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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K/A

Amendment No. 1

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

For the fiscal year ended December 26, 2009

or



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

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) |  | (I.R.S Employer
Identification No.)
|                                                               | 
|1414 NW Northrup Street, Suite 700 Portland, Oregon            |  | 97209                              
|(Address of principal executive offices)                       |  | (Zip Code)                         

Registrants telephone number, including area code: (503) 226-3440

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share





Indicate by check mark whether
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈  No    x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.  x

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 the definitions 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

The aggregate market value of the voting and non-voting common stock held by non-affiliates (based on the closing price on December 26, 2009 on The
Nasdaq Stock Market Global Market) was $107,500,073. There were 14,849,922 shares of common stock outstanding as of March 1, 2010.





DOCUMENTS
INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference information from the registrants Proxy Statement for
the 2010 Annual Meeting of Stockholders.









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EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended December 26, 2009 to restate
(a) our consolidated financial statements as of and for the year ended December 26, 2009 and consolidated financial data for the quarterly periods ended September 26, 2009 and December 26, 2009 (the Restated Periods)
and (b) the Selected Financial Data in Item 6 as of and for the year ended December 26, 2009.

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

In addition to the restated consolidated financial information for the Restated
Periods, this Annual Report on Form 10-K/A also contains revised financial discussion and analysis regarding the Restated Periods. This revised disclosure is contained in Part II - Item 6: Selected Consolidated Financial Data, Item
7: Managements Discussion and Analysis of Financial Condition and Results of Operations, Item 8: Note 18 Restatement  Gift Card Revenue Accounting and Item 9A: Controls and Procedures  Restated and
Part IV - Item 15: Exhibits and Financial Statement Schedules.

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

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

This Form 10-K/A is as of the original filing date of the
Form 10-K and does not reflect events other than the restatement disclosed in Note 18 of the Notes to Consolidated Financial Statements that may have occurred subsequent to the original filing date, and does not modify or update any other
disclosures made in the Form 10-K.



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MCCORMICK & SCHMICKS SEAFOOD RESTAURANTS, INC.

2009 FORM 10-K/A ANNUAL REPORT

TABLE OF CONTENTS



|           |  |                                                                                                     |  |     
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                     |  | Page
|PART II   
|           |  |                                                                                                    
|Item 6.    |  | Selected Financial Data (as restated)                                                               |  | 2   
|           |  |                                                                                                    
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (as restated) |  | 4   
|           |  |                                                                                                    
|Item 8.    |  | Financial Statements and Supplementary Data (as restated)                                           |  | 20  
|           |  |                                                                                                    
|Item 9A.   |  | Controls and Procedures (as restated)                                                               |  | 44  
|          
|PART IV   
|           |  |                                                                                                    
|Item 15.   |  | Exhibits and Financial Statement Schedules (as restated)                                            |  | 45  
|           | 
|Signatures |  | 46                                                                                                 



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Forward Looking Statements

This Annual Report on Form 10-K/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements represent our expectations or beliefs concerning future events, including the following: any statements regarding future sales, costs and expenses and gross profit
percentages; any statements regarding the continuation of historical trends; any statements regarding the expected number of future restaurant openings and expected capital expenditures; and any statements regarding the sufficiency of our cash
balances and cash generated from operating and financing activities for future liquidity and capital resource needs. In addition, the words believes, anticipates, plans, expects, should,
estimates and similar expressions are intended to identify forward-looking statements. See Item 1A, Risk Factors in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 8,
2010 for significant factors that could cause actual results to differ materially from those stated or implied in the forward-looking statements.

PART II



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The selected
consolidated financial and operating data below is derived from our consolidated financial statements for the fiscal years 2005, 2006, 2007, 2008 and 2009, which have been audited by an independent registered public accounting firm.

The selected consolidated financial and operating data below represent portions of our financial statements, which should be read together with
Part IIItem 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included in Part IIItem 8, Financial
Statements and Supplementary Data. Historical results are not necessarily indicative of future performance. Our fiscal year ends on the last Saturday in December. Each of the fiscal years 2005 through 2009 comprised 52 weeks, except for fiscal year
2005 which comprised 53 weeks.



2



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We have restated the selected financial data as of and for the year ended December 26, 2009 to reflect
the effects of the correction of an error related to accounting for discounted gift cards. For additional details, see Note 18 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K/A.



|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | -------- | ------- | - |  | - | ------- | -
|Statement of Operations Data (in thousands, except per share data):                                       |  | Year Ended |        
|                                                                                                          |  | 2005       |         |   | 2006 |   |         | 2007 |  |   | 2008    |   |  | 2009     |        
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  | Restated |        
|Revenues                                                                                                  |  | $          | 278,813 |   |      | $ | 308,323 |      |  | $ | 358,647 |   |  | $        | 390,718 |   |  | $ | 359,207 |  
|Restaurant operating costs:                                                                               |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Food and beverage                                                                                         |  |            | 81,630  |   |      |   | 89,443  |      |  |   | 104,468 |   |  |          | 117,642 |   |  |   | 106,030 |  
|Labor                                                                                                     |  |            | 86,823  |   |      |   | 95,886  |      |  |   | 112,503 |   |  |          | 125,811 |   |  |   | 117,194 |  
|Operating                                                                                                 |  |            | 41,857  |   |      |   | 46,044  |      |  |   | 54,892  |   |  |          | 61,375  |   |  |   | 54,441  |  
|Occupancy                                                                                                 |  |            | 24,790  |   |      |   | 27,650  |      |  |   | 32,048  |   |  |          | 36,874  |   |  |   | 37,690  |  
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Total restaurant operating costs                                                                          |  |            | 235,100 |   |      |   | 259,023 |      |  |   | 303,911 |   |  |          | 341,702 |   |  |   | 315,355 |  
|                                                                                                          |  |            |         |   |     
|General and administrative expenses                                                                       |  |            | 15,105  |   |      |   | 16,651  |      |  |   | 22,166  |   |  |          | 21,026  |   |  |   | 20,168  |  
|Restaurant pre-opening costs                                                                              |  |            | 2,496   |   |      |   | 2,892   |      |  |   | 4,527   |   |  |          | 4,428   |   |  |   | 1,101   |  
|Depreciation and amortization                                                                             |  |            | 9,608   |   |      |   | 10,640  |      |  |   | 11,940  |   |  |          | 15,043  |   |  |   | 16,789  |  
|Impairment, restructuring and other charges                                                               |  |            |        |   |      |   |        |      |  |   | 5,427   |   |  |          | 83,913  |   |  |   | 20,388  |  
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Total costs and expenses                                                                                  |  |            | 262,309 |   |      |   | 289,206 |      |  |   | 347,971 |   |  |          | 466,112 |   |  |   | 373,801 |  
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Operating income (loss)                                                                                   |  |            | 16,504  |   |      |   | 19,117  |      |  |   | 10,676  |   |  |          | (75,394 | ) |  |   | (14,594 | )
|Interest expense (income), net                                                                            |  |            | 550     |   |      |   | (228    | )    |  |   | (226    | ) |  |          | 1,173   |   |  |   | 1,752   |  
|Write-off of loan transaction costs                                                                       |  |            |        |   |      |   |        |      |  |   |        |   |  |          | 376     |   |  |   |        |  
|Other income, net                                                                                         |  |            |        |   |      |   |        |      |  |   |        |   |  |          | (308    | ) |  |   | (53     | )
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Income (loss) before income taxes                                                                         |  |            | 15,954  |   |      |   | 19,345  |      |  |   | 10,902  |   |  |          | (76,635 | ) |  |   | (16,293 | )
|Income tax expense (benefit)                                                                              |  |            | 4,946   |   |      |   | 5,997   |      |  |   | 2,088   |   |  |          | (7,024  | ) |  |   | (726    | )
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Net income (loss)                                                                                         |  | $          | 11,008  |   |      | $ | 13,348  |      |  | $ | 8,814   |   |  | $        | (69,611 | ) |  | $ | (15,567 | )
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|                                                                                                          |  |            |         |   |     
|Basic net income (loss) per share                                                                         |  | $          | 0.80    |   |      | $ | 0.94    |      |  | $ | 0.60    |   |  | $        | (4.73   | ) |  | $ | (1.05   | )
|Diluted net income (loss) per share                                                                       |  | $          | 0.78    |   |      | $ | 0.92    |      |  | $ | 0.60    |   |  | $        | (4.73   | ) |  | $ | (1.05   | )
|Shares used in computing net income (loss) per share:                                                     |  |            |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   |         |  
|Basic                                                                                                     |  |            | 13,798  |   |      |   | 14,227  |      |  |   | 14,569  |   |  |          | 14,707  |   |  |   | 14,771  |  
|Diluted                                                                                                   |  |            | 14,047  |   |      |   | 14,521  |      |  |   | 14,769  |   |  |          | 14,707  |   |  |   | 14,771  |  
|                                                                                                          | 
|Balance Sheet Data (in thousands):                                                                        |  | Year End   |        
|                                                                                                          |  | 2005       |         |   | 2006 |   |         | 2007 |  |   | 2008    |   |  | 2009     |        
|                                                                                                          |  |            |         |   |      |   |         |      |  |   |         |   |  | Restated |        
|Cash and cash equivalents                                                                                 |  | $          | 4,705   |   |      | $ | 10,553  |      |  | $ | 7,343   |   |  | $        | 4,428   |   |  | $ | 8,623   |  
|Total assets                                                                                              |  |            | 204,160 |   |      |   | 228,420 |      |  |   | 285,643 |   |  |          | 217,519 |   |  |   | 191,092 |  
|Long-term debt, revolving credit facility and obligations under capital leases, including current portion |  |            | 706     |   |      |   | 338     |      |  |   | 16,107  |   |  |          | 26,526  |   |  |   | 16,038  |  
|Total stockholders equity                                                                                |  |            | 143,453 |   |      |   | 160,230 |      |  |   | 178,797 |   |  |          | 105,795 |   |  |   | 92,283  |  
|                                                                                                          | 
|Other Data (dollars in thousands):                                                                        |  | Year End   |        
|                                                                                                          |  | 2005       |         |   | 2006 |   |         | 2007 |  |   | 2008    |   |  | 2009     |        
|Restaurants open at end of period (including managed restaurants)                                         |  |            | 59      |   |      |   | 66      |      |  |   | 82      |   |  |          | 92      |   |  |   | 93      |  
|Net cash provided by operating activities                                                                 |  | $          | 30,158  |   |      | $ | 34,427  |      |  | $ | 35,231  |   |  | $        | 27,358  |   |  | $ | 22,740  |  
|Net cash used in investing activities                                                                     |  |            | (21,416 | ) |      |   | (30,314 | )    |  |   | (56,001 | ) |  |          | (48,538 | ) |  |   | (8,401  | )
|Net cash provided by (used in) financing activities                                                       |  |            | (4,488  | ) |      |   | 1,735   |      |  |   | 17,627  |   |  |          | 18,557  |   |  |   | (10,586 | )



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Restatement  Gift Card Revenue Accounting

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

Summary of the Restatement Adjustments

For fiscal 2009, as shown in the table below, restated revenues are $359.2 million compared to previously reported revenues of $360.1 million and net loss
per share increased to $1.05 from $1.00. The restatement adjustments did not affect cash or previously reported total cash flows from operating, investing or financing activities. See Note 18 to the notes to the consolidated financial statements for
more information.



|                                     |  |                              |         |   |             |   |       |            |  |   |         |  
|------------------------------------ |  | ---------------------------- | ------- | - | ----------- | - | ----- | ---------- |  | - | ------- | -
|                                     |  | Year ended December 26, 2009 |        
|                                     |  | AsPreviouslyReported         |         |   | Adjustments |   |       | AsRestated | 
|Consolidated Statement of Operations |  |                              |         |   |             |   |       |            |  |   |         |  
|Revenues                             |  | $                            | 360,129 |   |             | $ | (922  | )          |  | $ | 359,207 |  
|Loss before income taxes             |  |                              | (15,371 | ) |             |   | (922  | )          |  |   | (16,293 | )
|Income tax benefit                   |  |                              | (656    | ) |             |   | (70   | )          |  |   | (726    | )
|Net loss                             |  |                              | (14,715 | ) |             |   | (852  | )          |  |   | (15,567 | )
|Net loss per share  basic           |  |                              | (1.00   | ) |             |   | (0.05 | )          |  |   | (1.05   | )
|Net loss per share - diluted         |  |                              | (1.00   | ) |             |   | (0.05 | )          |  |   | (1.05   | )

Overview

Our company was founded in 1972 with our acquisition of Jakes Famous Crawfish in Portland, Oregon. As of December 26, 2009 we have expanded our
restaurant base to 93 restaurants, including one restaurant operated pursuant to a management contract and six restaurants in Canada under The Boathouse name.

We have expanded our business by offering our guests a twice 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. In 2009, food and non-alcoholic beverage sales accounted for
approximately 70.3% of revenues and the remaining 29.7% of revenues was from the sale of alcoholic beverages. Included in our total sales for 2009, banquets accounted for approximately 9% of our revenues.

We utilize a broad-based marketing approach to drive guest traffic, which includes in-house marketing campaigns, including our preferred guest program
and e-marketing programs. We have successfully grown our preferred guest program to over 100,000 primary members and over 74,000 secondary members since its inception in 2006 and our online marketing e-mail club database includes nearly 280,000
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. 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



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and other corporate costs from revenues. We monitor general and administrative expenses as a percentage of revenues against budgeted levels. Restaurant pre-opening costs are analyzed based on the
number and timing of restaurant openings and by comparison to budgeted amounts, with an overall target of approximately $0.3 million to $0.4 million per restaurant opening.

Our most significant restaurant operating costs are food and beverage costs and labor and related employee benefits. We believe our national and regional
presence allow 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 and review strategies to effectively control increases but we are subject 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. We have incurred substantial training
costs and made significant investments in infrastructure, including our information systems. We anticipate leveraging investments made in our people and systems, therefore we expect these expenses to decrease as a percentage of revenues over time as
revenues increase.

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

Strategic Focus and Operating Outlook

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

Our objective is to continue to prudently expand the McCormick & Schmicks seafood restaurant
base in existing and new markets. Our plan for 2010 includes the opening of two restaurants. Based on capital availability and depending on economic conditions, we may open additional restaurants in new or existing markets in 2010. In addition to
new restaurant growth, we are committed to maximizing comparable restaurant sales and guest counts as well as restaurant level operating margins.

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

We believe we have the opportunity to build revenues through new restaurant development and
building traffic at existing restaurants. We believe we have the opportunity to increase profitability through the opening of new restaurants, as well as operating existing restaurants more efficiently.



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Results of Operations

Our operating results for the fiscal years 2007, 2008 and 2009 are expressed as a percentage of revenues below:



|                                            |  |       |    |  |       |    |  |          |   
|------------------------------------------- |  | ----- | -- |  | ----- | -- |  | -------- | --
|                                            |  | 2007  |    |  | 2008  |    |  | 2009     |   
|                                            |  |       |    |  |       |    |  | Restated |   
|Revenue                                     |  | 100.0 | %  |  | 100.0 | %  |  | 100.0    | % 
|Food and beverage                           |  | 29.1  | %  |  | 30.1  | %  |  | 29.5     | % 
|Labor                                       |  | 31.4  | %  |  | 32.2  | %  |  | 32.6     | % 
|Operating                                   |  | 15.3  | %  |  | 15.7  | %  |  | 15.2     | % 
|Occupancy                                   |  | 8.9   | %  |  | 9.4   | %  |  | 10.5     | % 
|                                            |  |       |    |  |       |    |  |          |   
|Total restaurant operating costs            |  | 84.7  | %  |  | 87.5  | %  |  | 87.8     | % 
|General and administrative expenses         |  | 6.2   | %  |  | 5.4   | %  |  | 5.6      | % 
|Restaurant pre-opening costs                |  | 1.3   | %  |  | 1.1   | %  |  | 0.3      | % 
|Depreciation and amortization               |  | 3.3   | %  |  | 3.8   | %  |  | 4.7      | % 
|Impairment, restructuring and other charges |  | 1.5   | %  |  | 21.5  | %  |  | 5.7      | % 
|                                            |  |       |    |  |       |    |  |          |   
|Total costs and expenses                    |  | 97.0  | %  |  | 119.3 | %  |  | 104.1    | % 
|                                            |  |       |    |  |       |    |  |          |   
|Operating income (loss)                     |  | 3.0   | %  |  | (19.3 | )% |  | (4.1     | )%
|Interest expense (income), net              |  | (0.1  | )% |  | 0.3   | %  |  | 0.5      | % 
|Write-off of loan transaction costs         |  |      |    |  | 0.1   | %  |  |         |   
|Other income, net                           |  |      |    |  | (0.1  | )% |  |         |   
|                                            |  |       |    |  |       |    |  |          |   
|Income (loss) before income taxes           |  | 3.1   | %  |  | (19.6 | )% |  | (4.5     | )%
|Income tax expense (benefit)                |  | 0.6   | %  |  | (1.8  | )% |  | (0.2     | )%
|                                            |  |       |    |  |       |    |  |          |   
|Net income (loss)                           |  | 2.5   | %  |  | (17.8 | )% |  | (4.3     | )%
|                                            |  |       |    |  |       |    |  |          |   

Description of Terms

Revenues consist of revenues from comparable restaurants, new restaurants and a management agreement. For purposes of comparable restaurant sales,
a restaurant is included in the comparable restaurant base in the first full year following the eighteenth month of operations. New restaurant revenues include revenues from restaurants we opened during the period under discussion.

