##### Table of Contents







UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended September 25, 2010

OR



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

For the transition period from              to

Commission File Number 000-50845





McCormick & Schmicks Seafood Restaurants, Inc.

(Exact name of registrant as specified in its charter)







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

(503)
226-3440

(Registrants telephone number, including area code)





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

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

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



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

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

There were 14,862,528 shares of common stock outstanding as of November 1, 2010.









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##### Table of Contents



MCCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.

INDEX TO FORM 10-Q



|                               |  |                                                                                                                                           |    |  |    | 
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|                               |  | Page                                                                                                                                      |   
|                               | 
|PART I - FINANCIAL INFORMATION |  |                                                                                                                                           |    | 
|                               |  |                                                                                                                                          
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                                          |    |  |    | 
|                               |  |                                                                                                                                          
|                               |  | Condensed Consolidated Balance Sheets as of December 26, 2009 and September 25, 2010                                                      |    |  | 2  | 
|                               |  |                                                                                                                                          
|                               |  | Condensed Consolidated Statements of Income for the thirteen and thirty-nine week periods ended September 26, 2009 and September 25, 2010 |    |  | 3  | 
|                               |  |                                                                                                                                          
|                               |  | Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended September 26, 2009 and September 25, 2010          |    |  | 4  | 
|                               |  |                                                                                                                                          
|                               |  | Notes to Condensed Consolidated Financial Statements                                                                                      |    |  | 5  | 
|                               |  |                                                                                                                                          
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                     |    |  | 7  | 
|                               |  |                                                                                                                                          
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                |    |  | 21 | 
|                               |  |                                                                                                                                          
|Item 4.                        |  | Controls and Procedures                                                                                                                   |    |  | 21 | 
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                           |    | 
|                               |  |                                                                                                                                          
|Item 1.                        |  | Legal Proceedings                                                                                                                         |    |  | 22 | 
|                               |  |                                                                                                                                          
|Item 1A.                       |  | Risk Factors                                                                                                                              |    |  | 22 | 
|                               |  |                                                                                                                                          
|Item 6.                        |  | Exhibits                                                                                                                                  |    |  | 30 | 
|                               | 
|Signatures                     |  |                                                                                                                                           | 31 | 



1



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##### Table of Contents



PART I - FINANCIAL
INFORMATION



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

McCormick & Schmicks Seafood Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
 Unaudited

(In thousands, except per share data)



|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                      |  | December 26,2009 |         |   | September 25,2010 |  
|Assets                                                                                                                                                                |  |                  |         |   |                   |   |         |  
|Current assets:                                                                                                                                                       |  |                  |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                             |  | $                | 8,623   |   |                   | $ | 4,948   |  
|Trade accounts receivable, net                                                                                                                                        |  |                  | 10,462  |   |                   |   | 8,174   |  
|Tenant improvement allowance receivables                                                                                                                              |  |                  | 496     |   |                   |   | 292     |  
|Income tax receivable                                                                                                                                                 |  |                  | 1,007   |   |                   |   | 1,434   |  
|Inventories                                                                                                                                                           |  |                  | 5,585   |   |                   |   | 5,574   |  
|Prepaid expenses and other current assets                                                                                                                             |  |                  | 2,854   |   |                   |   | 3,768   |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total current assets                                                                                                                                                  |  |                  | 29,027  |   |                   |   | 24,190  |  
|                                                                                                                                                                      |  |                 
|Property and equipment, net                                                                                                                                           |  |                  | 158,465 |   |                   |   | 156,938 |  
|Other assets                                                                                                                                                          |  |                  | 3,600   |   |                   |   | 3,790   |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total assets                                                                                                                                                          |  | $                | 191,092 |   |                   | $ | 184,918 |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|                                                                                                                                                                      |  |                 
|Liabilities and Stockholders Equity                                                                                                                                  |  |                  |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                  |  |                  |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                      |  | $                | 15,766  |   |                   | $ | 12,287  |  
|Accrued expenses                                                                                                                                                      |  |                  | 29,561  |   |                   |   | 23,254  |  
|Deferred income taxes                                                                                                                                                 |  |                  | 278     |   |                   |   | 192     |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                             |  |                  | 45,605  |   |                   |   | 35,733  |  
|                                                                                                                                                                      |  |                 
|Revolving credit facility                                                                                                                                             |  |                  | 13,000  |   |                   |   | 12,000  |  
|Deferred rent and other long-term liabilities                                                                                                                         |  |                  | 35,532  |   |                   |   | 37,087  |  
|Capital lease obligations                                                                                                                                             |  |                  | 3,038   |   |                   |   | 3,186   |  
|Deferred income taxes                                                                                                                                                 |  |                  | 1,634   |   |                   |   | 1,961   |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                     |  |                  | 98,809  |   |                   |   | 89,967  |  
|                                                                                                                                                                      |  |                 
|Commitments and contingencies (Note 6)                                                                                                                                |  |                  |         |   |                   |   |         |  
|                                                                                                                                                                      |  |                 
|Stockholders equity:                                                                                                                                                 |  |                  |         |   |                   |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,785 and 14,845 shares issued and outstanding for December 26,
2009 and September 25, 2010, respectively |  |                  | 15      |   |                   |   | 15      |  
|Additional paid-in-capital                                                                                                                                            |  |                  | 148,630 |   |                   |   | 149,208 |  
|Accumulated other comprehensive loss                                                                                                                                  |  |                  | (220    | ) |                   |   | (10     | )
|Accumulated deficit                                                                                                                                                   |  |                  | (56,142 | ) |                   |   | (54,262 | )
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                            |  |                  | 92,283  |   |                   |   | 94,951  |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                            |  | $                | 191,092 |   |                   | $ | 184,918 |  
|                                                                                                                                                                      |  |                  |         |   |                   |   |         |  

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



2



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

Condensed Consolidated Statements of Income - Unaudited

(In thousands, except per share data)



|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|------------------------------------------- |  | ---------------------------------- | ------ | - | ------------------------------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------- | 
|                                            |  | For the Thirteen Week Period Ended |        |   | For the Thirty-Nine Week Period Ended |  
|                                            |  | September 26,2009                  |        |   | September 25,2010                     |   |        | September 26,2009 |  |   | September 25,2010 |  
|Revenues                                    |  | $                                  | 85,984 |   |                                       | $ | 84,900 |                   |  | $ | 270,620           |   |  | $ | 259,455 | 
|Restaurant operating costs:                 |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Food and beverage                           |  |                                    | 25,053 |   |                                       |   | 24,550 |                   |  |   | 80,267            |   |  |   | 77,230  | 
|Labor                                       |  |                                    | 27,761 |   |                                       |   | 27,779 |                   |  |   | 88,518            |   |  |   | 85,339  | 
|Operating                                   |  |                                    | 13,131 |   |                                       |   | 13,063 |                   |  |   | 41,629            |   |  |   | 38,516  | 
|Occupancy                                   |  |                                    | 9,200  |   |                                       |   | 9,723  |                   |  |   | 28,190            |   |  |   | 28,268  | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Total restaurant operating costs            |  |                                    | 75,145 |   |                                       |   | 75,115 |                   |  |   | 238,604           |   |  |   | 229,353 | 
|                                            |  |                                    |        |  
|General and administrative expenses         |  |                                    | 4,826  |   |                                       |   | 4,088  |                   |  |   | 15,619            |   |  |   | 13,819  | 
|Restaurant pre-opening costs                |  |                                    | 109    |   |                                       |   | 93     |                   |  |   | 750               |   |  |   | 1,226   | 
|Depreciation and amortization               |  |                                    | 4,241  |   |                                       |   | 3,955  |                   |  |   | 12,614            |   |  |   | 11,614  | 
|Impairment, restructuring and other charges |  |                                    | 42     |   |                                       |   |       |                   |  |   | 594               |   |  |   |        | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Total costs and expenses                    |  |                                    | 84,363 |   |                                       |   | 83,251 |                   |  |   | 268,181           |   |  |   | 256,012 | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|                                            |  |                                    |        |  
|Operating Income                            |  |                                    | 1,621  |   |                                       |   | 1,649  |                   |  |   | 2,439             |   |  |   | 3,443   | 
|                                            |  |                                    |        |  
|Interest expense, net                       |  |                                    | 469    |   |                                       |   | 430    |                   |  |   | 1,316             |   |  |   | 1,236   | 
|Other income, net                           |  |                                    | (37    | ) |                                       |   |       |                   |  |   | (10               | ) |  |   |        | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Income before income taxes                  |  |                                    | 1,189  |   |                                       |   | 1,219  |                   |  |   | 1,133             |   |  |   | 2,207   | 
|Income tax expense                          |  |                                    | 179    |   |                                       |   | 183    |                   |  |   | 78                |   |  |   | 327     | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Net income                                  |  | $                                  | 1,010  |   |                                       | $ | 1,036  |                   |  | $ | 1,055             |   |  | $ | 1,880   | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|                                            |  |                                    |        |  
|Basic net income per share                  |  | $                                  | 0.07   |   |                                       | $ | 0.07   |                   |  | $ | 0.07              |   |  | $ | 0.13    | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|                                            |  |                                    |        |  
|Diluted net income per share                |  | $                                  | 0.07   |   |                                       | $ | 0.07   |                   |  | $ | 0.07              |   |  | $ | 0.13    | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|                                            |  |                                    |        |  
|Shares used in per share calculations:      |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Basic                                       |  |                                    | 14,785 |   |                                       |   | 14,814 |                   |  |   | 14,764            |   |  |   | 14,802  | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 
|Diluted                                     |  |                                    | 14,848 |   |                                       |   | 14,908 |                   |  |   | 14,780            |   |  |   | 14,922  | 
|                                            |  |                                    |        |   |                                       |   |        |                   |  |   |                   |   |  |   |         | 

