**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-Q**

 

**ý****Quarterly Report Voluntarily Filed Pursuant to Section 13or 15(d) of the Securities and Exchange Act of 1934**

 

**For theQuarterly Period Ended September 28, 2005**

 

**CommissionFile Number 333-62775**

 

**BERTUCCI’S CORPORATION**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                                                 | ** ** | **06-1311266**                           |
|------------------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)             |       | (I.R.S. Employer  Identification Number) |
|                                                                         |       |                                     |
| **155 Otis  Street, Northborough, Massachusetts**                            | ** ** | **01532-2414**                           |
| (Address of principal  executive offices)                                    |       | (Zip Code)                               |
|                                                                         |       |                                     |
| Registrant’s telephone  number, including area code: **(508) 351-2500** |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to the filing requirements for the past 90 days.

 

Yes   o   No   ý

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated filer |   | o |   | Accelerated filer |   | o |   | Non-accelerated filer |   | ý |
|-------------------------|--------|---|--------|-------------------|--------|---|--------|-----------------------|--------|--------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   o   No   ý

 

3,012,982 shares of the registrant’s Common Stockwere outstanding on January 10, 2006

 

 

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**BERTUCCI’SCORPORATION**

**FORM 10-Q**

**TABLE OFCONTENTS**

 
| PART I:  | FINANCIAL  INFORMATION                                                                                                                                                     |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                       |   |
| Item  1.      | Financial  Statements:                                                                                                                                                     |   |
|          |                                                                                                                                                                       |   |
| 1)            | Condensed  Consolidated Balance Sheets as of September 28, 2005 (Unaudited) and  December 29, 2004 (Unaudited)                                                   |   |
|          |                                                                                                                                                                       |   |
| 2)            | Condensed  Consolidated Statements of Operations For the 13 and 39 Weeks Ended  September 28, 2005 (Unaudited) and September 29, 2004 (As Restated)  (Unaudited) |   |
|          |                                                                                                                                                                       |   |
| 3)            | Condensed  Consolidated Statements of Cash Flow for the 39 Weeks Ended  September 28, 2005 (Unaudited) and September 29, 2004 (As Restated)  (Unaudited)         |   |
|          |                                                                                                                                                                       |   |
| 4)            | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                                                          |   |
|          |                                                                                                                                                                       |   |
| Item  2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                |   |
|          |                                                                                                                                                                       |   |
| Item  3.      | Quantitative  and Qualitative Disclosure About Market Risk                                                                                                                 |   |
|          |                                                                                                                                                                       |   |
| Item  4.      | Controls  and Procedures                                                                                                                                                   |   |
|          |                                                                                                                                                                       |   |
| PART II: | OTHER  INFORMATION                                                                                                                                                         |   |
| Item 1.       | Legal  Proceedings                                                                                                                                                         |   |
| Item  2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                               |   |
| Item  3.      | Defaults  Upon Senior Securities                                                                                                                                           |   |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                                                                                       |   |
| Item 5.       | Other  Information                                                                                                                                                         |   |
| Item 6.       | Exhibits                                                                                                                                                                   |   |
|          |                                                                                                                                                                       |   |
| SIGNATURES    |                                                                                                                                                                       |   |
|          |                                                                                                                                                                       |   |
| EXHIBITS      |                                                                                                                                                                       |   |

 

2

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Inthousands, except share data)

(Unaudited)

 
| ** **                                                                                                       | ** ** | **September 28,** | ** ** | **December 29,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                       | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| ASSETS                                                                                                           |       |                   |       |                  |       |
| Current Assets:                                                                                                  |       |                   |       |                  |       |
| Cash and cash equivalents                                                                                        |       | $                      | 13,771     |                  | $          | 12,291 |   |
| Restricted cash                                                                                                  |       | 2,180                  |       | 2,403                 |       |
| Accounts receivable                                                                                              |       | 696                    |       | 1,334                 |       |
| Inventories                                                                                                      |       | 1,438                  |       | 1,388                 |       |
| Prepaid expenses and other current assets                                                                        |       | 367                    |       | 534                   |       |
| Total current assets                                                                                             |       | 18,452                 |       | 17,950                |       |
|                                                                                                             |       |                   |       |                  |       |
| Property and Equipment, at cost:                                                                                 |       |                   |       |                  |       |
| Land                                                                                                             |       | 259                    |       | 259                   |       |
| Buildings                                                                                                        |       | 697                    |       | 697                   |       |
| Capital leases - land and buildings                                                                              |       | 5,764                  |       | 5,764                 |       |
| Leasehold improvements                                                                                           |       | 68,524                 |       | 66,632                |       |
| Furniture and equipment                                                                                          |       | 46,523                 |       | 44,537                |       |
|                                                                                                             |       | 121,767                |       | 117,889               |       |
| Less - accumulated depreciation and  amortization                                                                |       | (65,746                | )          | (57,101               | )          |
|                                                                                                             |       | 56,021                 |       | 60,788                |       |
| Construction work in process                                                                                     |       | —                 |       | 1,567                 |       |
| Net property and equipment                                                                                       |       | 56,021                 |       | 62,355                |       |
|                                                                                                             |       |                   |       |                  |       |
| Goodwill                                                                                                         |       | 26,127                 |       | 26,127                |       |
| Deferred finance costs, net                                                                                      |       | 2,340                  |       | 2,862                 |       |
| Liquor licenses, net                                                                                             |       | 2,372                  |       | 2,414                 |       |
| Other assets                                                                                                     |       | 639                    |       | 513                   |       |
| TOTAL ASSETS                                                                                                     |       | $                      | 105,951    |                  | $          | 112,221 |   |
|                                                                                                             |       |                   |       |                  |       |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                      |       |                   |       |                  |       |
| Current Liabilities:                                                                                             |       |                   |       |                  |       |
| Promissory notes - current portion                                                                               |       | $                      | 41         |                  | $          | 40 |   |
| Capital lease obligations - current portion                                                                      |       | 83                     |       | 74                    |       |
| Accounts payable                                                                                                 |       | 6,887                  |       | 7,819                 |       |
| Accrued expenses                                                                                                 |       | 13,918                 |       | 16,457                |       |
| Total current liabilities                                                                                        |       | 20,929                 |       | 24,390                |       |
|                                                                                                             |       |                   |       |                  |       |
| Promissory notes, net of current portion                                                                         |       | 739                    |       | 781                   |       |
| Capital lease obligations, net of current  portion                                                               |       | 6,028                  |       | 6,102                 |       |
| Senior Notes                                                                                                     |       | 85,310                 |       | 85,310                |       |
| Deferred gain on sale leaseback transaction                                                                      |       | 1,920                  |       | 2,002                 |       |
| Other long-term liabilities                                                                                      |       | 8,478                  |       | 8,368                 |       |
| Total liabilities                                                                                                |       | 123,404                |       | 126,953               |       |
| Commitments and Contingencies                                                                                    |       |                   |       |                  |       |
| Stockholders’ Deficit:                                                                                      |       |                   |       |                  |       |
| Common stock, $.01 par value                                                                                     |       |                   |       |                  |       |
| Authorized - 8,000,000 shares                                                                                    |       |                   |       |                  |       |
| Issued - 3,764,995 and 3,667,495 shares,  respectively; Outstanding 3,012,982 and 2,915,482 shares, respectively |       | 38                     |       | 37                    |       |
| Less treasury shares, 752,013 at cost                                                                            |       | (8,480                 | )          | (8,480                | )          |
| Additional paid-in capital                                                                                       |       | 29,617                 |       | 29,046                |       |
| Accumulated deficit                                                                                              |       | (38,628                | )          | (35,335               | )          |
| Total stockholders’ deficit                                                                                 |       | (17,453                | )          | (14,732               | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                 |       | $                      | 105,951    |                  | $          | 112,221 |   |