Restaurant operating costs consist of:



| |  |  | food and beverage costs;
| | - |  | ------------------------



| |  |  | labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items including taxes and fringe benefits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | operating costs, consisting of advertising, maintenance, utilities, insurance, bank and credit card charges, and any other restaurant level expenses;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, property insurance premiums, and real
property taxes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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 salaries, employee benefits, travel, legal and professional fees, technology and market research.

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 and 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
non-cash rent expense during the construction period.

Depreciation and amortization consists of depreciation of equipment and
amortization of leasehold improvements and capitalized loan costs.

Impairment, restructuring, and other charges consist of impairments
of long lived assets, impairments of goodwill and trademarks, restructuring charges, termination benefits paid to employees and cost incurred to exit restaurants.

Fiscal Year ends on the last Saturday in December. All of the fiscal years 2007, 2008 and 2009 were comprised of 52 weeks.

Financial Performance Overview

The
following are highlights of our financial performance for fiscal 2009 compared to fiscal 2008:



| |  |  | Revenues decreased 8.1% to $359.2 million from $390.7 million
| | - |  | -------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 15.7%
| | - |  | -------------------------------------------



| |  |  | Comparable restaurant traffic decreased 14.0%
| | - |  | ---------------------------------------------



| |  |  | Operating loss of $14.6 million compared to operating loss of $75.4 million. Included in operating loss for 2009 were impairment, restructuring, and
other charges of $20.4 million, including the impairment of long-lived assets at eight restaurants. In fiscal 2008, significant non-cash items in operating loss included impairment and restructuring charges of $83.9 million, for the impairment of
trademarks and tradenames, goodwill, and long-lived assets at two restaurants.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



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##### Table of Contents

| |  |  | Net loss of $15.6 million compared to net loss of $69.6 million
| | - |  | ---------------------------------------------------------------



| |  |  | Diluted net loss per share of $1.05 compared to diluted net loss per share of $4.73
| | - |  | -----------------------------------------------------------------------------------

Revenues and Restaurant Operating Costs

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



|                                 |  |                  |         |                  |   |         |          |   |         |   |  |       |   
|-------------------------------- |  | ---------------- | ------- | ---------------- | - | ------- | -------- | - | ------- | - |  | ----- | --
|                                 |  | Year Ended       |         | DollarChange     |   |         | % Change |  
|(Dollars in thousands)           |  | December 27,2008 |         | December 26,2009 |   |        
|                                 |  |                  |         | Restated         |   |         |          |   |         |  
|Revenues                         |  | $                | 390,718 |                  | $ | 359,207 |          | $ | (31,511 | ) |  | (8.1  | )%
|                                 |  |                  |         |                  |   |         |          |   |         |   |  |       |   
|Restaurant operating costs:      |  |                  |         |                  |   |         |          |   |         |   |  |       |   
|Food and beverage                |  | $                | 117,642 |                  | $ | 106,030 |          | $ | (11,612 | ) |  | (9.9  | )%
|Labor                            |  |                  | 125,811 |                  |   | 117,194 |          |   | (8,617  | ) |  | (6.8  | )%
|Operating                        |  |                  | 61,375  |                  |   | 54,441  |          |   | (6,934  | ) |  | (11.3 | )%
|Occupancy                        |  |                  | 36,874  |                  |   | 37,690  |          |   | 816     |   |  | 2.2   | % 
|                                 |  |                  |         |                  |   |         |          |   |         |   |  |       |   
|Total restaurant operating costs |  | $                | 341,702 |                  | $ | 315,355 |          | $ | (26,347 | ) |  | (7.7  | )%
|                                 |  |                  |         |                  |   |         |          |   |         |   |  |       |   

Revenues. Revenues decreased by $31.5 million, or 8.1%, to $359.2 million in 2009 from
$390.7 million in 2008. This decrease was primarily attributable to a 15.7% decrease in comparable restaurant sales, which was partially offset by increased sales from restaurants not included in the comparable base and an increase in gift card
breakage income. We had a total of 4,791 store operating weeks for 2009 compared to a total of 4,444 store operating weeks for 2008. We estimate that our 15.7% decrease in comparable sales was a result of a 14.0% decrease in traffic, which was
coupled with a decrease in net pricing of 1.7%. The decrease in our net pricing and product mix is a result of our strategic initiative to increase the value proposition for our guests and drive traffic by decreasing our average check.

Food and Beverage Costs. Food and beverage costs decreased $11.6 million, or 9.9%, to $106.0 million from $117.6 million. This
decrease was primarily due to lower restaurant sales. Food and beverage costs as a percentage of revenues decreased to 29.5% from 30.1%, primarily due to operating efficiencies related to food costs as a result of our increased menu management,
careful operating practices, local buying and the benefit from more favorable commodity pricing. The decrease in food and beverage cost as a percentage of revenues was also impacted by the increase in gift card breakage income.

Labor Costs. Labor costs decreased $8.6 million, or 6.8%, to $117.2 million from $125.8 million. The decrease was primarily due
to decreased staffing as a result of declines in guest traffic. Labor costs as a percentage of revenues increased to 32.6% from 32.2%, primarily due to the deleveraging of fixed labor costs. Deleveraging occurs when sales decline and fixed costs
have a relatively larger impact as a percentage of revenues.

Operating Costs. Operating costs decreased $6.9
million, or 11.3%, to $54.4 million from $61.4 million. The decrease was primarily due to lower advertising costs, janitorial costs, and credit card fees. Operating costs as a percentage of revenues decreased to 15.2% from 15.7%, primarily due
to decreases in advertising costs, janitorial costs and renewals cost, which includes the costs associated with the replenishment of glassware, dishware and silverware at our restaurants.

Occupancy Costs.Occupancy costs increased $0.8 million, or 2.2%, to $37.7 million from $36.9 million. The increase was
primarily due to the net increase of the company-owned restaurants added since December 27, 2008. Occupancy costs as a percentage of revenues increased to 10.5% from 9.4%, primarily due to deleveraging of fixed costs at the comparable
restaurants.



7



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##### Table of Contents

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

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



|                                            |  |                  |        |                  |   |        |          |   |         |   |  |       |   
|------------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------ | -------- | - | ------- | - |  | ----- | --
|                                            |  | Year Ended       |        | DollarChange     |   |        | % Change |  
|(Dollars in thousands)                      |  | December 27,2008 |        | December 26,2009 |   |       
|General and administrative expenses         |  | $                | 21,026 |                  | $ | 20,168 |          | $ | (858    | ) |  | (4.1  | )%
|Restaurant pre-opening costs                |  |                  | 4,428  |                  |   | 1,101  |          |   | (3,327  | ) |  | (75.1 | )%
|Depreciation and amortization               |  |                  | 15,043 |                  |   | 16,789 |          |   | 1,746   |   |  | 11.6  | % 
|Impairment, restructuring and other charges |  |                  | 83,913 |                  |   | 20,388 |          |   | (63,525 | ) |  | (75.7 | )%

General and
Administrative Expenses. General and administrative expenses decreased $0.9 million, or 4.1%, to $20.2 million from $21.0 million, primarily due to lower travel costs and share-based compensation, partially offset by higher legal
fees, professional consultant fees, and wages. General and administrative expenses as a percentage of revenues increased to 5.6% from 5.4%, primarily due to deleveraging, coupled with increased legal fees, wages, and professional consultant fees,
partially offset by decreased share-based compensation and travel costs as a percentage of revenues.

Restaurant Pre-Opening
Costs. Restaurant pre-opening costs were $1.1 million compared to $4.4 million in the prior year, primarily due to a decrease in the number of new restaurants added, coupled with the timing of restaurants under construction.

Depreciation and Amortization. Depreciation and amortization increased $1.7 million, or 11.6%, primarily due to the
two company-owned restaurants added since December 27, 2008. Depreciation and amortization expense as a percentage of revenues increased to 4.7% in 2009 from 3.8% in 2008, primarily due to the deleveraging, coupled with the two company-owned
restaurants added since December 27, 2008. In fiscal 2010, we expect depreciation and amortization to decrease both in dollars and as a percentage of revenues as a result of the impairment charges incurred during fiscal 2009.

Impairment, Restructuring and Other Charges. Long-lived assets, such as property and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment of recoverability of property and equipment is performed on a
restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In evaluating
long-lived restaurant assets for impairment, we consider a number of factors including a current period operating or cash flow loss combined with a history of operating or cash flow losses and an undiscounted cash flow projection associated with the
use of the underlying long-lived asset. In these situations, we evaluate undiscounted cash flow projections in conjunction with qualitative factors and future operating plans. If the carrying amount of an asset exceeds the estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Our impairment assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are subject to
a significant degree of judgment based on experience and knowledge. These estimates can be significantly impacted by changes in the economic environment, real estate market conditions and overall operating performance. Impairment charges could be
triggered in the future if expected restaurant performance will not support the net book value of the underlying long-lived assets on a future undiscounted cash flow basis or if management decides to close that location.



8



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##### Table of Contents

During the fourth quarter of 2009, we experienced a triggering event for an impairment evaluation for
long-lived assets. The triggering event that resulted in the fourth quarter impairment evaluation was due to the continued decline in the economic environment which disproportionately affected certain restaurants, coupled with the shortfall in
anticipated fourth quarter improvements for those restaurants, which ultimately led to the lowering of future anticipated results for the affected restaurants. We recorded impairment charges of $19.8 million including the impairment of fixtures,
equipment, and leasehold improvements at eight of our restaurants. We used the market participant pricing approach to estimate the fair value of land, building, fixtures and equipment, and leasehold improvements, which estimates what a potential
buyer would pay today. When available, current market information, like comparative sales price, was used to determine value. When market information was not readily available, the inputs were based on our understanding of market conditions and the
experience of the management team. Actual results could differ significantly from the Companys estimates.

Restructuring charges in the
amount of $0.6 million were incurred related to severance and other termination benefits paid to employees during the first three quarters of 2009.

In 2008, we recorded impairment, restructuring, and other charges of $83.9 million related to the impairment of our trademarks and tradenames, goodwill,
and fixtures, equipment, and leasehold improvements at two restaurants, we also incurred restructuring charges of $0.5 million.

A summary of
impairment, restructuring and other charges incurred were as follows:



|                                                  |  |                  |      |                  |   |     
|------------------------------------------------- |  | ---------------- | ---- | ---------------- | - | ----
|                                                  |  | Year Ended      
|(in millions)                                     |  | December 27,2008 |      | December 26,2009
|Impairment of goodwill                            |  | $                | 26.2 |                  | $ |    
|Impairment of long-lived assets                   |  |                  | 2.8  |                  |   | 19.8
|Impairment of trademarks and tradenames           |  |                  | 54.4 |                  |   |    
|Restructuring and other charges                   |  |                  | 0.5  |                  |   | 0.6 
|                                                  |  |                  |      |                  |   |     
|Total impairment, restructuring and other charges |  | $                | 83.9 |                  | $ | 20.4
|                                                  |  |                  |      |                  |   |     



9



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##### Table of Contents

Interest Expense, net, Write Off of Loan Transaction Costs, Other Income, net, Income Tax Benefit and
Net Loss

The following table sets forth interest expense, net, write off of loan transaction costs, other income, net, income tax
benefit and net loss from our consolidated statements of operations.



|                                    |  |                  |         |   |                  |   |         |              |  |   |          |   |  |        |   
|----------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | ------------ |  | - | -------- | - |  | ------ | --
|                                    |  | Year Ended       |         |   |                  |   |         |              | 
|(Dollars in thousands)              |  | December 27,2008 |         |   | December 26,2009 |   |         | DollarChange |  |   | % Change |  
|                                    |  |                  |         |   | Restated         |   |         |              |  |   |          |  
|Interest expense, net               |  | $                | 1,173   |   |                  | $ | 1,752   |              |  | $ | 579      |   |  | 49.4   | % 
|Write-off of loan transaction costs |  | $                | 376     |   |                  | $ |        |              |  | $ | (376     | ) |  | (100.0 | )%
|Other income, net                   |  | $                | (308    | ) |                  | $ | (53     | )            |  | $ | 255      |   |  | 82.8   | % 
|                                    |  |                  |         |  
|Loss before income taxes            |  | $                | (76,635 | ) |                  | $ | (16,293 | )            |  | $ | 60,342   |   |  | 78.7   | % 
|Income tax benefit                  |  |                  | (7,024  | ) |                  |   | (726    | )            |  |   | 6,298    |   |  | 89.7   | % 
|                                    |  |                  |         |   |                  |   |         |              |  |   |          |   |  |        |   
|Net loss                            |  | $                | (69,611 | ) |                  | $ | (15,567 | )            |  | $ | 54,044   |   |  | 77.6   | % 
|                                    |  |                  |         |   |                  |   |         |              |  |   |          |   |  |        |   

Interest Expense, net. Interest expense, net was an expense of $1.8 million in 2009 compared to an
expense of $1.2 million in 2008. The increase in the interest expense was primarily due to the decrease in capitalized interest as compared to the prior year of $0.4 million, due to fewer restaurants under construction in 2009, coupled with an
increase in the interest rate margin fees under our amended revolving credit facility as compared to the interest rate margin fees under the revolving credit facility prior to the January 29, 2009 amendment.

Write Off of Loan Transaction Costs. During 2008 we wrote off loan transaction costs in the amount of $0.4 million due to the amendment of
our credit facility.

Other Income, Net. Other income, net was $0.1 million, compared to $0.3 million for the year ended
December 27, 2008.

Income Tax Benefit. The provision for income taxes was a benefit of $0.7 million in 2009,
compared to a benefit of $7.0 million in 2008. Our effective annualized tax rate in 2009 was 4.5% compared to 9.2% in 2008. The change in our effective annual tax rate was primarily a result of the deferred tax asset valuation allowance, since
we are unable to record the tax benefit of increases to our gross deferred tax asset. Our effective tax rate is low due to modest cash taxes payable and minimal change to our net deferred tax accounts.

Net Loss.The change in net loss was $54.0 million, to a net loss of $15.6 million from net loss of $69.6 million, was
primarily due to the decrease in asset impairment charges of $63.5 million and a decrease in restaurant pre-opening costs, which was partially offset by the decrease in revenues.

Financial Performance Overview

The
following are highlights of our financial performance for fiscal 2008 compared to fiscal 2007:



| |  |  | Revenues increased 8.9% to $390.7 million from $358.6 million
| | - |  | -------------------------------------------------------------



| |  |  | Comparable restaurant sales decreased 7.5%
| | - |  | ------------------------------------------



| |  |  | Operating loss of $75.4 million compared to operating income of $10.7 million. Included in operating loss are impairment/restructuring charges of $83.9
million, and includes the impairment of goodwill, trademarks and long-lived assets at two restaurants, and a restructuring charge
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net loss of $69.6 million compared to net income of $8.8 million
| | - |  | ----------------------------------------------------------------



| |  |  | Diluted net loss per share of $4.73 compared to diluted net income per share of $0.60
| | - |  | -------------------------------------------------------------------------------------



10



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##### Table of Contents

Revenues and Restaurant Operating Costs

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



|                                 |  |                  |         |                  |   |              |  |          |        |  |      |  
|-------------------------------- |  | ---------------- | ------- | ---------------- | - | ------------ |  | -------- | ------ |  | ---- | -
|                                 |  | Year Ended       |         |                  |   |              | 
|(Dollars in thousands)           |  | December 29,2007 |         | December 27,2008 |   | DollarChange |  | % Change |       
|Revenues                         |  | $                | 358,647 |                  | $ | 390,718      |  | $        | 32,071 |  | 8.9  | %
|                                 |  |                  |         |                  |   |              |  |          |        |  |      |  
|Restaurant operating costs:      |  |                  |         |                  |   |              |  |          |        |  |      |  
|Food and beverage                |  | $                | 104,468 |                  | $ | 117,642      |  | $        | 13,174 |  | 12.6 | %
|Labor                            |  |                  | 112,503 |                  |   | 125,811      |  |          | 13,308 |  | 11.8 | %
|Operating                        |  |                  | 54,892  |                  |   | 61,375       |  |          | 6,483  |  | 11.8 | %
|Occupancy                        |  |                  | 32,048  |                  |   | 36,874       |  |          | 4,826  |  | 15.1 | %
|                                 |  |                  |         |                  |   |              |  |          |        |  |      |  
|Total restaurant operating costs |  | $                | 303,911 |                  | $ | 341,702      |  | $        | 37,791 |  | 12.4 | %
|                                 |  |                  |         |                  |   |              |  |          |        |  |      |  

Revenues. Revenues increased by $32.1 million, or 8.9%, to $390.7 million in 2008 from
$358.6 million in 2007. This increase was primarily attributable to revenues of $26.8 million generated by the eleven company-owned restaurants added since December 29, 2007, and a $30.8 million increase in revenues in 2008 from the
seventeen restaurants added in 2007, partially offset by a 7.5% decrease in comparable restaurant sales. We estimate that our 7.5% decrease in comparable sales was a result of a 9.9% decrease in traffic, which was partially offset by increased
pricing of 1.7% and an increase of 0.7% due to changes in product mix.

