**SECURITIES AND EXCHANGECOMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q/A**

**(Amendment No. 1)**

 

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

 

**For the Quarterly Period Ended June 29, 2005**

 

**Commission File Number  333-62775**

 

**BERTUCCI’S CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                      | ** ** | **06-1311266**         |
|---------------------------------------------------|------------|------------------------|
| (State or other jurisdiction of                   |       | (I.R.S. Employer       |
| incorporation or organization)                    |       | 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 whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to the filing requirements for the past 90 days.

 

Yes   o   No   ý

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).

 

Yes   o   No   ý

 

2,950,732 shares of theregistrant’s Common Stock were outstanding on August 11, 2005.

 

 

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**EXPLANATORY NOTE**

 

This Quarterly Report on Form10-Q/A (this “Form 10-Q/A”) is being filed to amend Part I, Items 1, 2 and 4and Part II, Item 6 of the Company’s Quarterly Report on Form 10-Q for thefiscal quarter ended June 29, 2005, which was originally filed with theSecurities and Exchange Commission (the “SEC”) on August 12, 2005 (the “Original2005 Second Quarter 10-Q”).

 

In connectionwith the preparation of the Company’s Quarterly Report on Form 10-Q for thefiscal quarter ended September 28, 2005, the Company discovered errors in itsdetailed property and equipment records. Management then conducted an investigation into the extent and magnitudeof these errors, which involved the calculation of depreciation expense onmultiple property records and the related impact on income taxes for the fiscalyears 1998 through 2004, inclusive, and the first two fiscal quarters of 2005(the “Relevant Period”), to determine if a restatement of its financial statementswas necessary. Based upon this investigation, in January 2006 the Companydetermined additional aggregate depreciation expense of approximately $3.5million was required for the Relevant Period and income tax expense was notproperly adjusted in the Initial Restatement. As a result, theCompany further determined a restatement of its financial statements, includingthose contained in its: (1) Annual Report on Form 10-K for the fiscal yearended December 29, 2004, which was originally filed with the SEC on April 13,2005 (the “Original 2004 10-K”); (2) Quarterly Report on Form 10-Q for thefiscal quarter ended March 30, 2005, which was originally filed with the SEC onMay 13, 2005 (the “Original 2005 First Quarter 10-Q”) and together with the Original 2004 10-K and theOriginal 2005 Second Quarter 10-Q, (the “Subject Filings”); and (3) Original 2005 Second Quarter 10-Q,was necessary.  Accordingly, the Companydetermined it should amend the Subject Filings to reflect the proper recordingof depreciation and income tax expense and its impact on the consolidatedBalance Sheets, Statements of Operations, Stockholders’ Deficit, and Cash Flowsfor the periods reported therein.

 

2

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**BERTUCCI’SCORPORATION**

**FORM 10-Q/A**

**TABLE OFCONTENTS**

 
| PART I:  | FINANCIAL  INFORMATION                                                                                                                                                   |   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                     |   |
| Item  1.      | Financial  Statements:                                                                                                                                                   |   |
|          |                                                                                                                                                                     |   |
| 1)            | Condensed  Consolidated Balance Sheets as of June 29, 2005 (As Restated) (Unaudited)  and December 29, 2004 (Unaudited)                                        |   |
|          |                                                                                                                                                                     |   |
| 2)            | Condensed  Consolidated Statements of Operations For the 13 and 26 Weeks Ended June 29,  2005 (As Restated) (Unaudited) and June 30, 2004 (as Restated) (Unaudited) |   |
|          |                                                                                                                                                                     |   |
| 3)            | Condensed  Consolidated Statements of Cash Flow for the 26 Weeks Ended June 29, 2005 (As  Restated) (Unaudited) and June 30, 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  4.      | Controls  and Procedures                                                                                                                                                 |   |
|          |                                                                                                                                                                     |   |
| PART II: | OTHER  INFORMATION                                                                                                                                                       |   |
| Item 6.       | Exhibits                                                                                                                                                                 |   |
|          |                                                                                                                                                                     |   |
| SIGNATURES    |                                                                                                                                                                     |
|          |                                                                                                                                                                     |   |
| EXHIBITS      |                                                                                                                                                                     |

 

3

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Inthousands, except share data)

(Unaudited)