 

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

 

3

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except share and per share data)

(Unaudited)

 
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended**      | ** ** |
|---------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **September 28,**   | ** ** | **September 29,**           | ** ** | **September 28,** | ** ** | **September 29,** | ** ** |
| ** **                                                          | ** ** | **2005**                 | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | ** **               | ** ** | **(As  Restated - See  Note 3)** | ** ** | ** ** | ** ** | **(As  Restated - See  Note 3)** | ** ** |
| Net sales                                                           |       | $                        | 49,654     |                             | $          | 49,260 |   | $ | 152,185 |   | $ | 150,440 |   |
|                                                                |       |                     |       |                             |       |   |   |   |   |
| Cost of sales and expenses:                                         |       |                     |       |                             |       |   |   |   |   |
| Cost of sales                                                       |       | 11,316                   |       | 12,256                           |       | 35,498 |   | 36,695 |   |
| Operating expenses                                                  |       | 30,051                   |       | 29,509                           |       | 91,895 |   | 92,605 |   |
| General and administrative expenses                                 |       | 3,740                    |       | 2,655                            |       | 10,521 |   | 9,226 |   |
| Asset impairment charge                                             |       | —                   |       | —                           |       | 907 |   | 3,894 |   |
| Depreciation, amortization, deferred rent  and pre-opening expenses |       | 2,601                    |       | 3,244                            |       | 8,773 |   | 9,518 |   |
| Total cost of sales and expenses                                    |       | 47,708                   |       | 47,664                           |       | 147,594 |   | 151,938 |   |
| Income (loss) from operations                                       |       | 1,946                    |       | 1,596                            |       | 4,591 |   | (1,498 | ) |
| Interest expense, net                                               |       | (2,613                   | )          | (2,664                           | )          | (7,884 | ) | (7,963 | ) |
| Loss before income taxes                                            |       | (667                     | )          | (1,068                           | )          | (3,293 | ) | (9,461 | ) |
|                                                                |       |                     |       |                             |       |   |   |   |   |
| Income taxes                                                        |       | —                   |       | —                           |       | — |   | — |   |
|                                                                |       |                     |       |                             |       |   |   |   |   |
| Net loss                                                            |       | $                        | (667       | )                                | $          | (1,068 | ) | $ | (3,293 | ) | $ | (9,461 | ) |
|                                                                |       |                     |       |                             |       |   |   |   |   |
| Basic and diluted loss per share                                    |       | $                        | (0.23      | )                                | $          | (0.36 | ) | $ | (1.12 | ) | $ | (3.21 | ) |
|                                                                |       |                     |       |                             |       |   |   |   |   |
| Weighted-average shares outstanding - basic  and diluted            |       | 2,953,864                |       | 2,944,377                        |       | 2,942,372 |   | 2,949,279 |   |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

 

4

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)

 
| ** **                                                                       | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **September 28, 2005** | ** ** | **September 29, 2004** | ** ** |
| ** **                                                                       | ** ** | ** **                  | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Cash flows from operating activities                                             |       |                        |       |   |   |
| Net loss                                                                         |       | $                           | (3,293     | ) | $ | (9,461 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                        |       |   |   |
| Depreciation, amortization and deferred  rent                                    |       | 9,109                       |       | 9,572 |   |
| Asset impairment charge                                                          |       | 907                         |       | 3,894 |   |
| Stock compensation expense                                                       |       | 172                         |       | — |   |
| Changes in operating assets and liabilities                                      |       |                        |       |   |   |
| Inventories                                                                      |       | (50                         | )          | (227 | ) |
| Prepaid expenses, receivables and other                                          |       | 847                         |       | (45 | ) |
| Other accrued expenses                                                           |       | (2,598                      | )          | (3,045 | ) |
| Accounts payable                                                                 |       | (932                        | )          | (167 | ) |
| Tenant allowance received                                                        |       | 208                         |       | 356 |   |
| Other operating assets and liabilities                                           |       | (127                        | )          | 41 |   |
|                                                                             |       |                        |       |   |   |
| Total adjustments                                                                |       | 7,536                       |       | 10,379 |   |
|                                                                             |       |                        |       |   |   |
| Net cash provided by operating activities                                        |       | 4,243                       |       | 918 |   |
|                                                                             |       |                        |       |   |   |
| Cash flows from investing activities                                             |       |                        |       |   |   |
| Additions to property and equipment                                              |       | (3,280                      | )          | (6,381 | ) |
| Decrease (increase) in restricted cash                                           |       | 223                         |       | (791 | ) |
|                                                                             |       |                        |       |   |   |
| Net cash used in investing activities                                            |       | (3,057                      | )          | (7,172 | ) |
|                                                                             |       |                        |       |   |   |
| Cash flows from financing activities                                             |       |                        |       |   |   |
| Purchase of treasury shares                                                      |       | —                      |       | (142 | ) |
| Sale of common stock                                                             |       | 400                         |       | 10 |   |
| Payment on promissory note                                                       |       | (41                         | )          | (40 | ) |
| Principal payments under capital lease  obligations                              |       | (65                         | )          | (33 | ) |
|                                                                             |       |                        |       |   |   |
| Net cash provided by (used in) financing  activities                             |       | 294                         |       | (205 | ) |
|                                                                             |       |                        |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                            |       | 1,480                       |       | (6,459 | ) |
| Cash and cash equivalents, beginning of  year                                    |       | 12,291                      |       | 12,647 |   |
| Cash and cash equivalents, end of period                                         |       | $                           | 13,771     |   | $ | 6,188 |   |
|                                                                             |       |                        |       |   |   |
| Supplemental Disclosure of Cash Flow  Information:                               |       |                        |       |   |   |
| Cash paid for interest                                                           |       | $                           | 9,880      |   | $ | 9,863 |   |
| Cash paid for income taxes                                                       |       | $                           | 50         |   | $ | 380 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

5

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**BERTUCCI’SCORPORATION**

**Notes To Condensed Consolidated Financial Statements**

September 28, 2005

(Unaudited)

 

*1.  Basis of Presentation*

 

The unaudited condensed consolidated financialstatements (the “Unaudited Financial Statements”) presented herein have beenprepared by Bertucci’s Corporation and include all of its subsidiaries(collectively, the “Company”) after elimination of inter-company accounts andtransactions, without audit, and, in the opinion of management, reflect alladjustments (consisting of normal recurring adjustments) necessary for a fairstatement of the interim periods presented.  The accompanying unauditedinterim condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for completefinancial statements are not included herein.  It is suggested theUnaudited Financial Statements be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s Annual Report on Form 10-K/Afor the year ended December 29, 2004, which was filed with the Securitiesand Exchange Commission on January 19, 2006 (the “2004 Annual ReportAmendment”).  The operating results for the thirty-nine weeks ended September 28,2005 may not be indicative of the results expected for any succeeding interimperiod or for the entire year ending December 28, 2005.