Food and Beverage Costs. Food and beverage
costs increased $13.2 million, or 12.6%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Food and beverage costs as a percentage of revenues increased to 30.1% from 29.1%, primarily due to the higher mix of
new restaurants, which typically run higher food and beverage costs as a percentage of revenues during the first 18 months of operation, as well as an increase in input costs primarily due to inflation of commodity costs.

Labor Costs. Labor costs increased $13.3 million, or 11.8%, primarily due to the eleven company-owned restaurants added since
December 29, 2007. Labor costs as a percentage of revenues increased to 32.2% from 31.4%, primarily due to the deleveraging of fixed labor costs at the comparable restaurants, coupled with higher mix of new restaurants, which typically run
higher labor as a percentage of revenues. Deleveraging occurs when sales decline and fixed costs have a relatively larger impact as a percentage of revenues.

Operating Costs. Operating costs increased $6.5 million, or 11.8%, primarily due to the eleven company-owned restaurants added
since December 29, 2007. Operating costs as a percentage of revenues increased to 15.7% from 15.3%, primarily due to increases in utilities and renewals cost, which includes the costs associated with the replenishment of glassware,
dishware and silverware at our restaurants.

Occupancy Costs.Occupancy costs increased $4.8 million, or 15.1%,
primarily due to the eleven company-owned restaurants added since December 29, 2007. Occupancy costs as a percentage of revenues increased to 9.4% from 8.9%, primarily due to deleveraging of fixed costs at the comparable restaurants.



11



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##### Table of Contents

General and Administrative Expenses, Restaurant Pre-Opening Cost, Depreciation and Amortization and
Impairment/Restructuring Charges

The following table sets forth general and administrative, restaurant pre-opening, depreciation and
amortization, and impairment/restructuring charges from our consolidated statements of operations.



|                                            |  |                  |        |                  |   |              |  |   |          |   |  |      |   
|------------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------------ |  | - | -------- | - |  | ---- | --
|                                            |  | Year Ended       |        |                  |   |              |  |  
|(Dollars in thousands)                      |  | December 29,2007 |        | December 27,2008 |   | DollarChange |  |   | % Change |  
|General and administrative expenses         |  | $                | 22,166 |                  | $ | 21,026       |  | $ | (1,140   | ) |  | (5.1 | )%
|Restaurant pre-opening costs                |  |                  | 4,527  |                  |   | 4,428        |  |   | (99      | ) |  | (2.2 | )%
|Depreciation and amortization               |  |                  | 11,940 |                  |   | 15,043       |  |   | 3,103    |   |  | 26.0 | % 
|Impairment, restructuring and other charges |  |                  | 5,427  |                  |   | 83,913       |  |   | 78,486   |   |  | *    |   



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

General and
Administrative Expenses. General and administrative expenses decreased $1.1 million, or 5.1%, to $21.0 million from $22.2 million, primarily due to lower legal fees and share-based compensation, partially offset by the increases
in costs associated with the eleven company-owned restaurants added since December 29, 2007. General and administrative expenses as a percentage of revenues decreased to 5.4% from 6.2%, primarily due to decreased legal fees.

Restaurant Pre-Opening Costs. Restaurant pre-opening costs were $4.4 million compared to $4.5 million in the prior year,
primarily due to the timing of restaurants opening and restaurants under construction.

Depreciation and
Amortization. Depreciation and amortization increased $3.1 million, or 26.0%, primarily due to the eleven company-owned restaurants added since December 29, 2007. Depreciation and amortization expense as a percentage of
revenues increased to 3.8% in 2008 from 3.3% in 2007, primarily due to the eleven company-owned restaurants added since December 29, 2007.

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

In our most recent impairment evaluation for long-lived assets, we identified assets that were determined to be impaired as of December 27, 2008. We
recorded an impairment charge of $2.8 million related to the impairment of fixtures, equipment, and leasehold improvements at two of our restaurants. A restructuring charge in the amount of $0.5 million was incurred related to the closure of one of
our restaurants. The restructuring charge was related to exit costs, including the estimated liability on our operating lease that terminates in June, 2016. All of the leasehold improvements related to another restaurant were written off in
conjunction with the impairment charge recorded in the year ended December 29, 2007.

In 2007, we recorded an impairment charge of $5.4
million related to the impairment of fixtures, equipment, and leasehold improvements at three restaurants.

We consider the relationship
between our market capitalization and our book value, among other factors, when reviewing for indicators of impairment. Goodwill impairment tests are based on determining the fair value based on our judgments and assumptions using income and market
valuation approaches to arrive at a conclusion. Goodwill represents the excess of the purchase price over the fair value of the net assets of the business acquired. Other intangible assets deemed to have indefinite lives include trademarks and
tradenames used in the advertising and marketing of our restaurants. Other intangible assets deemed to have definite lives are amortized over their estimated useful lives.



12



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##### Table of Contents

The impairment evaluation for goodwill and indefinite lived intangible assets, which for us are trademarks
and tradenames, is conducted during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The valuation approaches are subject to key judgments and assumptions that are
sensitive to change such as judgments and assumptions about our appropriate revenue growth rates, operating margins, weighted average cost of capital (WACC), and comparable company market multiples. When developing these key judgments
and assumptions, we consider economic, operational and market conditions that could impact our fair value. However, estimates are inherently uncertain and represent only our reasonable expectations regarding future developments.

We consider the relationship between our market capitalization and our book value, among other factors, when reviewing for indicators of impairment. We
believe that the weakness in the U.S. residential housing and financial markets are principal factors in the prolonged decline in the stock markets, and as a result, the decline in our market capitalization as compared to our book value. As of
December 27, 2008, our fair value was estimated to approximate our market capitalization plus a reasonable control premium. Our adjusted market capitalization is based the average closing stock price for the 15 days of trading prior to the year
ended December 27, 2008. We believe the control premium represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. The criteria used to derive the control premium included calculated
control premiums for recent transactions of companies within our peer group.

We completed our most recent impairment test on balances as of
December 27, 2008, and determined that there was an impairment related to trademarks and tradenames of $54.4 million, and goodwill of $26.2 million, based primarily on the difference between our adjusted market capitalization and the carrying
value of our assets. There were no impairments in 2007 related to goodwill, trademarks and tradenames.

A summary of impairment/restructuring
charges incurred were as follows:



|                                                  |  |                  |     |                  |   |     
|------------------------------------------------- |  | ---------------- | --- | ---------------- | - | ----
|                                                  |  | Year Ended      
|(in millions)                                     |  | December 29,2007 |     | December 27,2008
|Impairment of goodwill                            |  | $                |    |                  | $ | 26.2
|Impairment of long-lived assets                   |  |                  | 5.4 |                  |   | 2.8 
|Impairment of trademarks and tradenames           |  |                  |    |                  |   | 54.4
|Restructuring and other charges                   |  |                  |    |                  |   | 0.5 
|                                                  |  |                  |     |                  |   |     
|Total impairment, restructuring and other charges |  | $                | 5.4 |                  | $ | 83.9
|                                                  |  |                  |     |                  |   |     

Interest Income, net, Write Off of Loan Transaction Costs, Other
Income, net, Income Tax Expense (Benefit) and Net Income (Loss)

The following table sets forth interest income, net, write off of loan
transaction costs, other income, net, income tax expense (benefit) and net income (loss) from our consolidated statements of operations.



|                                    |  |                  |        |   |                  |   |         |              |  |   |          |   |  |        |   
|----------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------- | ------------ |  | - | -------- | - |  | ------ | --
|                                    |  | Year Ended       |        |   |                  |   |         |              | 
|(Dollars in thousands)              |  | December 29,2007 |        |   | December 27,2008 |   |         | DollarChange |  |   | % Change |  
|Interest expense (income), net      |  | $                | (226   | ) |                  | $ | 1,173   |              |  | $ | 1,399    |   |  | *      |   
|Write-off of loan transaction costs |  | $                |       |   |                  | $ | 376     |              |  | $ | 376      |   |  | 100.0  | % 
|Other income, net                   |  | $                |       |   |                  | $ | (308    | )            |  | $ | (308     | ) |  | (100.0 | )%
|                                    |  |                  |        |  
|Income (loss) before income taxes   |  | $                | 10,902 |   |                  | $ | (76,635 | )            |  | $ | (87,537  | ) |  | *      |   
|Income tax expense (benefit)        |  |                  | 2,088  |   |                  |   | (7,024  | )            |  |   | (9,112   | ) |  | *      |   
|                                    |  |                  |        |   |                  |   |         |              |  |   |          |   |  |        |   
|Net income (loss)                   |  | $                | 8,814  |   |                  | $ | (69,611 | )            |  | $ | (78,425  | ) |  | *      |   
|                                    |  |                  |        |   |                  |   |         |              |  |   |          |   |  |        |   



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



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##### Table of Contents

Interest Expense (Income), net. Interest expense (income), net was an expense of $1.2 million
in 2008 as compared to an income of $0.2 million in 2007. The increase in the interest expense was primarily due to the increase in the average outstanding balance on the revolving credit facility of $12.0 million compared to the average outstanding
balance of the credit facility for the fifty-two weeks ended December 29, 2007 of $10.0 million, coupled with lower interest income.

Write Off of Loan Transaction Costs. A write off of loan transaction costs in the amount of $0.4 million was incurred in the fourth quarter
due to the amendment of our credit facility which decreased our available borrowings.

Other Income, Net. Other income, net was
$0.3 million due to business interruption insurance proceeds. The business interruption was caused by weather related damage to our location at the CNN Center in Atlanta, GA, which caused the restaurant to close briefly for repairs.

Income Tax Expense (Benefit). The provision for income tax was a benefit of $7.0 million in 2008, compared to tax expense of
$2.1 million in 2007. Our effective annual tax rate in 2008 was 9.2% compared to 19.2% in 2007. The change in our effective annual tax rate was primarily a result of the deferred tax asset valuation allowance of $24.0 million recorded in 2008.

Net Income (Loss).The change in net income (loss) was $78.4 million, to a net loss of $69.7 million from net
income of $8.8 million in the year ended December 27, 2008, primarily due to the asset impairment charges of $83.9 million.

Potential
Fluctuations in Quarterly Results and Seasonality

Our quarterly operating results may fluctuate significantly as a result of a variety of
factors. See Item 1A, Risk Factors.

Our business is also subject to seasonal fluctuations. Historically, revenues in most of
our restaurants have been higher during the spring months and winter holiday season. For the reasons and factors discussed above, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly. Accordingly,
results for any one 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. In the future, operating results may fall below
the expectations of securities analysts and investors. If this occurs, the price of our common stock would likely decrease.



14



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##### Table of Contents

The following table sets forth quarterly unaudited operating results in each of the 2008 and 2009 fiscal
quarters. The quarterly unaudited operating results have been restated for the fourth quarter of 2009 from previously reported information included in the Form 10-K for the year ended December 26, 2009 and for the third quarter of 2009 from
previously reported information filed on Form 10-Q to reflect the effects of the correction of an error related to accounting for discounted gift cards. For additional details, see Note 18 of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Form 10-K/A.



|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|----------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -- |  | - | ------ | - |  | -- | ------- | - | -- | - | ------ | -------- |  | - | -------- | - |  | - | ------ | - |  | - | ------- | -
|(In thousands, except per share data):                |  | 2008 |        |   | 2009 |  
|                                                      |  | Q1   |        |   | Q2   |   |        | Q3 |  |   | Q4     |   |  | Q1 |         |   | Q2 |   |        | Q3       |  |   | Q4       |  
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        | Restated |  |   | Restated |  
|Revenues                                              |  | $    | 92,337 |   |      | $ | 99,699 |    |  | $ | 99,897 |   |  | $  | 98,785  |   |    | $ | 91,894 |          |  | $ | 92,742   |   |  | $ | 85,984 |   |  | $ | 88,587  |  
|Restaurant operating costs:                           |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Food and beverage                                     |  |      | 28,071 |   |      |   | 30,038 |    |  |   | 30,117 |   |  |    | 29,416  |   |    |   | 27,696 |          |  |   | 27,517   |   |  |   | 25,053 |   |  |   | 25,764  |  
|Labor                                                 |  |      | 30,397 |   |      |   | 32,095 |    |  |   | 32,403 |   |  |    | 30,916  |   |    |   | 30,489 |          |  |   | 30,269   |   |  |   | 27,761 |   |  |   | 28,675  |  
|Operating                                             |  |      | 14,501 |   |      |   | 15,384 |    |  |   | 15,674 |   |  |    | 15,816  |   |    |   | 14,340 |          |  |   | 14,158   |   |  |   | 13,131 |   |  |   | 12,812  |  
|Occupancy                                             |  |      | 8,798  |   |      |   | 9,297  |    |  |   | 9,263  |   |  |    | 9,516   |   |    |   | 9,489  |          |  |   | 9,501    |   |  |   | 9,200  |   |  |   | 9,500   |  
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Total restaurant operating costs                      |  |      | 81,767 |   |      |   | 86,814 |    |  |   | 87,457 |   |  |    | 85,664  |   |    |   | 82,014 |          |  |   | 81,445   |   |  |   | 75,145 |   |  |   | 76,751  |  
|General and administrative expenses                   |  |      | 5,569  |   |      |   | 5,138  |    |  |   | 5,169  |   |  |    | 5,150   |   |    |   | 5,845  |          |  |   | 4,947    |   |  |   | 4,826  |   |  |   | 4,550   |  
|Restaurant pre-opening costs                          |  |      | 1,184  |   |      |   | 692    |    |  |   | 1,460  |   |  |    | 1,092   |   |    |   | 562    |          |  |   | 80       |   |  |   | 109    |   |  |   | 350     |  
|Depreciation and amortization                         |  |      | 3,394  |   |      |   | 3,652  |    |  |   | 3,932  |   |  |    | 4,065   |   |    |   | 4,080  |          |  |   | 4,293    |   |  |   | 4,241  |   |  |   | 4,175   |  
|Impairment, restructuring and other charges           |  |      |       |   |      |   | 452    |    |  |   |       |   |  |    | 83,461  |   |    |   | 181    |          |  |   | 371      |   |  |   | 42     |   |  |   | 19,794  |  
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Total costs and expenses                              |  |      | 91,914 |   |      |   | 96,748 |    |  |   | 98,018 |   |  |    | 179,432 |   |    |   | 92,682 |          |  |   | 91,136   |   |  |   | 84,363 |   |  |   | 105,620 |  
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Operating income (loss)                               |  |      | 423    |   |      |   | 2,951  |    |  |   | 1,879  |   |  |    | (80,647 | ) |    |   | (788   | )        |  |   | 1,606    |   |  |   | 1,621  |   |  |   | (17,033 | )
|Interest expense (income), net                        |  |      | 329    |   |      |   | 87     |    |  |   | 278    |   |  |    | 480     |   |    |   | 378    |          |  |   | 469      |   |  |   | 469    |   |  |   | 436     |  
|Write-off of loan transaction costs                   |  |      |       |   |      |   |       |    |  |   |       |   |  |    | 376     |   |    |   |       |          |  |   |         |   |  |   |       |   |  |   |        |  
|Other (income) expense, net                           |  |      | (75    | ) |      |   | (184   | )  |  |   | (50    | ) |  |    |        |   |    |   | 14     |          |  |   | 13       |   |  |   | (37    | ) |  |   | (43     | )
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Income (loss) before income taxes                     |  |      | 169    |   |      |   | 3,048  |    |  |   | 1,651  |   |  |    | (81,503 | ) |    |   | (1,180 | )        |  |   | 1,124    |   |  |   | 1,189  |   |  |   | (17,426 | )
|Income tax expense (benefit)                          |  |      | 51     |   |      |   | 691    |    |  |   | 291    |   |  |    | (8,057  | ) |    |   | (36    | )        |  |   | (64      | ) |  |   | 179    |   |  |   | (804    | )
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Net income (loss)                                     |  | $    | 118    |   |      | $ | 2,357  |    |  | $ | 1,360  |   |  | $  | (73,446 | ) |    | $ | (1,144 | )        |  | $ | 1,188    |   |  | $ | 1,010  |   |  | $ | (16,622 | )
|                                                      |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Basic net income (loss) per share                     |  | $    | 0.01   |   |      | $ | 0.16   |    |  | $ | 0.09   |   |  | $  | (4.99   | ) |    | $ | (0.08  | )        |  | $ | 0.08     |   |  | $ | 0.07   |   |  | $ | (1.12   | )
|Diluted net income (loss) per share                   |  | $    | 0.01   |   |      | $ | 0.16   |    |  | $ | 0.09   |   |  | $  | (4.99   | ) |    | $ | (0.08  | )        |  | $ | 0.08     |   |  | $ | 0.07   |   |  | $ | (1.12   | )
|Shares used in computing net income (loss) per share: |  |      |        |   |      |   |        |    |  |   |        |   |  |    |         |   |    |   |        |          |  |   |          |   |  |   |        |   |  |   |         |  
|Basic                                                 |  |      | 14,685 |   |      |   | 14,699 |    |  |   | 14,716 |   |  |    | 14,721  |   |    |   | 14,728 |          |  |   | 14,773   |   |  |   | 14,785 |   |  |   | 14,785  |  
|Diluted                                               |  |      | 14,685 |   |      |   | 14,699 |    |  |   | 14,721 |   |  |    | 14,721  |   |    |   | 14,728 |          |  |   | 14,807   |   |  |   | 14,848 |   |  |   | 14,785  |  



15



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##### Table of Contents

The following tables set forth for the restated quarterly unaudited operating results as previously reported
and restated:

(In thousands, except per share amounts)



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



|                                               |  |                                                         |         |   |             |   |       |            |  |   |         |  
|---------------------------------------------- |  | ------------------------------------------------------- | ------- | - | ----------- | - | ----- | ---------- |  | - | ------- | -
|                                               |  | Thirteen week period
endedDecember 26, 2009 (unaudited) |        
|                                               |  | AsPreviouslyReported                                    |         |   | Adjustments |   |       | AsRestated | 
|Condensed Consolidated Statement of Operations |  |                                                         |         |   |             |   |       |            |  |   |         |  
|Revenues                                       |  | $                                                       | 89,181  |   |             | $ | (594  | )          |  | $ | 88,587  |  
|Loss before income taxes                       |  |                                                         | (16,832 | ) |             |   | (594  | )          |  |   | (17,426 | )
|Income tax benefit                             |  |                                                         | (762    | ) |             |   | (42   | )          |  |   | (804    | )
|Net loss                                       |  |                                                         | (16,070 | ) |             |   | (552  | )          |  |   | (16,622 | )
|Net loss per share  basic                     |  |                                                         | (1.09   | ) |             |   | (0.03 | )          |  |   | (1.12   | )
|Net loss per share - diluted                   |  |                                                         | (1.09   | ) |             |   | (0.03 | )          |  |   | (1.12   | )

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Historically, our need for capital
resources has been driven by our construction of new restaurants.

