease obligations, noncurrent portion                                                              |  |                  | 338     |                   |   | 47     
|Deferred income taxes                                                                                      |  |                  | 11,982  |                   |   | 9,954  
|                                                                                                           |  |                  |         |                   |   |        
|Total liabilities                                                                                          |  |                  | 60,707  |                   |   | 61,158 
|                                                                                                           |  |                  |         |                   |   |        
|Contingencies (Note 8)                                                                                     |  |                  |         |                   |   |        
|Stockholders equity                                                                                       |  |                  |         |                   |   |        
|Common stock, $0.001 par value, 120,000 shares authorized, 13,784 and 14,238 shares issued and outstanding |  |                  | 14      |                   |   | 14     
|Additional paid in capital                                                                                 |  |                  | 136,292 |                   |   | 138,374
|Retained earnings                                                                                          |  |                  | 7,147   |                   |   | 15,699 
|                                                                                                           |  |                  |         |                   |   |        
|Total stockholders equity                                                                                 |  |                  | 143,453 |                   |   | 154,087
|                                                                                                           |  |                  |         |                   |   |        
|Total liabilities and stockholders equity                                                                 |  | $                | 204,160 |                   | $ | 215,245
|                                                                                                           |  |                  |         |                   |   |        

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



2



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

Consolidated Statements
of Income-Unaudited

(in thousands, except per share data)



|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|--------------------------------------------- |  | -------------------------- | ------ | ------------------ | ----------------------------- | ------ | ------------------ |  | ----------------- | ------- |  | - | ------- | -
|                                              |  | Thirteen week period ended |        |                    | Thirty-nine week period ended |       
|                                              |  | September 24,2005          |        | September 30, 2006 |                               |        | September 24, 2005 |  | September 30,2006 |        
|Revenues                                      |  | $                          | 68,014 |                    | $                             | 75,648 |                    |  | $                 | 196,785 |  | $ | 224,017 |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Restaurant operating costs                    |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Food and beverage                             |  |                            | 20,013 |                    |                               | 22,120 |                    |  |                   | 57,700  |  |   | 65,505  |  
|Labor                                         |  |                            | 21,421 |                    |                               | 23,827 |                    |  |                   | 62,157  |  |   | 70,364  |  
|Operating                                     |  |                            | 10,447 |                    |                               | 11,768 |                    |  |                   | 29,462  |  |   | 33,392  |  
|Occupancy                                     |  |                            | 6,267  |                    |                               | 6,964  |                    |  |                   | 17,933  |  |   | 20,478  |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Total restaurant operating costs              |  |                            | 58,148 |                    |                               | 64,679 |                    |  |                   | 167,252 |  |   | 189,739 |  
|General and administrative expenses           |  |                            | 3,541  |                    |                               | 4,031  |                    |  |                   | 10,444  |  |   | 11,985  |  
|Restaurant pre-opening costs                  |  |                            | 760    |                    |                               | 310    |                    |  |                   | 2,048   |  |   | 1,795   |  
|Depreciation and amortization                 |  |                            | 2,483  |                    |                               | 2,733  |                    |  |                   | 7,095   |  |   | 8,117   |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Total costs and expenses                      |  |                            | 64,932 |                    |                               | 71,753 |                    |  |                   | 186,839 |  |   | 211,636 |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Operating income                              |  |                            | 3,082  |                    |                               | 3,895  |                    |  |                   | 9,946   |  |   | 12,381  |  
|Interest expense (income), net                |  |                            | 131    |                    |                               | (69    | )                  |  |                   | 454     |  |   | (159    | )
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Income before income taxes                    |  |                            | 2,951  |                    |                               | 3,964  |                    |  |                   | 9,492   |  |   | 12,540  |  
|Income tax expense                            |  |                            | 915    |                    |                               | 1,261  |                    |  |                   | 2,942   |  |   | 3,988   |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Net income                                    |  | $                          | 2,036  |                    | $                             | 2,703  |                    |  | $                 | 6,550   |  | $ | 8,552   |  
|                                              |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Net income per share                          |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Basic                                         |  | $                          | 0.15   |                    | $                             | 0.19   |                    |  | $                 | 0.48    |  | $ | 0.60    |  
|Diluted                                       |  | $                          | 0.15   |                    | $                             | 0.19   |                    |  | $                 | 0.47    |  | $ | 0.59    |  
|Shares used in computing net income per share |  |                            |        |                    |                               |        |                    |  |                   |         |  |   |         |  
|Basic                                         |  |                            | 13,783 |                    |                               | 14,230 |                    |  |                   | 13,782  |  |   | 14,214  |  
|Diluted                                       |  |                            | 14,026 |                    |                               | 14,480 |                    |  |                   | 13,983  |  |   | 14,498  |  

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



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

Consolidated Statements
of Cash Flows-Unaudited

(in thousands)



|                                                                                 |  |                               |         |   |                   |   |         |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                 |  | Thirty-nine week period ended |        
|                                                                                 |  | September 24,2005             |         |   | September 30,2006 |  
|Operating activities                                                             |  |                               |         |   |                   |   |         |  
|Net income                                                                       |  | $                             | 6,550   |   |                   | $ | 8,552   |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                               |         |   |                   |   |         |  
|Depreciation and amortization                                                    |  |                               | 7,095   |   |                   |   | 8,117   |  
|Deferred income taxes                                                            |  |                               | 2,670   |   |                   |   | 1,963   |  
|Share based compensation                                                         |  |                               |        |   |                   |   | 1,059   |  
|Changes in operating assets and liabilities                                      |  |                               |         |   |                   |   |         |  
|Trade accounts receivable                                                        |  |                               | (12     | ) |                   |   | (991    | )
|Tenant improvement allowance receivables                                         |  |                               | (2,811  | ) |                   |   | 586     |  
|Inventories                                                                      |  |                               | (301    | ) |                   |   | 141     |  
|Prepaid expenses and other current assets                                        |  |                               | (15     | ) |                   |   | (1,343  | )
|Accounts payable                                                                 |  |                               | 64      |   |                   |   | (1,003  | )
|Accrued expenses                                                                 |  |                               | 3,038   |   |                   |   | 1,933   |  
|Other long-term liabilities                                                      |  |                               | 3,160   |   |                   |   | 1,821   |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Net cash provided by operating activities                                        |  |                               | 19,438  |   |                   |   | 20,835  |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Investing activities                                                             |  |                               |         |   |                   |   |         |  
|Acquisition of property and equipment                                            |  |                               | (17,036 | ) |                   |   | (22,676 | )
|Other assets                                                                     |  |                               | (20     | ) |                   |   | (159    | )
|                                                                                 |  |                               |         |   |                   |   |         |  
|Net cash used in investing activities                                            |  |                               | (17,056 | ) |                   |   | (22,835 | )
|                                                                                 |  |                               |         |   |                   |   |         |  
|Financing activities                                                             |  |                               |         |   |                   |   |         |  
|Increase in book overdraft                                                       |  |                               | 1,925   |   |                   |   |        |  
|Borrowings made on revolving credit facility                                     |  |                               | 7,000   |   |                   |   |        |  
|Payments made on revolving credit facility                                       |  |                               | (11,000 | ) |                   |   |        |  
|Payments on capital lease obligations                                            |  |                               | (328    | ) |                   |   | (273    | )
|Proceeds from stock options exercised                                            |  |                               | 14      |   |                   |   | 713     |  
|Excess tax benefits from share based compensation                                |  |                               |        |   |                   |   | 310     |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Net cash provided by (used in) financing activities                              |  |                               | (2,389  | ) |                   |   | 750     |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Net decrease in cash and cash equivalents                                        |  |                               | (7      | ) |                   |   | (1,250  | )
|Cash and cash equivalents, beginning of period                                   |  |                               | 451     |   |                   |   | 4,705   |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Cash and cash equivalents, end of period                                         |  | $                             | 444     |   |                   | $ | 3,455   |  
|                                                                                 |  |                               |         |   |                   |   |         |  
|Supplemental disclosure of cash flow information                                 |  |                               |         |   |                   |   |         |  
|Cash paid during the period                                                      |  |                               |         |   |                   |   |         |  
|Interest                                                                         |  | $                             | 702     |   |                   | $ | 249     |  
|Income taxes                                                                     |  | $                             | 273     |   |                   | $ | 1,824   |  