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from thoseestimates.

 

*2. Recent Accounting Pronouncements*

 

In June 2005, the Emerging Issues Task Force ofthe Financial Accounting Standards Board (“FASB”) reached a consensus on Issue No. 05-6,*Determining the Amortization Period for LeaseholdImprovements* (“EITF 05-6”). The guidance requires that leasehold improvements acquired in a businesscombination or purchased subsequent to the inception of a lease be amortizedover the lesser of the useful life of the assets or a term that includesrenewals that are reasonably assured at the date of the business combination orpurchase.  The guidance is effective forperiods beginning after June 29, 2005. The adoption of EITF 05-6 is not expected to have a material effect onthe Company’s consolidated financial position or results of operations.

 

In May 2005, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 154, *AccountingChanges and Error Corrections–A Replacement of APB Opinion No. 20 and FASBStatement No. 3*  (“SFAS No. 154”).  SFAS No. 154 applies to all voluntarychanges in accounting principle and requires retrospective application to priorperiods’ financial statements of changes in accounting principle, unless it isimpracticable.  SFAS No. 154requires that a change in depreciation, amortization, or depletion method forlong-lived, non-financial assets be accounted for as a change of estimateaffected by a change in accounting principle. SFAS No. 154 also carries forward without change the guidance inAccounting Principals Board (“APB”) Opinion No. 20 with respect toaccounting for changes in accounting estimates, changes in the reporting unitand correction of an error in previously issued financial statements.  The Company is required to adopt SFAS No. 154for accounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005.  Theadoption of SFAS No. 154 is not expected to have a material effect on theCompany’s consolidated financial position or results of operations.

 

In December 2004, the FASB issued SFAS No. 123R,*Share-Based Payment* (“SFAS No. 123R”).  This Statement is a revision of SFAS No. 123,*Accounting for Stock-Based Compensation*,and supersedes APB Opinion No. 25, *Accounting for StockIssued to Employees*, and its related implementation guidance.   SFAS No. 123R focuses primarily onaccounting for transactions in which an entity obtains employee services inshare-based payment transactions.  TheStatement requires entities to recognize stock compensation expense for awardsof equity instruments to employees based on the grant-date fair value of thoseawards (with limited exceptions).  SFAS No. 123Ris effective for the first annual reporting period that begins after December 15,2005.  The Company is evaluating the twomethods of adoption allowed by SFAS No. 123R; the modified-prospectivetransition method and the modified-retrospective transition method.

 

6

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*3. Restatement of Financial Statements*

 

Initial Restatement

 

Inthe first quarter of 2005 the Company initiated a review of its leaseaccounting, including leased liquor licenses, and leasehold depreciationpractices. As a result, the Company corrected its accounting for leases andrestated its financial statements for all periods prior to December 29,2004 and certain financial information to correct errors in lease accountingpolicies (the “Initial Restatement”). The Company had historically accountedfor tenant improvement allowances as reductions to the related leaseholdimprovement asset on the consolidated balance sheets and capital expendituresin investing activities on the consolidated statements of cash flows.  Also, the Company had historically recognizedrent on a straight-line basis over a lease term commencing with the initialoccupancy date, or Company-operated retail store opening date.  In addition, the depreciable lives of certainleasehold improvements and other long-lived assets on those properties were notaligned with the non-cancelable lease term.

 

Followinga review of its lease accounting treatment and relevant accounting literature,the Company determined it should:  (a) reporttenant improvement allowances as deferred liabilities in the consolidatedbalance sheets and initiate the amortization of those liabilities at therelevant initial occupancy date;  (b) classifythe change in the deferred liability related to the tenant allowances in theoperating activities on the Condensed Consolidated Statements of Cash Flows; (c) conformthe depreciable lives for buildings on leased land and other leaseholdimprovements to the shorter of the economic life of the asset or the lease termused for determining the capital versus operating lease classification andcalculating straight-line rent; and (d) include option periods in thedepreciable lives assigned to leased buildings and leasehold improvements andin the calculation of straight-line rent expense only in instances in which theexercise of the option period can be reasonably assured and failure to exercisesuch options would result in an economic penalty.

 

The restatement for leaseholds also resulted in restatements of amountspreviously reported for asset impairments.

 

The Initial Restatement did not have any impact on the Company’spreviously reported net sales or compliance with any covenant under its debtinstruments.

 

Current Restatement

 

In connection with the preparation of this Quarterly Report on Form 10-Qfor the fiscal quarter ended September 28, 2005, the Company discoverederrors in its detailed property and equipment records adjusted during theInitial Restatement.  Management thenconducted an investigation into the extent and magnitude of these errors, whichinvolved the calculation of depreciation expense on multiple property recordsand the related impact on income taxes for the fiscal years 1998 through 2004,inclusive, and the first two fiscal quarters of 2005 (the “Relevant Period”),to determine if a restatement of its financial statements was necessary.  Based upon this investigation, in January 2006the Company determined additional aggregate depreciation expense ofapproximately $3.5 million was required for the Relevant Period and income tax expensewas not properly adjusted in the Initial Restatement.  Based upon this investigation, in January 2006the Company determined an additional aggregate depreciation expense ofapproximately $3.5 million was required for the Relevant Period and arestatement of its financial statements, including those contained in its: (1) AnnualReport on Form 10-K for the fiscal year ended December 29, 2004,which was filed with the SEC on April 13, 2005 (the “Original 2004 10-K”);(2) Quarterly Report on Form 10-Q for the fiscal quarter endedMarch 30, 2005, which was filed with the SEC on May 13, 2005 (the “Original2005 First Quarter 10-Q”); and (3) Quarterly Report on Form 10-Q forthe fiscal quarter ended June 29, 2005, which was filed with the SEC on August 12,2005 (the “Original 2005 Second Quarter 10-Q”), and together with the Original2004 10-K and the Original 2005 First Quarter 10-Q, (the “Subject Filings”),was necessary (the “Current Restatement”). Accordingly, the Company determinedit should amend the Subject Filings to reflect the proper recording ofdepreciation and income tax expense and its impact on the consolidated BalanceSheets, Statements of Operations, Stockholders’ Deficit, and Cash Flows for theperiods reported therein.

 

The Company also restated its Statements of CashFlows to present the change in restricted cash as an investing activity. Theseamounts had previously been reported as a financing activity.