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



3



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

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



|                                                                                  |  |                                       |          |   |                   |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | -------- | - | ----------------- | - | ------- | -
|                                                                                  |  | For the Thirty-Nine Week Period Ended |         
|                                                                                  |  | September 26,2009                     |          |   | September 25,2010 |  
|                                                                                  |  |                                      
|Cash flows from operating activities:                                             |  |                                       |          |   |                   |   |         |  
|Net income                                                                        |  | $                                     | 1,055    |   |                   | $ | 1,880   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                       |          |   |                   |   |         |  
|Depreciation and amortization                                                     |  |                                       | 12,614   |   |                   |   | 11,614  |  
|Loss on sale of assets                                                            |  |                                       |         |   |                   |   | 25      |  
|Deferred income taxes                                                             |  |                                       | 132      |   |                   |   | 241     |  
|Share-based compensation                                                          |  |                                       | 580      |   |                   |   | 603     |  
|Impairment, restructuring and other charges                                       |  |                                       | 277      |   |                   |   |        |  
|Changes in operating assets and liabilities:                                      |  |                                       |          |   |                   |   |         |  
|Trade accounts receivable, net                                                    |  |                                       | 1,880    |   |                   |   | 2,298   |  
|Tenant improvement allowance receivables                                          |  |                                       | 2,289    |   |                   |   | 204     |  
|Income tax receivable                                                             |  |                                       | 3,135    |   |                   |   | (427    | )
|Inventories                                                                       |  |                                       | 770      |   |                   |   | 21      |  
|Prepaid expenses and other current assets                                         |  |                                       | (810     | ) |                   |   | (808    | )
|Accounts payable                                                                  |  |                                       | (3,486   | ) |                   |   | (3,492  | )
|Accrued expenses                                                                  |  |                                       | (10,168  | ) |                   |   | (6,891  | )
|Other long-term liabilities                                                       |  |                                       | 2,187    |   |                   |   | 1,939   |  
|                                                                                  |  |                                       |          |   |                   |   |         |  
|Net cash provided by operating activities                                         |  |                                       | 10,455   |   |                   |   | 7,207   |  
|                                                                                  |  |                                      
|Cash flows from investing activities:                                             |  |                                       |          |   |                   |   |         |  
|Purchase of property and equipment                                                |  |                                       | (4,983   | ) |                   |   | (9,154  | )
|Additions to other assets                                                         |  |                                       | (185     | ) |                   |   | (492    | )
|                                                                                  |  |                                       |          |   |                   |   |         |  
|Net cash used in investing activities                                             |  |                                       | (5,168   | ) |                   |   | (9,646  | )
|                                                                                  |  |                                      
|Cash flows from financing activities:                                             |  |                                       |          |   |                   |   |         |  
|Borrowings made on revolving credit facility                                      |  |                                       | 95,000   |   |                   |   | 71,500  |  
|Payments made on revolving credit facility                                        |  |                                       | (100,500 | ) |                   |   | (72,500 | )
|Payments made on note payable obligation                                          |  |                                       | (31      | ) |                   |   | (33     | )
|Deemed landlord financing proceeds (in the form of tenant improvement allowances) |  |                                       | 675      |   |                   |   |        |  
|Deemed landlord financing payments                                                |  |                                       | (179     | ) |                   |   | (260    | )
|Net cash used in financing activities                                             |  |                                       | (5,035   | ) |                   |   | (1,293  | )
|                                                                                  |  |                                      
|Effect of exchange rate changes                                                   |  |                                       | 294      |   |                   |   | 57      |  
|                                                                                  |  |                                       |          |   |                   |   |         |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                       | 546      |   |                   |   | (3,675  | )
|                                                                                  |  |                                      
|Cash and cash equivalents:                                                        |  |                                       |          |   |                   |   |         |  
|Beginning of period                                                               |  |                                       | 4,428    |   |                   |   | 8,623   |  
|                                                                                  |  |                                       |          |   |                   |   |         |  
|End of period                                                                     |  | $                                     | 4,974    |   |                   | $ | 4,948   |  
|                                                                                  |  |                                       |          |   |                   |   |         |  
|                                                                                  |  |                                      
|Supplemental Cash Flow Information:                                               |  |                                       |          |   |                   |   |         |  
|Cash paid for interest                                                            |  | $                                     | 1,127    |   |                   | $ | 698     |  
|Cash (paid for) received from income taxes, net                                   |  | $                                     | 3,049    |   |                   | $ | (424    | )
|Non-cash financing                                                                |  | $                                     |         |   |                   | $ | 481     |  

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



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

Notes to Condensed Consolidated Financial Statements  Unaudited

1. The Business and Organization

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

2. Basis of Presentation

On November 3, 2010 the Company announced a change in fiscal year, from the last Saturday in December (December 25 for the 2010 fiscal year) to the
Wednesday closest to December 31, which may be before or after December 31 (December 29 for the 2010 fiscal year).

The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a
fair presentation of the Companys financial statements have been included. Operating results for the thirteen and thirty-nine week periods ended September 25, 2010 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 29, 2010. Certain amounts reported in previous years may have been reclassified to conform to the current year presentation.

The condensed consolidated balance sheet at December 26, 2009 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and
footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10K for the fiscal year ended
December 26, 2009.

3. Share-Based Compensation

As a regular component of their annual compensation, the five independent members of the Companys Board of Directors were granted a total of 18,420 shares of restricted stock in May 2010. The
restricted stock vests in May 2011. The fair value of the restricted stock was $175 thousand and will be recognized as expense over the vesting period of the shares, with approximately $100 thousand being recognized in fiscal year 2010.

4. Comprehensive Income

The components
of comprehensive income (unaudited) for the thirteen and thirty-nine week periods ended September 26, 2009 and September 25, 2010 were as follows (in thousands):



|                                                          |  |                            |       |  |                               |   |       |                   |  |   |                   |  |  |   |       | 
|--------------------------------------------------------- |  | -------------------------- | ----- |  | ----------------------------- | - | ----- | ----------------- |  | - | ----------------- |  |  | - | ----- | 
|                                                          |  | Thirteen week period ended |       |  | Thirty-nine week period ended |  
|                                                          |  | September 26,2009          |       |  | September 25,2010             |   |       | September 26,2009 |  |   | September 25,2010 | 
|Net income                                                |  | $                          | 1,010 |  |                               | $ | 1,036 |                   |  | $ | 1,055             |  |  | $ | 1,880 | 
|Other comprehensive income  foreign currency translation |  |                            | 537   |  |                               |   | 138   |                   |  |   | 1,022             |  |  |   | 210   | 
|                                                          |  |                            |       |  |                               |   |       |                   |  |   |                   |  |  |   |       | 
|Total comprehensive income                                |  | $                          | 1,547 |  |                               | $ | 1,173 |                   |  | $ | 2,077             |  |  | $ | 2,089 | 
|                                                          |  |                            |       |  |                               |   |       |                   |  |   |                   |  |  |   |       | 



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5. Related Party Transactions

The Company leases certain properties from landlords deemed to be related parties of the Company. Total rent paid to these landlords was
$0.3 million for each of the thirteen week periods ended September 26, 2009 and September 25, 2010 and $0.7 million for each of the thirty-nine week periods ended September 26, 2009 and September 25, 2010.