The following table sets forth our sources and uses of cash:



|                                                             |  |            |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------ |  | ---------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                             |  | Year Ended |        
|(In thousands)                                               |  | 2007       |         |   | 2008 |   |         | 2009 | 
|Net cash provided by operating activities                    |  | $          | 35,231  |   |      | $ | 27,358  |      |  | $ | 22,740  |  
|Net cash used in investing activities                        |  |            | (56,001 | ) |      |   | (48,538 | )    |  |   | (8,401  | )
|Net cash provided by (used in) financing activities          |  |            | 17,627  |   |      |   | 18,557  |      |  |   | (10,586 | )
|Effect of exchange rate changes on cash and cash equivalents |  |            | (67     | ) |      |   | (292    | )    |  |   | 442     |  
|                                                             |  |            |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents         |  | $          | (3,210  | ) |      | $ | (2,915  | )    |  | $ | 4,195   |  
|                                                             |  |            |         |   |      |   |         |      |  |   |         |  

Net cash provided by operating activities was $22.7 million in 2009, compared to $27.4 million in 2008 and $35.2 million in
2007. The decrease in net cash provided by operating activities in 2009 compared to 2008 was primarily due to the change in net loss excluding non-cash impairment/restructuring charges, coupled with changes in working capital. The decrease in net
cash provided by operating activities in 2008 compared to 2007 was primarily due to the change in net income (loss) excluding non-cash impairment/restructuring charges, coupled with changes in working capital.



16



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##### Table of Contents

Net cash used in investing activities was $8.4 million in 2009, $48.5 million in 2008, and
$56.0 million in 2007. We use cash primarily to purchase property and equipment to open new restaurants, to purchase restaurants, and to upgrade and add capacity to existing restaurants. Net cash used in investing activities varied in the
periods presented based on the number of new restaurants opened and existing restaurant capacity expanded during the period. Our net cash used in investing activities in 2009 and 2008 reflects $8.4 and $48.5 million, respectively, of expenditures
related to restaurant construction costs. In 2007, we purchased all of the assets of The Boathouse Restaurants in Vancouver B.C. for $14.5 million. Purchases of property and equipment also include purchases of information technology systems and
expenditures relating to our corporate headquarters.

Net cash used in financing activities was $10.6 million in 2009. Net cash provided by
financing activities was $18.6 million in 2008 and $17.6 million in 2007. Net cash used in financing activities in 2009 was primarily the result of payments, net of borrowings, of $11.0 million on our revolving credit facility. Net cash
provided by financing activities in 2008 was primarily the result of borrowings, net of payments, of $11.0 million on our revolving credit facility, coupled with deemed landlord financing contributions of $8.3 million. Net cash provided by financing
activities in 2007 was primarily the result of borrowings, net of payments, of $13.0 million on our revolving credit facility, coupled with proceeds from exercised stock options of $4.1 million.

As of December 26, 2009, the outstanding balance on our revolving credit facility was $13.0 million. On January 29, 2009, we amended our
revolving credit facility. In conjunction with the amendment, the maximum availability under the facility was adjusted from $150.0 million to $90.0 million, with an additional $50.0 million available at our request if specified conditions are met.
The amended facility also makes certain financial covenants less restrictive, including the minimum fixed charge ratio and the maximum adjusted leverage ratio. The interest rate on U.S. borrowings is based on the financial institutions base
rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin of 1.25% to 2.50%, and the interest rate on Canadian borrowings is based on the Canadian Eurodollar Rate plus a margin of 1.35% to 2.60%, with margins determined by
certain financial ratios. Under the revolving credit facility, we are required to comply with certain financial covenants, including a maximum adjusted leverage ratio, a minimum fixed charge ratio and a maximum growth capital expenditure. We were in
compliance with these covenants as of December 26, 2009. As of December 26, 2009, our effective interest rate on our borrowings was 3.20%.

Under our revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company and are scheduled to mature on
December 28, 2012. The revolving credit facility agreement also provides for bank guarantees under standby letter of credit arrangements in the normal course of business operations. As of December 26, 2009 the maximum exposure under these
standby letters of credit was $3.0 million. At December 26, 2009 we had $74.0 million available under our $90.0 million revolving credit facility, subject to the terms of the agreement.

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

Off-Balance Sheet Arrangements

As of
December 26, 2009, we had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the Securities and Exchange Commission Regulation S-K.



17



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##### Table of Contents

Contractual Obligations

Our contractual obligations consist of long-term debt, operating leases (primarily restaurant leases) and capital leases. We lease a majority of our
restaurants and our corporate offices under non-cancelable operating leases. Most of our restaurants have an initial operating lease term of 10 to 20 years and one to three, five-year renewal options. Contractual obligations as of
December 26, 2009 were as follows:



|                                   |  |                        |         |                 |   |             |  |             |        |                  |   |        |  |   |        
|---------------------------------- |  | ---------------------- | ------- | --------------- | - | ----------- |  | ----------- | ------ | ---------------- | - | ------ |  | - | -------
|                                   |  | Payments Due By Period
|(In thousands)                     |  | Total                  |         | Less than 1year |   | 1 - 3 years |  | 4 - 5 years |        | More than5 years
|Long-term debt                     |  | $                      | 13,000  |                 | $ |            |  | $           | 13,000 |                  | $ |       |  | $ |       
|Operating leases                   |  |                        | 235,341 |                 |   | 28,029      |  |             | 55,638 |                  |   | 49,017 |  |   | 102,657
|Capital leases, including interest |  |                        | 4,113   |                 |   | 240         |  |             | 3,873  |                  |   |       |  |   |       
|Purchase
obligations(1)            |  |                        | 2,232   |                 |   | 1,957       |  |             | 275    |                  |   |       |  |   |       
|                                   |  |                        |         |                 |   |             |  |             |        |                  |   |        |  |   |        
|Total                              |  | $                      | 254,686 |                 | $ | 30,226      |  | $           | 72,786 |                  | $ | 49,017 |  | $ | 102,657
|                                   |  |                        |         |                 |   |             |  |             |        |                  |   |        |  |   |        



|(1) | Purchase obligations include commitments related to the construction of new restaurants and other non-food supply and service agreements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

The amounts presented in the table above may not necessarily reflect our actual future cash funding requirements, because the actual timing of the future
payments made may vary from the stated contractual obligation. In addition, due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 26, 2009, we are unable to make
reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $304,000 of unrecognized tax benefits have been excluded from the contractual obligations table above. Related to the unrecognized tax
benefits not included in the table above, the Company has also recorded a liability for potential interest of $26,000.

Critical Accounting
Policies and Use of Estimates

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

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment consists primarily of restaurant
equipment, furniture, fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Equipment under capitalized leases are amortized over the shorter of the useful life of
the asset or the length of the related lease term. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, or the estimated useful life of the asset. The lease term includes any period covered by a
renewal option where the renewal is reasonably assured because failure to renew the lease would impose an economic penalty to the lessee. Repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Estimated useful
lives are generally as follows: equipment3 to 10 years; furniture and fixtures5 to 10 years; buildings39 years; and leasehold improvements7 to 30 years. Judgments and estimates made by us related to the expected
useful lives of these assets are affected by factors such as changes in economic conditions and changes in operating performance. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In evaluating long-lived restaurant assets for impairment, we consider a number of factors
including a current period operating or cash flow loss combined with a history of operating or cash flow losses and an undiscounted cash flow projection associated with the use of the underlying long-lived asset. In these situations, we evaluate
undiscounted cash flow projections in conjunction with qualitative factors and future operating plans. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the asset.



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##### Table of Contents

Our impairment assessment process requires the use of estimates and assumptions regarding future cash flows
and operating outcomes, which are subject to a significant degree of judgment based on experience and knowledge. These estimates can be significantly impacted by changes in the economic environment, real estate market conditions and overall
operating performance. Impairment charges could be triggered in the future if expected restaurant performance will not support the net book value of the underlying long-lived assets on a future undiscounted cash flow basis or if management decides
to close that location.

Insurance Liability

We maintain various insurance policies including workers compensation, employee health, and general liability. Pursuant to those policies, we are
responsible for losses up to certain limits and are required to estimate a liability that represents our exposure for aggregate losses below those limits. This liability is based on managements estimates of the costs to be incurred to settle
known claims and claims not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual
trends differ from our estimates, our financial results could be impacted. In addition, we may exceed our insurance coverage for specified matters. Our previous insurer has informed us it believes we have exhausted our insurance coverage with
respect to claims arising in our 2004 coverage year. We disagree with this interpretation of our coverage, but we have taken this interpretation into account in connection with the charge we have taken related to our settlement of class action
claims in California. See Item 3, Legal Proceedings.

Income Taxes

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

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We recognize interest and penalties related to unrecognized tax benefits within income tax expense in our consolidated statement of operations. Accrued
interest and penalties are included within the related tax liability in the consolidated balance sheet.

Operating Leases

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

We receive certain tenant improvement allowances which are considered lease incentives and are amortized as a reduction of rent expense over the lease
term. Accordingly, we have recorded a deferred rent liability including tenant improvement allowances for the straight lining of rents and lease incentives, which is included in other long-term liabilities of $23.7 million and $26.3 million as of
December 27, 2008 and December 26, 2009, respectively. Certain other landlord tenant improvement allowances received, depending on the specifics of the leased space and the lease agreement for the amounts paid for structural components
during the construction period are recorded as



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construction in progress and the landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for those leases that meet the
criteria and for those leases that do not qualify for sale leaseback treatment, the landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease agreement.

Share-Based Compensation

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

Recent Accounting Pronouncements

In May 2009, the FASB issued ASC 855-10-25-01, to establish general standards of accounting for disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. The standard is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted ASC 855-10-25-01 effective with the interim report
for the period ended September 26, 2009. We have performed an evaluation of subsequent events. No non-recognized subsequent events were noted.

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose
separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable
inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide
fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3
fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward
activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We do not expect adoption of the updated guidance to have a material impact
on our consolidated results of operations or financial condition.

Effect of Inflation

We do not believe inflation has had a significant effect on our operations during the past several years. We generally have been able to substantially
offset increases in our restaurant and operating costs resulting from inflation by altering selected offerings and pricing on our twice daily printed menus.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Index to Financial Statements



|                                                                                |  |     
|------------------------------------------------------------------------------- |  | ----
|                                                                                |  | Page
|Report of Independent Registered Public Accounting Firm                         |  | 21  
|Consolidated Financial Statements:                                              |  |     
|Consolidated Balance Sheets                                                     |  | 23  
|Consolidated Statements of Operations                                           |  | 24  
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) |  | 25  
|Consolidated Statements of Cash Flows                                           |  | 26  
|Notes to Consolidated Financial Statements                                      |  | 27  



20



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

McCormick and Schmicks Seafood Restaurants, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders
equity and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of McCormick and Schmicks Seafood Restaurants, Inc. and its subsidiaries at December 26, 2009 and December 27,
2008, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 2009 in conformity with accounting principles generally accepted in the United States of America. Management and we
previously concluded that the Company maintained effective internal control over financial reporting as of December 26, 2009. However, management has subsequently determined that a material weakness in internal control over financial reporting
related to the accounting for certain gift card revenue existed as of that date. Accordingly, managements report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from
that expressed in our previous report. In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 26, 2009, based on criteria established inInternal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the accounting for certain gift card
revenue existed as of that date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected in a timely basis. The material weakness referred to above is described in Managements Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this
material weakness in determining the nature, timing and extent of audit tests applied in our audit of the 2009 consolidated financial statements, and our opinion regarding the effectiveness of the Companys internal control over financial
reporting does not affect our opinion on those consolidated financial statements. The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Report of Management on Internal Control Over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements and on
the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

As discussed in Note 9 to the consolidated financial statements, the Company changed the
manner in which it accounts for uncertain tax positions in 2007.

As discussed in Note 18 to the consolidated financial
statements, the Company restated its 2009 consolidated financial statements to correct an error.

A companys internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



21



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##### Table of Contents

Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

PricewaterhouseCoopers LLP

Portland, Oregon

March 8, 2010, except for
the restatement described in Note 18 to the consolidated financial statements and the matter described in the Report of Management on Internal Control over Financial Reporting, as to which the date is August 20, 2010



22



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##### Table of Contents

McCormick & Schmicks Seafood Restaurants Inc. and
Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)



|                                                                                                           |  |                  |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                           |  | December 27,2008 |         |   | December 26,2009 |  
|                                                                                                           |  |                  |         |   | Restated (1)     |  
|Assets                                                                                                     |  |                  |         |   |                  |   |         |  
|Current assets:                                                                                            |  |                  |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                  |  | $                | 4,428   |   |                  | $ | 8,623   |  
|Trade accounts receivable, net                                                                             |  |                  | 9,283   |   |                  |   | 10,462  |  
|Tenant improvement allowance receivables                                                                   |  |                  | 2,344   |   |                  |   | 496     |  
|Income tax receivable                                                                                      |  |                  | 3,789   |   |                  |   | 1,007   |  
|Inventories                                                                                                |  |                  | 6,028   |   |                  |   | 5,585   |  
|Prepaid rent                                                                                               |  |                  | 86      |   |                  |   | 237     |  
|Prepaid expenses and other current assets                                                                  |  |                  | 2,604   |   |                  |   | 2,617   |  
|Deferred income taxes                                                                                      |  |                  | 97      |   |                  |   |        |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total current assets                                                                                       |  |                  | 28,659  |   |                  |   | 29,027  |  
|                                                                                                           |  |                 
|Property and equipment, net                                                                                |  |                  | 185,171 |   |                  |   | 158,465 |  
|Other assets                                                                                               |  |                  | 3,689   |   |                  |   | 3,600   |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total assets                                                                                               |  | $                | 217,519 |   |                  | $ | 191,092 |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                       |  |                  |         |   |                  |   |         |  
|Current liabilities:                                                                                       |  |                  |         |   |                  |   |         |  
|Accounts payable                                                                                           |  | $                | 18,919  |   |                  | $ | 15,766  |  
|Accrued expenses                                                                                           |  |                  | 31,361  |   |                  |   | 29,561  |  
|Deferred income taxes                                                                                      |  |                  |        |   |                  |   | 278     |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total current liabilities                                                                                  |  |                  | 50,280  |   |                  |   | 45,605  |  
|                                                                                                           |  |                 
|Other long-term liabilities                                                                                |  |                  | 33,158  |   |                  |   | 35,532  |  
|Revolving credit facility                                                                                  |  |                  | 24,000  |   |                  |   | 13,000  |  
|Capital lease obligations                                                                                  |  |                  | 2,526   |   |                  |   | 3,038   |  
|Deferred income taxes                                                                                      |  |                  | 1,760   |   |                  |   | 1,634   |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total liabilities                                                                                          |  |                  | 111,724 |   |                  |   | 98,809  |  
|                                                                                                           |  |                 
|Commitments and contingencies (Notes 12 and 15)                                                            |  |                  |         |   |                  |   |         |  
|                                                                                                           |  |                 
|Stockholders equity:                                                                                      |  |                  |         |   |                  |   |         |  
|Common stock, $0.001 par value, 120,000 shares authorized, 14,721 and 14,785 shares issued and outstanding |  |                  | 15      |   |                  |   | 15      |  
|Additional paid-in-capital                                                                                 |  |                  | 148,030 |   |                  |   | 148,630 |  
|Accumulated other comprehensive loss                                                                       |  |                  | (1,675  | ) |                  |   | (220    | )
|Accumulated deficit                                                                                        |  |                  | (40,575 | ) |                  |   | (56,142 | )
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total stockholders equity                                                                                 |  |                  | 105,795 |   |                  |   | 92,283  |  
|                                                                                                           |  |                  |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                 |  | $                | 217,519 |   |                  | $ | 191,092 |  
|                                                                                                           |  |                  |         |   |                  |   |         |  