 

7

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The Current Restatement did not have any impact onthe Company’s previously reported net sales during the Relevant Period. Thefollowing is a summary of the impact of the Current Restatement on the Company’scondensed consolidated statements of operations and cash flow for the thirteenand thirty-nine weeks ended September 29, 2004 (in thousands, except pershare data):

 

**For theperiods ended September 29, 2004**

 

| ** **                                                          | ** ** | **Thirteen Weeks Ended**    | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **As Previously  Reported** | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Operating  expenses                                                 |       | $                           | 29,521     |   | $ | 29,509 |   | $ | 29,509 |   |
| Deferred rent, depreciation, amortization  and pre-opening expenses |       | 3,111                       |       | 3,379 |   | 3,244 |   |
| Income  (loss) from operations                                      |       | 1,717                       |       | 1,461 |   | 1,596 |   |
| Interest  expense, net                                              |       | (2,654                      | )          | (2,664 | ) | (2,664 | ) |
| Net loss                                                            |       | (937                        | )          | (1,203 | ) | (1,068 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Basic and  diluted loss per share                                   |       | (0.32                       | )          | (0.41 | ) | (0.36 | ) |
|                                                                     |            |                             |            |  |  |  |  |  |  |  |

 

| ** **                                                          | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **As Previously  Reported** | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Operating  expenses                                                 |       | $                           | 92,640     |   | $ | 92,605 |   | $ | 92,605 |   |
| Deferred rent, depreciation, amortization  and pre-opening expenses |       | 9,456                       |       | 9,949 |   | 9,518 |   |
| Asset  impairment charge                                            |       | 3,338                       |       | 3,894 |   | 3,894 |   |
| Income  (loss) from operations                                      |       | (915                        | )          | (1,929 | ) | (1,498 | ) |
| Interest  expense, net                                              |       | (7,934                      | )          | (7,963 | ) | (7,963 | ) |
| Net loss                                                            |       | (8,849                      | )          | (9,892 | ) | (9,461 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Basic and  diluted loss per share                                   |       | (3.00                       | )          | (3.35 | ) | (3.21 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Cash flows  from operating activities                               |       | 555                         |       | 918 |   | 918 |   |
| Cash flows  used in investing activities                            |       | (6,025                      | )          | (6,381 | ) | (7,172 | ) |
| Cash flows  used in financing activities                            |       | (989                        | )          | (996 | ) | (205 | ) |
|                                                                     |            |                             |            |  |  |  |  |  |  |  |

 

*4. Liquor Licenses*

 

Transferable liquor licenses purchased are accountedfor at the lower of cost or fair market value and are not amortized. Annual renewal fees are expensed as incurred.  The carrying value oftransferable liquor licenses was $2.0 million at each of September 28,2005 and December 29, 2004. Non-transferable liquor licenses areamortized on a straight-line basis over the contractual life of thelicense.  Accumulated amortization at September 28, 2005 and December 29,2004 for non-transferable liquor licenses was $182,000 and $140,000,respectively.  Amortization expense for the thirty-nine weeks ended September 28,2005 was $42,000 and is expected to be $56,000 per year through fiscal 2010.

 

*5.  Restaurant ClosingReserves*

 

Restaurant closing reserves were established as partof the acquisition of Bertucci’s, Inc. in July 1998.  Thesereserves were related to estimated future lease commitments and exit costs toclose 18 Bertucci’s locations.  In 2001, the Company accrued an additional$4.2 million related to selected locations (all of which had been closed),consisting of estimated lease commitments and certain exit costs.  It wasoriginally expected the Company would be able to exit these locations, subleasethe locations or otherwise be released from the related leases.  However, dueto market conditions, the Company has been unable to sublease or exit certainof these leases.

 

The closed restaurant reserve was calculatednet of sublease income at ten locations partially or fully subleased as of September 28,2005.

 

8

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The Company remains primarily liable for theremaining lease obligations should the sublessee default.  Totalsublease income excluded from the reserve is approximately $6.2 million forsubleases expiring at various dates through 2017.  There have been nodefaults by sublessees to date.

 

Activity within the reservewas as follows (in thousands):

 

| ** **                                      | ** ** | **Thirty-nine weeks ended** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **September 28,**      | ** ** | **September 29,** | ** ** |
| ** **                                      | ** ** | **2005**                    | ** ** | **2004** | ** ** |
|                                            |       |                        |       |   |   |
| Balance, beginning of the year                  |       | $                           | 659        |   | $ | 1,449 |   |
| Payments charged against reserve                |       | (255                        | )          | (469 | ) |
| Balance, end of period                          |       | $                           | 404        |   | $ | 980 |   |
|                                            |       |                        |       |   |   |
| Current portion (included in accrued  expenses) |       | $                           | 288        |   | $ | 615 |   |
| Noncurrent portion                              |       | 116                         |       | 365 |   |
|                                            |       | $                           | 404        |   | $ | 980 |   |

 

*6.  Loss per Share*

 

Basic loss per share is computed by dividing netloss by the weighted-average number of shares of common stock outstanding forthe reporting period. Diluted earnings per share reflects the potentialdilution that could occur if options or other contracts to issue common stockwere exercised or converted into common stock. For the periods ended September 28,2005 and September 29, 2004 options representing 963,929 and 554,021shares of common stock, respectively, were excluded from the calculation ofdiluted loss per share because of their anti-dilutive effect.

 

*7.  Income Taxes*

 

The Company recognizes deferred tax assets andliabilities for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns.  Additionally, theCompany is required to consider both negative and positive evidence indetermining if a valuation allowance is required on a quarterly basis. Management previously recorded a full valuation allowance for its deferred taxassets and continues to record an allowance quarterly for the tax benefitsassociated with the current period’s losses.

 

*8.  Stock-Based Compensation*

 

In accordance with SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFASNo. 123”), the Company has elected to account for stock-based compensationunder the intrinsic value method with disclosure of the effects of fair valueaccounting on net loss and loss per share on a pro forma basis. The Company’sstock-based compensation plan is described more fully in Note 10 of Notes toConsolidated Financial Statements in the 2004 Annual Report Amendment and inthe Company’s Form 8-K filed with the SEC on October 3, 2005. TheCompany accounts for this plan under the recognition and measurement principlesof APB Opinion No. *25, Accounting forStock Issued to Employees,*and related interpretations. Nostock-based employee compensation cost related to stock options is reflected innet loss, as all options granted had an exercise price equal to, or in excessof, the market value of the underlying common stock on the date of grant. Thefollowing table illustrates the effect on net loss and loss per share if theCompany had applied the fair value recognition provisions of SFAS No. 123(in thousands, except per share data):

 

| ** **                                                                                                               | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                               | ** ** | **June 29,**        | ** ** | **June 30,**          | ** ** | **June 29,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                                               | ** ** | **2005**                 | ** ** | **2004**                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Net loss, as reported                                                                                                    |       | $                        | (667       | )                          | $          | (1,068 | ) | $ | (3,293 | ) | $ | (9,461 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss                                            |       | 26                       |       | —                     |       | 172 |   | — |   |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Adjust: Net stock-based employee  compensation income (expense) determined under fair value based method for  all awards |       | (3                       | )          | 61                         |       | (130 | ) | (95 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Pro forma net loss                                                                                                       |       | $                        | (644       | )                          | $          | (1,007 | ) | $ | (3,251 | ) | $ | (9,556 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Basic and diluted loss per share                                                                                         |       |                     |       |                       |       |   |   |   |   |
| As reported                                                                                                              |       | $                        | (0.23      | )                          | $          | (0.36 | ) | $ | (1.12 | ) | $ | (3.21 | ) |
| Pro forma                                                                                                                |       | $                        | (0.22      | )                          | $          | (0.34 | ) | $ | (1.10 | ) | $ | (3.24 | ) |
|                                                                                                                          |            |                          |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

9

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During the first threequarters of 2005, the Company awarded bonuses to two senior employees andcertain officers and independent members of the Board of Directors consistingof an aggregate of 37,500 shares of Common Stock with an average fair value of$4.59 per share. Accordingly, the grant of such shares resulted in a $172,000compensation charge to the Company.