6. Commitments and Contingencies

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

The Companys primary insurer in 2004 has informed the Company it believes the Company has exhausted its insurance
coverage with respect to employment claims arising in the Companys 2004 coverage year. The Company disagrees with this interpretation of the coverage, but has taken this interpretation into account in connection with the accounting for
employment related liabilities. The Company has initiated litigation to contest the insurers conclusion. If the Company is unsuccessful, and if it is determined that other existing employment claims arose in 2004 and are therefore not covered,
the resolution of those claims could negatively affect the Companys results of operations and financial position. The amount of claims currently in dispute is $1.7 million which represents costs already incurred by the Company in which we are
seeking to recover. The Company has accounted for the litigation with the insurer in accordance with the applicable guidance for accounting for contingencies under GAAP and management has concluded that no liability should be recorded at this time.

7. Net Income Per Share

Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income
per share is computed based on the weighted average number of shares of common stock and potentially dilutive securities outstanding, which includes stock options and restricted stock outstanding under the Companys 2004 Stock Incentive Plan. A
reconciliation of the shares used for basic and diluted shares follows (in thousands):



|                                                                                      |  |                            |        |  |                               |  |        |                   |  |  |                   |  |  |  |        | 
|------------------------------------------------------------------------------------- |  | -------------------------- | ------ |  | ----------------------------- |  | ------ | ----------------- |  |  | ----------------- |  |  |  | ------ | 
|                                                                                      |  | Thirteen week period ended |        |  | Thirty-nine week period ended | 
|                                                                                      |  | September 26,2009          |        |  | September 25,2010             |  |        | September 26,2009 |  |  | September 25,2010 | 
|Shares used for basic net income per share                                            |  |                            | 14,785 |  |                               |  | 14,814 |                   |  |  | 14,764            |  |  |  | 14,802 | 
|Dilutive effect of stock options and restricted stock                                 |  |                            | 63     |  |                               |  | 94     |                   |  |  | 16                |  |  |  | 120    | 
|                                                                                      |  |                            |        |  |                               |  |        |                   |  |  |                   |  |  |  |        | 
|Shares used for diluted net income per share                                          |  |                            | 14,848 |  |                               |  | 14,908 |                   |  |  | 14,780            |  |  |  | 14,922 | 
|                                                                                      |  |                            |        |  |                               |  |        |                   |  |  |                   |  |  |  |        | 
|                                                                                      |  |                            |        | 
|Shares not included in dilutive per share calculations because they were antidilutive |  |                            | 300    |  |                               |  | 386    |                   |  |  | 300               |  |  |  | 284    | 
|                                                                                      |  |                            |        |  |                               |  |        |                   |  |  |                   |  |  |  |        | 



6



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

FORWARD-LOOKING STATEMENTS

This information should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report. This discussion highlights key information as determined by management, but may not contain all of the information that is
important to you. For a more complete understanding, the following should be read in conjunction with the Companys 2009 Annual Report on Form 10-K, as amended, including the audited financial statements therein (and notes to such financial
statements) and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in that report.

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

Important factors that could cause actual results to differ materially from our expectations include those discussed below under Risk
Factors. These risks include, but are not limited to, our ability to maintain adequate working capital to fund our ongoing operations and necessary capital expenditures; continuing or worsening economic conditions, particularly conditions
that disproportionately affect discretionary spending; failure of our growth strategy; and changes in food availability or costs. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to
actual results or to changes in circumstances or expectations.

OVERVIEW

Our company was founded in 1972 with our acquisition of Jakes Famous Crawfish in Portland, Oregon. As of September 26, 2010 we have expanded our restaurant base to 96 restaurants, including one
restaurant operated pursuant to a management contract and seven restaurants operating in Canada under The Boathouse name.

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

We utilize a broad-based marketing approach to drive guest traffic, which includes in-house marketing
campaigns, including our preferred guest program and e-marketing programs. We created our preferred guest program in 2006, and now have more than 110,000 primary members and nearly 85,000 secondary members and our online marketing e-mail club
database includes more than 360,000 members.

We measure performance using key operating indicators such as comparable restaurant sales,
comparable traffic counts, food and beverage costs, and restaurant operating expenses, with a focus on labor as a percentage of revenues, and total occupancy costs. Comparable restaurant sales represent sales at all the restaurants owned by us in
operation at least eighteen months from the beginning of the year being discussed, and exclude the impact of currency translation. We also track trends in average weekly revenues at both the restaurant level and on a consolidated basis as an
indicator of our performance. The key financial measure used by management in evaluating our operating results is operating income. Operating income is calculated by deducting restaurant operating costs, general and administrative expenses,
restaurant pre-opening costs, depreciation and amortization and other corporate costs from revenues. We monitor general and administrative expenses as a percentage of revenues against budgeted levels. Restaurant pre-opening costs are analyzed based
on the number and timing of restaurant openings and by comparison to budgeted amounts, with an overall target of approximately $0.3 million to $0.4 million per restaurant opening.



7



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##### Table of Contents



Our most significant restaurant
operating costs are food and beverage costs and labor and related employee benefits. We believe our national and regional presence allows us to achieve better quality and pricing on key products than most of our competitors. We closely monitor food
and beverage costs and regularly review our selection of preferred vendors on the basis of several key metrics, including pricing. In addition, because we print our menu twice daily in most of our locations, we are able to adapt the seafood items we
offer to changes in vendor pricing to optimize our revenue mix and mitigate the impact of cost increases in any particular seafood item by substituting a lower-cost alternative on our menu or by adjusting the price. Our employee benefits include
health insurance, the cost of which continues to increase faster than the general rate of inflation. We monitor this cost closely and periodically review strategies to effectively provide a worthwhile benefit to our employees while controlling
increases in expense, but we are adversely subjected to the overall trend of increases in healthcare costs.

General and administrative
expenses are controlled in absolute amounts and monitored as a percentage of revenues.

Identification of appropriate new restaurant sites is
integral to our growth strategy. We evaluate and invest in new restaurants based on site-specific projected returns on investment. We believe our restaurant model and flexible real estate strategy provide us with continued opportunities to find
attractive real estate locations on favorable terms. We evaluate acquisition opportunities as they arise, paying particular attention to how restaurants or restaurant groups would fit with our existing restaurants and our business plan.

STRATEGIC FOCUS AND OPERATING OUTLOOK

Our primary business focus for more than 38 years has been to consistently offer a broad selection of high quality, fresh seafood, which we believe
commands strong loyalty from our guests. We have expanded our McCormick & Schmicks seafood restaurant concept throughout 25 states in the United States and have competed effectively with both national and regional restaurant chains as
well as with local operators.

Our objective is to continue to prudently expand the McCormick & Schmicks seafood restaurant
base in existing and new markets. We have accomplished our expansion goals for 2010 by opening two McCormick & Schmicks seafood restaurants, as well as one The Boathouse Restaurant. In addition to new restaurant growth, we continue to
strive to maximize comparable restaurant sales and guest counts as well as restaurant level operating margins.

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

We believe we can build revenues and profitability through new restaurant development, building traffic at existing restaurants and operating existing restaurants more efficiently. However, our strategic
focus and operating outlook may change, perhaps significantly, if the current economic downturn continues or worsens.



8



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FINANCIAL PERFORMANCE OVERVIEW

The following are highlights of our financial performance for the thirteen week period ended September 25, 2010 compared to the
thirteen week period ended September 26, 2009:



| |  |  | Revenues decreased 1.3% to $84.9 million from $86.0 million;
| | - |  | ------------------------------------------------------------



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



| |  |  | Comparable restaurant traffic decreased 8.7%;
| | - |  | ---------------------------------------------



| |  |  | Operating income remained consistent at $1.6 million;
| | - |  | -----------------------------------------------------



| |  |  | Net income remained consistent at $1.0 million; and
| | - |  | ---------------------------------------------------



| |  |  | Diluted net income per share remained consistent at $0.07 per share.
| | - |  | --------------------------------------------------------------------

RECENT DEVELOPMENTS

Foodservice Distribution Agreement

On October 12, 2010, we entered into a Foodservice Distribution Agreement (the Agreement) with Distribution Market Advantage, Inc.
(DMA). The Agreement provides for inventory to be supplied to the Company through five distributors represented by DMA: Ben E. Keith Company, Food Services of America, Inc., Gordon Food Service, Inc., Reinhart Foodservice, L.L.C., and
Shamrock Foods Company. The Agreement requires the Company to purchase at least 80% of certain types of inventory and supplies from or through those DMA distributors.