|(1) | See Note 18, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



23



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

Consolidated Statements of Operations

(In thousands, except per share data)



|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | ---------------- |  | - | ------- | -
|                                            |  | Year Ended       |        
|                                            |  | December 29,2007 |         |   | December 27,2008 |   |         | December 26,2009 | 
|                                            |  |                  |         |   |                  |   |         | Restated (1)     | 
|Revenues                                    |  | $                | 358,647 |   |                  | $ | 390,718 |                  |  | $ | 359,207 |  
|Restaurant operating costs:                 |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Food and beverage                           |  |                  | 104,468 |   |                  |   | 117,642 |                  |  |   | 106,030 |  
|Labor                                       |  |                  | 112,503 |   |                  |   | 125,811 |                  |  |   | 117,194 |  
|Operating                                   |  |                  | 54,892  |   |                  |   | 61,375  |                  |  |   | 54,441  |  
|Occupancy                                   |  |                  | 32,048  |   |                  |   | 36,874  |                  |  |   | 37,690  |  
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Total restaurant operating costs            |  |                  | 303,911 |   |                  |   | 341,702 |                  |  |   | 315,355 |  
|                                            |  |                  |        
|General and administrative expenses         |  |                  | 22,166  |   |                  |   | 21,026  |                  |  |   | 20,168  |  
|Restaurant pre-opening costs                |  |                  | 4,527   |   |                  |   | 4,428   |                  |  |   | 1,101   |  
|Depreciation and amortization               |  |                  | 11,940  |   |                  |   | 15,043  |                  |  |   | 16,789  |  
|Impairment, restructuring and other charges |  |                  | 5,427   |   |                  |   | 83,913  |                  |  |   | 20,388  |  
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Total costs and expenses                    |  |                  | 347,971 |   |                  |   | 466,112 |                  |  |   | 373,801 |  
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|                                            |  |                  |        
|Operating income (loss)                     |  |                  | 10,676  |   |                  |   | (75,394 | )                |  |   | (14,594 | )
|                                            |  |                  |        
|Interest expense (income), net              |  |                  | (226    | ) |                  |   | 1,173   |                  |  |   | 1,752   |  
|Write-off of loan transaction costs         |  |                  |        |   |                  |   | 376     |                  |  |   |        |  
|Other income, net                           |  |                  |        |   |                  |   | (308    | )                |  |   | (53     | )
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Income (loss) before income taxes           |  |                  | 10,902  |   |                  |   | (76,635 | )                |  |   | (16,293 | )
|Income tax expense (benefit)                |  |                  | 2,088   |   |                  |   | (7,024  | )                |  |   | (726    | )
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Net income (loss)                           |  | $                | 8,814   |   |                  | $ | (69,611 | )                |  | $ | (15,567 | )
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|                                            |  |                  |        
|Basic net income (loss) per share           |  | $                | 0.60    |   |                  | $ | (4.73   | )                |  | $ | (1.05   | )
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|                                            |  |                  |        
|Diluted net income (loss) per share         |  | $                | 0.60    |   |                  | $ | (4.73   | )                |  | $ | (1.05   | )
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|                                            |  |                  |        
|Shares used in per share calculations:      |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Basic                                       |  |                  | 14,569  |   |                  |   | 14,707  |                  |  |   | 14,771  |  
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  
|Diluted                                     |  |                  | 14,769  |   |                  |   | 14,707  |                  |  |   | 14,771  |  
|                                            |  |                  |         |   |                  |   |         |                  |  |   |         |  



|(1) | See Note 18, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



24



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##### Table of Contents

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

Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)

(in thousands, except per share data)



|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------ | - |  | ------ | -- | ------------------------- | - | ------- | ------------------------------------ |  | - | ------------------------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                                         |  |              |   |  |        |    | AdditionalPaid-in
Capital |   |         | RetainedEarnings(AccumulatedDeficit) |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |       
|                                                                                         |  |              |   |  |        |    |                           |   |        
|                                                                                         |  | Common Stock |   |  |        |   
|                                                                                         |  | Shares       |   |  | Amount |    |                           |   |        
|Balances at December 30, 2006                                                            |  | 14,303,131   |   |  | $      | 14 |                           | $ | 139,721 |                                      |  | $ | 20,495                                     |   |  | $     |       |   |  | $ | 160,230 |  
|Cumulative effect of adoption of revised accounting guidance for uncertain tax positions |  |             |   |  |        |   |                           |   |        |                                      |  |   | (273                                       | ) |  |       |       |   |  |   | (273    | )
|Share based compensation                                                                 |  |             |   |  |        |   |                           |   | 1,377   |                                      |  |   |                                           |   |  |       |       |   |  |   | 1,377   |  
|Exercise of stock options and vesting of restricted stock                                |  | 381,860      |   |  |        | 1  |                           |   | 4,107   |                                      |  |   |                                           |   |  |       |       |   |  |   | 4,108   |  
|Tax effect of share based compensation                                                   |  |             |   |  |        |   |                           |   | 1,713   |                                      |  |   |                                           |   |  |       |       |   |  |   | 1,713   |  
|Cumulative currency translation adjustment                                               |  |             |   |  |        |   |                           |   |        |                                      |  |   |                                           |   |  |       | 2,828  |   |  |   | 2,828   |  
|Net income                                                                               |  |             |   |  |        |   |                           |   |        |                                      |  |   | 8,814                                      |   |  |       |       |   |  |   | 8,814   |  
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive income                                                               |  |             |   |  |        |   |                           |   |        |                                      |  |   | 8,814                                      |   |  |       | 2,828  |   |  |   | 11,642  |  
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balances at December 29, 2007                                                            |  | 14,684,991   |   |  |        | 15 |                           |   | 146,918 |                                      |  |   | 29,036                                     |   |  |       | 2,828  |   |  |   | 178,797 |  
|Share based compensation                                                                 |  |             |   |  |        |   |                           |   | 1,117   |                                      |  |   |                                           |   |  |       |       |   |  |   | 1,117   |  
|Vesting of restricted stock                                                              |  | 36,056       |   |  |        |   |                           |   |        |                                      |  |   |                                           |   |  |       |       |   |  |   |        |  
|Tax effect of share based compensation                                                   |  |             |   |  |        |   |                           |   | (5      | )                                    |  |   |                                           |   |  |       |       |   |  |   | (5      | )
|Cumulative currency translation adjustment                                               |  |             |   |  |        |   |                           |   |        |                                      |  |   |                                           |   |  |       | (4,503 | ) |  |   | (4,503  | )
|Net loss                                                                                 |  |             |   |  |        |   |                           |   |        |                                      |  |   | (69,611                                    | ) |  |       |       |   |  |   | (69,611 | )
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive loss                                                                 |  |             |   |  |        |   |                           |   |        |                                      |  |   | (69,611                                    | ) |  |       | (4,503 | ) |  |   | (74,114 | )
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balances at December 27, 2008                                                            |  | 14,721,047   |   |  |        | 15 |                           |   | 148,030 |                                      |  |   | (40,575                                    | ) |  |       | (1,675 | ) |  |   | 105,795 |  
|Share based compensation                                                                 |  |             |   |  |        |   |                           |   | 628     |                                      |  |   |                                           |   |  |       |       |   |  |   | 628     |  
|Vesting of restricted stock                                                              |  | 71,195       |   |  |        |   |                           |   |        |                                      |  |   |                                           |   |  |       |       |   |  |   |        |  
|Issuance of restricted stock                                                             |  |             |   |  |        |   |                           |   | 21      |                                      |  |   |                                           |   |  |       |       |   |  |   | 21      |  
|Surrender of stock as payment for liability                                              |  | (7,457       | ) |  |        |   |                           |   | (48     | )                                    |  |   |                                           |   |  |       |       |   |  |   | (48     | )
|Tax effect of share based compensation                                                   |  |             |   |  |        |   |                           |   | (1      | )                                    |  |   |                                           |   |  |       |       |   |  |   | (1      | )
|Cumulative currency translation adjustment                                               |  |             |   |  |        |   |                           |   |        |                                      |  |   |                                           |   |  |       | 1,455  |   |  |   | 1,455   |  
|Net loss, restated (1)                                                                   |  |             |   |  |        |   |                           |   |        |                                      |  |   | (15,567                                    | ) |  |       |       |   |  |   | (15,567 | )
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Total comprehensive loss, restated (1)                                                   |  |             |   |  |        |   |                           |   |        |                                      |  |   | (15,567                                    | ) |  |       | 1,455  |   |  |   | (14,112 | )
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  
|Balances at December 26, 2009 (Restated)                                                 |  | 14,784,785   |   |  | $      | 15 |                           | $ | 148,630 |                                      |  | $ | (56,142                                    | ) |  | $     | (220   | ) |  | $ | 92,283  |  
|                                                                                         |  |              |   |  |        |    |                           |   |         |                                      |  |   |                                            |   |  |       |        |   |  |   |         |  



|(1) | See Note 18, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

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

Consolidated Statements of Cash Flows

(In thousands)



|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | -------- | ---------------- |  | - | -------- | -
|                                                                                         |  | Year Ended       |        
|                                                                                         |  | December 29,2007 |         |   | December 27,2008 |   |          | December 26,2009 | 
|                                                                                         |  |                  |         |   |                  |   |          | Restated (1)     | 
|Operating activities:                                                                    |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Net income (loss)                                                                        |  | $                | 8,814   |   |                  | $ | (69,611  | )                |  | $ | (15,567  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Depreciation and amortization                                                            |  |                  | 11,940  |   |                  |   | 15,043   |                  |  |   | 16,789   |  
|Deferred income taxes                                                                    |  |                  | (1,138  | ) |                  |   | (4,638   | )                |  |   | 249      |  
|Share based compensation                                                                 |  |                  | 1,377   |   |                  |   | 1,117    |                  |  |   | 627      |  
|Impairment/restructuring charges                                                         |  |                  | 5,427   |   |                  |   | 83,913   |                  |  |   | 20,068   |  
|Write off of loan transaction costs                                                      |  |                  |        |   |                  |   | 376      |                  |  |   |         |  
|Changes in operating assets and liabilities:                                             |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Trade accounts receivable                                                                |  |                  | (3,692  | ) |                  |   | 775      |                  |  |   | (1,126   | )
|Tenant improvement allowance receivables                                                 |  |                  | (6,125  | ) |                  |   | 5,319    |                  |  |   | 1,848    |  
|Income tax receivable                                                                    |  |                  | (1,736  | ) |                  |   | (2,053   | )                |  |   | 2,782    |  
|Inventories                                                                              |  |                  | (1,229  | ) |                  |   | (126     | )                |  |   | 488      |  
|Prepaid expenses and other current assets                                                |  |                  | (45     | ) |                  |   | 1,213    |                  |  |   | (149     | )
|Accounts payable                                                                         |  |                  | 8,396   |   |                  |   | (4,821   | )                |  |   | (3,220   | )
|Accrued expenses                                                                         |  |                  | 10,761  |   |                  |   | (2,716   | )                |  |   | (2,140   | )
|Other long-term liabilities                                                              |  |                  | 2,481   |   |                  |   | 3,567    |                  |  |   | 2,091    |  
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Net cash provided by operating activities                                                |  |                  | 35,231  |   |                  |   | 27,358   |                  |  |   | 22,740   |  
|                                                                                         |  |                  |        
|Investing activities:                                                                    |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Purchase of property and equipment                                                       |  |                  | (41,578 | ) |                  |   | (48,245  | )                |  |   | (8,203   | )
|Acquisition of The Boathouse Restaurants of Canada, Inc. assets, net                     |  |                  | (14,481 | ) |                  |   |         |                  |  |   |         |  
|Other assets                                                                             |  |                  | 58      |   |                  |   | (293     | )                |  |   | (198     | )
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Net cash used in investing activities                                                    |  |                  | (56,001 | ) |                  |   | (48,538  | )                |  |   | (8,401   | )
|                                                                                         |  |                  |        
|Financing activities:                                                                    |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Loan costs                                                                               |  |                  | (799    | ) |                  |   | (619     | )                |  |   |         |  
|Borrowings made on revolving credit facility                                             |  |                  | 41,500  |   |                  |   | 135,500  |                  |  |   | 116,000  |  
|Payments made on revolving credit facility                                               |  |                  | (28,500 | ) |                  |   | (124,500 | )                |  |   | (127,000 | )
|Proceeds from stock options exercised                                                    |  |                  | 4,108   |   |                  |   |         |                  |  |   |         |  
|Deemed landlord financing proceeds                                                       |  |                  |        |   |                  |   | 8,315    |                  |  |   | 675      |  
|Deemed landlord financing payments                                                       |  |                  |        |   |                  |   | (100     | )                |  |   | (241     | )
|Payments on capital lease obligations                                                    |  |                  | (395    | ) |                  |   | (34      | )                |  |   | (41      | )
|Issuance of restricted stock                                                             |  |                  |        |   |                  |   |         |                  |  |   | 21       |  
|Tax effect of share based compensation                                                   |  |                  | 1,713   |   |                  |   | (5       | )                |  |   |         |  
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                  | 17,627  |   |                  |   | 18,557   |                  |  |   | (10,586  | )
|                                                                                         |  |                  |        
|Effect of exchange rate changes                                                          |  |                  | (67     | ) |                  |   | (292     | )                |  |   | 442      |  
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Increase (decrease) in cash and cash equivalents                                         |  |                  | (3,210  | ) |                  |   | (2,915   | )                |  |   | 4,195    |  
|                                                                                         |  |                  |        
|Cash and cash equivalents:                                                               |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Beginning of year                                                                        |  |                  | 10,553  |   |                  |   | 7,343    |                  |  |   | 4,428    |  
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|End of year                                                                              |  | $                | 7,343   |   |                  | $ | 4,428    |                  |  | $ | 8,623    |  
|                                                                                         |  |                  |         |   |                  |   |          |                  |  |   |          |  
|                                                                                         |  |                  |        
|Supplemental disclosure of cash flow information:                                        |  |                  |         |   |                  |   |          |                  |  |   |          |  
|Cash paid for interest                                                                   |  | $                | 741     |   |                  | $ | 1,305    |                  |  | $ | 1,482    |  
|Cash (paid for) received from income taxes, net                                          |  | $                | 3,789   |   |                  | $ | (706     | )                |  | $ | (2,768   | )



|(1) | See Note 18, Restatement - Gift Card Revenue Accounting of the Notes to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

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

Notes to Consolidated Financial Statements

1. The Business and Organization

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

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

Fiscal
Year

The Company utilizes a 52 or 53 week accounting period that ends on the last Saturday in December. The fiscal years ended
December 29, 2007, December 27, 2008 and December 26, 2009 were each comprised of 52 weeks. Approximately every six years a 53 week fiscal year occurs, and our next 53 week fiscal year will be 2011.

Management Estimates

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

Cash and Cash Equivalents

The Company
considers all highly liquid investment instruments purchased with an initial maturity of three months or less to be cash equivalents. Cash consists of cash on hand in restaurant locations and deposits held at major banks that may at times exceed
FDIC or CDIC insured limits.

Inventories

Inventories, which consist principally of restaurant food, beverages and supplies, are stated at the lower of cost or market using the first-in, first-out
method.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Equipment consists primarily of restaurant equipment, furniture,
fixtures and smallwares. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Equipment under capitalized leases is amortized over the shorter of the useful life of the asset or the length
of the related lease term. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, including option periods which are reasonably assured of renewal, or the estimated useful life of the asset. Repairs
and maintenance are expensed as incurred; renewals and betterments are capitalized. Upon disposal of equipment and leasehold improvements, the accounts are relieved of the costs and related accumulated depreciation or amortization, and resulting
gains or losses are included in results of operations.



