** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

**FORM 10-Q**

** **

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities and ExchangeAct of 1934

 

**For the Quarterly Period Ended September 27,2006**

**CommissionFile Number  333-62775**

**BERTUCCI’S CORPORATION**

(Exact name of registrantas 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’stelephone number, including area code:**(508) 351-2500**

Indicate by check mark whether the 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 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for thepast 90 days.

Yes   o     No   x

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

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

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Exchange Act.

Yes   x     No   o

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

Yes   o     No   x

3,008,317shares of the registrant’s Common Stock were outstanding on November 10, 2006.

 

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**BERTUCCI’SCORPORATIONFORM 10-QTABLE OF CONTENTS**
| PART I:  |   | FINANCIAL  INFORMATION                                                                                                                            |   |   |   |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|          |   |                                                                                                                                              |   |   |   |
| Item 1.  |   | Financial  Statements:                                                                                                                            |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| 1)            |   | Condensed  Consolidated Balance Sheets as of September 27, 2006 (Unaudited) and  December 28, 2005 (Unaudited)                          |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| 2)            |   | Condensed  Consolidated Statements of Operations for the 13 and 39 Weeks Ended September  27, 2006 (Unaudited) and September 28, 2005 (Unaudited) |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| 3)            |   | Condensed  Consolidated Statements of Cash Flow for the 39 Weeks Ended September 27,  2006 (Unaudited) and September 28, 2005 (Unaudited)         |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| 4)            |   | Notes to Condensed Consolidated Financial Statements  (Unaudited)                                                                                 |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| Item 2.       |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                       |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| Item 3.       |   | Quantitative and Qualitative Disclosure About Market  Risk                                                                                        |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| Item 4.       |   | Controls and Procedures                                                                                                                           |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| PART II: |   | OTHER  INFORMATION                                                                                                                                |   |   |   |
| Item  1.      |   | Legal  Proceedings                                                                                                                                |   |   |   |
| Item 1A. |   | Risk  Factors                                                                                                                                     |   |   |   |
| Item 2.       |   | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                      |   |   |   |
| Item 3.       |   | Defaults Upon Senior Securities                                                                                                                   |   |   |   |
| Item 4.       |   | Submission of Matters to a Vote of Security Holders                                                                                               |   |   |   |
| Item  5.      |   | Other  Information                                                                                                                                |   |   |   |
| Item 6.       |   | Exhibits                                                                                                                                          |   |   |   |
|          |   |                                                                                                                                              |   |   |   |
| SIGNATURES    |   |                                                                                                                                              |   |
|          |   |                                                                                                                                              |   |   |   |
| EXHIBITS      |   |                                                                                                                                              |   |

 

2

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PART I: FINANCIAL INFORMATION