The Agreement will be effective on January 31, 2011 and expire on January 31, 2014. The Agreement may be terminated by either party upon 120 days prior notice, or in the event of a material
breach (after the elapse of a cure period), or may be terminated by DMA if the Company fails to make payment, DMA believes that the Company will not be able to meet its financial obligations, or upon 60 days prior notice if the Company objects to
certain amendments proposed by DMA.

The Company intends to terminate its existing supply agreement with Sysco Corporation upon the expiration
of the term of that agreement on January 31, 2011.



9



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RESULTS OF OPERATIONS: Thirteen
week period ended September 26, 2009 compared to Thirteen week period ended September 25, 2010



|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|------------------------------------------- |  | ------------------------------ | ------ | - | ------------------ |  | ----- | ------- |  | - | ------------ |  |  |  | ----- | -
|                                            |  | Thirteen Week Period Ended
(1) |       
|                                            |  | September 26, 2009             |        |   | September 25, 2010 | 
|(Dollars in thousands)                      |  | Dollars                        |        |   | % ofrevenues       |  |       | Dollars |  |   | % ofrevenues | 
|Revenues                                    |  | $                              | 85,984 |   |                    |  | 100.0 | %       |  | $ | 84,900       |  |  |  | 100.0 | %
|Restaurant operating costs:                 |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Food and beverage                           |  |                                | 25,053 |   |                    |  | 29.1  |         |  |   | 24,550       |  |  |  | 28.9  |  
|Labor                                       |  |                                | 27,761 |   |                    |  | 32.3  |         |  |   | 27,779       |  |  |  | 32.7  |  
|Operating                                   |  |                                | 13,131 |   |                    |  | 15.3  |         |  |   | 13,063       |  |  |  | 15.4  |  
|Occupancy                                   |  |                                | 9,200  |   |                    |  | 10.7  |         |  |   | 9,723        |  |  |  | 11.5  |  
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Total restaurant operating costs            |  |                                | 75,145 |   |                    |  | 87.4  |         |  |   | 75,115       |  |  |  | 88.5  |  
|General and administrative expenses         |  |                                | 4,826  |   |                    |  | 5.6   |         |  |   | 4,088        |  |  |  | 4.8   |  
|Restaurant pre-opening costs                |  |                                | 109    |   |                    |  | 0.1   |         |  |   | 93           |  |  |  | 0.1   |  
|Depreciation and amortization               |  |                                | 4,241  |   |                    |  | 4.9   |         |  |   | 3,955        |  |  |  | 4.7   |  
|Impairment, restructuring and other charges |  |                                | 42     |   |                    |  |      |         |  |   |             |  |  |  |      |  
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Total costs and expenses                    |  |                                | 84,363 |   |                    |  | 98.1  |         |  |   | 83,251       |  |  |  | 98.1  |  
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Operating income                            |  |                                | 1,621  |   |                    |  | 1.9   |         |  |   | 1,649        |  |  |  | 1.9   |  
|Interest expense, net                       |  |                                | 469    |   |                    |  | 0.5   |         |  |   | 430          |  |  |  | 0.5   |  
|Other income, net                           |  |                                | (37    | ) |                    |  |      |         |  |   |             |  |  |  |      |  
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Income before income taxes                  |  |                                | 1,189  |   |                    |  | 1.4   |         |  |   | 1,219        |  |  |  | 1.4   |  
|Income tax expense                          |  |                                | 179    |   |                    |  | 0.2   |         |  |   | 183          |  |  |  | 0.2   |  
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Net income                                  |  | $                              | 1,010  |   |                    |  | 1.2   | %       |  | $ | 1,036        |  |  |  | 1.2   | %
|                                            |  |                                |        |   |                    |  |       |         |  |   |              |  |  |  |       |  



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



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Revenues and Restaurant Operating
Costs



|                                 |  |                            |        |  |                   |   |        |              |  |   |         |   |  |  |      |   
|-------------------------------- |  | -------------------------- | ------ |  | ----------------- | - | ------ | ------------ |  | - | ------- | - |  |  | ---- | --
|                                 |  | Thirteen Week Period Ended |        |  |                   |   |        |              | 
|(Dollars in thousands)           |  | September 26,2009          |        |  | September 25,2010 |   |        | DollarChange |  |   | %Change |  
|Revenues                         |  | $                          | 85,984 |  |                   | $ | 84,900 |              |  | $ | (1,084  | ) |  |  | (1.3 | )%
|                                 |  |                            |        |  |                   |   |        |              |  |   |         |   |  |  |      |   
|Restaurant operating costs:      |  |                            |        |  |                   |   |        |              |  |   |         |   |  |  |      |   
|Food and beverage                |  | $                          | 25,053 |  |                   | $ | 24,550 |              |  | $ | (503    | ) |  |  | (2.0 | )%
|Labor                            |  |                            | 27,761 |  |                   |   | 27,779 |              |  |   | 18      |   |  |  | 0.1  | % 
|Operating                        |  |                            | 13,131 |  |                   |   | 13,063 |              |  |   | (68     | ) |  |  | (0.5 | )%
|Occupancy                        |  |                            | 9,200  |  |                   |   | 9,723  |              |  |   | 523     |   |  |  | 5.7  | % 
|                                 |  |                            |        |  |                   |   |        |              |  |   |         |   |  |  |      |   
|Total restaurant operating costs |  | $                          | 75,145 |  |                   | $ | 75,115 |              |  | $ | (30     | ) |  |  | 0.0  | % 
|                                 |  |                            |        |  |                   |   |        |              |  |   |         |   |  |  |      |   



|                                                                |  |                           |       |  |                   |  |       | 
|--------------------------------------------------------------- |  | ------------------------- | ----- |  | ----------------- |  | ----- | 
|                                                                |  | Thirteen WeekPeriod
Ended |      
|                                                                |  | September 26,2009         |       |  | September 25,2010 | 
|Store operating weeks                                           |  |                           | 1,196 |  |                   |  | 1,235 | 
|Number of company owned restaurants operating during the period |  |                           | 92    |  |                   |  | 95    | 

Revenues

Our revenues are derived primarily from food and beverage sales.

Revenues decreased $1.1 million, or 1.3%, to $84.9 million in the thirteen week period ended September 25, 2010 compared to $86.0 million in the comparable period of 2009. The decrease in revenues
was primarily due to the decline in comparable restaurant sales driven by a decrease in restaurant traffic of 8.7% offset by an increase in net pricing and product mix of 4.1%. Revenues were also positively affected by the increase in store
operating weeks as a result of the additional restaurants opened in the fiscal 2010 period compared to the fiscal 2009 period.

Income from
gift card breakage remained consistent at $0.3 million in the thirteen week period ended September 25, 2010 and in the comparable period of 2009.

Food and Beverage Costs

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

Food and beverage costs decreased $0.5 million, or 2.0%, to $24.6 million in the thirteen
week period ended September 25, 2010 compared to $25.1 million in the comparable period of 2009. The decrease in food and beverage costs was primarily due to lower restaurant sales. The decrease in food and beverage costs as a percentage of
revenues was primarily due to a decline in food costs.

Labor Costs

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

Labor costs remained consistent at $27.8 million in the thirteen week period ended September 25, 2010 and in the comparable period of 2009. We are typically able to increase or decrease our workforce
hours as needed, which allows us to match a significant portion of our labor costs with fluctuations in revenue. The increase in labor costs as a percentage of revenue was a result of sales deleveraging.



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Operating Costs

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

Operating costs remained consistent at $13.1 million in the thirteen week period ended September 25, 2010 and in the comparable period of 2009. The
slight increase in operating costs as a percentage of revenue was a result of sales deleveraging.

Occupancy Costs

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

Occupancy costs increased $0.5 million, or 5.7%, to $9.7 million in the thirteen week period ended September 25, 2010 compared to
$9.2 million in the comparable period of 2009. The increase in occupancy costs was primarily due to an overall increase in lease expense as additional restaurants were opened during 2010. The increase in occupancy costs as a percentage of revenues
was primarily a result of a significant portion of our occupancy costs being fixed and a decrease in our revenues.