 
| ** **                                                                                                                                      | ** ** | **June 29,**                    | ** ** | **December 29,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                                                                                                      | ** ** | **2005**                        | ** ** | **2004**         | ** ** |
| ** **                                                                                                                                      | ** ** | **(As Restated -  See note 3)** | ** ** | ** **       | ** ** |
| ASSETS                                                                                                                                          |       |                            |       |             |       |
| Current  Assets:                                                                                                                                |       |                            |       |             |       |
| Cash and cash equivalents                                                                                                                       |       | $                               | 14,520     |             | $          | 12,291 |   |
| Restricted cash                                                                                                                                 |       | 2,189                           |       | 2,403            |       |
| Accounts receivable                                                                                                                             |       | 1,100                           |       | 1,334            |       |
| Inventories                                                                                                                                     |       | 1,465                           |       | 1,388            |       |
| Prepaid expenses and other current assets                                                                                                       |       | 472                             |       | 534              |       |
| Total current assets                                                                                                                            |       | 19,746                          |       | 17,950           |       |
|                                                                                                                                            |       |                            |       |             |       |
| Property and  Equipment, at cost:                                                                                                               |       |                            |       |             |       |
| Land                                                                                                                                            |       | 259                             |       | 259              |       |
| Buildings                                                                                                                                       |       | 697                             |       | 697              |       |
| Capital leases - land and buildings                                                                                                             |       | 5,764                           |       | 5,764            |       |
| Leasehold improvements                                                                                                                          |       | 67,946                          |       | 66,632           |       |
| Furniture and equipment                                                                                                                         |       | 45,713                          |       | 44,537           |       |
|                                                                                                                                            |       | 120,379                         |       | 117,889          |       |
| Less - accumulated depreciation and  amortization                                                                                               |       | (63,094                         | )          | (57,101          | )          |
|                                                                                                                                            |       | 57,285                          |       | 60,788           |       |
| Construction work in process                                                                                                                    |       | —                          |       | 1,567            |       |
| Net property and equipment                                                                                                                      |       | 57,285                          |       | 62,355           |       |
|                                                                                                                                            |       |                            |       |             |       |
| Goodwill                                                                                                                                        |       | 26,127                          |       | 26,127           |       |
| Deferred  finance costs, net                                                                                                                    |       | 2,514                           |       | 2,862            |       |
| Liquor  licenses, net                                                                                                                           |       | 2,386                           |       | 2,414            |       |
| Other assets                                                                                                                                    |       | 572                             |       | 513              |       |
| TOTAL ASSETS                                                                                                                                    |       | $                               | 108,630    |             | $          | 112,221 |   |
|                                                                                                                                            |       |                            |       |             |       |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                      |       |                            |       |             |       |
|                                                                                                                                            |       |                            |       |             |       |
| Current  Liabilities:                                                                                                                           |       |                            |       |             |       |
| Promissory notes - current portion                                                                                                              |       | $                               | 41         |             | $          | 40 |   |
| Capital lease obligations - current portion                                                                                                     |       | 83                              |       | 74               |       |
| Accounts payable                                                                                                                                |       | 7,344                           |       | 7,819            |       |
| Accrued expenses                                                                                                                                |       | 15,723                          |       | 16,457           |       |
| Total current liabilities                                                                                                                       |       | 23,191                          |       | 24,390           |       |
|                                                                                                                                            |       |                            |       |             |       |
| Promissory  notes, net of current portion                                                                                                       |       | 761                             |       | 781              |       |
| Capital  lease obligations, net of current portion                                                                                              |       | 6,051                           |       | 6,102            |       |
| Senior Notes                                                                                                                                    |       | 85,310                          |       | 85,310           |       |
| Deferred  gain on sale leaseback transaction                                                                                                    |       | 1,947                           |       | 2,002            |       |
| Other  long-term liabilities                                                                                                                    |       | 8,583                           |       | 8,368            |       |
| Total liabilities                                                                                                                               |       | 125,843                         |       | 126,953          |       |
| Commitments  and Contingencies                                                                                                                  |       |                            |       |             |       |
| Stockholders’  Deficit:                                                                                                                    |       |                            |       |             |       |
| Common stock, $.01 par value                                                                                                                    |       |                            |       |             |       |
| Authorized - 8,000,000 shares Issued -  3,699,745 and 3,667,495 shares, respectively; Outstanding 2,947,732 and  2,915,482 shares, respectively |       | 37                              |       | 37               |       |
| Less treasury shares, 752,013 at cost                                                                                                           |       | (8,480                          | )          | (8,480           | )          |
| Additional paid-in capital                                                                                                                      |       | 29,192                          |       | 29,046           |       |
| Accumulated deficit                                                                                                                             |       | (37,962                         | )          | (35,335          | )          |
| Total stockholders’ deficit                                                                                                                |       | (17,213                         | )          | (14,732          | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                |       | $                               | 108,630    |             | $          | 112,221 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements.

 

4

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except shareand per share data)

(Unaudited)

 
| ** **                                                          | ** ** | **Thirteen weeks ended**        | ** ** | **Twenty-six weeks ended**      | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                          | ** ** | **June 29,**                    | ** ** | **June 30,**                    | ** ** | **June 29,** | ** ** | **June 30,** | ** ** |
| ** **                                                          | ** ** | **2005**                        | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | **(As Restated - See  Note 3)** | ** ** | **(As Restated - See  Note 3)** | ** ** | **(As Restated - See  Note 3)** | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Net sales                                                           |       | $                               | 52,580     |                            | $          | 51,754 |   | $ | 102,532 |   | $ | 101,180 |   |
|                                                                |       |                            |       |                            |       |   |   |   |   |
| Cost of  sales and expenses:                                        |       |                            |       |                            |       |   |   |   |   |
| Cost of sales                                                       |       | 12,322                          |       | 12,883                          |       | 24,182 |   | 24,439 |   |
| Operating expenses                                                  |       | 31,391                          |       | 33,469                          |       | 61,845 |   | 63,096 |   |
| General and administrative expenses                                 |       | 3,283                           |       | 3,478                           |       | 6,782 |   | 6,571 |   |
| Asset impairment charge                                             |       | 907                             |       | 3,894                           |       | 907 |   | 3,894 |   |
| Depreciation, amortization, deferred rent  and pre-opening expenses |       | 3,029                           |       | 3,108                           |       | 6,172 |   | 6,274 |   |
| Total cost of sales and expenses                                    |       | 50,932                          |       | 56,832                          |       | 99,888 |   | 104,274 |   |
| Income (loss) from operations                                       |       | 1,648                           |       | (5,078                          | )          | 2,644 |   | (3,094 | ) |
| Interest  expense, net                                              |       | (2,621                          | )          | (2,661                          | )          | (5,271 | ) | (5,299 | ) |
| Loss before  income taxes                                           |       | (973                            | )          | (7,739                          | )          | (2,627 | ) | (8,393 | ) |
|                                                                |       |                            |       |                            |       |   |   |   |   |
| Income taxes                                                        |       | —                          |       | —                          |       | — |   | — |   |
|                                                                |       |                            |       |                            |       |   |   |   |   |
| Net loss                                                            |       | $                               | (973       | )                               | $          | (7,739 | ) | $ | (2,627 | ) | $ | (8,393 | ) |
|                                                                |       |                            |       |                            |       |   |   |   |   |
| Basic and diluted loss per share                                    |       | $                               | (0.33      | )                               | $          | (2.63 | ) | $ | (0.89 | ) | $ | (2.84 | ) |
|                                                                |       |                            |       |                            |       |   |   |   |   |
| Weighted-average shares outstanding - basic  and diluted            |       | 2,947,691                       |       | 2,945,040                       |       | 2,936,626 |   | 2,951,738 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