 

During the third quarterof 2005, the Company’sBoard of Directors approved the adoption of the Bertucci’s Corporation Amendedand Restated 1997 Equity Incentive Plan (the “Plan”) to increase the number ofshares that are available for issuance under the Plan from 750,000 to1,100,000.

 

The net stock-based employee compensation expense determined under thefair value based method for the current periods includes income resulting fromthe forfeitures of non-vested options.

 

9. *Asset Impairment Charge*

 

TheCompany’s long-lived assets consist primarily of goodwill, other intangibleassets, and leasehold improvements related to its restaurant operations. SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, requires management to test the recoverability oflong-lived assets (excluding goodwill) by comparing estimated undiscountedfuture operating cash flows expected to be generated from these assets to thecarrying amounts of the assets whenever events or changes in circumstancesindicate the carrying value may not be recoverable.  If cash flows are notsufficient to recover the carrying amount of the assets, impairment hasoccurred and the assets are written down to fair value.  Significantestimates and assumptions regarding future sales, cost trends, productivity andmarket maturity are required to be made by management in order to test forimpairment under this standard.

 

During the second quarter of 2005, the Companyassessed certain non-performing restaurants for recoverability and determinedan impairment of fixed assets existed at four restaurant locations.  TheCompany estimated the fair value of these assets based on the net present valueof the expected cash flows of the four restaurants.  The carrying amountof the assets exceeded the fair value of the assets by approximately $0.9million.  The Company recorded an impairment charge during the quarter toreflect the write down of the affected assets to fair value.

 

**Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-Looking Statements**

 

All statements other than statements of historicalfacts included in this Report on Form 10-Q, including, without limitation,statements set forth under this “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” regarding the Company’s futurefinancial position, business strategy, budgets, projected costs and plans andobjectives of management for future operations, are forward-lookingstatements.  In addition, forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may,” “will,” “expect,”“intend,” “estimate,” “anticipate” or “believe” or the negative thereof orvariations thereon or similar terminology.  Although the Company believesthat the expectations reflected in such forward-looking statements will proveto have been correct, it can give no assurance that such expectations will proveto be correct.  Factors that could cause actual results to materiallydiffer include, without limitation: (a) the Company’s high degree ofleverage which could, among other things, reduce the Company’s ability toobtain financing for operations and expansion, place the Company at acompetitive disadvantage and limit the Company’s flexibility to adjust tochanging market conditions; (b) the challenges of managing geographicexpansion; (c) changes in food costs, supplies and key supplierrelationships; and (d) the possible adverse impact of governmentregulation on the Company.  Other factors that could adversely affect theCompany’s business and prospects are described in its filings with theSEC.  Investors are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof.  TheCompany undertakes no obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events.

 

The following discussion should be read inconjunction with the condensed consolidated financial statements of Bertucci’sCorporation (the “Company”), and the notes thereto included herein, as well asthe Original 2004 10-K, as amended by the 2004 Annual Report Amendment.

 

10

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**General**

 

Bertucci’s Corporation, a Delaware corporation (the “Company”),is the owner and operator of a chain of full-service casual dining, Italian-stylerestaurants under the names Bertucci’s Brick Oven Pizzeria® and Bertucci’sBrick Oven Ristorante®. As of September 28, 2005, the Companyoperated 92 restaurants located primarily in the northeastern United States.

 

In July 1998, the Company completed itsacquisition of Bertucci’s Restaurant Corp.’s parent entity, Bertucci’s, Inc.,for a purchase price, net of cash received, of approximately $89.4 million (the“Acquisition”).  The Company financed the Acquisition primarily throughthe issuance of $100 million of 10 3⁄4 % senior notes due 2008 (the “Senior Notes”). The Senior Notes are still outstanding as to $85.3 million in principal.

 

Management’s Discussion and Analysis of FinancialCondition and Results of Operations gives effect to the restatement of theConsolidated Financial Statements discussed in Note 3 of the Notes to theCondensed Consolidated Financial Statements.

 

**Results of Operations**

 

The following table sets forth the percentagerelationship to net sales, unless otherwise indicated, of certain itemsincluded in the Company’s condensed consolidated statements of operations, aswell as certain operating data, for the periods indicated:

 

**STATEMENTS OF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                           | ** ** | **September 28,**   | ** ** | **September 29,**      | ** ** | **September 28,** | ** ** | **September 29,** | ** ** |
| ** **                                                           | ** ** | **2005**                 | ** ** | **2004**                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| Net sales                                                            |       | 100.0                    | %          | 100.0                       | %          | 100.0 | % | 100.0 | % |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| Cost of sales and expenses:                                          |       |                     |       |                        |       |   |   |   |   |
| Cost of sales                                                        |       | 22.8                     | %          | 24.9                        | %          | 23.3 | % | 24.4 | % |
| Operating expenses                                                   |       | 60.5                     | %          | 59.9                        | %          | 60.4 | % | 61.6 | % |
| General and administrative expenses                                  |       | 7.5                      | %          | 5.4                         | %          | 6.9 | % | 6.1 | % |
| Asset impairment charge                                              |       | —                   |       | —                      |       | 0.6 | % | 2.6 | % |
| Depreciation, amortization, deferred rent,  and pre-opening expenses |       | 5.2                      | %          | 6.6                         | %          | 5.8 | % | 6.3 | % |
| Total cost of sales and expenses                                     |       | 96.0                     | %          | 96.8                        | %          | 97.0 | % | 101.0 | % |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| Income (loss) from operations                                        |       | 4.0                      | %          | 3.2                         | %          | 3.0 | % | (1.0 | )% |
| Interest expense, net                                                |       | (5.3                     | )%         | (5.4                        | )%         | (5.2 | )% | (5.3 | )% |
| Loss before income taxes                                             |       | (1.3                     | )%         | (2.2                        | )%         | (2.2 | )% | (6.3 | )% |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| Income taxes                                                         |       | —                   |       | —                      |       | — |   | — |   |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| Net loss                                                             |       | (1.3                     | )%         | (2.2                        | )%         | (2.2 | )% | (6.3 | )% |
|                                                                 |       |                     |       |                        |       |   |   |   |   |
| **Restaurant Operating Data:**                                       |       |                     |       |                        |       |   |   |   |   |
| Increase in comparable restaurant sales (a)                          |       | (1.3                     | )%         | 1.0                         | %          | (1.2 | )% | 2.9 | % |
| Number of restaurants:                                               |       |                     |       |                        |       |   |   |   |   |
| Restaurants open, beginning of period                                |       | 92                       |       | 90                          |       | 91 |   | 89 |   |
| Restaurants opened                                                   |       | —                   |       | 1                           |       | 1 |   | 2 |   |
| Total restaurants open, end of period                                |       | 92                       |       | 91                          |       | 92 |   | 91 |   |

 

----

(a)           The Company defines comparablerestaurant sales as net sales from restaurants that have been open for at leastone full fiscal year at the beginning of the fiscal year.