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



|                                            |  |                            |       |  |                   |   |       |              |  |   |         |   |  |  |        |   
|------------------------------------------- |  | -------------------------- | ----- |  | ----------------- | - | ----- | ------------ |  | - | ------- | - |  |  | ------ | --
|                                            |  | Thirteen Week Period Ended |       |  |                   |   |       |              | 
|(Dollars in thousands)                      |  | September 26,2009          |       |  | September 25,2010 |   |       | DollarChange |  |   | %Change |  
|                                            |  |                            |       | 
|General and administrative expense          |  | $                          | 4,826 |  |                   | $ | 4,088 |              |  | $ | (738    | ) |  |  | (15.3  | )%
|Restaurant pre-opening costs                |  |                            | 109   |  |                   |   | 93    |              |  |   | (16     | ) |  |  | *      |   
|Depreciation and amortization               |  |                            | 4,241 |  |                   |   | 3,955 |              |  |   | (286    | ) |  |  | (6.7   | )%
|Impairment, restructuring and other charges |  |                            | 42    |  |                   |   |      |              |  |   |        |   |  |  | (100.0 | )%



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

General and
Administrative Expenses

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

General and administrative expenses decreased $0.7 million, or 15.3%, to $4.1 million in the thirteen week period ended September 25, 2010 compared
to $4.8 million in the comparable period of 2009. The decrease in general and administrative expenses was primarily due to decreases in legal and consulting fees and reductions in employee related expenses as a result of cost saving initiatives.

Restaurant Pre-Opening Costs

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

Restaurant pre-opening costs remained consistent at $0.1 million in the thirteen week period ended September 25, 2010 and in the comparable period
of 2009.



12



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##### Table of Contents



Depreciation and Amortization

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

Depreciation and amortization decreased $0.3 million, or 6.7%, to $4.0 million in the thirteen week
period ended September 25, 2010 compared to $4.2 million in the comparable period of 2009. The decrease in depreciation and amortization was primarily due to the reduction of expense attributable to assets written down in fiscal 2009.

Impairment, Restructuring and Other Charges

Impairment, restructuring and other charges of $42 thousand in the thirteen week period ended September 26, 2009 primarily related to severance costs and other termination benefits paid to employees.

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



|                       |  |                            |       |   |                   |  |       |              |  |  |         |   |  |  |     |  
|---------------------- |  | -------------------------- | ----- | - | ----------------- |  | ----- | ------------ |  |  | ------- | - |  |  | --- | -
|                       |  | Thirteen week period ended |       |   |                   |  |       |              | 
|(Dollars in thousands) |  | September 26,2009          |       |   | September 25,2010 |  |       | DollarChange |  |  | %Change |  
|Operating income       |  |                            | 1,621 |   |                   |  | 1,649 |              |  |  | 28      |   |  |  | 1.7 | %
|Interest expense, net  |  |                            | 469   |   |                   |  | 430   |              |  |  | (39     | ) |  |  | 8.3 | %
|Other income, net      |  |                            | (37   | ) |                   |  |      |              |  |  | (37     | ) |  |  | 100 | %
|Income tax expense     |  |                            | 179   |   |                   |  | 183   |              |  |  | 4       |   |  |  | *   |  
|Net income             |  |                            | 1,010 |   |                   |  | 1,036 |              |  |  | 26      |   |  |  | 2.6 | %



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

Operating Income

Operating income remained consistent at $1.6 million in the thirteen week period ended September 25, 2010 and in the comparable
period of 2009 as the decrease in revenue was offset by the decrease in total costs and expenses.

Interest Expense, Net

Interest expense, net, was $0.4 million for the thirteen week period ended September 25, 2010, compared to $0.5 million in the
comparable period of 2009. The decrease is primarily attributed to a decline in the balance of our revolving credit facility.

Income
Tax Expense

Our effective tax rate was an expense of 15.0% in the thirteen week period ended September 25, 2010 and 15.1% in the
comparable period of 2009. The effective tax rate in fiscal 2010 is expected to be affected by the release of a portion of the valuation allowance against deferred tax assets as we project modest taxable income for the fiscal year in certain tax
jurisdictions. The effective tax rate in the fiscal 2009 period was positively affected by a tax benefit related to our Canadian subsidiary.

Net Income

Net income remained
consistent at $1.0 million in the thirteen week period ended September 25, 2010 and in the comparable period of 2009 as the decrease in revenue was offset by the decrease in total costs and expenses.



13



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RESULTS OF OPERATIONS: Thirty-nine
week period ended September 26, 2009 compared to Thirty-nine week period ended September 25, 2010

The following are highlights
of our financial performance for the thirty-nine week period ended September 25, 2010 compared to the thirty-nine week period ended September 25, 2009:



| |  |  | Revenues decreased 4.1% to $259.5 million from $270.6 million;
| | - |  | --------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 6.1%;
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 6.5%;
| | - |  | ---------------------------------------------



| |  |  | Operating income increased to $3.4 million from $2.4 million;
| | - |  | -------------------------------------------------------------



| |  |  | Net income increased to $1.9 million from $1.1 million; and
| | - |  | -----------------------------------------------------------



| |  |  | Diluted net income per share increased to $0.13 per share from $0.07 per share.
| | - |  | -------------------------------------------------------------------------------



|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|------------------------------------------- |  | --------------------------------- | ------- | - | ------------------ |  | ----- | ------- |  | - | ------------ |  |  |  | ----- | -
|                                            |  | Thirty-Nine Week Period Ended
(1) |        
|                                            |  | September 26, 2009                |         |   | September 25, 2010 | 
|(Dollars in thousands)                      |  | Dollars                           |         |   | % ofrevenues       |  |       | Dollars |  |   | % ofrevenues | 
|Revenues                                    |  | $                                 | 270,620 |   |                    |  | 100.0 | %       |  | $ | 259,455      |  |  |  | 100.0 | %
|Restaurant operating costs:                 |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Food and beverage                           |  |                                   | 80,267  |   |                    |  | 29.7  |         |  |   | 77,230       |  |  |  | 29.8  |  
|Labor                                       |  |                                   | 88,518  |   |                    |  | 32.7  |         |  |   | 85,339       |  |  |  | 32.9  |  
|Operating                                   |  |                                   | 41,629  |   |                    |  | 15.4  |         |  |   | 38,516       |  |  |  | 14.8  |  
|Occupancy                                   |  |                                   | 28,190  |   |                    |  | 10.4  |         |  |   | 28,268       |  |  |  | 10.9  |  
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Total restaurant operating costs            |  |                                   | 238,604 |   |                    |  | 88.2  |         |  |   | 229,353      |  |  |  | 88.4  |  
|General and administrative expenses         |  |                                   | 15,619  |   |                    |  | 5.8   |         |  |   | 13,819       |  |  |  | 5.3   |  
|Restaurant pre-opening costs                |  |                                   | 750     |   |                    |  | 0.3   |         |  |   | 1,226        |  |  |  | 0.5   |  
|Depreciation and amortization               |  |                                   | 12,614  |   |                    |  | 4.7   |         |  |   | 11,614       |  |  |  | 4.5   |  
|Impairment, restructuring and other charges |  |                                   | 594     |   |                    |  | 0.2   |         |  |   |             |  |  |  |      |  
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Total costs and expenses                    |  |                                   | 268,181 |   |                    |  | 99.1  |         |  |   | 256,012      |  |  |  | 98.7  |  
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Operating income                            |  |                                   | 2,439   |   |                    |  | 0.9   |         |  |   | 3,443        |  |  |  | 1.3   |  
|Interest expense, net                       |  |                                   | 1,316   |   |                    |  | 0.5   |         |  |   | 1,236        |  |  |  | 0.5   |  
|Other income, net                           |  |                                   | (10     | ) |                    |  |      |         |  |   |             |  |  |  |      |  
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Income before income taxes                  |  |                                   | 1,133   |   |                    |  | 0.4   |         |  |   | 2,207        |  |  |  | 0.9   |  
|Income tax expense                          |  |                                   | 78      |   |                    |  |      |         |  |   | 327          |  |  |  | 0.1   |  
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  
|Net income                                  |  | $                                 | 1,055   |   |                    |  | 0.4   | %       |  | $ | 1,880        |  |  |  | 0.7   | %
|                                            |  |                                   |         |   |                    |  |       |         |  |   |              |  |  |  |       |  