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

Notes to Consolidated Financial Statements(Continued)



Estimated useful lives are generally as follows:



|                       |  |              |  | 
|---------------------- |  | ------------ |  | 
|Equipment              |  | 3  10 years |  | 
|Furniture and fixtures |  | 5  10 years |  | 
|Leasehold improvements |  | 7  30 years |  | 
|Buildings              |  | 39 years     |  | 

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Companys assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In evaluating long-lived restaurant assets for impairment, the Company considers a
number of factors including a current period operating or cash flow loss combined with a history of operating or cash flow losses and an undiscounted cash flow projection associated with the use of the underlying long-lived asset. In these
situations, the Company evaluates undiscounted cash flow projections in conjunction with qualitative factors and future operating plans. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The Companys impairment
assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are subject to a significant degree of judgment based on experience and knowledge. These estimates can be significantly
impacted by changes in the economic environment, real estate market conditions and overall operating performance. Impairment charges could be triggered in the future if expected restaurant performance will not support the net book value of the
underlying long-lived assets on a future undiscounted cash flow basis or if management decides to close that location.

Fair value is defined
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The Company maximizes the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value.



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1. |  | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are
traded in an active exchange market.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | 
|Level 2. |  | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than
exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
|         | 
|Level 3. |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management
judgment or estimation using unobservable inputs. This category generally includes long-term derivative contracts, real estate and unconsolidated joint ventures.                                                            

In conjunction with a review for impairment (as discussed in Note 13 to the financial statements), selected assets were adjusted to fair value and
impairment charges were recorded.



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

Notes to Consolidated Financial Statements(Continued)



Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the immediate or
short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable rates for similar instruments and collateral as of the balance sheet date and approximates the carrying value of such debt.

Income Taxes

Income taxes
are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial
statement and income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Recognition of deferred tax assets is limited to amounts considered more likely than not to be realized in future periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.

Revenue Recognition

Revenues are recognized at the point of delivery of products and services. The Company recognizes income from gift cards when the gift card is redeemed by
the 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 the relevant jurisdictions. The Company
determines the gift card breakage rate based upon historical redemption patterns. Gift card income is included within revenues in the consolidated statements of operations. Revenues are presented net of sales tax and the related obligation is
recorded as a liability until the taxes are remitted to the appropriate taxing authorities.

Share-Based Compensation Plan

Share-based compensation expense for the years ended December 29, 2007, December 27, 2008 and December 26, 2009 was $1.4 million, $1.1
million and $0.6 million, respectively, which consisted of share-based compensation expense related to employee stock options and restricted stock awards.

The Company determined the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. The model is affected by
the Companys stock price as well as the Companys assumptions regarding a number of complex and subjective variables, including but not limited to the Companys expected stock price volatility over the term of the awards, life of the
option, expected term of the option, the estimated forfeiture rate, the risk-free interest rate and the expected dividend yield. The Companys expected stock price volatility was based on historical volatility of the Companys stock price
since the initial public offering in 2004. The option life was based on the contractual life of the option. The expected term of the option was based on an average of selected peer companies in the Companys industry and our expectation of
average time until exercise of the options by the grantees. The estimated forfeiture rate was based on historical data and estimated future terminations over the vesting period of the award. The risk-free interest rate was based on the implied yield
available at the time of grant on U.S. Treasury zero-coupon issues. Dividend yield is based on managements estimation of dividends to be paid in the future.



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

Notes to Consolidated Financial Statements(Continued)



The fair value of the Companys stock options was estimated using the following assumptions. The
Company did not grant any options during fiscal year 2008.



|                          |  |                  |   |  |                  |  
|------------------------- |  | ---------------- | - |  | ---------------- | -
|                          |  | Year Ended       |  
|                          |  | December 29,2007 |   |  | December 26,2009 |  
|Expected volatility       |  | 24.8             | % |  | 51.1             | %
|Option life               |  | 10 years         |   |  | 10 years         |  
|Expected term             |  | 5.5 years        |   |  | 5.5 years        |  
|Estimated forfeiture rate |  | 14               | % |  | 0                | %
|Risk-free interest rate   |  | 3.9              | % |  | 1.1              | %
|Dividend yield            |  | 0                | % |  | 0                | %

On June 16, 2004, the
Company adopted the 2004 Stock Incentive Plan (the Plan) under which 1,500,000 shares were reserved for issuance. Under the Plan, the Company may grant stock options, restricted stock and other awards to employees, directors,
consultants, and to any parent or subsidiary of the Company.

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

Each award shall expire on the date determined at the date of grant, however, the maximum term of options, stock appreciation rights (SARs)
and other rights to acquire common stock under the Plan is 10 years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. These and other awards may also be issued solely or in part
for services. Any shares subject to awards that are not paid or exercised before they expire or are terminated will become available for other award grants under the Plan. If not sooner terminated by the Companys board of directors, the Plan
will terminate on June 16, 2014.

Restaurant Pre-Opening Costs

Restaurant pre-opening costs consist primarily of wages and salaries, hourly employee recruiting, license fees, meals, local marketing, lodging and
travel, and rent expenses during the construction period and through the opening of the restaurant.

Advertising Costs

Advertising costs are expensed as incurred and were $5.0 million, $5.5 million, and $3.9 million for the fiscal years ended December 29,
2007, December 27, 2008 and December 26, 2009, respectively.

Insurance Liability

The Company maintains various insurance policies including workers compensation, employee health, and general liability. Pursuant to those policies,
the Company is responsible for losses up to certain limits. The Company records a liability for the estimated exposure for aggregate losses below those limits. This liability is based on estimates of the ultimate costs to be incurred to settle known
claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions.



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

Notes to Consolidated Financial Statements(Continued)



Basic and Diluted Net Income per Share

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

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

Options to purchase 337,277, 319,311, and 543,547 shares of common stock were outstanding at December 29, 2007, December 27, 2008, and
December 26, 2009, respectively. Shares of restricted stock outstanding were 73,322, 115,388, and 64,301 on December 29, 2007, December 27, 2008, and December 26, 2009, respectively. The dilutive weighted average number of shares
calculation includes 199,805 shares subject to stock options or restricted stock grants for the year ended December 29, 2007. There were no dilutive shares for the years ended December 27, 2008 and December 26, 2009. For years ended
December 27, 2008, and December 26, 2009, 321,223 and 319,200, respectively, of the Companys shares were excluded from the calculation due to their anti-dilutive effect.

Operating Leases

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

The Company receives certain tenant
improvement allowances which are considered lease incentives and are amortized over the life of the lease term, as a reduction of rent expense over the lease term. Accordingly, the Company has recorded a deferred rent liability including tenant
improvement allowances for the straight lining of rents and lease incentives, which is included in other long-term liabilities of $23.7 million and $26.3 million as of December 27, 2008 and December 26, 2009, respectively. Certain other
landlord tenant improvement allowances received, depending on the specifics of the leased space and the lease agreement for the amounts paid for structural components during the construction period are recorded as construction in progress and the
landlord tenant improvement allowances received are recorded as a landlord financing liability. Upon completion of construction for those leases that meet the criteria and for those leases that do not qualify for sale leaseback treatment, the
landlord financing liability is amortized under the effective interest rate method over the lease term based on the rent payments designated in the lease agreement.



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

Notes to Consolidated Financial Statements(Continued)



3. Property and Equipment

Property and Equipment and related accumulated depreciation and amortization consist of the following:



|                                                |  |                  |         |   |                  |   |         |  
|----------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | December 27,2008 |         |   | December 26,2009 |  
|                                                |  | (in thousands)   |        
|Fixtures and equipment                          |  | $                | 82,107  |   |                  | $ | 78,417  |  
|Leasehold improvements                          |  |                  | 157,840 |   |                  |   | 149,781 |  
|Construction in progress                        |  |                  | 6,827   |   |                  |   | 2,577   |  
|Buildings                                       |  |                  | 4,008   |   |                  |   | 1,845   |  
|Buildings under capital lease                   |  |                  | 2,825   |   |                  |   | 3,279   |  
|Land                                            |  |                  | 1,563   |   |                  |   | 719     |  
|                                                |  |                  |         |   |                  |   |         |  
|                                                |  |                  | 255,170 |   |                  |   | 236,618 |  
|Less: Accumulated depreciation and amortization |  |                  | (69,999 | ) |                  |   | (78,153 | )
|                                                |  |                  |         |   |                  |   |         |  
|Property and equipment, net                     |  | $                | 185,171 |   |                  | $ | 158,465 |  
|                                                |  |                  |         |   |                  |   |         |  

The Company capitalized $580,000 in interest costs for the year ended December 29, 2007, $449,000 for the year ended
December 27, 2008, and $58,000 for the year ended December 26, 2009. Depreciation and amortization expense related to equipment and leasehold improvements for the years ended December 29, 2007, December 27, 2008 and
December 26, 2009 was $11.9 million, $15.0 million and $16.8 million, respectively.

4. Other Assets

Other assets consist of the following:



|                                                                |  |                  |       |   |                  |   |        |  
|--------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------- | - | ------ | -
|                                                                |  | December 27,2008 |       |   | December 26,2009 |  
|                                                                |  | (in thousands)   |      
|Loan costs                                                      |  | $                | 1,892 |   |                  | $ | 1,863  |  
|Liquor licenses                                                 |  |                  | 2,054 |   |                  |   | 2,261  |  
|Notes receivable                                                |  |                  | 233   |   |                  |   | 271    |  
|Other                                                           |  |                  | 302   |   |                  |   | 301    |  
|                                                                |  |                  |       |   |                  |   |        |  
|                                                                |  |                  | 4,481 |   |                  |   | 4,696  |  
|Less accumulated amortization of loan costs and liquor licenses |  |                  | (792  | ) |                  |   | (1,096 | )
|                                                                |  |                  |       |   |                  |   |        |  
|                                                                |  | $                | 3,689 |   |                  | $ | 3,600  |  
|                                                                |  |                  |       |   |                  |   |        |  

Amortization expense related to other assets (loan costs and liquor licenses) was $162,000, $235,000 and $265,000 for the
years ended December 29, 2007, December 27, 2008 and December 26, 2009, respectively.

5. Accrued Expenses

Accrued expenses consist of the following:



|                                  |  |                  |        |                  |   |       
|--------------------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                                  |  | December 27,2008 |        | December 26,2009
|                                  |  | (in thousands)  
|                                  |  |                  |        | Restated        
|Accrued compensation and benefits |  | $                | 13,727 |                  | $ | 13,011
|Gift card liability               |  |                  | 10,365 |                  |   | 10,908
|Accrued sales tax                 |  |                  | 2,008  |                  |   | 2,134 
|Other                             |  |                  | 5,261  |                  |   | 3,508 
|                                  |  |                  |        |                  |   |       
|                                  |  | $                | 31,361 |                  | $ | 29,561
|                                  |  |                  |        |                  |   |       



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Notes to Consolidated Financial Statements(Continued)



6. Long-Term Debt

As of December 26, 2009, the outstanding balance on the Companys revolving credit facility was $13.0 million. On January 29, 2009 the
existing revolving credit facility was amended. In conjunction with the amendment, the availably under the facility was adjusted from $150.0 million to $90.0 million, with an additional $50.0 million available at the Companys request if
specified conditions are met. The amended facility also makes certain financial covenants less restrictive, including the minimum fixed charge ratio and the maximum adjusted leverage ratio covenants. The interest rate on U.S. borrowings is based on
the financial institutions base rate plus a margin between 0.25% and 1.50% or the Eurodollar rate plus a margin of 1.25% to 2.50%, and the interest rate on Canadian borrowings is based on the Canadian Eurodollar Rate plus a margin of 1.35% to
2.60%, with margins determined by certain financial ratios.

Under the revolving credit facility, the Company is required to comply with
certain financial covenants, including a maximum adjusted leverage ratio, a minimum fixed charge ratio and a maximum growth capital expenditures. The Company was in compliance with these covenants as of December 26, 2009. As of
December 26, 2009, the Companys effective interest rate on its borrowings was 3.20%, which was calculated using the financial institutions base rates of 0.23% for LIBOR and 3.25% for Prime.

Under the Companys revolving credit facility agreement, loans are collateralized by the stock of the subsidiaries of the Company and mature on
December 28, 2012. The revolving credit facility agreement also provides for bank guarantee under standby letter of credit arrangements in the normal course of business operations. The Companys commercial bank issues standby letters of
credit to secure its obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods and services. The standby letters of credit are cancelable only at the option of the
beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. As of December 26, 2009 the maximum exposure under these standby letters of credit was $3.0
million. At December 26, 2009, the Company had $74.0 million available under its $90.0 million revolving credit facility, subject to the terms of the agreement.

7. Other Long-Term Liabilities

Other
long-term liabilities consist of the following:



|                                          |  |                  |        |                  |   |       
|----------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                                          |  | December 27,2008 |        | December 26,2009
|                                          |  | (in thousands)  
|Deferred rent                             |  | $                | 17,674 |                  | $ | 20,730
|Unamortized tenant improvement allowances |  |                  | 5,747  |                  |   | 5,537 
|Deemed landlord financing liability       |  |                  | 8,215  |                  |   | 8,649 
|Other                                     |  |                  | 1,522  |                  |   | 616   
|                                          |  |                  |        |                  |   |       
|                                          |  | $                | 33,158 |                  | $ | 35,532
|                                          |  |                  |        |                  |   |       

8. Capital Leases

The Company leases its restaurant facilities in Port Moody, British Columbia. The Company has a purchase option, which upon exercise, gives the Company
the right to acquire the building at a predetermined price. The purchase option expires October 1, 2011. The lessor has a put option, which upon exercise, would require the Company to purchase the property, at a predetermined price. The put
option may only be exercised within 60 days of the fifth anniversary of the commencement date of the lease, October 1, 2012. The assets and related liabilities under capital leases are recorded at the fair value of the assets at the inception
of the lease.



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Notes to Consolidated Financial Statements(Continued)



The building and related accumulated amortization recorded under capital lease is as follows:



|                               |  |                  |       |   |                  |   |       |  
|------------------------------ |  | ---------------- | ----- | - | ---------------- | - | ----- | -
|                               |  | December 27,2008 |       |   | December 26,2009 |  
|                               |  | (in thousands)   |      
|Building                       |  | $                | 2,825 |   |                  | $ | 3,279 |  
|Less: Accumulated amortization |  |                  | (88   | ) |                  |   | (184  | )
|                               |  |                  |       |   |                  |   |       |  
|Capital leases, net            |  | $                | 2,737 |   |                  | $ | 3,095 |  
|                               |  |                  |       |   |                  |   |       |  

Minimum future lease payments under capital leases as of December 26, 2009 are as follows (in thousands):



|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|2010                                        |  | $ | 240    |  
|2011                                        |  |   | 240    |  
|2012                                        |  |   | 3,633  |  
|                                            |  |   |        |  
|Total minimum lease payments                |  |   | 4,113  |  
|Less: Amount representing interest          |  |   | (1,075 | )
|                                            |  |   |        |  
|Present value of net minimum lease payments |  |   | 3,038  |  
|Less: Current portion                       |  |   |       |  
|                                            |  |   |        |  
|Long-term portion                           |  | $ | 3,038  |  
|                                            |  |   |        |  

9. Income Taxes

The provision for income taxes consists of:



|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|--------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------- | ---------------- |  | - | ------- | -
|                                  |  | Year Ended       |       
|                                  |  | December 29,2007 |        |   | December 27,2008 |   |         | December 26,2009 | 
|                                  |  | (in thousands)   |       
|                                  |  |                  |        |   |                  |   |         | Restated         | 
|Income (loss) before income taxes |  |                  |        |   |                  |   |         |                  |  |   |         |  
|United States                     |  | $                | 9,726  |   |                  | $ | (68,143 | )                |  | $ | (17,381 | )
|Foreign                           |  |                  | 1,176  |   |                  |   | (8,492  | )                |  |   | 1,088   |  
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|                                  |  | $                | 10,902 |   |                  | $ | (76,635 | )                |  | $ | (16,293 | )
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|                                  |  |                  |       
|Current tax expense (benefit)     |  |                  |        |   |                  |   |         |                  |  |   |         |  
|Federal                           |  | $                | 2,355  |   |                  | $ | (2,688  | )                |  | $ | (439    | )
|State and local                   |  |                  | 692    |   |                  |   | 34      |                  |  |   | (431    | )
|Foreign                           |  |                  | 179    |   |                  |   | 268     |                  |  |   | (105    | )
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|                                  |  |                  | 3,226  |   |                  |   | (2,386  | )                |  |   | (975    | )
|                                  |  |                  |       
|Deferred tax expense (benefit)    |  |                  |        |   |                  |   |         |                  |  |   |         |  
|Federal                           |  |                  | (1,283 | ) |                  |   | (3,915  | )                |  |   | 219     |  
|State and local                   |  |                  | (31    | ) |                  |   | (543    | )                |  |   | 30      |  
|Foreign                           |  |                  | 176    |   |                  |   | (180    | )                |  |   |        |  
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|                                  |  |                  | (1,138 | ) |                  |   | (4,638  | )                |  |   | 249     |  
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  
|                                  |  | $                | 2,088  |   |                  | $ | (7,024  | )                |  | $ | (726    | )
|                                  |  |                  |        |   |                  |   |         |                  |  |   |         |  



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Notes to Consolidated Financial Statements(Continued)