5

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

(Inthousands)

(Unaudited)

 
| ** **                                                                       | ** ** | **Twenty-six Weeks Ended**      | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                       | ** ** | **June 29, 2005**               | ** ** | **June 30, 2004** | ** ** |
| ** **                                                                       | ** ** | **(As Restated - See  Note 3)** | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Cash flows  from operating activities                                            |       |                            |       |   |   |
| Net loss                                                                         |       | $                               | (2,627     | ) | $ | (8,393 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                            |       |   |   |
| Depreciation, amortization and deferred  rent                                    |       | 6,335                           |       | 6,389 |   |
| Asset impairment charge                                                          |       | 907                             |       | 3,894 |   |
| Stock compensation expense                                                       |       | 146                             |       | — |   |
| Changes in operating assets and liabilities                                      |       |                            |       |   |   |
| Inventories                                                                      |       | (77                             | )          | (156 | ) |
| Prepaid expenses, receivables and other                                          |       | 546                             |       | (31 | ) |
| Other accrued expenses                                                           |       | (728                            | )          | (549 | ) |
| Accounts payable                                                                 |       | (475                            | )          | 600 |   |
| Tenant allowance received                                                        |       | —                          |       | 356 |   |
| Other operating assets and liabilities                                           |       | (59                             | )          | (11 | ) |
| Total adjustments                                                                |       | 6,595                           |       | 10,492 |   |
| Net cash  provided by operating activities                                       |       | 3,968                           |       | 2,099 |   |
|                                                                             |       |                            |       |   |   |
| Cash flows  from investing activities                                            |       |                            |       |   |   |
| Additions to property and equipment                                              |       | (1,892                          | )          | (3,786 | ) |
| Decrease in restricted cash                                                      |       | 214                             |       | — |   |
| Net cash used  in investing activities                                           |       | (1,678                          | )          | (3,786 | ) |
|                                                                             |       |                            |       |   |   |
| Cash flows  from financing activities                                            |       |                            |       |   |   |
| Purchase of treasury shares                                                      |       | —                          |       | (133 | ) |
| Sale of common stock from exercise of  options                                   |       | —                          |       | 10 |   |
| Payment on promissory note                                                       |       | (19                             | )          | (19 | ) |
| Principal payments under capital lease  obligations                              |       | (42                             | )          | (20 | ) |
|                                                                             |       |                            |       |   |   |
| Net cash  used in financing activities                                           |       | (61                             | )          | (162 | ) |
|                                                                             |       |                            |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                            |       | 2,229                           |       | (1,849 | ) |
| Cash and cash equivalents, beginning of  year                                    |       | 12,291                          |       | 12,647 |   |
| Cash and cash equivalents, end of period                                         |       | $                               | 14,520     |   | $ | 10,798 |   |
|                                                                             |       |                            |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                               |       |                            |       |   |   |
| Cash paid for interest                                                           |       | $                               | 5,052      |   | $ | 5,042 |   |
| Cash paid for income taxes                                                       |       | $                               | 84         |   | $ | 354 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

6

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**BERTUCCI’SCORPORATION**

**Notes To Condensed Consolidated Financial Statements**

June 29, 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 consolidated financialstatements 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 SEC onJanuary 19, 2006 (the “2004 Annual Report Amendment”).  The operatingresults for the twenty-six weeks ended June 29, 2005 may not be indicative ofthe results expected for any succeeding interim period or for the entire yearending 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, theEmerging Issues Task Force of the Financial Accounting Standards Board (“FASB”)reached a consensus on Issue No. 05-6, *Determining theAmortization Period for Leasehold Improvements* (“EITF 05-6”).  The guidance requires that leaseholdimprovements acquired in a business combination or purchased subsequent to theinception of a lease be amortized over the lesser of the useful life of theassets or a term that includes renewals that are reasonably assured at the dateof the business combination or purchase. The guidance is effective for periods beginning after June 29,2005.  The adoption of EITF 05-6 is notexpected to have a material effect on the Company’s consolidated financialposition or results of operations.

 

In May 2005, the FASBissued Statement of Financial Accounting Standards (“SFAS”) No. 154, *Accounting Changes and Error Corrections–A Replacement of APB OpinionNo. 20 and FASB Statement No. 3.*  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. 154 requiresthat a change in depreciation, amortization, or depletion method forlong-lived, non-financial assets be accounted for as a change of estimate affectedby a change in accounting principle. SFAS No. 154 also carries forward without change the guidance in AccountingPrincipals Board (“APB”) Opinion No. 20 with respect to accounting forchanges in accounting estimates, changes in the reporting unit and correctionof an error in previously issued financial statements.  The Company is required to adopt SFASNo. 154 for accounting changes and corrections of errors made in fiscalyears beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a materialeffect on the Company’s consolidated financial position or results of operations.

 

In December 2004, theFASB issued SFAS No. 123R, *Share-Based Payment*(“SFAS No. 123R”).  This Statementis a revision of SFAS No. 123, *Accounting for Stock-BasedCompensation*, and supersedes APB Opinion No. 25, *Accounting for Stock Issued to Employees*, and its relatedimplementation guidance.   SFASNo. 123R focuses primarily on accounting for transactions in which anentity obtains employee services in share-based payment transactions.  The Statement requires entities to recognizestock compensation expense for awards of equity instruments to employees basedon the grant-date fair value of those awards (with limited exceptions).  SFAS No. 123R is effective for the firstannual reporting period that begins after December 15, 2005.  The Company is evaluating the two methods ofadoption allowed by SFAS No. 123R; the modified-prospective transitionmethod and the modified-retrospective transition method.