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



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Revenues and Restaurant Operating
Costs



|                                 |  |                              |         |  |                   |   |         |              |  |   |         |   |  |  |      |   
|-------------------------------- |  | ---------------------------- | ------- |  | ----------------- | - | ------- | ------------ |  | - | ------- | - |  |  | ---- | --
|                                 |  | Thirty-Nine WeekPeriod
Ended |         |  |                   |   |         |              | 
|(Dollars in thousands)           |  | September 26,2009            |         |  | September 25,2010 |   |         | DollarChange |  |   | %Change |  
|Revenues                         |  | $                            | 270,620 |  |                   | $ | 259,455 |              |  | $ | (11,165 | ) |  |  | (4.1 | )%
|                                 |  |                              |         |  |                   |   |         |              |  |   |         |   |  |  |      |   
|Restaurant operating costs:      |  |                              |         |  |                   |   |         |              |  |   |         |   |  |  |      |   
|Food and beverage                |  | $                            | 80,267  |  |                   | $ | 77,230  |              |  | $ | (3,037  | ) |  |  | (3.8 | )%
|Labor                            |  |                              | 88,518  |  |                   |   | 85,339  |              |  |   | (3,179  | ) |  |  | (3.6 | )%
|Operating                        |  |                              | 41,629  |  |                   |   | 38,516  |              |  |   | (3,113  | ) |  |  | (7.5 | )%
|Occupancy                        |  |                              | 28,190  |  |                   |   | 28,268  |              |  |   | 78      |   |  |  | 0.3  | % 
|                                 |  |                              |         |  |                   |   |         |              |  |   |         |   |  |  |      |   
|Total restaurant operating costs |  | $                            | 238,604 |  |                   | $ | 229,353 |              |  | $ | 9,251   |   |  |  | (3.9 | )%
|                                 |  |                              |         |  |                   |   |         |              |  |   |         |   |  |  |      |   



|                                                                |  |                              |       |  |                   |  |       | 
|--------------------------------------------------------------- |  | ---------------------------- | ----- |  | ----------------- |  | ----- | 
|                                                                |  | Thirty-nine WeekPeriod
Ended |      
|                                                                |  | September 26,2009            |       |  | September 25,2010 | 
|Store operating weeks                                           |  |                              | 3,595 |  |                   |  | 3,696 | 
|Number of company owned restaurants operating during the period |  |                              | 92    |  |                   |  | 95    | 

Revenues

Revenues decreased $11.2 million, or 4.1%, to $259.5 million in the thirty-nine week period ended September 25, 2010 compared to $270.6 million in
the comparable period of 2009. The decrease in revenues was primarily due to the decline in comparable restaurant sales driven by decreases in traffic of 6.5% offset by a slight increase in net pricing and product mix of 0.4%. Revenues were
positively affected by the increase in store operating weeks as a result of the addition of restaurants in the fiscal 2010 period compared to the fiscal 2009 period.

Income from gift card breakage was $0.3 million in the thirty-nine week period ended September 25, 2010 compared to $0.5 million in the comparable period of 2009.

Food and Beverage Costs

Food and
beverage costs decreased $3.0 million, or 3.8%, to $77.2 million in the thirty-nine week period ended September 25, 2010 compared to $80.3 million in the comparable period of 2009. The decrease in food and beverage costs was primarily due to
lower restaurant sales. The slight increase in food and beverage costs as a percentage of revenues was due to our strategic initiative to offer more attractively priced wines to better connect with our guest and expand our guest population.

Labor Costs

Labor
costs decreased $3.2 million, or 3.6%, to $85.3 million in the thirty-nine week period ended September 25, 2010 compared to $88.5 million in the comparable period of 2009. The decrease in labor costs was primarily due to a decrease in staffing
hours as a result of our sales decline, as well as lower bonus expense in the fiscal 2010 period compared to the fiscal 2009 period. We are typically able to increase or decrease our workforce hours as needed, which allows us to match a significant
portion of our labor costs with fluctuations in revenue. The increase in labor costs as a percentage of revenue was a result of sales deleveraging.

Operating Costs

Operating costs decreased $3.1 million, or 7.5%, to $38.5 million
in the thirty-nine week period ended September 25, 2010 compared to $41.6 million in the comparable period of 2009. The decrease in operating costs, both in dollars and as a percentage of revenues, was primarily due to lower janitorial costs as
restaurants continued to see benefit from in-house janitor labor compared to outsourced labor and lower utility and laundry costs.



15



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##### Table of Contents



Occupancy Costs

Occupancy costs increased $0.1 million, or 0.3%, to $28.3 million in the thirty-nine week period ended September 25, 2010
compared to $28.2 million in the comparable period of 2009. The increase in occupancy costs was primarily due to an overall increase in lease expense as additional restaurants were opened during 2010. The increase in occupancy costs as a percentage
of revenues was primarily a result of a significant portion of our occupancy costs being fixed and a decrease in our revenues.

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



|                                            |  |                               |        |  |                   |   |        |              |  |   |         |   |  |  |        |   
|------------------------------------------- |  | ----------------------------- | ------ |  | ----------------- | - | ------ | ------------ |  | - | ------- | - |  |  | ------ | --
|                                            |  | Thirty-Nine Week Period Ended |        |  |                   |   |        |              | 
|(Dollars in thousands)                      |  | September 26,2009             |        |  | September 25,2010 |   |        | DollarChange |  |   | %Change |  
|                                            |  |                               |        | 
|General and administrative expense          |  | $                             | 15,619 |  |                   | $ | 13,819 |              |  | $ | (1,800  | ) |  |  | (11.5  | )%
|Restaurant pre-opening costs                |  |                               | 750    |  |                   |   | 1,226  |              |  |   | 476     |   |  |  |        | * 
|Depreciation and amortization               |  |                               | 12,614 |  |                   |   | 11,614 |              |  |   | (1,000  | ) |  |  | (7.9   | )%
|Impairment, restructuring and other charges |  |                               | 594    |  |                   |   |       |              |  |   | (594    | ) |  |  | (100.0 | )%



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

General and
Administrative Expenses

General and administrative costs decreased $1.8 million, or 11.5%, to $13.8 million in the thirty-nine week
period ended September 25, 2010 compared to $15.6 million in the comparable period of 2009. The decrease in general and administrative expenses was primarily due to decreases in travel costs, legal and consulting fees and reductions in employee
related expenses as a result of cost saving initiatives.

Restaurant Pre-Opening Costs

Restaurant pre-opening costs increased $0.5 million to $1.2 million in the thirty-nine week period ended September 25, 2010 compared to $0.8 million
in the comparable period of 2009. The increase in restaurant pre-opening costs was due to the timing of restaurant openings. We opened three restaurants in the first thirty-nine weeks of fiscal 2010 compared to the opening of two restaurants in the
first thirty-nine weeks of fiscal 2009.

Depreciation and Amortization

Depreciation and amortization decreased $1.0 million, or 7.9%, to $11.6 million in the thirty-nine week period ended September 25, 2010 compared to $12.6 million in the comparable period of 2009. The
decrease in depreciation and amortization was primarily due to the reduction of expense attributable to assets written down fiscal 2009.

Impairment, Restructuring and Other Charges

Impairment, restructuring and other charges of $0.6 million in the thirty-nine week period ended September 26, 2009 primarily related to severance costs and other termination benefits paid to
employees.

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



|                       |  |                               |       |  |                   |   |       |              |  |   |         |   |  |  |        |   
|---------------------- |  | ----------------------------- | ----- |  | ----------------- | - | ----- | ------------ |  | - | ------- | - |  |  | ------ | --
|                       |  | Thirty-nine week period ended |       |  |                   |   |       |              | 
|(Dollars in thousands) |  | September 26,2009             |       |  | September 25,2010 |   |       | DollarChange |  |   | %Change |  
|Operating income       |  | $                             | 2,439 |  |                   | $ | 3,443 |              |  | $ | 1,004   |   |  |  | 41.2   | % 
|Interest expense, net  |  |                               | 1,316 |  |                   |   | 1,236 |              |  |   | (80     | ) |  |  | (6.1   | )%
|Other income, net      |  |                               | 10    |  |                   |   |      |              |  |   | (10     | ) |  |  | (100.0 | )%
|Income tax expense     |  |                               | 78    |  |                   |   | 327   |              |  |   | 249     |   |  |  |        | * 
|Net income             |  |                               | 1,055 |  |                   |   | 1,880 |              |  |   | 825     |   |  |  | 78.2   | % 



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



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Operating Income

Operating income increased $1.0 million, or 41.2%, to $3.4 million in the thirty-nine week period ended September 25, 2010
compared to $2.4 million in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and expenses.