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



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

Notes to Consolidated
Financial Statements-Unaudited



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

McCormick & Schmicks
Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining segment. McCormick & Schmicks Seafood Restaurants, Inc. is the survivor of a merger with McCormick &
Schmick Holdings LLC (the LLC) that occurred on July 20, 2004, prior to the Companys initial public offering. As of September 30, 2006 the Company owned and operated 63 restaurants in 24 states and the District of
Columbia, including two pursuant to management agreements.



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

The accompanying unaudited consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary
for a fair statement have been included. Operating results for the thirteen and thirty-nine week periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 30,
2006.

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



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

Principles of
Consolidation

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

Management
Estimates

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

Revenue Recognition

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

Share-Based Compensation Plan

The Company adopted Statements of Financial Accounting Standards (SFAS) No. 123, Share Based Payment (revised 2004) (SFAS 123R) using the modified prospective transition
method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Companys fiscal year 2006. The Companys consolidated financial statements as of and for the thirteen week and thirty-nine
week periods ended September 30, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, the Companys consolidated financial statements for prior periods have not been restated to reflect, and
do not include, the impact of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the thirteen week and thirty-nine week periods ended September 30, 2006 was $0.5 million, and $1.1 million, respectively, which consisted
of share-based compensation expense related to employee stock options and restricted stock awards. There was no share-based compensation expense recognized related to stock awards during the thirteen week or thirty-nine week periods ended
September 24, 2005.

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

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



|                          |  |                                            |   |  |                    |  
|------------------------- |  | ------------------------------------------ | - |  | ------------------ | -
|                          |  | Thirteen and thirty-nine weekperiods ended |  
|                          |  | September 24, 2005                         |   |  | September 30, 2006 |  
|Expected volatility       |  | 24.3                                       | % |  | 24.3               | %
|Option life               |  | 10 years                                   |   |  | 10 years           |  
|Expected term             |  | 5.5 years                                  |   |  | 5.5 years          |  
|Estimated forfeiture rate |  | 9                                          | % |  | 9                  | %
|Risk-free interest rate   |  | 3.9                                        | % |  | 3.9                | %
|Dividend yield            |  | 0                                          | % |  | 0                  | %



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In May 2006, the Board of Directors of the Company approved, and the Company issued, 142,000 shares of restricted stock
to certain employees and executive officers. One third of the restricted stock grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company.

The following table represents the effect on net income and net income per share for the thirteen and thirty-nine week periods ended September 24, 2005 if the Company
had applied the fair value based method and recognition provisions of SFAS No. 123, Share Based Payment (SFAS 123) to share-based compensation (in thousands, except per share amounts).



|                                                              |  |                                             |        |   |                                                |   |        |  
|------------------------------------------------------------- |  | ------------------------------------------- | ------ | - | ---------------------------------------------- | - | ------ | -
|                                                              |  | Thirteen weekperiod endedSeptember 24, 2005 |        |   | Thirty-nine weekperiod endedSeptember 24, 2005 |  
|Net income, as reported                                       |  | $                                           | 2,036  |   |                                                | $ | 6,550  |  
|Share-based compensation on the fair value method, net of tax |  |                                             | (200   | ) |                                                |   | (635   | )
|                                                              |  |                                             |        |   |                                                |   |        |  
|Pro forma net income                                          |  | $                                           | 1,836  |   |                                                | $ | 5,915  |  
|                                                              |  |                                             |        |   |                                                |   |        |  
|Basic net income per share                                    |  |                                             |        |   |                                                |   |        |  
|As reported                                                   |  | $                                           | 0.15   |   |                                                | $ | 0.48   |  
|Pro forma                                                     |  | $                                           | 0.13   |   |                                                | $ | 0.43   |  
|Fully diluted net income per share                            |  |                                             |        |   |                                                |   |        |  
|As reported                                                   |  | $                                           | 0.15   |   |                                                | $ | 0.47   |  
|Pro forma                                                     |  | $                                           | 0.13   |   |                                                | $ | 0.43   |  
|Shares used in computing net income per share                 |  |                                             |        |   |                                                |   |        |  
|As reported                                                   |  |                                             |        |   |                                                |   |        |  
|Basic                                                         |  |                                             | 13,783 |   |                                                |   | 13,782 |  
|Fully diluted                                                 |  |                                             | 14,026 |   |                                                |   | 13,983 |  
|Pro forma                                                     |  |                                             |        |   |                                                |   |        |  
|Basic                                                         |  |                                             | 13,783 |   |                                                |   | 13,782 |  
|Fully diluted                                                 |  |                                             | 13,950 |   |                                                |   | 13,886 |  

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.

SFAS No. 128,
Earnings per Share, requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted
shares outstanding include the dilutive effect of in-the-money options 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 purchase price the grantee pays for restricted stock, 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 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 that are reasonably assured of renewal due to the presence of certain economic penalties. For purposes of calculating straight-line rents, the lease term commences on the date the lessee obtains
control of the property, which is normally when the property is ready for normal tenant improvements (build-out period). For certain leases the Company only has the right to exercise its option for renewal if certain sales targets are achieved at or
near the renewal date. These renewal option periods have been included in the lease term when the Company determines at lease inception or at the acquisition date of the restaurant, if later, that the sales targets are nonsubstantive and achievement
of such sales targets is reasonably assured. The difference between rent expense calculated using the straight-line method and minimum rent paid is recorded as a deferred rent liability. The Company receives certain tenant improvement allowances,
which are considered lease incentives and are amortized as reduction of rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability for the straight-lining of rents and lease incentives, which is included in
other long-term liabilities, of $13.9 million and $16.3 million as of September 24, 2005 and September 30, 2006, respectively.



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

In July 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 creates a single model to address uncertainty in tax positions. FIN 48
clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. In addition, FIN 48 clarifies that income taxes are not within the scope of FASB statement No. 5, Accounting for Contingencies.



6



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##### Table of Contents

FIN 48 applies to all tax positions related to income taxes subject to FASB statement No. 109, Accounting for
Income Taxes. This includes tax positions considered to be routine as well as those with a high degree of uncertainty. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the
adoption of this standard will have a material effect on the Companys financial position or results of operations.



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

The Company has a
$50.0 million revolving credit facility under which borrowings are collateralized by a first priority security interest in all of the Companys assets and matures on July 23, 2009. As of September 30, 2006, there was no
outstanding balance on the credit facility. The interest rate on the credit facility is based on the financial institutions prime rate plus a margin of up to 0.75% or the Eurodollar rate plus a margin of 0.75% to 1.75%, with margins determined
by certain financial ratios.

The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the
normal course of business operations. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform when required to 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 30, 2006
and December 31, 2005 the maximum exposure under these standby letters of credit was $2.7 million and $1.5 million, respectively, and there were no amounts drawn upon these letters of credit. At September 30, 2006 and
December 31, 2005, the Company had $47.3 million and $48.5 million, respectively, available under its revolving credit facility.