 

7

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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 andcertain financial information to correct errors in lease accounting policies(the “Initial Restatement”). The Company had historically accounted for tenantimprovement allowances as reductions to the related leasehold improvement asseton the consolidated balance sheets and capital expenditures in investingactivities 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.

 

Followingthis review of its lease accounting treatment and relevant accountingliterature, the Company determined it should: (a) report tenant improvement allowances as deferred liabilities inthe consolidated balance sheets and initiate the amortization of thoseliabilities at the relevant initial occupancy date;  (b) classify the change in the deferredliability related to the tenant allowances in the operating activities on theCondensed Consolidated Statements of Cash Flows; (c) conform thedepreciable lives for buildings on leased land and other leasehold improvementsto the shorter of the economic life of the asset or the lease term used fordetermining the capital versus operating lease classification and calculatingstraight-line rent; and (d) include option periods in the depreciablelives assigned to leased buildings and leasehold improvements and in thecalculation of straight-line rent expense only in instances in the which theexercise of the option period can be reasonably assured and failure to exercisesuch options would result in an economic penalty.

 

The restatement for leaseholdsalso resulted in restatements of amounts previously reported for assetimpairments.

 

The Initial Restatement did nothave any impact on the Company’s previously reported net sales or compliancewith any covenant under its debt instruments.

 

Current Restatement

 

In connectionwith the preparation of the Company’s Quarterly Report on Form 10-Q for thefiscal quarter ended September 28, 2005, the Company discovered errors in itsdetailed property and equipment records adjusted during the InitialRestatement.  Management then conductedan investigation into the extent and magnitude of these errors, which involvedthe calculation of depreciation expense on multiple property records and therelated impact on income taxes for the Relevant Period, to determine if arestatement of its financial statements was necessary.  Based upon this investigation, in January2006 the 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.  As a result, the Company further determined arestatement of its financial statements, including those contained in theSubject Filings, was necessary (the “Current Restatement”). Accordingly, theCompany determined it should amend the Subject Filings to reflect the properrecording of depreciation and income tax expense and its impact on the consolidatedBalance Sheets, Statements of Operations, Stockholders’ Deficit, and Cash Flowsfor the periods reported therein.

 

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

 

8

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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 thirteen andtwenty-six weeks ended June 29, 2005 and June 30, 2004 (in thousands, exceptper share data):

 

**For theperiods ended June 29, 2005**

 
| ** **                                                          | ** ** | **Thirteen Weeks Ended**    | ** ** | **Twenty-six Weeks Ended** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                          | ** ** | **As Previously  Reported** | ** ** | **As Restated**            | ** ** | **As Previously  Reported** | ** ** | **As Restated** | ** ** |
| Deferred rent, depreciation, amortization  and pre-opening expenses |       | $                           | 3,108      |                       | $          | 3,029 |   | $ | 6,334 |   | $ | 6,172 |   |
| Income from operations                                              |       | 1,569                       |       | 1,648                      |       | 2,482 |   | 2,644 |   |
| Net loss                                                            |       | (1,052                      | )          | (973                       | )          | (2,789 | ) | (2,627 | ) |
|                                                                |       |                        |       |                       |       |   |   |   |   |
| Basic and diluted loss per share                                    |       | $                           | (0.36      | )                          | $          | (0.33 | ) | $ | (0.95 | ) | $ | (0.89 | ) |

 

**For the periods ended June 30, 2004**

 
| ** **                                                          | ** ** | **Thirteen Weeks Ended**    | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **As Previously  Reported** | ** ** | **As Originally  Restated (*)** | ** ** | **As Restated** | ** ** |
| Operating  expenses                                                 |       | $                           | 33,480     |   | $ | 33,469 |   | $ | 33,469 |   |
| Deferred  rent, depreciation, amortization and pre-opening expenses |       | 3,112                       |       | 3,261 |   | 3,108 |   |
| Asset  impairment charge                                            |       | 3,338                       |       | 3,894 |   | 3,894 |   |
| Loss from  operations                                               |       | (4,537                      | )          | (5,231 | ) | (5,078 | ) |
| Interest  expense, net                                              |       | (2,652                      | )          | (2,661 | ) | (2,661 | ) |
| Net loss                                                            |       | (7,189                      | )          | (7,892 | ) | (7,739 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Basic and  diluted loss per share                                   |       | $                           | (2.44      | ) | $ | (2.68 | ) | $ | (2.63 | ) |
|                                                                     |            |                             |            |  |  |  |  |  |  |  |  |

 

**For the periods ended June 30, 2004**

 
| ** **                                                          | ** ** | **Twenty-six Weeks Ended**  | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **As Previously  Reported** | ** ** | **As Originally  Restated (*)** | ** ** | **As Restated** | ** ** |
| Operating  expenses                                                 |       | $                           | 63,119     |   | $ | 63,096 |   | $ | 63,096 |   |
| Deferred  rent, depreciation, amortization and pre-opening expenses |       | 6,345                       |       | 6,570 |   | 6,274 |   |
| Asset  impairment charge                                            |       | 3,338                       |       | 3,894 |   | 3,894 |   |
| Loss from  operations                                               |       | (2,632                      | )          | (3,390 | ) | (3,094 | ) |
| Interest  expense, net                                              |       | (5,280                      | )          | (5,299 | ) | (5,299 | ) |
| Net loss                                                            |       | (7,912                      | )          | (8,689 | ) | (8,393 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Basic and  diluted loss per share                                   |       | $                           | (2.68      | ) | $ | (2.94 | ) | $ | (2.84 | ) |
|                                                                |       |                        |       |   |   |   |   |
| Cash flows  from operating activities                               |       | $                           | 1,738      |   | $ | 2,099 |   | $ | 2,099 |   |
| Cash flows  used in investing activities                            |       | (3,430                      | )          | (3,786 | ) | (3,786 | ) |
| Cash flows used  in financing activities                            |       | (157                        | )          | (162 | ) | (162 | ) |

 

----

(*) –As reported in theOriginal 2005 Second Quarter 10-Q as a result of the Initial Restatement.