**Item 1.FINANCIAL STATEMENTS**

**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(In thousands, except share data)

(Unaudited)
| ** **                                                         | ** ** | **September 27, 2006** | ** ** | **December 28, 2005** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                                               |       |                             |       |                            |       |
| ASSETS                                                             |       |                             |       |                            |       |
| Current Assets:                                                    |       |                             |       |                            |       |
| Cash and cash equivalents                                          |       | $                                | 18,720     |                            | $          | 21,382 |   |
| Restricted cash                                                    |       | 2,176                            |       | 2,187                           |       |
| Accounts receivable                                                |       | 873                              |       | 771                             |       |
| Inventories                                                        |       | 1,768                            |       | 1,534                           |       |
| Prepaid expenses and other current assets                          |       | 742                              |       | 897                             |       |
| Total current assets                                               |       | 24,279                           |       | 26,771                          |       |
|                                                               |       |                             |       |                            |       |
| Property and  Equipment, at cost:                                  |       |                             |       |                            |       |
| Land                                                               |       | 259                              |       | 259                             |       |
| Buildings                                                          |       | 697                              |       | 697                             |       |
| Capital leases - land and buildings                                |       | 5,764                            |       | 5,764                           |       |
| Leasehold improvements                                             |       | 76,283                           |       | 68,433                          |       |
| Furniture and equipment                                            |       | 51,263                           |       | 46,787                          |       |
|                                                               |       | 134,266                          |       | 121,940                         |       |
| Less - accumulated depreciation and amortization                   |       | (75,926                          | )          | (67,509                         | )          |
|                                                               |       | 58,340                           |       | 54,431                          |       |
| Construction work in process                                       |       | 241                              |       | —                          |       |
| Net property and equipment                                         |       | 58,581                           |       | 54,431                          |       |
|                                                               |       |                             |       |                            |       |
| Goodwill                                                           |       | 26,127                           |       | 26,127                          |       |
| Deferred finance  costs, net                                       |       | 1,643                            |       | 2,165                           |       |
| Liquor licenses,  net                                              |       | 2,315                            |       | 2,358                           |       |
| Other assets                                                       |       | 904                              |       | 693                             |       |
| TOTAL ASSETS                                                       |       | $                                | 113,849    |                            | $          | 112,545 |   |
|                                                               |       |                             |       |                            |       |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT                         |       |                             |       |                            |       |
|                                                               |       |                             |       |                            |       |
| Current  Liabilities:                                              |       |                             |       |                            |       |
| Promissory notes - current portion                                 |       | $                                | 43         |                            | $          | 42 |   |
| Capital lease obligations - current portion                        |       | 117                              |       | 107                             |       |
| Accounts payable                                                   |       | 8,694                            |       | 8,603                           |       |
| Accrued expenses                                                   |       | 16,178                           |       | 19,129                          |       |
| Total current liabilities                                          |       | 25,032                           |       | 27,881                          |       |
| Promissory  notes, net of current portion                          |       | 4,495                            |       | 738                             |       |
| Capital lease  obligations, net of current portion                 |       | 5,906                            |       | 5,982                           |       |
| Senior Notes                                                       |       | 85,310                           |       | 85,310                          |       |
| Deferred gain on  sale leaseback transaction                       |       | 1,810                            |       | 1,892                           |       |
| Other long-term  liabilities                                       |       | 7,692                            |       | 8,045                           |       |
| Total liabilities                                                  |       | 130,245                          |       | 129,848                         |       |
| Commitments and  Contingencies                                     |       |                             |       |                            |       |
| Stockholders’  Deficit:                                       |       |                             |       |                            |       |
| Common stock, $.01 par value                                       |       |                             |       |                            |       |
| Authorized - 8,000,000 shares                                      |       |                             |       |                            |       |
| Issued - 3,767,995 and 3,764,995 shares ,  respectively;           |       |                             |       |                            |       |
| Outstanding - 3,013,732 and 3,012,982 shares,  respectively        |       | 38                               |       | 38                              |       |
| Less treasury shares - 754,263 and 752,013,  respectively, at cost |       | (8,503                           | )          | (8,480                          | )          |
| Additional paid-in capital                                         |       | 29,760                           |       | 29,617                          |       |
| Accumulated deficit                                                |       | (37,691                          | )          | (38,478                         | )          |
| Total stockholders’ deficit                                   |       | (16,396                          | )          | (17,303                         | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                   |       | $                                | 113,849    |                            | $          | 112,545 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

3

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except share and per share data)