Under the revolving
credit facility agreement, the Company is subject to certain financial and non-financial covenants, including an adjusted leverage ratio, a consolidated cash flow ratio, and a growth capital expenditures limitation. The Company was in compliance
with these covenants as of September 30, 2006.



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

On June 16, 2004, the Company
adopted its 2004 Stock Incentive Plan (the Plan) under which 1,500,000 shares were reserved for issuance. Under the Plan, the Company may grant stock options, restricted stock and other awards to employees, directors, and consultants of
the Company and of any parent or subsidiary of the Company. On July 20, 2004, the Company issued to officers and employees options to purchase an aggregate of 879,600 shares of common stock at $12.00 per share. These options become exercisable
over a three-year period and are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. The Company issues new shares upon exercise of stock options. On May 23, 2006, the Company issued to officers
and employees an aggregate of 142,000 shares of restricted stock. One third of the restricted stock grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company. Additional awards granted
under the Plan may be in the form of nonqualified stock options, incentive stock options, stock appreciation rights (SARs), restricted stock, stock bonuses and performance-based awards.

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

Each award expires on the date determined at the date of grant; however,
the maximum term of options, SARs and other rights to acquire common stock under the Plan is 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 will become available for other award grants under the Plan. If not sooner terminated by the
Companys board of directors, the Plan will terminate on June 16, 2014.

The table below summarizes the status of the Companys stock option
activity as of September 30, 2006.



|                                  |  |         |  |                                |       |                         |   |          
|--------------------------------- |  | ------- |  | ------------------------------ | ----- | ----------------------- | - | ---------
|                                  |  | Shares  |  | Weighted AverageExercise Price |       | AggregateIntrinsicValue
|Outstanding at July 17, 2004      |  |        |  | $                              |      |                         |   |          
|Granted                           |  | 879,600 |  |                                | 12.00 |                         |   |          
|Forfeited                         |  | 9,100   |  |                                | 12.00 |                         |   |          
|                                  |  |         |  |                                |       |                         |   |          
|Outstanding at December 25, 2004  |  | 870,500 |  |                                | 12.00 |                         |   |          
|                                  |  |         |  |                                |       |                         |   |          
|Exercised                         |  | 16,856  |  |                                | 12.00 |                         |   |          
|Forfeited                         |  | 20,798  |  |                                | 12.00 |                         |   |          
|                                  |  |         |  |                                |       |                         |   |          
|Outstanding at December 31, 2005  |  | 832,846 |  |                                | 12.00 |                         |   |          
|                                  |  |         |  |                                |       |                         |   |          
|Exercised                         |  | 59,440  |  |                                | 12.00 |                         | $ | 684,906  
|Forfeited                         |  | 6,931   |  |                                | 12.00 |                         |   | 78,382   
|                                  |  |         |  |                                |       |                         |   |          
|Outstanding at September 30, 2006 |  | 766,475 |  |                                | 12.00 |                         |   | 8,040,323
|                                  |  |         |  |                                |       |                         |   |          
|Exercisable at September 30, 2006 |  | 487,613 |  |                                | 12.00 |                         |   | 5,115,060

The table below summarizes information about stock options outstanding at September 30, 2006.



|                         |  |                   |  |                                                      |  |                                 |  |                   |  |                                
|------------------------ |  | ----------------- |  | ---------------------------------------------------- |  | ------------------------------- |  | ----------------- |  | -------------------------------
|Outstanding              |  | Exercisable      
|Range of Exercise Prices |  | Number of Options |  | Weighted Average Remaining Years of Contractual Life |  | Weighted Average Exercise price |  | Number of Options |  | Weighted Average Exercise price
|$12.00                   |  | 766,475           |  | 7.8                                                  |  | $12.00                          |  | 487,613           |  | $12.00                         



7



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##### Table of Contents

The table below summarizes information about restricted stock at September 30, 2006.



|                                  |  |         |  |                                |   |                         |   |          
|--------------------------------- |  | ------- |  | ------------------------------ | - | ----------------------- | - | ---------
|                                  |  | Shares  |  | Weighted AverageExercise Price |   | AggregateIntrinsicValue
|Outstanding at December 31, 2005  |  |        |  | $                              |  |                         |   |          
|Granted                           |  | 142,000 |  |                                |  |                         | $ | 3,273,100
|Vested                            |  |        |  |                                |  |                         |   |          
|Forfeited                         |  |        |  |                                |  |                         |   |          
|Outstanding at September 30, 2006 |  | 142,000 |  |                                |  |                         |   | 3,193,580
|Exercisable at September 30, 2006 |  |        |  |                                |  |                         |   |          

Share-based compensation expense recognized under SFAS 123R for the thirteen week and thirty-nine week periods
ended September 30, 2006 was $0.5 million and $1.1 million, respectively, which consisted of share-based compensation expense related to employee stock options and restricted stock. There was no share-based compensation expense recognized
related to stock awards during the thirteen week and thirty-nine week periods ended September 24, 2005. As of September 30, 2006, the unamortized compensation cost related to stock options and restricted stock granted to employees under
the Companys 2004 Stock Incentive Plan was $0.7 million and $2.9 million, respectively.

The following table summarizes share-based compensation
expense related to employee stock options under SFAS 123R for the thirteen week and thirty-nine week periods ended September 24, 2005 and September 30, 2006 (in thousands).



|                                                                               |  |                            |   |                               |   |                   |  |                   |   |  |   |      
|------------------------------------------------------------------------------ |  | -------------------------- | - | ----------------------------- | - | ----------------- |  | ----------------- | - |  | - | -----
|                                                                               |  | Thirteen week period ended |   | Thirty-nine week period ended
|                                                                               |  | September 24,2005          |   | September 30,2006             |   | September 24,2005 |  | September 30,2006
|Labor                                                                          |  | $                          |  |                               | $ | 17                |  | $                 |  |  | $ | 56   
|General and administrative expenses                                            |  |                            |  |                               |   | 468               |  |                   |  |  |   | 1,004
|                                                                               |  |                            |   |                               |   |                   |  |                   |   |  |   |      
|Share-based compensation expense included in total costs and expenses          |  |                            |  |                               |   | 485               |  |                   |  |  |   | 1,060
|Income tax benefit related to share-based compensation                         |  |                            |  |                               |   | 140               |  |                   |  |  |   | 248  
|                                                                               |  |                            |   |                               |   |                   |  |                   |   |  |   |      
|Share-based compensation expense related to employee stock options, net of tax |  | $                          |  |                               | $ | 345               |  | $                 |  |  | $ | 812  
|                                                                               |  |                            |   |                               |   |                   |  |                   |   |  |   |      



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

The Company leases properties from
landlords controlled by certain stockholders of the Company. Total rent paid to these landlords was $0.3 million for each of the thirteen week periods ended September 30, 2006 and September 24, 2005, and $0.7 million for each of the
thirty-nine week periods ended September 30, 2006 and September 24, 2005.



|8. | Contingencies
|-- | -------------

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



|9. | Subsequent Events
|-- | -----------------

On November 1, 2006, the Company executed
an agreement to acquire all of the operating assets and intellectual property of the Boathouse restaurant concept from The Spectra Group of Great Restaurants Inc. for approximately US$14.3 million. The Boathouse operates five locations, and is
developing a sixth, in Vancouver, British Columbia, Canada. On October 31, 2006, the Company entered into an amendment of its revolving credit facility agreement to increase by $20.0 million permissible growth capital expenditures and permitted
acquisitions under the agreement. The amendment did not alter the maximum amount the Company may borrow under the credit facility.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

FORWARD LOOKING STATEMENTS

This information should be read in conjunction with the consolidated financial statements
and notes thereto included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations for
the year ended December 31, 2005 contained in our 2005 Annual Report on Form 10-K.