Interest Expense, Net

Interest expense, net, was $1.2 million for the thirty-nine
week period ended September 25, 2010, compared to $1.3 million in the comparable period of 2009. The decrease is primarily attributed to a decline in the balance of our revolving credit facility.

Income Tax Expense

Our effective
tax rate was an expense of 14.8% in the first thirty-nine weeks of fiscal 2010 and 6.9% in the first thirty-nine weeks of fiscal 2009. The effective tax rate in fiscal 2010 is expected to be affected by the release of a portion of the valuation
allowance against deferred tax assets as we project modest taxable income for the fiscal year in certain tax jurisdictions. The effective tax rate in the fiscal 2009 period was positively affected by a tax benefit related to our Canadian subsidiary.

Net Income

Net
income increased $0.8 million to $1.9 million in the thirty-nine week period ended September 25, 2010 compared to $1.1 million in the comparable period of 2009 as the decrease in revenues was more than offset by the decreases in total costs and
expenses.



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LIQUIDITY AND CAPITAL RESOURCES

Our primary cash needs have been for new restaurant construction, restaurant acquisition, working capital and general corporate purposes,
including payments under our credit facility. Our main sources of cash have been net cash provided by operating activities, borrowings under our credit facility and cash from tenant improvement allowances. The following table summarizes our sources
and uses of cash and cash equivalents from our unaudited condensed consolidated statements of cash flows.



|                                                             |  |                               |        |   |                   |   |        |  
|------------------------------------------------------------ |  | ----------------------------- | ------ | - | ----------------- | - | ------ | -
|                                                             |  | Thirty-Nine Week Period Ended |       
|(Dollars in thousands)                                       |  | September 26,2009             |        |   | September 25,2010 |  
|Net cash provided by operating activities                    |  | $                             | 10,455 |   |                   | $ | 7,207  |  
|Net cash used in investing activities                        |  |                               | (5,168 | ) |                   |   | (9,646 | )
|Net cash used in financing activities                        |  |                               | (5,035 | ) |                   |   | (1,293 | )
|Effect of exchange rate changes on cash and cash equivalents |  |                               | 294    |   |                   |   | 57     |  
|                                                             |  |                               |        |   |                   |   |        |  
|Net increase (decrease) in cash and cash equivalents         |  | $                             | 546    |   |                   | $ | (3,675 | )
|                                                             |  |                               |        |   |                   |   |        |  

For much of the Companys history, we have successfully operated with a negative working capital balance. Our
operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital because we are able to sell many of our food inventory items before payment is due to our
suppliers. Credit card receivables, our primary type of receivable, are collected within a few business days of a guests payment by credit card. We have operated successfully with similar levels of working capital deficit as this level does
not fluctuate greatly from year to year and is the appropriate level to support our operations based on the reasons noted above. Funds available from revenues not needed immediately for working capital purposes historically have been used for
capital expenditures or to repay debt.

We had a working capital deficit of $11.5 million at September 25, 2010 compared to $16.6 million
at December 26, 2009 and our current ratio was 0.68 at September 25, 2010 compared to 0.64 at December 26, 2009. We utilize our credit facility to cover working capital shortfalls by drawing on our facility daily as needed and then
repaying promptly as funds become available.

Cash Flow from Operating Activities

We believe the net cash provided by operating activities and funds available from our revolving credit facility will be sufficient to satisfy our working
capital and capital expenditure requirements, including restaurant construction and pre-opening costs and potential initial operating losses related to new restaurant openings, for at least the next twelve months from September 25, 2010.
However, this circumstance could change, perhaps significantly, if the current economic downturn does not improve or worsens.

Net cash
provided by operating activities was $7.2 million in the thirty-nine week period ended September 25, 2010 compared to $10.5 million in the thirty-nine week period ended September 26, 2009. The decrease in net cash provided by operating
activities to date in 2010 compared to 2009 was primarily due to the change in net income, excluding non-cash impairment and deferred income taxes, coupled with changes in working capital. Our primary source of cash is revenue from customers. Guests
pay for food and beverage purchases at the time of sale in cash or by credit card, which are converted to cash within a few business days. Our primary uses of cash are for inventory purchases, labor and occupancy which closely approximate the cash
basis of accounting as these items are settled in cash within a short period of time.

The most significant cause of the decline in net cash
provided by operating activities was a 4.1% decline in revenues in the thirty-nine week period ended September 25, 2010 compared to comparable period of 2009.



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Cash Flow from Investing
Activities

Net cash used in investing activities in the thirty-nine week period ended September 25, 2010 was $9.6 million and
primarily consisted of capital expenditures of $9.2 million. Cash was used primarily for equipment purchases, the purchase of leasehold assets and construction costs related to new restaurant openings and to upgrade and add capacity to existing
restaurants. During the thirty-nine week period ended September 25, 2010, we opened three new restaurants.

We have not finalized our
capital expenditures budget for the next twelve months. However, we are engaged in a number of ongoing initiatives to enhance our facilities, and we regularly invest in our information technology systems to support future growth and development of
our restaurant operations. From time to time we also evaluate programs that, if adopted, would require us to make additional capital expenditures, some of which may be material. At present, we have not adopted any program that would require a
material increase in capital expenditures in excess of budget, and we anticipate that, were we to adopt any such plans, expenditures would be managed to balance liquidity and working capital needs with any extraordinary expenses and capital
expenditures, taking into account any additional resources such as borrowings under existing or future credit arrangements.

Cash Flow
from Financing Activities

Net cash used in financing activities was $1.3 million in the thirty-nine week period ended
September 25, 2010 and consisted primarily of net borrowings on our revolving credit facility. We utilize our revolving credit facility to fund our construction of new restaurants, remodeling of existing restaurants, as well as fund our ongoing
operations.

We have a $90 million revolving credit facility, with an additional $50.0 million available at our request if specified
conditions are met. As of September 25, 2010, we had $12.0 million outstanding on the facility at an effective interest rate of 2.78%. Under the revolving credit facility agreement, we are subject to certain financial covenants, including a
maximum adjusted leverage ratio and a minimum fixed charge ratio. We are in compliance with these covenants as of September 25, 2010. Amounts outstanding under the revolving credit facility agreement are collateralized by the stock of our
subsidiaries and mature on December 28, 2012.

The revolving credit facility agreement also provides for bank guarantees under standby
letter of credit arrangements in the normal course of business operations. Our commercial bank issues standby letters of credit to secure our obligations to pay or perform as required pursuant to the requirements of an underlying agreement for the
provision of goods and services. The standby letters of credit are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its
terms. As of September 25, 2010, the maximum exposure under these standby letters of credit was $2.8 million.

At September 25, 2010
there was $75.2 million available for future borrowings under the revolving credit facility.

On July 30, 2008, our Board of Directors
authorized the repurchase of up to $20.0 million of our common stock. Such repurchases may be made from time to time in open market transactions or through privately negotiated transactions. As of September 25, 2010 we had not repurchased any
shares.



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SEASONALITY

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

We reaffirm the critical accounting policies and estimates as reported in the managements discussion and analysis of financial
condition and results of operations in Form 10-K for the year ended December 26, 2009, as amended.

SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

We reaffirm the significant accounting policies in our notes to consolidated financial statements reported in Form 10-K for the
year ended December 26, 2009, as amended, with the following update to revenue recognition.

Revenues are recognized at the point of
delivery of products and services. The Company recognizes gift card income when the gift card is redeemed by the guest; or the likelihood of the gift card being redeemed by the guest is remote (gift card breakage) and the Company determines there is
no legal obligation to remit the value of unredeemed gift cards to governmental entities. The Company determines the gift card breakage rate based upon historical redemption patterns. Certain of our gift cards are sold on a discount and the net
value (face value to be redeemed less the discount offered) is deferred until redeemed or breakage is deemed appropriate. Gift card income is included within revenues.

RECENT ACCOUNTING PRONOUNCEMENTS

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



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##### Table of Contents



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There have been no material changes in our reported market risks since the filing of our Form 10-K (Item 7A) for the year ended December 26, 2009, as amended.



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

Disclosure
Controls and Procedures

We have evaluated, under the supervision and with the participation of our chief executive officer and our
chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act) in regards to 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. Based upon that evaluation, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures were effective as of September 25, 2010.