The effective income tax rate differs from the federal statutory rate as follows:



|                            |  |                  |    |  |                  |    |  |                  |   
|--------------------------- |  | ---------------- | -- |  | ---------------- | -- |  | ---------------- | --
|                            |  | Year Ended       |   
|                            |  | December 29,2007 |    |  | December 27,2008 |    |  | December 26,2009 |   
|                            |  |                  |    |  |                  |    |  | Restated         |   
|Federal statutory rate      |  | 35.0             | %  |  | 35.0             | %  |  | 35.0             | % 
|State and local taxes       |  | 5.6              | %  |  | 4.3              | %  |  | 4.1              | % 
|Foreign rate differential   |  | (0.5             | )% |  | (0.5             | )% |  | 0.2              | % 
|Nondeductible expenses      |  | 0.6              | %  |  | (0.1             | )% |  | (0.5             | )%
|FICA tip credits            |  | (17.6            | )% |  | 2.6              | %  |  | 10.8             | % 
|Other                       |  | (3.9             | )% |  | (0.4             | )% |  | 1.9              | % 
|U.S. valuation allowance    |  |                 |    |  | (28.1            | )% |  | (49.9            | )%
|Foreign valuation allowance |  |                 |    |  | (3.6             | )% |  | 2.8              | % 
|                            |  |                  |    |  |                  |    |  |                  |   
|                            |  | 19.2             | %  |  | 9.2              | %  |  | 4.5              | % 
|                            |  |                  |    |  |                  |    |  |                  |   

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are:



|                                       |  |                  |         |   |                  |   |         |  
|-------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                       |  | December 27,2008 |         |   | December 26,2009 |  
|                                       |  | (in thousands)   |        
|                                       |  |                  |         |   | Restated         |  
|Deferred tax assets:                   |  |                  |         |   |                  |   |         |  
|Accrued expenses                       |  | $                | 1,034   |   |                  | $ | 770     |  
|Deferred rent                          |  |                  | 7,020   |   |                  |   | 8,137   |  
|Basis difference for intangible assets |  |                  | 14,228  |   |                  |   | 12,157  |  
|Federal & state credits                |  |                  | 2,324   |   |                  |   | 2,955   |  
|FICA tip credits                       |  |                  | 16,969  |   |                  |   | 18,935  |  
|Foreign deferred tax assets            |  |                  | 2,369   |   |                  |   | 2,259   |  
|Net operating loss                     |  |                  | 388     |   |                  |   | 626     |  
|Other                                  |  |                  | 968     |   |                  |   | 750     |  
|                                       |  |                  |         |   |                  |   |         |  
|Subtotal                               |  |                  | 45,300  |   |                  |   | 46,589  |  
|Less valuation allowance               |  |                  | (24,017 | ) |                  |   | (31,808 | )
|                                       |  |                  |         |   |                  |   |         |  
|Total deferred tax assets              |  |                  | 21,283  |   |                  |   | 14,781  |  
|                                       |  |                 
|Deferred tax liabilities:              |  |                  |         |   |                  |   |         |  
|Prepaid expenses                       |  |                  | (616    | ) |                  |   | (573    | )
|Basis difference for fixed assets      |  |                  | (22,112 | ) |                  |   | (15,903 | )
|Other                                  |  |                  | (218    | ) |                  |   | (217    | )
|                                       |  |                  |         |   |                  |   |         |  
|Total deferred tax liabilities         |  |                  | (22,946 | ) |                  |   | (16,693 | )
|                                       |  |                  |         |   |                  |   |         |  
|Net deferred tax liability             |  | $                | (1,663  | ) |                  | $ | (1,912  | )
|                                       |  |                  |         |   |                  |   |         |  

U.S. income taxes have not been provided on the undistributed earnings of the Companys Canadian subsidiary. It is not
practicable to estimate the amount of tax that might be payable. The Companys intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. The Company believes that any U.S. tax on
repatriated earnings would be substantially offset by U.S. foreign tax credits.

As of December 26, 2009, for federal income tax
purposes, the Company had FICA tip credit carryforwards of $18.9 million, various employment based credits of $1.3 million, and alternative minimum tax credit carryforwards of $1.1 million. As of December 26, 2009, for state and local income
tax purposes, the Company had net operating loss carryforwards of $20.9 million and other miscellaneous state credits of $0.8 million. If not used to reduce taxable income in future periods, portions of the FICA tip credit carryforwards and
employment based credits will expire between 2021 and 2029, and the state and local net operating loss carryforwards will expire between 2010 and 2029. The alternative minimum tax credits and other miscellaneous state credits have indefinite lives
and do not expire.



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Notes to Consolidated Financial Statements(Continued)



As of December 27, 2008 and December 26, 2009, the Company has provided a valuation allowance
of $24.0 million and $31.8 million, respectively, against a portion of the deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively
verified. The valuation allowance relates to net operating loss and credit carryforwards and temporary differences for which we believe that realization is uncertain. If recognized, the tax benefits relating to any reversal of the valuation
allowance on deferred tax assets at December 26, 2009 will be recognized as a reduction of income tax expense.

During the fiscal year
2007, the Company recorded a $500,000 increase in other long-term liabilities, representing accrued income taxes and interest, in the Companys consolidated balance sheet for unrecognized tax benefits. This amount, net of a related increase of
$230,000 to non-current deferred tax assets, was accounted for as a cumulative effect adjustment to the December 30, 2006 balance of retained earnings.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



|                                                     |  |   |          |  
|---------------------------------------------------- |  | - | -------- | -
|Gross unrecognized tax benefits at December 30, 2006 |  | $ | 500,000  |  
|Increases in tax positions for current year          |  |   | 78,000   |  
|Lapse in statute of limitations                      |  |   | (22,000  | )
|                                                     |  |   |          |  
|Gross unrecognized tax benefits at December 29, 2007 |  |   | 556,000  |  
|Increases in tax positions for current year          |  |   | 77,000   |  
|Increases in tax positions for prior years           |  |   | 91,000   |  
|Lapse in stature of limitations                      |  |   | (11,000  | )
|                                                     |  |   |          |  
|Gross unrecognized tax benefits at December 27, 2008 |  |   | 713,000  |  
|Increases in tax positions for current year          |  |   | 73,000   |  
|Decreases in tax positions for prior years           |  |   | (91,000  | )
|Lapse in stature of limitations                      |  |   | (391,000 | )
|                                                     |  |   |          |  
|Gross unrecognized tax benefits at December 26, 2009 |  | $ | 304,000  |  
|                                                     |  |   |          |  

Included in the balance of unrecognized tax benefits at December 29, 2007, December 27, 2008 and
December 26, 2009 are $539,000, $622,000 and $154,000, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. As of December 27, 2008 and December 26, 2009, the Company had accrued $169,000 and $26,000 of interest related to uncertain tax positions, respectively. The Company has accrued no penalties. The Companys unrecognized tax
benefits are largely related to certain state filing positions. The Company believes that it is reasonably possible that approximately $70,000 of its unrecognized tax benefits, primarily related to state tax filing positions, may be recognized by
the end of 2010 as a result of a lapse of the statute of limitations. The Company does not expect any significant increase of its unrecognized tax benefits during 2010. As of December 27, 2008, the Company expected that it was reasonably
possible that its unrecognized tax benefits would decrease by approximately $300,000 during the year ended December 26, 2009. During the year ended December 26, 2009 unrecognized tax benefits, related to current year state filing positions
and prior year state tax filing positions, increased by $73,000 and decreased by $482,000, respectively.

The Companys U.S. federal
income tax returns for the 2006, 2007 and 2008 tax years are currently under examination by the Internal Revenue Service. The Company does not expect that the results of this examination will have a material effect on its financial position or
results of operations. The Company is subject to U.S. federal tax, Canadian federal and provincial tax and income tax of multiple state and local jurisdictions. The Companys operations in Canada began in 2007 and are not subject to examination
prior to the 2007 tax year.



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Notes to Consolidated Financial Statements(Continued)



10. Related Party Transactions

The Company leases properties from landlords controlled by certain stockholders of the Company. Total rent paid to these landlords was $1.0 million
for each of the years ended December 29, 2007, December 27, 2008 and December 26, 2009.

11. Share-Based Compensation

Share-based compensation expense recognized for the fiscal years ended December 29, 2007, December 27, 2008 and
December 26, 2009 was $1.4 million, $1.1 million, and $0.6 million respectively, which consisted of share-based compensation expense related to employee stock options and restricted stock.

On June 16, 2004, the Company adopted the 2004 Stock Incentive Plan (the Plan) under which 1,500,000 shares were reserved for issuance.
Under the Plan, the Company may grant stock options, restricted stock and other awards to employees, directors, and consultants. As of December 26, 2009, options to purchase a total of 1,154,600 shares of the Companys common stock have
been granted under the Plan at a price equal to the fair market value of the stock on the date of grant. As of December 26, 2009, there were 543,547 options outstanding, of which 238,548 were exercisable. As of December 26, 2009 there were
64,301 shares of restricted stock outstanding. Additional awards granted under the Plan may be in the form of nonqualified stock options, incentive stock options, SARs, restricted stock, stock bonuses and performance-based awards.

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

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

In conjunction with the hiring
of the Companys Chief Executive Officer on January 12, 2009, the Company issued an option to purchase 250,000 shares to him at a price equal to $3.92 per share, the fair market value of the stock on the date of grant. One-third of the
grant vests on each of the three anniversary dates following the grant date if the grantee is then employed by the Company.

In November 2009,
the Company issued 27,955 shares of restricted stock to the non-employee members of the Board of Directors, the fair market value of the stock on the date of grant was $6.26 per share. The restricted stock granted vests nine months following the
date of grant if the director is still serving the Company at that date.



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

Notes to Consolidated Financial Statements(Continued)



The table below summarizes the status of the Companys stock based compensation plans, including
stock options and restricted stock grants, as of December 26, 2009:



|                                 |  |              |  |                              |       |                 |         |             |         |                         |   |          
|-------------------------------- |  | ------------ |  | ---------------------------- | ----- | --------------- | ------- | ----------- | ------- | ----------------------- | - | ---------
|                                 |  | StockOptions |  | WeightedAverageExercisePrice |       | RestrictedStock |         | TotalShares |         | AggregateIntrinsicValue
|Outstanding at December 30, 2006 |  | 700,691      |  | $                            | 12.00 |                 | 138,500 |             | 839,191 |                         |   |          
|Awards granted                   |  | 25,000       |  |                              | 24.71 |                 |        |             | 25,000  |                         |   |          
|Awards exercised                 |  | 342,348      |  |                              | 12.00 |                 | 39,512  |             | 381,860 |                         |   |          
|Awards forfeited                 |  | 46,066       |  |                              | 12.00 |                 | 25,666  |             | 71,732  |                         |   |          
|                                 |  |              |  |                              |       |                 |         |             |         |                         |   |          
|Outstanding at December 29, 2007 |  | 337,277      |  |                              | 12.94 |                 | 73,322  |             | 410,599 |                         |   |          
|Awards granted                   |  |             |  |                              |      |                 | 85,620  |             | 85,620  |                         |   |          
|Awards exercised                 |  |             |  |                              |      |                 | 36,056  |             | 36,056  |                         |   |          
|Awards forfeited                 |  | 17,966       |  |                              | 18.68 |                 | 7,498   |             | 25,464  |                         |   |          
|                                 |  |              |  |                              |       |                 |         |             |         |                         |   |          
|Outstanding at December 27, 2008 |  | 319,311      |  |                              | 12.62 |                 | 115,388 |             | 434,699 |                         |   |          
|Awards granted                   |  | 250,000      |  |                              | 3.92  |                 | 33,060  |             | 283,060 |                         | $ | 1,128,797
|Awards exercised                 |  |             |  |                              |      |                 | 71,195  |             | 71,195  |                         |   | 359,184  
|Awards forfeited                 |  | 25,764       |  |                              | 16.93 |                 | 12,952  |             | 38,716  |                         |   | 96,492   
|                                 |  |              |  |                              |       |                 |         |             |         |                         |   |          
|Outstanding at December 26, 2009 |  | 543,547      |  |                              | 8.41  |                 | 64,301  |             | 607,848 |                         |   | 1,361,542
|                                 |  |              |  |                              |       |                 |         |             |         |                         |   |          
|                                 |  |              |  |                              |      
|Exercisable at December 26, 2009 |  | 238,548      |  | $                            | 12.20 |                 |        |             | 238,548 |                         | $ |         

The table below
summarizes information about stock options outstanding at December 26, 2009:



|                         |  |                   |  |                                                     |  |                                 |  |                   |  |                                
|------------------------ |  | ----------------- |  | --------------------------------------------------- |  | ------------------------------- |  | ----------------- |  | -------------------------------
|Outstanding              |  | Exercisable      
|Range of
Exercise
Prices |  | Number
of
Options |  | Weighted AverageRemaining Years
of Contractual
Life |  | Weighted
Average
Exercise Price |  | Number of
Options |  | Weighted
Average
Exercise
Price
|$3.92 - $26.81           |  | 543,547           |  | 6.62                                                |  | $8.41                           |  | 238,548           |  | $12.20                         

As of December 27, 2008 and
December 26, 2009, the unamortized compensation cost related to stock options and restricted stock granted to employees under the Companys 2004 Stock Incentive Plan was $1.0 million.

The following table summarizes share-based compensation (in thousands):



|                                                                               |  |                  |       |                  |   |                  |  |   |    
|------------------------------------------------------------------------------ |  | ---------------- | ----- | ---------------- | - | ---------------- |  | - | ---
|                                                                               |  | Year Ended      
|                                                                               |  | December 29,2007 |       | December 27,2008 |   | December 26,2009
|Labor                                                                          |  | $                | 42    |                  | $ | 14               |  | $ |   
|General and administrative                                                     |  |                  | 1,334 |                  |   | 1,103            |  |   | 628
|                                                                               |  |                  |       |                  |   |                  |  |   |    
|Share-based compensation included in total costs and expenses                  |  |                  | 1,376 |                  |   | 1,117            |  |   | 628
|Income tax benefit related to share-based compensation                         |  |                  | 420   |                  |   | 417              |  |   | 234
|                                                                               |  |                  |       |                  |   |                  |  |   |    
|Share-based compensation expense related to employee stock options, net of tax |  | $                | 956   |                  | $ | 700              |  | $ | 394
|                                                                               |  |                  |       |                  |   |                  |  |   |    



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

Notes to Consolidated Financial Statements(Continued)



12. Commitments and Contingencies

Occasionally, the Company is a defendant in litigation arising in the ordinary course of its 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 the Company 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
the Company may settle claims if management concludes that future costs to defend the suits outweigh the costs to settle the claims. The Company is currently a defendant in several disputes that may be litigated in court.

In 2006, the Company was named in a class action complaint regarding employment practices filed in the U.S. District Court for the Northern District of
California. The Company has contested the claims and has negotiated a settlement with the plaintiffs. The Company does not anticipate the changes to its hiring and employment practices it agreed to in connection with the settlement will
significantly affect its operations. The settlement was approved by the court, and the settlement amount was paid in April 2008.

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

13. Impairment, Restructuring, and Other Charges

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Companys assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In evaluating long-lived restaurant assets for impairment, the Company considers a
number of factors including a current period operating or cash flow loss combined with a history of operating or cash flow losses and an undiscounted cash flow projection associated with the use of the underlying long-lived asset. In these
situations, the Company evaluates undiscounted cash flow projections in conjunction with qualitative factors and future operating plans. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The Companys impairment
assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are subject to a significant degree of judgment based on experience and knowledge. These estimates can be significantly
impacted by changes in the economic environment, real estate market conditions and overall operating performance. Impairment charges could be triggered in the future if expected restaurant performance will not support the net book value of the
underlying long-lived assets on a future undiscounted cash flow basis or if management decides to close that location.

In order to comply
with the Companys disclosure requirements related to fair value measurements, the designation of the level of inputs used in the fair value models must be determined. Inputs used in establishing estimated fair value for real estate assets
generally fall within level three, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs was current
market conditions that, in many instances, resulted in the use of significant unobservable inputs in establishing estimated fair value measurements.



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##### Table of Contents

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

Notes to Consolidated Financial Statements(Continued)



A summary of the fair value measurements as of December 26, 2009 were as follows (in thousands):



|                           |  |         |   |         |   |         |  |        |       |  |   |      
|-------------------------- |  | ------- | - | ------- | - | ------- |  | ------ | ----- |  | - | -----
|                           |  | Level 1 |   | Level 2 |   | Level 3 |  | Totals
|Land                       |  | $       |  |         | $ |        |  | $      | 719   |  | $ | 719  
|Building                   |  |         |  |         |   |        |  |        | 1,515 |  |   | 1,515
|Fixtures and equipment     |  |         |  |         |   |        |  |        | 102   |  |   | 102  
|Leasehold improvements     |  |         |  |         |   |        |  |        | 89    |  |   | 89   
|                           |  |         |   |         |   |         |  |        |       |  |   |      
|Total assets as fair value |  | $       |  |         | $ |        |  | $      | 2,425 |  | $ | 2,425
|                           |  |         |   |         |   |         |  |        |       |  |   |      

During the fourth quarter of 2009, the Company experienced a
triggering event for an impairment evaluation for long-lived assets. The triggering event that resulted in the fourth quarter impairment evaluation was due to the continued decline in the economic environment which was disproportionately affecting
certain restaurants, coupled with the shortfall of anticipated fourth quarter improvements for those restaurants, which ultimately led to the lowering of future anticipated results for the affected restaurants. The Company recorded impairment
charges of $19.8 million including the impairment of fixtures, equipment, and leasehold improvements at eight restaurants. The Company used the market participant pricing approach to estimate the fair value of land, building, fixtures and equipment,
and leasehold improvements, which estimates what a potential buyer would pay today. When available, current market information, like comparative sales price, was used to determine value. When market information was not readily available, the inputs
were based on the Companys understanding of market conditions and the experience of the management team. Actual results could differ significantly from the Companys estimates.