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

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

Overview

Our Company was founded in 1972 with William P. McCormicks acquisition of Jakes Famous Crawfish in Portland, Oregon. In July 2004 we completed our initial
public offering. We have expanded our restaurant base to 63 restaurants in 24 states and the District of Columbia, as of September 30, 2006, including two restaurants operated pursuant to management contracts.



8



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##### Table of Contents

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

We measure performance using key operating indicators such as comparable restaurant sales, 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. We also track trends in
average weekly revenues at both the restaurant level and on a consolidated basis as an indicator of our performance. The key operating measure used by management in evaluating our operating results is operating income. Operating income is calculated
by deducting 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 up to $0.1 million in non-cash rent expense during the
construction period.

The most significant restaurant operating costs are food and beverage costs and labor and related employee benefits. We believe our
national and regional presence allows us to achieve better quality and pricing on key products than most of our competitors. We closely monitor food and beverage costs and regularly review our selection of preferred vendors on the basis of several
key metrics, including pricing. In addition, because we print our menu at least once daily in most of our restaurants, we are able to adapt the seafood items we offer to changes in vendor pricing to optimize our revenue mix and mitigate the impact
of cost increases in any particular seafood item by substituting a lower-cost alternative on our menu or by adjusting the price. With respect to labor costs, we believe the combination of future growth in revenues and the resulting greater
restaurant coverage of our vice presidents of operations and regional managers will allow us to leverage payroll expenses over time. Our employee benefits include health insurance, the cost of which continues to increase faster than the general rate
of inflation. We continually monitor this cost and review and implement strategies to effectively control increases.

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

Identification of appropriate new restaurant sites is essential to our growth strategy. We evaluate and invest in new restaurants based on site-specific projected returns on investment. We believe our 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 34 years has been to consistently offer a broad selection of high quality, fresh seafood, which we believe
commands strong loyalty from our customers. We have successfully expanded our McCormick & Schmicks Seafood Restaurant concept throughout the United States and have competed effectively with national and regional restaurant chains and
with local restaurant operators.

Our objective is to continue to prudently grow McCormick & Schmicks seafood restaurants in existing and
new markets. Our 2006 plan includes opening seven new restaurants, four of which were opened as of September 30, 2006. In 2007, the Company expects to open 11 restaurants. In addition, on November 1, 2006, the Company agreed to purchase five
Boathouse restaurants, and a sixth under development, in Vancouver, British Columbia. The Company expects to complete that acquisition in the first fiscal quarter of 2007. In addition to new restaurant growth, we are committed to improving
comparable restaurant sales and operating margins over the levels achieved in 2005.

Financial Performance Overview

The following are highlights of our financial performance for the thirteen week period ended September 30, 2006 compared to the thirteen week period ended
September 24, 2005:



| |  |  | Revenues increased 11.2% to $75.6 million from $68.0 million
| | - |  | ------------------------------------------------------------



| |  |  | Comparable restaurant sales increased 2.9%
| | - |  | ------------------------------------------



| |  |  | Operating income increased 26.4% to $3.9 million from $3.1 million
| | - |  | ------------------------------------------------------------------



| |  |  | Net income increased 32.8% to $2.7 million from $2.0 million
| | - |  | ------------------------------------------------------------



| |  |  | Diluted earnings per share increased to $0.19 from $0.15
| | - |  | --------------------------------------------------------

Thirteen
Week Period Ended September 24, 2005 Compared to Thirteen Week Period Ended September 30, 2006

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



|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|----------------------------------- |  | -------------------------- | ------ |  | ------------------ | - |  | - | ------ | - |  | ----- | --
|                                    |  | Thirteen week period ended |       
|                                    |  | September 24, 2005         |        |  | September 30, 2006 |  
|                                    |  | (in thousands)             |       
|Revenues                            |  | $                          | 68,014 |  | 100.0              | % |  | $ | 75,648 |   |  | 100.0 | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Restaurant operating costs          |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Food and beverage                   |  |                            | 20,013 |  | 29.4               | % |  |   | 22,120 |   |  | 29.2  | % 
|Labor                               |  |                            | 21,421 |  | 31.5               | % |  |   | 23,827 |   |  | 31.5  | % 
|Operating                           |  |                            | 10,447 |  | 15.4               | % |  |   | 11,768 |   |  | 15.6  | % 
|Occupancy                           |  |                            | 6,267  |  | 9.2                | % |  |   | 6,964  |   |  | 9.2   | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Total restaurant operating costs    |  |                            | 58,148 |  | 85.5               | % |  |   | 64,679 |   |  | 85.5  | % 
|General and administrative expenses |  |                            | 3,541  |  | 5.2                | % |  |   | 4,031  |   |  | 5.3   | % 
|Restaurant pre-opening costs        |  |                            | 760    |  | 1.1                | % |  |   | 310    |   |  | 0.4   | % 
|Depreciation and amortization       |  |                            | 2,483  |  | 3.7                | % |  |   | 2,733  |   |  | 3.7   | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Total costs and expenses            |  |                            | 64,932 |  | 95.5               | % |  |   | 71,753 |   |  | 94.9  | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Operating income                    |  |                            | 3,082  |  | 4.5                | % |  |   | 3,895  |   |  | 5.1   | % 
|Interest expense (income), net      |  |                            | 131    |  | 0.2                | % |  |   | (69    | ) |  | (0.1  | )%
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Income before income taxes          |  |                            | 2,951  |  | 4.3                | % |  |   | 3,964  |   |  | 5.2   | % 
|Income tax expense                  |  |                            | 915    |  | 1.3                | % |  |   | 1,261  |   |  | 1.6   | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   
|Net income                          |  | $                          | 2,036  |  | 3.0                | % |  | $ | 2,703  |   |  | 3.6   | % 
|                                    |  |                            |        |  |                    |   |  |   |        |   |  |       |   



9



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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 consolidated statements of income.



|                                 |  |                            |        |                   |   |        |  |   |       |  |      |  
|-------------------------------- |  | -------------------------- | ------ | ----------------- | - | ------ |  | - | ----- |  | ---- | -
|                                 |  | Thirteen week period ended |        | Change            |  
|                                 |  | September 24,2005          |        | September 30,2006 |   | $      |  | % |      
|                                 |  |                            |        | (in thousands)    |   |        |  |   |      
|Revenues                         |  | $                          | 68,014 |                   | $ | 75,648 |  | $ | 7,634 |  | 11.2 | %
|                                 |  |                            |        |                   |   |        |  |   |       |  |      |  
|Restaurant operating costs       |  |                            |        |                   |   |        |  |   |       |  |      |  
|Food and beverage                |  | $                          | 20,013 |                   | $ | 22,120 |  | $ | 2,107 |  | 10.5 | %
|Labor                            |  |                            | 21,421 |                   |   | 23,827 |  |   | 2,406 |  | 11.2 | %
|Operating                        |  |                            | 10,447 |                   |   | 11,768 |  |   | 1,321 |  | 12.6 | %
|Occupancy                        |  |                            | 6,267  |                   |   | 6,964  |  |   | 697   |  | 11.1 | %
|                                 |  |                            |        |                   |   |        |  |   |       |  |      |  
|Total restaurant operating costs |  | $                          | 58,148 |                   | $ | 64,679 |  | $ | 6,531 |  | 11.2 | %
|                                 |  |                            |        |                   |   |        |  |   |       |  |      |  

Revenues. Revenues increased $7.6 million, or 11.2%, to $75.6 million in the thirteen week period
ended September 30, 2006 from $68.0 million in the thirteen week period ended September 24, 2005. This increase was primarily attributable to an increase in comparable restaurant sales of 2.9% coupled with revenues generated by the
restaurants not included in the comparable base.