Changes in Internal Control Over Financial
Reporting

We have evaluated, with the participation of our CEO and CFO, whether any changes in our internal control over financial
reporting that occurred during the quarter ended September 25, 2010 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The following represent material changes in our internal
control over financial reporting during the quarter ended September 25, 2010 that pertain to the remediation of our material weakness in the internal control over financial reporting as discussed below.

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

In connection with this restatement we had
reassessed the Companys controls and procedures including internal control over financial reporting and determined that a material weakness existed. We have concluded based on the remediation actions described below, that this material
weakness did not exist at September 25, 2010.

In order to remediate the material weakness, we re-designed our gift card account
reconciliation process to properly capture the breakage of discounted gift cards, added a more robust account analytic to our monthly closing process to identify unusual trends in the gift card discount account and strengthened the process of
reviewing the gift card account reconciliations by hiring a new accounting manager with more extensive technical accounting knowledge. As of September 25, 2010, we believe that the additional control procedures that have been implemented have
fully remediated the material weakness.

No other material changes in our internal control over financial reporting occurred during the
period.

Remediation of Previously Disclosed Material Weakness

As of September 25, 2010 the enhancements to our internal controls discussed above have been in place for a sufficient period of time such that we have concluded that the material weakness disclosed
on Form 10-Q filed on August 5, 2010 and Form 10-Q/A and Form 10-K/A filed on August 20, 2010 has been remediated. We have evaluated these remediation procedures described above in connection with the execution of our quarterly disclosure
controls and procedures as of September 25, 2010.



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PART II. OTHER
INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Occasionally, we are a
defendant in litigation arising in the ordinary course of our business, including claims resulting from slip and fall accidents, employment related claims and claims from guests or employees alleging illness, injury or other food
quality, health or operational concerns. These may include claims brought against us by private party plaintiffs and various government agencies, including federal, state and local taxing agencies, various state and local health departments, and the
Equal Employment Opportunity Commission and other employment related agencies, among others. In certain instances we may settle claims if management concludes that future costs to defend the suits outweigh the costs to settle the claims. We are
currently a defendant in several disputes that may be litigated in court. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse
effect on the Companys financial position, results of operations or cash flows.

Our primary insurer in 2004 has informed us it believes
we have exhausted our insurance coverage with respect to employment claims arising in our 2004 coverage year, which it believes includes the litigation in California and possibly similar future claims. Furthermore, the insurer has also taken the
position that several claims arising in the 2005 through 2008 coverage years are related to certain 2004 claims, and therefore not eligible for coverage. We disagree with this interpretation of the coverage, but have taken this interpretation into
account in connection with the accounting for employment claims. In fiscal 2008, we initiated litigation to contest the insurers conclusion. The amount of claims currently in dispute is $1.7 million which represents costs already incurred by
the Company in which we are seeking to recover. We have accounted for the litigation with our insurer in accordance with the applicable guidance for accounting for contingencies under GAAP and determined that no liability should be recorded at this
time.



|Item 1A. | Risk Factors
|-------- | ------------

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

The restaurant industry is being adversely affected by economic factors, including changes in national, regional and local economic
conditions, employment levels and consumer spending patterns. The increased concerns about the economy and financial markets have reduced consumer confidence and decreased restaurant traffic which is harmful to our business and results of
operations. If these conditions continue or worsen, deteriorating financial performance could affect the financial ratios and covenants under our credit agreement, which, in turn, could affect our ability to borrow, increase our cost of borrowing or
result in accelerated payment of outstanding loans.

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



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



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



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

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



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

We are subject to a
variety of claims arising in the ordinary course of our business brought by or on behalf of our guests or employees, including personal injury claims, contract claims and employment-related claims. In recent years, a number of restaurant companies
have been subject to lawsuits, including class-action lawsuits, alleging violations of federal and state law regarding workplace, employment and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the
defendants. Similar lawsuits have been instituted against us from time to time. In 2007, we incurred a $2.2 million charge for a class action legal settlement relating to an employment claim. Regardless of whether any claims against us are valid or
whether we are ultimately determined to be liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could
materially adversely affect our financial condition or results of operations, and adverse publicity resulting from these allegations may materially adversely affect our business. We may incur substantial damages and expenses resulting from lawsuits,
which could have a material adverse effect on our business.

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

The results achieved by our restaurants may not be indicative
of longer-term performance or the potential market acceptance of restaurants in other locations. New restaurants we open may not have operating results similar to those of previously opened restaurants. The failure of restaurants to perform as
predicted could result in an impairment charge, which could negatively impact our results of operations.

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

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



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



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



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



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



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



| |  |  | the ability of real estate developers, landlords and co-tenants to meet commitments to fill space in developments where our restaurants are to be
located, which would positively affect guest traffic to our planned restaurants;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

Some of these factors are beyond our control. We may not be able to achieve our expansion goals and our new restaurants may not be able to achieve operating results similar to those of our existing
restaurants. Due to the economic outlook, we opened two restaurants in 2009 and three in 2010 to date, which is fewer than in the last several years.



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

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



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



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



| |  |  | our ability to raise capital, or the availability of expansion capital generally;
| | - |  | ---------------------------------------------------------------------------------



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



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



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



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



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



| |  |  | fluctuations in the number of visitors or business travelers to our restaurants;
| | - |  | --------------------------------------------------------------------------------



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



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



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



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



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



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



| |  |  | the effect of widespread adverse weather conditions;
| | - |  | ----------------------------------------------------



| |  |  | economic trends generally;
| | - |  | --------------------------



| |  |  | the ability of real estate developers, landlords and co-tenants, to meet commitments to fill space in developments where our restaurants are to be
located, which would affect guest traffic to our restaurants; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced corporate expenditures on meetings and/or conventions may impact our private dining business.
| | - |  | -----------------------------------------------------------------------------------------------------

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

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

Our profitability depends significantly on our ability to
anticipate and react to changes in food costs. We rely on local, regional and national suppliers to provide our seafood, produce, beef and other ingredients. Increases in distribution costs or sale prices or failure to perform by these suppliers
could cause our food costs to increase. We could also experience significant short-term disruptions in our supply if a significant supplier failed to meet its obligations. The supply of seafood, produce and beef are more volatile than other types of
food. The type, variety, quality and price of seafood, produce and beef are subject to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which may affect our food costs or cause a
disruption in our supply. Some climatologists predict that the long-term effects of climate change may result in more severe, volatile weather. Changes in the price or availability of certain types of seafood and beef could affect our ability to
offer a broad menu and price offering to guests and could materially adversely affect our profitability.



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

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

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

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

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

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

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

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

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

As of September 25, 2010, we operated five restaurants in the Seattle, Washington area, six in the Portland, Oregon area, fourteen in California,
and seven in the greater Vancouver, British Columbia area. Our East Coast restaurants are concentrated in and around Washington, D.C. and Baltimore. As a result, adverse economic conditions, weather and labor markets in any of these areas could have
a material adverse effect on our overall results of operations.

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



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

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

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

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

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

We believe we maintain insurance coverage that is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not
commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Our primary insurer in 2004 has informed us it believes we have exhausted our insurance coverage with
respect to employment claims arising in our 2004 coverage year and that several claims arising in 2005 through 2008 coverage years are related to the 2004 coverage year. We disagree with this interpretation of our coverage, but we have taken this
interpretation into account in connection with our accounting for employment claims. See Item 1, Legal Proceedings. We may not succeed in our contest of our insurers conclusion. If we are unsuccessful, and if it is determined
that other existing employment claims arose in 2004 and are therefore not covered, our resolution of those claims would be more expensive.

Opening new restaurants in existing markets could reduce the business of our existing restaurants.

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

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

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



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

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



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



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



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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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



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Various federal and state labor laws
govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers compensation rates, and citizenship requirements. Additional government-imposed
increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, increased tax reporting and tax payment requirements for employees who receive gratuities or a reduction in the number of states that allow tips to be
credited toward minimum wage requirements would increase our labor costs and could harm our operating results and financial condition. We may be unable to increase our prices in order to pass these increased labor costs on to our guests, in which
case our margins would be negatively affected. Because our labor costs are, as a percentage of revenues, higher than other industries, we may be significantly harmed by labor cost increases.

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

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

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

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

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

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

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



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

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



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



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SIGNATURES

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

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



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

McCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.



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

Date: November 3, 2010



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