 

*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 June 29, 2005 and December 29,2004. Non-transferable liquor licenses are amortized on a straight-linebasis over the contractual life of the license.  Accumulated amortization atJune 29, 2005 and December 29, 2004 for non-transferable liquor licenseswas $168,000 and $140,000, respectively.  Amortization expense for the twenty-sixweeks ended June 29, 2005 was $28,000 and is expected to be $56,000 per yearthrough fiscal 2010.

 

9

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*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, due to market conditions, the Company has been unable to subleaseor exit certain of these leases.

 

The closed restaurant reserve was calculatednet of sublease income at ten locations partially or fully subleased as of June29, 2005.  The Company remains primarily liable for the remaining leaseobligations should the sublessee default.  Total sublease incomeexcluded from the reserve is approximately $6.7 million for subleases expiringat various dates through 2017.  There have been no defaults by sublessorsto date.

 

Activitywithin the reserve was as follows (in thousands):

 
| ** **                                      | ** ** | **Twenty-six weeks ended** | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|
| ** **                                      | ** ** | **June 29,**               | ** ** | **June 30,** | ** ** |
| ** **                                      | ** ** | **2005**                   | ** ** | **2004** | ** ** |
|                                            |       |                       |       |   |   |
| Balance,  beginning of the year                 |       | $                          | 659        |   | $ | 1,449 |   |
| Payments  charged against reserve               |       | (225                       | )          | (328 | ) |
| Balance, end  of period                         |       | $                          | 434        |   | $ | 1,121 |   |
|                                            |       |                       |       |   |   |
| Current  portion (included in accrued expenses) |       | $                          | 252        |   | $ | 615 |   |
| Noncurrent  portion                             |       | 182                        |       | 506 |   |
|                                            |       | $                          | 434        |   | $ | 1,121 |   |

 

*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 June 29,2005 and June 30, 2004 options representing 534,179 and 560,146 shares ofcommon stock, respectively, were excluded from the calculation of diluted lossper 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 its 2004 Annual Report Amendment. 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):

 

10

----

 
| ** **                                                                                                               | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                               | ** ** | **June 29,**             | ** ** | **June 30,**               | ** ** | **June 29,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                                               | ** ** | **2005**                 | ** ** | **2004**                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Net loss, as reported                                                                                                    |       | $                        | (973       | )                          | $          | (7,739 | ) | $ | (2,627 | ) | $ | (8,393 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss                                            |       | 2                        |       | —                     |       | 146 |   | — |   |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Adjust: Net stock-based employee  compensation income (expense) determined under fair value based method for  all awards |       | 65                       |       | (78                        | )          | (126 | ) | (156 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Pro forma net loss                                                                                                       |       | $                        | (906       | )                          | $          | (7,817 | ) | $ | (2,607 | ) | $ | (8,549 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Basic and diluted loss per share                                                                                         |       |                     |       |                       |       |   |   |   |   |
| As reported                                                                                                              |       | $                        | (0.33      | )                          | $          | (2.63 | ) | $ | (0.89 | ) | $ | (2.84 | ) |
| Pro forma                                                                                                                |       | $                        | (0.31      | )                          | $          | (2.65 | ) | $ | (0.89 | ) | $ | (2.90 | ) |
|                                                                                                                          |            |                          |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

During the first two quartersof 2005, the Company awarded bonuses to two senior employees and certainofficers and independent members of the Board of Directors consisting of anaggregate of 32,250 shares of Common Stock with an average fair value of $4.53per share. Accordingly, the grant of such shares resulted in a $146,000 compensationcharge to the Company.

 

The net stock-based employeecompensation expense determined under the fair value based method for thecurrent periods includes income resulting from the forfeitures of non-vestedoptions.

 

9.  *AssetImpairment Charge*

 

The Company’s long-lived assets consistprimarily of goodwill, other intangible assets, and leasehold improvementsrelated to its restaurant operations. SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, requiresmanagement to test the recoverability of long-lived assets (excluding goodwill)by comparing estimated undiscounted future operating cash flows expected to begenerated from these assets to the carrying amounts of the assets wheneverevents or changes in circumstances indicate the carrying value may not berecoverable.  If cash flows are not sufficient to recover the carryingamount of the assets, impairment has occurred and the assets are written downto fair value.  Significant estimates and assumptions regarding futuresales, cost trends, productivity and market maturity are required to be made bymanagement in order to test for impairment under this standard.

 

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.

 

**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/A and the Original 2005 SecondQuarter 10-Q, including, without limitation, statements set forth under this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”regarding the Company’s future financial position, business strategy, budgets,projected costs and plans and objectives of management for future operations,are forward-looking statements.  In addition, forward-looking statementsgenerally can be identified by the use of forward-looking terminology such as “may,”“will,” “expect,” “intend,” “estimate,” “anticipate” or “believe” or thenegative thereof or variations thereon or similar terminology.  Althoughthe Company believes that the expectations reflected in such forward-lookingstatements will prove to have been correct, it can give no assurance that suchexpectations will prove to be correct.  Factors that could cause actualresults to materially differ include, without limitation: (a) the Company’shigh degree of leverage which could, among other things, reduce the Company’sability to obtain financing for operations and expansion, place the Company ata competitive 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.