Food and Beverage Costs. Food and beverage costs increased $2.1 million, or 10.5%, to $22.1
million in the thirteen week period ended September 30, 2006 from $20.0 million in the thirteen week period ended September 24, 2005. This increase was primarily attributable to the six company-owned restaurants opened since
September 24, 2005. Food and beverage costs as a percentage of revenues decreased to 29.2% in the thirteen week period ended September 30, 2006 from 29.4% in the thirteen week period ended September 24, 2005.

Labor Costs. Labor costs increased $2.4 million, or 11.2%, to $23.8 million in the thirteen week period ended September 30, 2006, from $21.4 million in
thirteen week period ended September 24, 2005. This increase was primarily attributable to the six company-owned restaurants opened since September 24, 2005. Labor costs as a percentage of revenues were 31.5 % in both of the thirteen
week period ended September 30, 2006 and September 24, 2005 and we continue to benefit from the leverage of higher average weekly sales volume for the comparable restaurants on fixed labor costs as well as an overall lower average number
of workers compensation claims per restaurant.

Operating Costs. Operating costs increased $1.3 million, or 12.6%, to $11.8 million in
the thirteen week period ended September 30, 2006 from $10.4 million in the thirteen week period ended September 24, 2005. This increase was primarily attributable to the six company-owned restaurants opened since September 24,
2005. Operating costs as a percentage of revenues increased to 15.6% in the thirteen week period ended September 30, 2006 from 15.4% in the thirteen week period ended September 24, 2005, primarily due to higher utility costs partially
offset by the leverage of higher average weekly sales volume for the comparable restaurants on fixed operating costs.

Occupancy
Costs. Occupancy costs increased $0.7 million, or 11.1%, to $7.0 million in the thirteen week period ended September 30, 2006 from $6.3 million in the thirteen week period ended September 24, 2005, primarily due to the six
company-owned restaurants opened since September 24, 2005. Occupancy costs as a percentage of revenues were 9.2% in both of the thirteen week periods ended September 30, 2006 and September 24, 2005.

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

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



|                                    |  |                            |       |                   |   |       |  |   |      |   |  |       |   
|----------------------------------- |  | -------------------------- | ----- | ----------------- | - | ----- |  | - | ---- | - |  | ----- | --
|                                    |  | Thirteen week period ended |       | Change            |  
|                                    |  | September 24,2005          |       | September30, 2006 |   | $     |  |   | %    |  
|                                    |  |                            |       | (in thousands)    |   |       |  |   |      |  
|General and administrative expenses |  | $                          | 3,541 |                   | $ | 4,031 |  | $ | 490  |   |  | 13.8  | % 
|Restaurant pre-opening costs        |  |                            | 760   |                   |   | 310   |  |   | (450 | ) |  | (59.2 | )%
|Depreciation and amortization       |  |                            | 2,483 |                   |   | 2,733 |  |   | 250  |   |  | 10.1  | % 

General and Administrative Expenses. General and administrative expenses increased $0.5 million, or
13.8%, to $4.0 million in the thirteen week period ended September 30, 2006 from $3.5 million in the thirteen week period ended September 24, 2005. General and administrative expenses as a percentage of revenues increased to 5.3% in the
thirteen week period ended September 30, 2006 from 5.2% in the thirteen week period ended September 24, 2005. Compensation expense increased $0.2 million and other general and administrative expenses increased $0.3 million, primarily due
to the growth of our business for the thirteen week period ended September 30, 2006 compared to the thirteen week period ended September 24, 2005. Included in general and administrative expenses for the thirteen week period ended
September 30, 2006 was $0.5 million of share-based compensation expenses recognized as a result of the adoption of SFAS 123R as of January 1, 2006.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs decreased $0.5 million, or 59.2%, to $0.3 million in the thirteen week period ended September 30, 2006 from $0.8 million in the thirteen week period ended
September 24, 2005, primarily due to the timing of restaurant openings and restaurants under construction in the thirteen week period ended September 30, 2006 compared to the thirteen week period ended September 24, 2005.

Depreciation and Amortization. Depreciation and amortization increased $0.3 million, or 10.1%, to $2.7 million in the thirteen week period ended
September 30, 2006 from $2.5 million in the thirteen week period ended September 24, 2005. The increase was primarily due to the addition of six company-owned restaurants since September 24, 2005.



10



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##### Table of Contents

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

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



|                               |  |                            |       |                   |        |       |   |  |   |       |   |  |      |  
|------------------------------ |  | -------------------------- | ----- | ----------------- | ------ | ----- | - |  | - | ----- | - |  | ---- | -
|                               |  | Thirteen week period ended |       |                   | Change |      
|                               |  | September 24,2005          |       | September 30,2006 |        |       | $ |  |   | %     |  
|                               |  |                            |       | (in thousands)    |        |       |   |  |   |       |  
|Interest expense (income), net |  | $                          | 131   |                   | $      | (69   | ) |  | $ | (200  | ) |  | *    |  
|                               |  |                            |       |                   |        |       |   |  |   |       |   |  |      |  
|Income before income taxes     |  | $                          | 2,951 |                   | $      | 3,964 |   |  | $ | 1,031 |   |  | 34.3 | %
|Income tax expense             |  |                            | 915   |                   |        | 1,261 |   |  |   | 346   |   |  | 37.8 | %
|                               |  |                            |       |                   |        |       |   |  |   |       |   |  |      |  
|Net income                     |  | $                          | 2,036 |                   | $      | 2,703 |   |  | $ | 667   |   |  | 32.8 | %
|                               |  |                            |       |                   |        |       |   |  |   |       |   |  |      |  



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

Interest Expense (Income),
Net. Interest income, net of interest expense, was $69,000 in the thirteen week period ended September 30, 2006 compared to interest expense of $131,000 in the thirteen week period ended September 24, 2005. This change was
primarily due to the paydown of our revolving credit facility in December 2005, coupled with interest income earned on our invested cash and cash equivalents.

Income Tax Expense. Income tax expense was $1.3 million in the thirteen week period ended September 30, 2006, which reflects an estimated effective annualized tax rate of 31.8%. In the thirteen week period ended
September 24, 2005, income tax expense was $0.9 million, which reflects an estimated effective annualized tax rate of 31.0%. The increase in the estimated effective annualized tax rate is due to the estimated tax impact of share-based
compensation in 2006.

Net Income.Net income increased $0.7 million to $2.7 million in the thirteen week period ended September 30, 2006
compared to net income of $2.0 million in the thirteen week period ended September 24, 2005, primarily due to higher revenues and lower pre-opening costs.