 

**Thirteen Weeks Ended September 28,2005 Compared****to Thirteen Weeks Ended September 29, 2004**

 

*Net Sales*.  Total net sales increased byapproximately $400,000, or 0.8%, to $49.7 million during the third quarter of2005 from $49.3 million during the third quarter of 2004.  The increasewas primarily due to 25.6 incremental restaurant weeks from three restaurantsopened since January 2004 offset by a 1.3% decrease in the 89 comparablerestaurants’ sales. Comparable Bertucci’s restaurant dine-in guest countsdecreased 1.6% for the third quarter of 2005 as compared to the third quarterof 2004.  Bertucci’s comparable restaurant dine-in sales decreased 2.3%and comparable carry-out and delivery sales increased 2.8% for the quarter ascompared to the third quarter of 2004.  For the 89 comparable restaurants,average weekly sales were approximately $41,700 for the third quarter of 2005compared to approximately $42,200 per week for the third quarter of 2004.

 

11

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*Cost of Sales.*  Costof sales decreased by approximately $1 million, or 8.1%, to $11.3 millionduring the third quarter of 2005 from $12.3 million during the third quarter2004.  Expressed as a percentage of net sales, overall cost of salesdecreased to 22.8% during the third quarter of 2005 from 24.9% during the thirdquarter of 2004.  Of this 2.1%decrease, approximately 0.4% is attributed to a menu mix shift generally tolower priced, lower cost items, approximately 1.3% was due to decreases incertain ingredient costs, and approximately 0.4% from improved restaurant costcontrols.

 

*Operating Expenses.*  Operating expenses increased byapproximately $600,000, or 2.0%, to $30.1 million during the third quarter of2005 from $29.5 million during the third quarter of 2004.  Expressed as apercentage of net sales, operating expenses increased to 60.5% in the thirdquarter of 2005 from 59.9% during the third quarter of 2004.  The increaseis primarily due to the timing of marketing expenditures ($1 million) andincreased utility costs ($500,000) partially offset by reduced employee benefitcosts and other insurance ($900,000).

 

*General and AdministrativeExpenses.* General and administrative expenses increased by approximately $1.0 million, or37.0%, to $3.7 million during the third quarter of 2005 from $2.7 millionduring the third quarter of 2004.  Expressed as a percentage of net sales,general and administrative expenses increased to 7.5% in the third quarter of2005 from 5.4% in the third quarter of 2004.  The dollar increase over theprior year period is primarily attributable to bonus expense accruals asyear-to-date cash flow results are currently exceeding targeted levels under theCompany’s bonus plan as well as prior year accrual reductions of $266,000.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $600,000, or 18.8%, to $2.6 million duringthe third quarter of 2005 from $3.2 million during the third quarter of2004.  The decrease is primarily due to pre-opening expenses of arestaurant opening in the third quarter of 2004 versus no opening in the thirdquarter of 2005. Expressed as a percentage of net sales, depreciation,amortization, deferred rent and pre-opening expenses decreased to 5.2% in thethird quarter of 2005 from 6.6% during the third quarter of 2004.

 

*Interest Expense, net.*  Net interest expense of $2.6 millionwas essentially flat as compared to the third quarter of 2004.

 

*Income Taxes*.  The Company has an historical trendof recurring pre-tax losses.  The Companypreviously recorded a full valuation allowance for its net deferred taxasset.  The Company also provided a fullvaluation allowance relating to the tax benefits generated since 2003(primarily from its operating losses). As of December 29, 2004, the Company had net operating losses andtax credit carry forwards totaling $7.8 million.

 

**Thirty-Nine Weeks Ended September 28,2005 Compared****to Thirty-Nine Weeks Ended September 29, 2004**

 

*Net Sales*.  Total net sales increased byapproximately $1.8 million, or 1.2%, to $152.2 million during the first threequarters of 2005 from $150.4 million during the first three quarters of2004.  The increase was primarily due to 83.6 incremental restaurant weeksfrom three restaurants opened since January 2004 offset by a 1.2% decreasein the 89 comparable restaurants’ sales. Comparable Bertucci’s restaurantdine-in guest counts decreased 1.2% for the first three quarters of 2005 ascompared to the first three quarters of 2004.  Bertucci’s comparablerestaurant dine-in sales decreased 1.9% and comparable carry-out and deliverysales increased 1.7% for the first three quarters of 2005 as compared to thefirst three quarters of 2004. For the 89 comparable restaurants, averageweekly sales were approximately $42,600 for the first three quarters of 2005compared to approximately $43,000 per week for the first three quarters of2004.

 

*Cost of Sales.*  Costof sales decreased by approximately $1.2 million, or 3.3%, to $35.5 millionduring the first three quarters of 2005 from $36.7 million during the firstthree quarters 2004.  Expressed as a percentage of net sales, overall costof sales decreased to 23.3% during the first three quarters of 2005 from 24.4%during the first three quarters of 2004.  Of this 1.1% decrease, approximately 0.3% is attributed to a menu mixshift generally to lower priced, lower cost items, approximately 0.5% was dueto decreases in certain ingredient costs, and approximately 0.3% from improvedrestaurant cost controls.

 

*Operating Expenses.*  Operating expenses decreased by$700,000, or 0.8%, to $91.9 million during the first three quarters of 2005from $92.6 million during the first three quarters of 2004.  Expressed asa percentage of net sales, operating expenses decreased to 60.4% in the firstthree quarters of 2005 from 61.6% during the first three quarters of2004.  The dollar decrease was primarily due to lower marketingexpenditures ($1.8 million less than the prior year), partially offset byincreased utility costs and the operation of three non-comparable restaurants.The Company expects marketing expenditures for all of 2005 will be approximately$1.0 million less than in 2004.

 

12

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*General and AdministrativeExpenses.* General and administrative expenses increased by approximately $1.3 million, or14.1%, to $10.5 million during the first three quarters of 2005 from $9.2million during the first three quarters of 2004.  Expressed as apercentage of net sales, general and administrative expenses increased to 6.9%in the first three quarters of 2005 from 6.1% in the first three quarters of2004. The dollar increase over the prior year period is primarily attributableto: (a) bonus expense accruals as year-to-date cash flow results arecurrently exceeding targeted levels under the Company’s bonus plan while theprior year did not ($1.2 million); and (b) stock compensation expenserelating to the award of 37,500 shares of common stock to key members ofmanagement and independent members of the Board of Directors (approximately$262,000 including associated payroll taxes).