During the second quarter of 2009, the Company incurred exit costs of $0.1 million associated with the closing of one restaurant, and a net credit of
$0.2 million attributable to the sale of leasehold improvements and subleasing of another restaurant. Restructuring charges in the amount of $0.6 million were incurred related to severance and other termination benefits paid to employees during the
first three quarters of 2009.

In 2008, the Company recorded an impairment charge of $2.8 million related to the impairment of fixtures,
equipment, and leasehold improvements at two of its restaurants and a restructuring charge in the amount of $0.5 million related to the closure of one of its restaurants. The restructuring charge was related to exit costs, including the estimated
liability on its operating lease that terminates in June 2016. The Company has sublet the property in order to minimize net costs incurred over the remaining term of the lease.

In 2008, the impairment evaluation for goodwill and indefinite lived intangible assets, which for the Company are trademarks and tradenames, was
conducted during the fourth quarter. The valuation approach was subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about the Companys appropriate revenue growth rates, operating margins,
weighted average cost of capital (WACC), and comparable company market multiples. When developing these key judgments and assumptions, the Company considered economic, operational and market conditions that could impact the fair value of
the Company. However, estimates are inherently uncertain and represent only managements reasonable expectations regarding future developments.

The Company considered the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of
impairment. The Company believed that the weakness in the U.S. residential housing and financial markets were principal factors in the prolonged decline in its market capitalization as compared to its book value. As of December 27, 2008, the
fair value of the Company was estimated to approximate its market capitalization plus a reasonable control premium. The Companys adjusted market capitalization is based the average closing stock price for the 15 days of trading prior to the
year ended, December 27, 2008. The Company believed the control premium represented the estimated amount an investor would pay for its equity securities to obtain a controlling interest. The criteria used to derive the control premium included
calculated control premiums for recent transactions of companies within our peer group.



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

Notes to Consolidated Financial Statements(Continued)



The Company completed the impairment test on balances as of December 27, 2008, and determined that
there was an impairment related to trademarks and tradenames, of $54.4 million, and goodwill, of $26.2 million, based primarily on the difference between its adjusted market capitalization and the carrying value of its assets.

In 2007, the Company recorded an impairment charge of $5.4 million related to the impairment of fixtures, equipment, and leasehold improvements at three
restaurants.

A summary of impairment/restructuring charges incurred were as follows:



|                                        |  |                  |     |                  |   |                  |  |   |     
|--------------------------------------- |  | ---------------- | --- | ---------------- | - | ---------------- |  | - | ----
|                                        |  | Year Ended      
|                                        |  | December 29,2007 |     | December 27,2008 |   | December 26,2009
|                                        |  | (in millions)   
|Impairment of goodwill                  |  | $                |    |                  | $ | 26.2             |  | $ |    
|Impairment of long lived assets         |  |                  | 5.4 |                  |   | 2.8              |  |   | 19.8
|Impairment of trademarks and tradenames |  |                  |    |                  |   | 54.4             |  |   |    
|Restructuring charge                    |  |                  |    |                  |   | 0.5              |  |   | 0.6 
|                                        |  |                  |     |                  |   |                  |  |   |     
|Total impairment/restructuring charges  |  | $                | 5.4 |                  | $ | 83.9             |  | $ | 20.4
|                                        |  |                  |     |                  |   |                  |  |   |     

14. Employee Benefit Plans

The Company has a 401(k) contributory benefit plan for eligible employees, under which the Company may make discretionary contributions up to a
maximum of 3% of the participants eligible compensation. For the years ended December 29, 2007 and December 27, 2008, Company matching contributions totaled approximately $0.4 million and $0.5 million. There were no matching
contributions made for the year ended December 26, 2009.

15. Operating Leases

The Company generally operates its restaurants in leased premises. The typical restaurant premises lease is for an initial term between 10 and
20 years with one to three five-year renewal options. The leases generally require the Company to pay property taxes, utilities, and various other use and occupancy costs.

Minimum rent payments under lease commitments as of December 26, 2009 are as follows:



|           |  |                |        
|---------- |  | -------------- | -------
|           |  | (in thousands)
|2010       |  | $              | 28,029 
|2011       |  |                | 27,953 
|2012       |  |                | 27,685 
|2013       |  |                | 25,701 
|2014       |  |                | 23,316 
|Thereafter |  |                | 102,657
|           |  |                |        
|           |  | $              | 235,341
|           |  |                |        



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

Notes to Consolidated Financial Statements(Continued)



Rent expense charged to operations under all operating leases is as follows:



|                                   |  |                  |        |                  |   |                  |  |   |       
|---------------------------------- |  | ---------------- | ------ | ---------------- | - | ---------------- |  | - | ------
|                                   |  | Year Ended      
|                                   |  | December 29,2007 |        | December 27,2008 |   | December 26,2009
|                                   |  | (in thousands)  
|Fixed rent                         |  | $                | 20,905 |                  | $ | 24,930           |  | $ | 26,964
|Contingent rent, based on revenues |  |                  | 2,975  |                  |   | 2,386            |  |   | 1,462 
|Non-cash rent                      |  |                  | 2,403  |                  |   | 2,102            |  |   | 1,701 
|                                   |  |                  |        |                  |   |                  |  |   |       
|                                   |  | $                | 26,283 |                  | $ | 29,418           |  | $ | 30,127
|                                   |  |                  |        |                  |   |                  |  |   |       

16. Foreign Currency

The Canadian dollar is the functional currency of the Companys subsidiary in Canada. All assets and liabilities of the subsidiary are translated at
the prevailing exchange rate in effect at each applicable fiscal reporting period. Revenues and expenses are translated at the average rate of exchange for the applicable fiscal reporting period. Translation adjustments arising from the use of
different exchange rates from period to period are included in other comprehensive income (loss) in stockholders equity. Gains and losses resulting from foreign currency transactions are included in the Companys results of operations.

17. Recent Accounting Pronouncements

In May 2009, the FASB issued ASC 855-10-25-01, to establish general standards of accounting for disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. The standard is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted ASC 855-10-25-01 effective with the interim report
for the period ended September 26, 2009. The Company has performed an evaluation of subsequent events. No non-recognized subsequent events were noted.

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose
separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable
inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide
fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3
fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward
activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect adoption of the updated guidance to have a
material impact on its consolidated results of operations or financial condition.

18. Restatement - Gift Card Revenue Accounting

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



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

Notes to Consolidated Financial Statements(Continued)



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

The following tables
present the impact of the correction of the error on the consolidated statements for the fiscal year ended December 26, 2009.

(In
thousands, except per share amounts)



|                                                                      |  |                              |         |   |             |   |       |            |  |   |         |  
|--------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ----------- | - | ----- | ---------- |  | - | ------- | -
|                                                                      |  | Year ended December 26, 2009 |        
|                                                                      |  | AsPreviouslyReported         |         |   | Adjustments |   |       | AsRestated | 
|Consolidated Statement of Operations                                  |  |                              |         |   |             |   |       |            |  |   |         |  
|Revenues                                                              |  | $                            | 360,129 |   |             | $ | (922  | )          |  | $ | 359,207 |  
|Loss before income taxes                                              |  |                              | (15,371 | ) |             |   | (922  | )          |  |   | (16,293 | )
|Income tax benefit                                                    |  |                              | (656    | ) |             |   | (70   | )          |  |   | (726    | )
|Net loss                                                              |  |                              | (14,715 | ) |             |   | (852  | )          |  |   | (15,567 | )
|Net loss per share - basic                                            |  |                              | (1.00   | ) |             |   | (0.05 | )          |  |   | (1.05   | )
|Net loss per share - diluted                                          |  | $                            | (1.00   | ) |             |   | (0.05 | )          |  |   | (1.05   | )
|                                                                      |  |                              |        
|Consolidated Statement of Stockholders Equity and Comprehensive Loss |  |                              |         |   |             |   |       |            |  |   |         |  
|Net loss                                                              |  | $                            | (14,715 | ) |             |   | (852  | )          |  |   | (15,567 | )
|Total comprehensive loss                                              |  |                              | (13,260 | ) |             |   | (852  | )          |  |   | (14,112 | )
|                                                                      |  |                              |        
|Consolidated Statement of Cash Flows                                  |  |                              |         |   |             |   |       |            |  |   |         |  
|Net loss                                                              |  | $                            | (14,715 | ) |             |   | (852  | )          |  |   | (15,567 | )
|Income tax receivable                                                 |  |                              | 2,852   |   |             |   | (70   | )          |  |   | 2,782   |  
|Accrued expenses                                                      |  | $                            | (3,062  | ) |             |   | 922   |            |  |   | (2,140  | )
|                                                                      | 
|                                                                      |  | December 26, 2009            |        
|                                                                      |  | AsPreviouslyReported         |         |   | Adjustments |   |       | AsRestated | 
|Consolidated Balance Sheet                                            |  |                              |         |   |             |   |       |            |  |   |         |  
|Income tax receivable                                                 |  | $                            | 937     |   |             | $ | 70    |            |  | $ | 1,007   |  
|Total current assets                                                  |  |                              | 28,957  |   |             |   | 70    |            |  |   | 29,027  |  
|Total assets                                                          |  |                              | 191,022 |   |             |   | 70    |            |  |   | 191,092 |  
|Accrued expenses                                                      |  |                              | 28,639  |   |             |   | 922   |            |  |   | 29,561  |  
|Total Liabilities                                                     |  |                              | 97,887  |   |             |   | 922   |            |  |   | 98,809  |  
|Accumulated deficit                                                   |  |                              | (55,290 | ) |             |   | (852  | )          |  |   | (56,142 | )
|Total stockholders equity                                            |  |                              | 93,135  |   |             |   | (852  | )          |  |   | 92,283  |  
|Total liabilities and stockholders equity                            |  | $                            | 191,022 |   |             |   | 70    |            |  |   | 191,092 |  



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|ITEM 9A. | CONTROLS AND PROCEDURES - RESTATED
|-------- | ----------------------------------

Evaluation of Disclosure Controls and Procedures

Our management initially evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the
effectiveness of our disclosure controls and procedures as of December 26, 2009 pursuant to Rule 13a-15(e) and 15d  15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on that initial
evaluation, our chief executive officer and chief financial officer concluded that, as of December 26, 2009, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports
was (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, 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.

In connection with the
restatement described in this Amendment, management re-evaluated the effectiveness of our disclosure controls and procedures as of December 26, 2009 and identified certain control deficiencies as of December 26, 2009 that constituted a
material weakness in our internal control over financial reporting as described below. Because of this material weakness, management subsequently concluded that we did not maintain effective disclosure controls and procedures as of December 26,
2009.

Report of Management on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the
Exchange Act.

Under the supervision and with the participation of our management, we assessed the effectiveness of internal control over
financial reporting as of December 26, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework. Based on our
re-assessment we determined that, as of December 26, 2009, our internal control over financial reporting was not effective because of the material weakness described below. Accordingly, management has restated its report on internal control
over financial reporting.

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

During the quarter ended June 26, 2010, management determined that our consolidated financial statements for the thirteen and thirty-nine weeks
ended September 26, 2009 and the thirteen week period and fiscal year ended December 26, 2009 were affected by an error in the recording of gift card breakage income and that a restatement was needed. As disclosed in Note 18 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K/A, the accounts impacted were revenues, accrued liabilities and the related impact on our income tax accounts, as well as on our reported net income (loss) and net
income (loss) per share.



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

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

The effectiveness of the Companys internal control over financial reporting as of December 26, 2009 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which is set forth in Part II, Item 8 of this Amended Annual Report on Form 10-K/A.

Remediation Plan

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

Changes in Internal Control Over Financial Reporting

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

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

(a)(1) and (a)(2) Financial Statements. The Financial Statements of the Company are filed in Part IIItem 8 of this Amended Annual
Report on Form 10-K/A. The Financial Statement schedules have been omitted because they are not required or because the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

(a)(3) Exhibits. See Exhibit Index beginning on page 47 for a description of the documents that are filed as Exhibits to
this Amended Annual Report on Form 10-K/A.



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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, as of August 20, 2010.



MCCORMICK & SCHMICKS SEAFOOD RESTAURANT, INC.By:

/s/ WILLIAM T. FREEMANWilliam T. FreemanChief Executive Officer(Principal Executive Officer)MCCORMICK & SCHMICKS SEAFOOD RESTAURANT, INC.By:

/s/ MICHELLE M. LANTOWMichelle M. LantowChief Financial Officer(Principal Financial and Accounting Officer)




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EXHIBIT INDEX

EXHIBITS.

Items identified with an
asterisk (*) are management contracts or compensatory plans or arrangements.



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Certificate of Incorporation of McCormick & Schmicks Seafood Restaurants, Inc., as amended (incorporated by reference to Exhibit 3.1 to our 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 dated April 17, 2009)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      | 
|10.1  |  | Amended and Restated Revolving Credit Agreement dated December 28, 2007 among McCormick & Schmick Acquisition Corp. and The Boathouse Restaurants of Canada, Inc., as borrowers,
Bank of America, N.A., as administrative agent and collateral agent, Banc of America Securities LLC, as sole lead arranger, and other specified lenders (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed January 2,
2008); Amendment No. 1 to Amended and Restated Credit Agreement dated March 7, 2008 (incorporated by reference to Exhibit 10.1 to our annual report on Form 10-K for the period ended December 27, 2008); Amendment No. 2 to Amended and Restated Credit
Agreement dated January 29, 2009 (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed January 30, 2009)
|      | 
|10.2  |  | Retail Lease Agreement, dated as of February 14, 1985, between Harborside Partners, LLC, as successor in interest to Cornerstone Development Company, and McCormick &
Schmick Restaurant Corp., as successor in interest to the Cornerstone-McCormick Joint Venture dba Harborside Restaurant, and Amendments 4 and 5 thereto (incorporated by reference to Exhibit 10.10 to our registration statement on Form S-1,
file No. 333-114977)                                                                                                                                                                                                                                                                                                                                                                                            
|      | 
|10.3  |  | Lease, dated June 18, 2004, between DLS Investments, LLC and McCormick & Schmick Restaurant Corp. (incorporated by reference to Exhibit 10.11 to our
registration statement on Form S-1, file No. 333-114977) and Amendment to Lease dated November 23, 2005 between DLS Investments, LLC and the Company (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K dated
November 23, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.4* |  | Form of Amended and Restated Executive Severance Agreement entered into by Douglas L. Schmick and McCormick & Schmicks Seafood Restaurants, Inc.
(incorporated by reference to Exhibit 10.4 to our annual report on Form 10-K for the fiscal year ended December 27, 2008)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      | 
|10.5* |  | Employment Agreement between McCormick & Schmicks Seafood Restaurants, Inc. and William T. Freeman dated November 13, 2008; Executive Severance and Non-Competition
Agreement between McCormick & Schmicks Seafood Restaurants, Inc. and William T. Freeman dated November 13, 2008 (incorporated by reference to Exhibit 10.5 to our annual report on Form 10-K for the fiscal year ended December 27,
2008)                                                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.6* |  | Employment Agreement between McCormick & Schmicks Seafood Restaurants, Inc. and Michelle M. Lantow dated November 16, 2009; Executive Severance and Noncompetition
Agreement between McCormick & Schmicks Seafood Restaurants, Inc. and Michelle M. Lantow dated November 16, 2009 (incorporated by reference to Exhibit 10.6 to our annual report on Form 10-K for the fiscal year ended December 26,
2009)                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | 
|10.7* |  | McCormick & Schmicks Seafood Restaurants, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to our registration statement on
Form S-1, file No. 333-114977)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      | 
|10.8* |  | Form of McCormick & Schmicks Seafood Restaurants, Inc. Incentive Stock Option Agreement; form of McCormick & Schmicks Seafood
Restaurants, Inc. Non-Statutory Stock Option Agreement (incorporated by reference to Exhibit 10.17 to our registration statement on Form S-1, file No. 333-114977)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      | 
|10.9* |  | Form of Restricted Stock Agreement, as amended (incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the period ended July 1,
2006)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



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|       |  |                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10* |  | Form of Restricted Stock Agreement with Non-Employee Directors (incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the period ended
March 29, 2008)      
|       | 
|21.1   |  | Subsidiaries of McCormick & Schmicks Seafood Restaurants, Inc. (incorporated by reference to Exhibit 21.1 to our annual report on Form 10-K for the fiscal year
ended December 26, 2009)
|       | 
|23.1   |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                    
|       | 
|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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