Thirty-Nine Week Period Ended September 24, 2005 Compared to Thirty-Nine Week Period Ended September 30, 2006

The following are
highlights of our financial performance for the thirty-nine week period ended September 30, 2006 compared to the thirty-nine week period ended September 24, 2005:



| |  |  | Revenues increased 13.8% to $224.0 million from $196.8 million
| | - |  | --------------------------------------------------------------



| |  |  | Comparable restaurant sales increased 3.3%
| | - |  | ------------------------------------------



| |  |  | Operating income increased 24.5% to $12.4 million from $9.9 million
| | - |  | -------------------------------------------------------------------



| |  |  | Net income increased 30.6% to $8.6 million from $6.6 million
| | - |  | ------------------------------------------------------------



| |  |  | Diluted earnings per share increased to $0.59 from $0.47
| | - |  | --------------------------------------------------------

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



|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|----------------------------------- |  | ----------------------------- | ------- |  | ------------------ | - |  | - | ------- | - |  | ----- | --
|                                    |  | Thirty-nine week period ended |        
|                                    |  | September 24, 2005            |         |  | September 30, 2006 |  
|                                    |  | (in thousands)                |        
|Revenues                            |  | $                             | 196,785 |  | 100.0              | % |  | $ | 224,017 |   |  | 100.0 | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Restaurant operating costs          |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Food and beverage                   |  |                               | 57,700  |  | 29.3               | % |  |   | 65,505  |   |  | 29.2  | % 
|Labor                               |  |                               | 62,157  |  | 31.6               | % |  |   | 70,364  |   |  | 31.5  | % 
|Operating                           |  |                               | 29,462  |  | 15.0               | % |  |   | 33,392  |   |  | 14.9  | % 
|Occupancy                           |  |                               | 17,933  |  | 9.1                | % |  |   | 20,478  |   |  | 9.1   | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Total restaurant operating costs    |  |                               | 167,252 |  | 85.0               | % |  |   | 189,739 |   |  | 84.7  | % 
|General and administrative expenses |  |                               | 10,444  |  | 5.3                | % |  |   | 11,985  |   |  | 5.4   | % 
|Restaurant pre-opening costs        |  |                               | 2,048   |  | 1.0                | % |  |   | 1,795   |   |  | 0.8   | % 
|Depreciation and amortization       |  |                               | 7,095   |  | 3.6                | % |  |   | 8,117   |   |  | 3.6   | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Total costs and expenses            |  |                               | 186,839 |  | 94.9               | % |  |   | 211,636 |   |  | 94.5  | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Operating income                    |  |                               | 9,946   |  | 5.1                | % |  |   | 12,381  |   |  | 5.5   | % 
|Interest expense (income), net      |  |                               | 454     |  | 0.2                | % |  |   | (159    | ) |  | (0.1  | )%
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Income before income taxes          |  |                               | 9,492   |  | 4.8                | % |  |   | 12,540  |   |  | 5.6   | % 
|Income tax expense                  |  |                               | 2,942   |  | 1.5                | % |  |   | 3,988   |   |  | 1.8   | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   
|Net income                          |  | $                             | 6,550   |  | 3.3                | % |  | $ | 8,552   |   |  | 3.8   | % 
|                                    |  |                               |         |  |                    |   |  |   |         |   |  |       |   



11



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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 consolidated statements of income.



|                                 |  |                               |         |                   |   |         |  |   |        |  |      |  
|-------------------------------- |  | ----------------------------- | ------- | ----------------- | - | ------- |  | - | ------ |  | ---- | -
|                                 |  | Thirty-nine week period ended |         | Change            |  
|                                 |  | September 24,2005             |         | September 30,2006 |   | $       |  | % |       
|                                 |  |                               |         | (in thousands)    |   |         |  |   |       
|Revenues                         |  | $                             | 196,785 |                   | $ | 224,017 |  | $ | 27,232 |  | 13.8 | %
|                                 |  |                               |         |                   |   |         |  |   |        |  |      |  
|Restaurant operating costs       |  |                               |         |                   |   |         |  |   |        |  |      |  
|Food and beverage                |  | $                             | 57,700  |                   | $ | 65,505  |  | $ | 7,805  |  | 13.5 | %
|Labor                            |  |                               | 62,157  |                   |   | 70,364  |  |   | 8,207  |  | 13.2 | %
|Operating                        |  |                               | 29,462  |                   |   | 33,392  |  |   | 3,930  |  | 13.3 | %
|Occupancy                        |  |                               | 17,933  |                   |   | 20,478  |  |   | 2,545  |  | 14.2 | %
|                                 |  |                               |         |                   |   |         |  |   |        |  |      |  
|Total restaurant operating costs |  | $                             | 167,252 |                   | $ | 189,739 |  | $ | 22,487 |  | 13.4 | %
|                                 |  |                               |         |                   |   |         |  |   |        |  |      |  

Revenues. Revenues increased $27.2 million, or 13.8%, to $224.0 million in the thirty-nine week period
ended September 30, 2006 from $196.8 million in the thirty-nine week period ended September 24, 2005. This increase was primarily attributable to an increase in comparable restaurant sales of 3.3% coupled with revenues generated by
the restaurants not included in the comparable base. The comparable restaurant sales increase was primarily the result of increased comparable guest counts.

Food and Beverage Costs. Food and beverage costs increased $7.8 million, or 13.5%, to $65.5 million in the thirty-nine week period ended September 30, 2006 from $57.7 million in the thirty-nine week period ended
September 24, 2005. This increase was primarily attributable to the six company-owned restaurants opened since September 24, 2005. Food and beverage costs as a percentage of revenues decreased to 29.2% in the thirty-nine week period ended
September 30, 2006 from 29.3% in the thirty-nine week period ended September 24, 2005.

Labor Costs. Labor costs increased $8.2
million, or 13.2%, to $70.4 million in the thirty-nine week period ended September 30, 2006, from $62.2 million in thirty-nine week period ended September 24, 2005. This increase was primarily attributable to the six company-owned
restaurants opened since September 24, 2005. Labor costs as a percentage of revenues decreased to 31.5 % in the thirty-nine week period ended September 30, 2006 from 31.6% in the thirty-nine week period ended September 24, 2005.
The decrease in labor costs as a percentage of revenues was primarily due to the leverage of higher average weekly sales volume for the comparable restaurants on fixed labor costs, as well as an overall lower average number of workers
compensation claims per restaurant.

Operating Costs. Operating costs increased $3.9 million, or 13.3%, to $33.4 million in the thirty-nine
week period ended September 30, 2006 from $29.5 million in the thirty-nine week period ended September 24, 2005. This increase was primarily attributable to the six company-owned restaurants opened since September 24,
2005. Operating costs as a percentage of revenues decreased to 14.9% in the thirty-nine week period ended September 30, 2006 from 15.0% in the thirty-nine week period ended September 24, 2005. The decrease was due to the leverage of
higher average weekly sales volumes for the comparable restaurants on fixed operating costs for the thirty-nine week period ended September 30, 2006, partially offset by the impact of higher utility costs.

Occupancy Costs. Occupancy costs increased $2.5 million, or 14.2%, to $20.5 million in the thirty-nine week period ended September 30, 2006 from $17.9
million in the thirty-nine week period ended September 24, 2005, primarily due to the six company-owned restaurants opened since September 24, 2005. Occupancy costs as a percentage of revenues were 9.1% in both the thirty-nine week period
ended September 30, 2006 and September 24, 2005.

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

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



|                                    |  |                               |        |                   |   |        |  |   |       |   |  |       |   
|----------------------------------- |  | ----------------------------- | ------ | ----------------- | - | ------ |  | - | ----- | - |  | ----- | --
|                                    |  | Thirty-nine week period ended |        | Change            |  
|                                    |  | September 24,2005             |        | September 30,2006 |   | $      |  |   | %     |  
|                                    |  |                               |        | (in thousands)    |   |        |  |   |       |  
|General and administrative expenses |  | $                             | 10,444 |                   | $ | 11,985 |  | $ | 1,541 |   |  | 14.8  | % 
|Restaurant pre-opening costs        |  |                               | 2,048  |                   |   | 1,795  |  |   | (253  | ) |  | (12.4 | )%
|Depreciation and amortization       |  |                               | 7,095  |                   |   | 8,117  |  |   | 1,022 |   |  | 14.4  | % 

General and Administrative Expenses. General and administrative expenses increased $1.5 million, or
14.8%, to $12.0 million in the thirty-nine week period ended September 30, 2006 from $10.4 million in the thirty-nine week period ended September 24, 2005. General and administrative expenses as a percentage of revenues increased to 5.4%
in the thirty-nine week period ended September 30, 2006 from 5.3% in the thirty-nine week period ended September 24, 2005. The increase in general and administrative expenses was primarily due to the growth in our business coupled with
share-based compensation of $1.1 million recognized as a result of the adoption of SFAS 123R as of January 1, 2006.