 

*Asset Impairment Charge*. During the second quarter of2005, the Company assessed certain non-performing restaurants forrecoverability and determined an impairment of fixed assets existed at fourrestaurant locations.  The Company estimated the fair value of theseassets based on the net present value of the expected cash flows of the fourrestaurants.  The carrying amount of the assets exceeded the fair value ofthe assets by approximately $0.9 million.  The Company recorded animpairment charge during the quarter to reflect the write down of the affectedassets to fair value.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $700,000, or 7.4%, to $8.8 million duringthe first three quarters of 2005 from $9.5 million during the first threequarters of 2004.  The decrease is primarily due to reduced deferred rentas the majority of restaurant leases are past the half-way point of theirprimary terms and includable renewal periods. Additionally, pre-openingexpenses were $280,000 less than in 2004 due to one restaurant opening in 2005versus three in 2004. Expressed as a percentage of net sales, depreciation,amortization, deferred rent and pre-opening expenses decreased to 5.8% in thefirst three quarters of 2005 from 6.3% during the first three quarters of 2004.

 

*Interest Expense, net.*  Net interest expense decreased byapproximately $100,000, or 1.3%, to $7.9 million during the first threequarters of 2005 from $8.0 million during the first three quarters of 2004.

 

*Income Taxes*.  The Company has an historical trendof recurring pre-tax losses.  The Companypreviously recorded a full valuation allowance for its net deferred taxasset.  The Company also provided a fullvaluation allowance relating to the tax benefits generated since 2003(primarily from its operating losses). As of December 29, 2004, the Company had net operating losses andtax credit carry forwards totaling $7.8 million.

 

**Liquidity and Capital Resources**

 

The Company has historically met its capitalexpenditures and working capital needs through a combination of operating cashflow and bank and mortgage borrowings, the sale of the Senior Notes, the saleof Common Stock, and, in fiscal 2003, two sale leaseback transactions. Futurecapital and working capital needs are expected to be funded from net cash flowsprovided by operating cash flow and cash on hand.

 

Net cash flows provided by operating activities wereapproximately $4.2 million for the first three quarters of 2005, approximately$3.2 million more than the approximate $1.0 million provided during the firstthree quarters of 2004.  As of September 28, 2005, the Company hadcash and cash equivalents of $13.8 million.

 

The Company’s capital additions were approximately$3.3 million during the first three quarters of 2005 compared to approximately$6.4 million for the comparable prior year period.  The capitalexpenditures were primarily comprised of $419,000 for a new restaurant whichopened in the first quarter of 2005 and $2.9 million for remodeling andmaintenance capital.  The Company anticipates capital expenditures for theremainder of 2005 will be approximately $1.7 million.

 

As of September 28, 2005, the Company had $92.2million in consolidated indebtedness, $85.3 million pursuant to the SeniorNotes, $6.1 million of capital lease obligations, and $0.8 million ofpromissory notes.  The Senior Notes contain no financial covenants and theCompany, as of the filing of this report on Form 10-Q, is in compliancewith all non-financial covenants related to the Senior Notes.  The Senior Notes bear interest at the rate of10 3⁄4% per annum, payable semi-annually on January 15 and July 15.  The Senior Notes are due in full on July 15,2008.

 

Through July 15, 2006, the Company may, at itsoption, redeem any or all of the Senior Notes at face value, plus a decliningpremium, which is 1.79% through July 15, 2006.  After July 15, 2006, the Senior Notesmay be redeemed at face value. Additionally, under certain circumstances,including a change of control or following certain asset sales, the holders ofthe Senior Notes may require the Company to repurchase the Senior Notes, at aredemption price of 101% of face value.

 

13

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The Company is operating without a line of creditand is funding all of its capital expenditures, debt reductions and operatingneeds out of cash flows from operations and cash on hand.

 

The Company has a $4.0 million (maximum) letter ofcredit facility (which was renewed in December 2005) as collateral withthird party administrators for self insurance reserves.  As of September 28,2005 and the filing of this report on Form 10-Q, this facility wascollateralized with $2.2 million of cash restricted from general use. Letters of credit totaling $2.2 million were outstanding on September 28,2005 and as of the filing of this report on Form 10-Q.

 

The Company believes the cash flow generated fromits operations and cash on hand should be sufficient to fund its debt servicerequirements, lease obligations, expected capital expenditures and otheroperating expenses for the next twelve months. Until the 2008 maturity of itsSenior Notes, the Company expects to be able to service its debt, but the lackof short term borrowing availability may impede growth. The Company isevaluating various refinancing alternatives for its Senior Notes prior to theirmaturity in 2008.

 

The Company’s future operatingperformance and ability to service or refinance the Senior Notes will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond the Company’s control.  Significantliquidity demands will arise from debt service on the Senior Notes.

 

There have been no material changes tothe Company’s contractual obligations and commitments from those disclosed inthe Original 2004 10-K.

 

**Impact of Inflation**

 

Inflationary factors such as increases in labor,food or other operating costs could adversely affect the Company’soperations.  The Company does not believe inflation has had a materialimpact on its financial position or results of operations for the periodsdiscussed above.  Management believes through the proper leveraging ofpurchasing size, labor scheduling, and restaurant development analysis,inflation will not have a material adverse effect on operations during theforeseeable future.  There can be no assurance inflation will notmaterially adversely affect the Company.

 

**Seasonality**

 

The Company’s quarterly results of operations havefluctuated and are expected to continue to fluctuate depending on a variety offactors, including the timing of new restaurant openings and relatedpre-opening and other startup expenses, net sales contributed by newrestaurants, increases or decreases in comparable restaurant sales, competitionand overall economic conditions.  The Company’s business is also subjectto seasonal influences of consumer spending, dining out patterns andweather.  As is the case with many restaurant companies, the Companytypically experiences lower net sales and net income during the first andfourth quarters.  Because of these fluctuations in net sales and net loss,the results of operations of any quarter are not necessarily indicative of theresults that may be achieved for a full year or any future quarter.

 

**Critical Accounting Policies andEstimates**

 

The discussion and analysis of theCompany’s financial condition and results of operations are based upon itsconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financial statementsrequires the Company to make estimates and judgments affecting the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities.  Onan on-going basis, estimates are evaluated, including those related to theimpairment of long-lived assets, self-insurance, and closed restaurantreserves. Estimates are based on historical experience and on various otherassumptions believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities not readily apparent from other sources. Actual results maydiffer from these estimates under different assumptions or conditions. For adiscussion of how these and other factors may affect the Company’s business,see the “Forward-Looking Statements” above and other factors included in theCompany’s other filings with the SEC.