 

11

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Other factors that could adversely affect theCompany’s business and prospects are described in its filings with the Securitiesand Exchange Commission.  Investors are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the datehereof.  The Company undertakes no obligation to publicly release anyrevisions to these forward-looking statements to reflect events orcircumstances after the date hereof or to reflect the occurrence ofunanticipated 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.

 

**General**

 

Bertucci’s Corporation, a Delaware corporation (the “Company”),is the owner and operator of a chain of full-service casual dining,Italian-style restaurants under the names Bertucci’s Brick Oven Pizzeria® andBertucci’s Brick Oven Ristorante®. As of June 29, 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 Current Restatement ofthe Consolidated Financial Statements discussed in Note 3 of the Notes to the CondensedConsolidated 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:

 

**STATEMENTSOF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                           | ** ** | **June 29,**             | ** ** | **June 30,**               | ** ** | **June 29,** | ** ** | **June 30,** | ** ** |
| ** **                                                           | ** ** | **2005**                 | ** ** | **2004**                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Net sales                                                            |       | 100.0                    | %          | 100.0                      | %          | 100.0 | % | 100.0 | % |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Cost of  sales and expenses:                                         |       |                     |       |                       |       |   |   |   |   |
| Cost of sales                                                        |       | 23.4                     | %          | 24.9                       | %          | 23.6 | % | 24.2 | % |
| Operating expenses                                                   |       | 59.8                     | %          | 64.7                       | %          | 60.3 | % | 62.4 | % |
| General and administrative expenses                                  |       | 6.2                      | %          | 6.7                        | %          | 6.6 | % | 6.5 | % |
| Asset impairment charge                                              |       | 1.7                      | %          | 7.5                        | %          | 0.9 | % | 3.8 | % |
| Depreciation, amortization, deferred rent,  and pre-opening expenses |       | 5.8                      | %          | 6.1                        | %          | 6.0 | % | 6.2 | % |
| Total cost of sales and expenses                                     |       | 96.9                     | %          | 109.9                      | %          | 97.4 | % | 103.1 | % |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Income (loss) from operations                                        |       | 3.1                      | %          | (9.9                       | )%         | 2.6 | % | (3.1 | )% |
| Interest  expense, net                                               |       | (5.0                     | )%         | (5.1                       | )%         | (5.1 | )% | (5.2 | )% |
| Loss before  income taxes                                            |       | (1.9                     | )%         | (15.0                      | )%         | (2.5 | )% | (8.3 | )% |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Income taxes                                                         |       | —                   |       | —                     |       | — |   | — |   |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Net loss                                                             |       | (1.9                     | )%         | (15.0                      | )%         | (2.5 | )% | (8.3 | )% |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| **Restaurant  Operating Data:**                                      |       |                     |       |                       |       |   |   |   |   |
| Increase in  comparable restaurant sales (a)                         |       | (0.7                     | )%         | 1.0                        | %          | (1.1 | )% | 2.9 | % |
| Number of restaurants:                                               |       |                     |       |                       |       |   |   |   |   |
| Restaurants open, beginning of period                                |       | 92                       |       | 90                         |       | 91 |   | 89 |   |
| Restaurants opened                                                   |       | —                   |       | —                     |       | 1 |   | 1 |   |
| Total restaurants open, end of period                                |       | 92                       |       | 90                         |       | 92 |   | 89 |   |

 

----

(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.

 

**ThirteenWeeks Ended June 29, 2005 Compared to Thirteen Weeks Ended June 30, 2004**

 

*Net Sales*.  Total net sales increased by approximately$800,000, or 1.5%, to $52.6 million during the second quarter of 2005 from $51.8million during the second quarter of 2004.  The increase was primarily dueto 26 incremental restaurant weeks from three

 

12

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restaurants opened since January 2004 offset bya 0.7% decrease in the 89 comparable restaurants’ sales. Comparable Bertucci’srestaurant dine-in guest counts decreased 0.8% for the second quarter of 2005as compared to the second quarter of 2004.  Bertucci’s comparable restaurantdine-in sales decreased 1.1% and comparable carry-out and delivery sales increased1.0% for the quarter as compared to the second quarter of 2004.  TheCompany believes comparable sales were down primarily due to the aforementionedguest count decreases while an anticipated menu mix shift to lower priced itemsalso contributed to the decrease.  For the 89 comparable restaurants,average weekly sales were approximately $44,100 for the second quarter of 2005 comparedto approximately $44,400 per week for the second quarter of 2004.

 

*Cost of Sales.*  Costof sales decreased by approximately $600,000, or 4.7%, to $12.3 million duringthe second quarter of 2005 from $12.9 million during the second quarter2004.  Expressed as a percentage of net sales, overall cost of salesdecreased to 23.4% during the second quarter of 2005 from 24.9% during thesecond quarter of 2004.  Of this1.5% decrease, approximately 0.7% is attributed to a menu mix shift generallyto lower priced, lower cost items, approximately 0.5% was due to decreases incertain ingredient costs, and approximately 0.3% from improved restaurant costcontrols.

 

*Operating Expenses.*  Operating expenses decreased by approximately$2.1 million or 6.3%, to $31.4 million during the second quarter of 2005 from $33.5million during the second quarter of 2004.  Expressed as a percentage ofnet sales, operating expenses decreased to 59.8% in the second quarter of 2005from 64.7% during the second quarter of 2004.  The dollar decrease wasprimarily due to the timing of marketing expenditures, $2.7 million less thanthe prior year.