Restaurant Pre-Opening
Costs. Restaurant pre-opening costs decreased $0.3 million, or 12.4%, to $1.8 million in the thirty-nine week period ended September 30, 2006 from $2.0 million in the thirty-nine week period ended September 24, 2005, primarily due
to the timing of restaurant openings and restaurants under construction in the thirty-nine week period ended September 30, 2006 compared to the thirty-nine week period ended September 24, 2005.

Depreciation and Amortization. Depreciation and amortization increased $1.0 million, or 14.4%, to $8.1 million in the thirty-nine week period ended
September 30, 2006 from $7.1 million in the thirty-nine week period ended September 24, 2005. The increase was primarily due to the addition of six company-owned restaurants since September 24, 2005.

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

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



|                               |  |                               |       |                   |        |        |   |  |   |       |   |  |      |  
|------------------------------ |  | ----------------------------- | ----- | ----------------- | ------ | ------ | - |  | - | ----- | - |  | ---- | -
|                               |  | Thirty-nine week period ended |       |                   | Change |       
|                               |  | September 24,2005             |       | September 30,2006 |        |        | $ |  |   | %     |  
|                               |  |                               |       | (in thousands)    |        |        |   |  |   |       |  
|Interest expense (income), net |  | $                             | 454   |                   | $      | (159   | ) |  | $ | (613  | ) |  | *    |  
|                               |  |                               |       |                   |        |        |   |  |   |       |   |  |      |  
|Income before income taxes     |  | $                             | 9,492 |                   | $      | 12,540 |   |  | $ | 3,048 |   |  | 32.1 | %
|Income tax expense             |  |                               | 2,942 |                   |        | 3,988  |   |  |   | 1,046 |   |  | 35.6 | %
|                               |  |                               |       |                   |        |        |   |  |   |       |   |  |      |  
|Net income                     |  | $                             | 6,550 |                   | $      | 8,552  |   |  | $ | 2,002 |   |  | 30.6 | %
|                               |  |                               |       |                   |        |        |   |  |   |       |   |  |      |  



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



12



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##### Table of Contents

Interest Expense (Income), Net. Interest income, net of interest expense, was $0.2 million in the thirty-nine
week period ended September 30, 2006 compared to interest expense of $0.5 million in the thirty-nine week period ended September 24, 2005. This change was primarily due to the paydown of our revolving credit facility in December 2005,
coupled with interest income earned on our invested cash and cash equivalents.

Income Tax Expense. Income tax expense was $4.0 million in the
thirty-nine week period ended September 30, 2006, which reflects an estimated effective annualized tax rate of approximately 31.8%. In the thirty-nine week period ended September 24, 2005, income tax expense was $2.9 million, which
reflects an estimated effective annualized tax rate of 31.0%. The increase in the estimated effective annualized tax rate is due to the estimated tax impact of share-based compensation in 2006.

Net Income.Net income increased $2.0 million to $8.6 million in the thirty-nine week period ended September 30, 2006 compared to net income of $6.6
million in the thirty-nine week period ended September 24, 2005, primarily due to an increase in operating income of $2.4 million due to higher revenues of $27.2 million, and improved food and beverage, labor and operating costs as a percentage
of revenues.

Liquidity and Capital Resources

Our
primary cash needs have been for new restaurant construction, working capital and general corporate purposes, including payments under credit facilities. Our main sources of cash have been issuance of common stock, net cash provided by operating
activities and borrowings under credit facilities. We intend to finance the acquisition of the Boathouse restaurants through borrowings under our credit facility and with cash on hand.

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



|                                                    |  |                               |         |   |                   |   |         |  
|--------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                    |  | Thirty-nine week period ended |        
|                                                    |  | September 24,2005             |         |   | September 30,2006 |  
|                                                    |  | (in thousands)                |        
|Net cash provided by operating activities           |  | $                             | 19,438  |   |                   | $ | 20,835  |  
|Net cash used in investing activities               |  |                               | (17,056 | ) |                   |   | (22,835 | )
|Net cash provided by (used in) financing activities |  |                               | (2,389  | ) |                   |   | 750     |  
|                                                    |  |                               |         |   |                   |   |         |  
|Net decrease in cash and cash equivalents           |  | $                             | (7      | ) |                   | $ | (1,250  | )
|                                                    |  |                               |         |   |                   |   |         |  

Net cash provided by operating activities was $20.8 million in the thirty-nine week period ended
September 30, 2006 compared to $19.4 million in the thirty-nine week period ended September 24, 2005. The increase in net cash provided by operating activities in the thirty-nine week period ended September 30, 2006 was primarily due
to higher net income.

Net cash used in investing activities was approximately $22.8 million in the thirty-nine week period ended September 30, 2006
compared to $17.1 million in the thirty-nine week period ended September 24, 2005. The net cash used in investing activities increased primarily due to payments made on restaurants planned to be opened in 2007 of $4.2 million. We also use cash
for tenant improvements and equipment to open new restaurants and to upgrade and add capacity to existing restaurants. Net cash used in investing activities will vary based on the number of new restaurants under construction and the expansion of
existing restaurant capacity during the period. Purchases of property and equipment also include purchases of information technology systems and expenditures relating to our corporate headquarters.

Net cash provided by financing activities was $0.8 million in the thirty-nine week period ended September 30, 2006. The net cash provided by financing
activities was primarily a result of proceeds from stock options exercised of $0.7 million and excess tax benefits from share based compensation of $0.3 million, partially offset by payments made on capital lease obligations of $0.3 million. Net
cash used by financing activities was $2.4 million in the thirty-nine week period ended September 24, 2005. The net cash used in financing activities was primarily a result of payments made on our revolving credit facility of $11.0 million,
partially offset by borrowings made on our revolving credit facility of $7.0 million, and a decrease in book overdraft of $1.9 million.

As of
September 30, 2006, we had no borrowings on our $50.0 million revolving credit facility. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business
operations. As of September 30, 2006, the maximum exposure under these standby letters of credit was $2.7 million. As of September 30, 2006, there were no amounts drawn upon these letters of credit and we had $47.3 million available under
our revolving credit facility.

Under our revolving credit facility, we are subject to certain financial and non-financial covenants, including an adjusted
leverage ratio, a consolidated cash flow ratio and growth capital expenditures limitation. We amended the growth capital expenditure limitation on October 31, 2006 to allow the acquisition of the Boathouse restaurants. We were in compliance with
these covenants as of September 30, 2006.

We believe the net cash provided by operating activities and funds available from our revolving credit
facility will be sufficient to satisfy our working capital and capital expenditure requirements, including restaurant construction, pre-opening costs and potential initial operating losses related to new restaurant openings, for at least the next 12
months.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are those that we believe are both important to the portrayal of our financial condition and results 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. The critical accounting policies and estimates used in the preparation of our consolidated financial statements are the following:

Equipment and Leasehold Improvements

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



13



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##### Table of Contents

Impairment of Long-Lived Assets

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

Goodwill and Other Indefinite Lived Assets

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

Insurance Liability

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

Income Taxes

We have accounted for, and currently account for, income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. This Statement establishes
financial accounting and reporting standards for the effects of income taxes that result from an enterprises activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting
of income taxes. We recognize deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. In the event the future consequences of differences between
financial reporting bases and tax bases of our assets and liabilities result in a net deferred tax asset, an evaluation is made of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to
a deferred tax asset is recorded when it is more likely than not that some portion of or all deferred tax asset will not be realized. The realization of such net deferred tax asset will generally depend on whether we will have sufficient taxable
income of an appropriate character within the carryforward period permitted by the tax law. Without sufficient taxable income to offset the deductible amounts and carryforwards, the related tax benefits will expire unused. We have evaluated both
positive and negative evidence in making a determination as to whether it is more likely than not that all or some portion of the deferred tax asset will not be realized. Measurement of deferred items is based on enacted tax laws. No deferred tax
asset valuation allowance has been recorded as of September 30, 2006.