 

TheCompany’s critical accounting policies affect the more significant judgmentsand estimates used in the preparation of the Company’s consolidated financialstatements.  The Company believes its critical accounting policies relateto the impairment of long-lived assets, income tax valuation allowances,self-insurance and closed restaurant reserves. For a more detailed discussionof the Company’s critical accounting policies and estimates, please refer to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Critical Accounting Policies and Estimates” contained in the 2004 Annual ReportAmendment.  There

 

14

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havebeen no material changes to the Company’s critical accounting policies andestimates from those disclosed in the 2004 Annual Report Amendment.

 

**Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSUREABOUT MARKET RISK**

 

The Company has no exposure to specificrisks related to derivatives or other “hedging” types of financialinstruments.  In addition, the Companydoes not have operations outside of the United States of America which exposeit to foreign currency risk and substantially all of the Company’s outstandingdebt has fixed interest rates.

 

**Item 4. CONTROLS AND PROCEDURES**

 

*DisclosureControls and Procedures*.  The Company maintains disclosure controls and proceduresdesigned to ensure that information required to be disclosed in the Company’sreports under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the SEC, and that such information isaccumulated and communicated to management, including the Company’s ChiefExecutive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), asappropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized that controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, as the Company’s are designed to do,and management necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

In connection with thepreparation of the Company’s Quarterly Report on Form 10-Q for the fiscalquarter ended September 28, 2005, the Company performed an evaluationunder the supervision and with the participation of the Company’s management,including the CEO and CFO, of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act).  In performing thisevaluation, management became aware of errors in its detailed property andequipment records.  These errors involvedthe calculation of depreciation expense on multiple property records and therelated impact on income taxes during the Relevant Period.

 

Subsequent to the discoveryof these errors, management conducted an investigation concerningthe extent and magnitude of theseerrors.  As a result of this inquiry, on January 12,2006 the Audit Committee and management concluded that: (1) the Company’sdepreciation and income tax expense accounting practices were not appropriateas of September 28, 2005; (2) aggregate additional depreciationexpense of approximately $3.5 million needed to be recorded in its financialstatements for the Relevant Period, and income tax expense was notproperly adjusted in the InitialRestatement, and therefore, its financial statements relating to the RelevantPeriod were required to be restated; and (3) the Company needed to amendthe Subject Filings and restate the financial statements contained therein andreflect the proper recording of depreciation and income tax expense for theperiods reported therein (collectively, the “Subject Financial Statements”).  See Note 3 of Notes to Condensed ConsolidatedFinancial Statements.  Based on thedetermination the Company’s depreciation and income tax expense accountingpractices were not appropriate as of September 28, 2005, the Company’s CEOand CFO concluded that the Company’s disclosure controls and procedures werenot effective as of that date.

 

*InternalControl Over Financial Reporting*.  Based on the definition of “material weakness” in the PublicCompany Accounting Oversight Board’s Auditing Standard No. 2, (*An Audit of Internal Control Over Financial ReportingPerformed in Conjunction With an Audit of Financial Statements*),restatement of the Subject Financial Statements is a strong indicator of theexistence of a “material weakness” in the design or operation of internalcontrol over financial reporting.  Basedon the evaluation of the Company’s controls and procedures, managementconcluded a material weakness existed in the Company’s internal control overfinancial reporting as it related to its depreciation expense accountingpractices, and disclosed this to the Audit Committee and to the Company’sindependent registered public accountants.

 

*RemediationSteps to Address Material Weakness*.  To remediate the material weakness in the Company’s internalcontrol over financial reporting, the Company has re-performed all of the necessarycalculations and added sufficient review and approval procedures to assuremanagement the material weakness has been corrected.

 

*Change inInternal Control Over Financial Reporting*. There were no significant changes in the Company’s internal control overfinancial reporting that occurred during the Company’s third fiscal quarter of2005 that materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.  The Company did, however, make changes to itsinternal control over financial reporting in the first fiscal quarter of 2006,by making the changes to its depreciation and income tax expense accountingpractices set forth above.

 

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PART II:OTHER INFORMATION

 

Item1.  LEGAL PROCEEDINGS

 

The Company is involved in various legal proceedingsfrom time to time incidental to the conduct of its business.  In the opinion of management, any ultimateliability arising out of such proceedings will not have a material adverseeffect on the financial condition or results of operations of the Company.

 

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

 

During the third quarter of 2005, the Company issued5,250 shares of Common Stock to anofficer and a senior employee as a bonus. The Company recorded a compensation charge of $25,905 in connection withthe grant of these shares.  Each granteeacknowledged in writing the transfer of their shares is subject to theprovisions of a Stockholders’ Agreement, which is summarized in “SecurityOwnership of Certain Beneficial Owners and Management - Shareholders Agreement”in the Original 2004 10-K (“Stockholders’ Agreement”).  If the grants of such shares arecharacterized as sales under Section 5 of the Securities Act of 1933, asamended (the “Act”), then the Company believes the grants were exempt fromregistration under the Act pursuant to the exemption provided by Section 4(2) ofthe Act.  No commissions were paid to anyunderwriter in connection with the issuance of these shares.

 

The grants were issued asfollows:

 

On July 21, 2005, the Companyissued 3,000 shares of Common Stock to an officer.

 

On August 18, 2005, the Companyissued 2,250 shares of Common Stock to a senior employee.

 

In addition, on September 27,2005 the Company sold 30,000 shares of Common Stock to each of Stephen V.Clark, a director and Chief Executive Officer of the Company, and David G.Lloyd, a director and President of the Company, for a purchase price of $6.66per share. The price per share was the Company’s estimate of fair value at thetime of the sale, and was approved by the Company’s Board of Directors.  Each of Messrs. Clark and Lloyd acknowledgedin writing the transfer of their shares is subject to the provisions of theStockholders’ Agreement.  These saleswere exempt from registration under the Act pursuant to the exemption providedby Section 4(2) of the Act.  Nocommissions were paid to any underwriter in connection with the sale of theseshares.

 

Item 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

Item5.  OTHER INFORMATION

 

None

 

Item 6. EXHIBITS

 
| **Exhibits** | ** ** | ** ** | ** **                                                                                                                                                        |
|--------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |       |                                                                                                                                                              |
|         | 31.1       |       | Certification of Stephen V. Clark pursuant to Item  601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (*). |
|         |       |       |                                                                                                                                                              |
|         | 31.2       |       | Certification of David G. Lloyd pursuant to Item  601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (*).   |
|         |       |       |                                                                                                                                                              |

 

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|   | (*) | — | Included with this report. |
|--------|-----|--------|----------------------------|

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                        | BERTUCCI’S CORPORATION |
|-----------------------------|-----------------------------|
|                        | (Registrant)                |
|                        |                        |   |
| Date: January 19, 2006 | By:                         | /s/ Stephen V. Clark |   |
|                        |                        | Chief Executive Officer and Director |
|                        |                        |   |
|                        |                        |   |
| Date: January 19, 2006 | By:                         | /s/ David G. Lloyd |   |
|                        |                        | Chief Financial Officer and Director |

 

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