 

*General and AdministrativeExpenses.* General and administrative expenses decreased by approximately $200,000, or 5.7%,to $3.3 million during the second quarter of 2005 from $3.5 million during the secondquarter of 2004.  Expressed as a percentage of net sales, general andadministrative expenses decreased to 6.2% in the second quarter of 2005 from 6.7%in the second quarter of 2004.  The dollar decrease over the prior yearperiod is primarily attributable to lower professional fees and travel expenses,partially offset by bonus expense accruals as year-to-date cash flow resultsare currently exceeding targeted levels under the Company’s bonus plan.

 

*Asset Impairment Charge.* As discussed in Note 9 of Notes to CondensedConsolidated Financial Statements, the Company recorded a charge ofapproximately $0.9 million in the second quarter 2005 to recognize theestimated impairment of depreciable long-lived assets in four restaurants.

 

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 $100,000, or 3.3%, to $3.0 million duringthe second quarter of 2005 from $3.1 million during the second quarter of 2004. The decrease is primarily due to reduced deferred rent and pre-opening expenses(fewer restaurant openings). Expressed as a percentage of net sales,depreciation, amortization, deferred rent and pre-opening expenses decreased to5.8% in the second quarter of 2005 from 6.1% during the second quarter of 2004.

 

*Interest Expense, net.*  Net interest expense wasessentially flat in the second quarter of 2005 compared to the second quarterof 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.

 

**Twenty-Six Weeks Ended June29, 2005 Compared****to Twenty-Six Weeks Ended June 30, 2004**

 

*Net Sales*.  Total net sales increased by approximately$1.3 million, or 1.3%, to $102.5 million during the first two quarters of 2005from $101.2 million during the first two quarters of 2004.  The increasewas primarily due to 58 incremental restaurant weeks from three restaurantsopened since January 2004 offset by a 1.1% decrease in the 89 comparablerestaurants’ sales. Comparable Bertucci’s restaurant dine-in guest countsdecreased 1.3% for the first two quarters of 2005 as compared to the first twoquarters of 2004.  Bertucci’s comparable restaurant dine-in salesdecreased 1.8% and comparable carry-out and delivery sales increased 1.3% forthe quarter as compared to the first two quarters of 2004.  The Companybelieves comparable sales were down primarily due to

 

13

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the aforementioned guest count decreases while ananticipated menu mix shift to lower priced items also contributed to thedecrease.  For the 89 comparable restaurants, average weekly sales wereapproximately $43,000 for the first two quarters of 2005 compared toapproximately $43,500 per week for the first two quarters of 2004.

 

*Cost of Sales.*  Costof sales decreased by approximately $200,000, or 0.8%, to $24.2 million duringthe first two quarters of 2005 from $24.4 million during the first two quarters2004.  Expressed as a percentage of net sales, overall cost of salesdecreased to 23.6% during the first two quarters of 2005 from 24.2% during thefirst two quarters of 2004.  Ofthis 0.6% decrease, approximately 0.6% is attributed to a menu mix shiftgenerally to lower priced, lower cost items, approximately 0.2% from improvedrestaurant cost controls, partially offset by an approximate 0.2% net increasein certain ingredient costs.

 

*Operating Expenses.*  Operating expenses decreased by $1.3million or 2.1%, to $61.8 million during the first two quarters of 2005 from $63.1million during the first two quarters of 2004.  Expressed as a percentageof net sales, operating expenses decreased to 60.3% in the first two quartersof 2005 from 62.4% during the first two quarters of 2004.  The dollardecrease was primarily due to the timing of marketing expenditures ($2.6million less than the prior year), offset by the operation of threenon-comparable restaurants.

 

*General and AdministrativeExpenses.* General and administrative expenses increased by approximately $200,000, or 3.0%,to $6.8 million during the first two quarters of 2005 from $6.6 million duringthe first two quarters of 2004.  Expressed as a percentage of net sales,general and administrative expenses increased to 6.6% in the first two quartersof 2005 from 6.5% in the first two quarters of 2004. The dollar increase overthe prior year period is primarily attributable to: (a) bonus expenseaccruals as year-to-date cash flow results are currently exceeding targetedlevels under the Company’s bonus plan; and (b) stock compensation expenserelating to the award of 32,250 shares of common stock to key members ofmanagement and independent members of the Board of Directors, both partiallyoffset by reduced professional fees and travel expenses.

 

*Asset Impairment Charge.* As discussed in Note 9 of Notes to CondensedConsolidated Financial Statements, the Company recorded a charge ofapproximately $0.9 million in the second quarter 2005 to recognize theestimated impairment of depreciable long-lived assets in four restaurants.

 

During the second quarter of2005, the Company assessed certain non-performing restaurants for recoverabilityand determined an impairment of fixed assets existed at four restaurantlocations.  The Company estimated the fair value of these assets based onthe net present value of the expected cash flows of the four restaurants. The carrying amount of the assets exceeded the fair value of the assets byapproximately $0.9 million.  The Company recorded an impairment chargeduring the quarter to reflect the write down of the affected assets to fairvalue.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $100,000, or 1.6%, to $6.2 million duringthe first two quarters of 2005 from $6.3 million during the first two quartersof 2004.  The decrease is primarily due to reduced deferred rent as themajority of restaurant leases are past the half-way point of their primaryterms (and renewal periods where properly includable). Expressed as apercentage of net sales, depreciation, amortization, deferred rent andpre-opening expenses decreased to 6.0% in the first two quarters of 2005 from6.2% during the first two quarters of 2004.

 

*Interest Expense, net.*  Net interest expense wasessentially flat in the first two quarters of 2005 compared to the first twoquarters 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.

 

14

----

 

Net cash flows provided by operating activities wereapproximately $4.0 million for the first two quarters of 2005, approximately $1.9million more than the approximate $2.1 million provided during the first twoquarters of 2004.  As of June 29, 2005, the Company had cash and cashequivalents of $14.5 million.