Operating Leases

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

Share-Based Compensation

We account for share-based compensation in accordance with the fair value
recognition provisions of SFAS No. 123, Share Based Payment (revised 2004) (SFAS 123R). We adopted SFAS 123R using the modified prospective transition method as of January 1, 2006, the first day of our fiscal year
2006. Under SFAS 123R, we determined the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model. The model is affected by the Companys stock price as well as the Companys assumptions
regarding a number of complex and subjective variables, including but not limited to the Companys expected stock price volatility over the term of the awards, life of the option, expected term of the option, the estimated forfeiture rate, the
risk-free interest rate and the expected dividend yield.



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

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

Under
our revolving credit facility, we are exposed to market risk from changes in interest rates on borrowings, which bear interest at the financial institutions prime rate plus a margin of up to 0.75% or the Eurodollar rate plus a margin of 0.75%
to 1.75%, with margins determined by certain financial ratios. At our option, we may convert loans under our revolving credit facility from one type of rate to the other. As of September 30, 2006, we had no outstanding borrowings. Loans under
our revolving credit facility mature on July 23, 2009.



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

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

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



14



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##### Table of Contents

PART II. OTHER INFORMATION



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

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



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

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

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

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

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



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



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



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



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



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



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



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

Some of these factors are beyond our
control. We may not be able to achieve our expansion goals and our new restaurants may not be able to achieve operating results similar to those of our existing restaurants.

Unexpected expenses and low market acceptance could adversely affect the profitability of restaurants that we open in new markets.

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

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

We opened seven company-owned restaurants in 2005 and we plan to open seven in 2006 and eleven in 2007. In addition, we have signed an agreement to acquire five Boathouse restaurants, and a sixth under development, in
Vancouver, British Columbia. We anticipate completing this acquisition in the first fiscal quarter of 2007. Our expansion and our future growth may strain our restaurant management systems and resources, financial controls and information systems.
Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing restaurants. If we fail to continue to improve our infrastructure or to manage other factors necessary for us to meet our expansion
objectives, our operating results could be materially and adversely affected.

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

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

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

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



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##### Table of Contents

The type, variety, quality and price of seafood is subject to factors beyond our control, including weather, governmental
regulation, availability and seasonality, each of which may affect our food costs or cause a disruption in our supply. Changes in the price or availability of certain types of seafood could affect our ability to offer a broad menu and price offering
to customers and could materially adversely affect our profitability.

Our operating results may fluctuate significantly and could fall below the
expectations of securities analysts and investors due to seasonality and other factors, resulting in a decline in our stock price.

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



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



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



| |  |  | our ability to raise capital;
| | - |  | -----------------------------



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



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



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



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



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



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



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



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



| |  |  | increases in labor costs;
| | - |  | -------------------------



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



| |  |  | the impact of litigation;
| | - |  | -------------------------



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



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

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

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

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

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

We depend on the services of our key senior management personnel. Our Chief Executive Officer, Saed Mohseni, will resign in January 2007. Douglas Schmick, our founder and current Chairman and President, will become
our Chief Executive Officer. Mr. Schmick served as our Chief Executive Officer from 1974 to 1999. We do not expect that this transition will affect our operations. If we lose the services of any members of our senior management or key personnel
for any reason, we may be unable to replace them with qualified personnel, which could have a material adverse effect on our business and growth. We do not carry key person life insurance on any of our executive officers.

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

We operate five restaurants in the Seattle, Washington area, seven in the Portland, Oregon area, ten in California and we have agreed to
acquire all of the operating assets and intellectual property of The Boathouse restaurant concept from The Spectra Group of Great Restaurants Inc. The Boathouse operates five restaurants, and a sixth is under development, in Vancouver, British
Columbia; our East Coast restaurants are concentrated in and around Washington, D.C. As a result, adverse economic conditions, weather and labor markets in any of these areas could have a material adverse effect on our overall results of operations.

In addition, given our geographic concentrations, negative publicity regarding any of our restaurants in these areas could have a material adverse effect
on our business and operations, as could other regional occurrences such as local strikes, oil spills, terrorist attacks, energy shortages or increases in energy prices, droughts or earthquakes or other natural disasters.

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

Our business prospects depend in part on our ability to develop favorable consumer recognition of the McCormick &
Schmicks name. Although McCormick & Schmicks, M&S Grill and other of our service marks are federally registered trademarks with the United States Patent and Trademark Office, our trademarks could be imitated in ways that we
cannot prevent. In addition, we rely on trade secrets, proprietary know-how, concepts and recipes. Our methods of protecting this information may not be adequate, however, and others could independently develop similar know-how or obtain access to
our trade secrets, know-how, concepts and recipes. Moreover, we may face claims of misappropriation or infringement of third parties rights that could interfere with our use of our proprietary know-how, concepts, recipes or trade secrets.
Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future, and may result in a judgment or monetary damages.



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##### Table of Contents

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

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

We believe we maintain insurance coverage that is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially
reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations.

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

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

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

On November 1, 2006, we agreed to purchase five Boathouse restaurants, and a sixth
under development, in Vancouver, British Columbia for approximately US$14.3 million plus payment for specified working capital assets and the assumption of specified short-term liabilities. We do not currently operate restaurants outside of the
United States and we do not have experience operating restaurants in British Columbia. We may seek to selectively acquire other existing restaurants and integrate them into our business operations. Achieving the expected benefits of the Boathouse
restaurants and any other restaurants that we acquire will depend in large part on our ability to successfully integrate the operations of the acquired restaurants and personnel in a timely and efficient manner. The risks involved in such restaurant
acquisitions and integration include:



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



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



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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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



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

None



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

None



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

None



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

None



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



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##### Table of Contents

EXHIBITS.



|     |  |                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1, File
No. 333-114977).                                                                                                                                                        
|     | 
|3.2  |  | Bylaws of the Company, as amended (incorporated by reference to Exhibits 3.2 and 3.2a to our Registration Statement on Form S-1, File No. 333-114977).                                                                                                                                                                              
|     | 
|4.1  |  | Registration Rights Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan
Partners III, L.P. and certain other parties thereto (incorporated by reference to Exhibit 4.2 to our registration statement on Form S-1, file No. 333-114977).
|     | 
|31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                               
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                               
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                              
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                              



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##### Table of Contents

SIGNATURES

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



McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.By:

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

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


Date: November 8, 2006



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##### Table of Contents

EXHIBITS.



|     |  |                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1, File
No. 333-114977).                                                                                                                                                        
|     | 
|3.2  |  | Bylaws of the Company, as amended (incorporated by reference to Exhibits 3.2 and 3.2a to our Registration Statement on Form S-1, File No. 333-114977).                                                                                                                                                                              
|     | 
|4.1  |  | Registration Rights Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan
Partners III, L.P. and certain other parties thereto (incorporated by reference to Exhibit 4.2 to our registration statement on Form S-1, file No. 333-114977).
|     | 
|31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                               
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                               
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                              
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                              



21