 

The Company’s capital additions were approximately $1.9million during the first two quarters of 2005 compared to approximately $3.8million for the comparable prior year period.  The capital expenditureswere primarily comprised of $417,000 for a new restaurant which opened in the firstquarter of 2005 and $1.5 million for remodeling and maintenance capital. The Company anticipates capital expenditures for the remainder of 2005 will beapproximately $3.1 million.

 

As of June 29, 2005, the Company had $92.2 millionin consolidated indebtedness, $85.3 million pursuant to the Senior Notes, $6.1million of capital lease obligations, and $0.8 million of promissory notes. The Senior Notes contain no financial covenants and the Company is incompliance with all non-financial covenants as of August 12, 2005.  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.

 

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 established a $4.0 million (maximum)letter of credit facility (expiring in December 2005) as collateral withthird party administrators for self insurance reserves.  As of June 29,2005, this facility is collateralized with $2.2 million of cash restricted fromgeneral use.  Letters of credit totaling $2.2 million were outstanding on June29, 2005.

 

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 upon theirmaturity in 2008.

 

The Company’s future operating performanceand ability to service or refinance the Senior Notes will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond the Company’s control.  Significant liquidity demands willarise from debt service on the Senior Notes.

 

There have been no material changes to theCompany’s contractual obligations and commitments from those disclosed in the Original2004 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 and weather. As is the case with many restaurant companies, the Company typicallyexperiences lower net sales and net income during the first and fourth quarters. Because of these fluctuations in net sales and net loss, the results ofoperations of any quarter are not necessarily indicative of the results thatmay be achieved for a full year or any future quarter.

 

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**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 restaurant reserves.Estimates are based on historical experience and on various other assumptionsbelieved to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilitiesnot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. For a discussion of howthese and other factors may affect the Company’s business, see the “Forward-LookingStatements” above and other factors included in the Company’s other filingswith the Securities and Exchange Commission.

 

The Company’s critical accounting policiesaffect the more significant judgments and estimates used in the preparation ofthe Company’s consolidated financial statements.  The Company believes itscritical accounting policies relate to the impairment of long-lived assets,income tax valuation allowances, self-insurance and closed restaurant reserves.For a more detailed discussion of the Company’s critical accounting policiesand estimates, please refer to “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations - Critical Accounting Policies andEstimates” contained in the 2004 Annual Report Amendment.  There have beenno material changes to the Company’s critical accounting policies and estimatesfrom those disclosed in the 2004 Annual Report Amendment.

 

**Item 4. CONTROLS AND PROCEDURES**

 

*Disclosure Controls and Procedures*.  The Company maintains disclosurecontrols and procedures designed to ensure that information required to bedisclosed in the Company’s reports under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized andreported within the time periods specified in the rules and forms of theSEC, and that such information is accumulated and communicated to management,including the Company’s Chief Executive Officer (the “CEO”) and Chief FinancialOfficer (the “CFO”), as appropriate, to allow timely decisions regardingrequired disclosure.  In designing andevaluating the disclosure controls and procedures, management recognized thatcontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives, as theCompany’s are designed to do, and management necessarily was required to applyits judgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

Inconnection with the preparation of the Company’s Quarterly Report on Form 10-Qfor the fiscal quarter ended September 28, 2005, the Company performed anevaluation under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined inRule 13a-15(e) under the Exchange Act).  In performing this evaluation, managementbecame aware of errors in its detailed property and equipment records.  These errors involved the calculation ofdepreciation expense on multiple property records and the related impact onincome 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, onJanuary 12, 2006 the Audit Committee and management concluded that: (1)the Company’s depreciation and income tax expense accounting practices were notappropriate as of June 29, 2005; (2) aggregate additional depreciation expenseof approximately $3.5 million needed to be recorded in its financial statementsfor the Relevant Period, and income tax expense was not properlyadjusted in the Initial Restatement,and therefore, its financial statements relating to the Relevant Period wererequired to be restated; and (3) the Company needed to amend the SubjectFilings and restate the financial statements contained therein and reflect theproper recording of depreciation and income tax expense for the periodsreported therein (collectively, the “Subject Financial Statements”).  See Note 3 of Notes to Condensed ConsolidatedFinancial Statements. Based on the determination that the Company’s depreciationand income tax expense accounting practices were not appropriate as of June 29,2005, the Company’s CEO and CFO concluded that the Company’s disclosurecontrols and procedures were not effective as of that date.

 

*Internal Control Over Financial Reporting*.  Based on the definition of “materialweakness” in the Public Company Accounting Oversight Board’s Auditing StandardNo. 2, (*An Audit of Internal ControlOver Financial Reporting Performed in Conjunction With an Audit of FinancialStatements*), restatement of the Subject Financial Statements is astrong indicator of the existence of a “material weakness” in the design oroperation of internal control over financial reporting.  Based on the evaluation of the Company’scontrols and procedures, management concluded a material weakness existed inthe Company’s internal control

 

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over financial reporting asit related to its depreciation expense accounting practices, and disclosed thisto the Audit Committee and to the Company’s independent registered publicaccountants.

 

*Remediation Steps to Address Material Weakness*.  To remediate the material weakness inthe Company’s internal control over financial reporting, the Company has re-performedall of the necessary calculations and added sufficient review and approvalprocedures to assure management the material weakness has been corrected.

 

*Change in Internal Control Over Financial Reporting*.  Therewere no significant changes in the Company’s internal control over financialreporting that occurred during the Company’s second fiscal quarter of 2005 thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting. The Company did, however, make changes to its internal control overfinancial reporting in the first fiscal quarter of 2006, by making the changesto its depreciation and income tax expense accounting practices set forthabove.

 

PART II:OTHER INFORMATION

 

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. |   |   |
|--------|--------|-----|--------|----------------------------|--------|--------|

 

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 |   |
|                   |                        | President, Chief Financial Officer and Director |

 

 

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