(Unaudited)
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                          | ** ** | **September 27,  2006**       | ** ** | **September 28,  2005**          | ** ** | **September 27,  2006** | ** ** | **September 28,  2005** | ** ** |
|                                                                |       |                               |       |                                  |       |   | ** ** | ** ** | ** ** |
| Net sales                                                           |       | $                                  | 51,969     |                                  | $          | 49,654 |   | $ | 159,684 |   | $ | 152,185 |   |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Cost of sales  and expenses:                                        |       |                               |       |                                  |       |   |   |   |   |
| Cost of sales                                                       |       | 11,762                             |       | 11,316                                |       | 36,195 |   | 35,498 |   |
| Operating expenses                                                  |       | 31,856                             |       | 30,051                                |       | 96,057 |   | 91,895 |   |
| General and administrative expenses                                 |       | 3,705                              |       | 3,740                                 |       | 11,006 |   | 10,521 |   |
| Asset impairment charge                                             |       | —                             |       | —                                |       | — |   | 907 |   |
| Depreciation, amortization, deferred rent and  pre-opening expenses |       | 2,696                              |       | 2,601                                 |       | 8,182 |   | 8,773 |   |
| Total cost of sales and expenses                                    |       | 50,019                             |       | 47,708                                |       | 151,440 |   | 147,594 |   |
| Income from operations                                              |       | 1,950                              |       | 1,946                                 |       | 8,244 |   | 4,591 |   |
| Other income  (expense):                                            |       |                               |       |                                  |       |   |   |   |   |
| Interest  expense, net                                              |       | (2,438                             | )          | (2,613                                | )          | (7,426 | ) | (7,884 | ) |
| Income (loss)  before income taxes                                  |       | (488                               | )          | (667                                  | )          | 818 |   | (3,293 | ) |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Provision for  income taxes                                         |       | (31                                | )          | —                                |       | (31 | ) | — |   |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Net income  (loss)                                                  |       | $                                  | (519       | )                                     | $          | (667 | ) | $ | 787 |   | $ | (3,293 | ) |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Basic net income  (loss) per share                                  |       | $                                  | (0.17      | )                                     | $          | (0.23 | ) | $ | 0.26 |   | $ | (1.12 | ) |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Diluted net  income (loss) per share                                |       | $                                  | (0.17      | )                                     | $          | (0.23 | ) | $ | 0.26 |   | $ | (1.12 | ) |
|                                                                |       |                               |       |                                  |       |   |   |   |   |
| Weighted average  shares outstanding:                               |       |                               |       |                                  |       |   |   |   |   |
| Basic                                                               |       | 3,014,968                          |       | 2,944,377                             |       | 3,014,589 |   | 2,942,372 |   |
| Diluted                                                             |       | 3,014,968                          |       | 2,944,377                             |       | 3,072,677 |   | 2,942,372 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

4

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**BERTUCCI’S CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)
| ** **                                                                                | ** ** | **Thirty-nine weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **September 27,  2006**          | ** ** | **September 28,  2005** | ** ** |
| Cash flows from  operating activities                                                     |       |                                  |       |   |   |
| Net income (loss)                                                                         |       | $                                     | 787        |   | $ | (3,293 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                  |       |   |   |
| Depreciation, amortization and deferred rent                                              |       | 8,720                                 |       | 9,109 |   |
| Asset impairment charge                                                                   |       | —                                |       | 907 |   |
| Stock compensation expense                                                                |       | 104                                   |       | 172 |   |
| Changes in operating assets and liabilities                                               |       |                                  |       |   |   |
| Inventories                                                                               |       | 56                                    |       | (50 | ) |
| Prepaid expenses, receivables and other                                                   |       | 478                                   |       | 847 |   |
| Other accrued expenses                                                                    |       | (4,644                                | )          | (2,598 | ) |
| Accounts payable                                                                          |       | (609                                  | )          | (932 | ) |
| Tenant allowance received                                                                 |       | —                                |       | 208 |   |
| Other operating assets and liabilities                                                    |       | (136                                  | )          | (127 | ) |
| Total adjustments                                                                         |       | 3,969                                 |       | 7,536 |   |
| Net cash  provided by operating activities                                                |       | 4,756                                 |       | 4,243 |   |
|                                                                                      |       |                                  |       |   |   |
| Cash flows from  investing activities                                                     |       |                                  |       |   |   |
| Acquisition of business                                                                   |       | (3,000                                | )          | — |   |
| Additions to property and equipment                                                       |       | (4,337                                | )          | (3,280 | ) |
| Decrease in restricted cash                                                               |       | 11                                    |       | 223 |   |
| Net cash used in  investing activities                                                    |       | (7,326                                | )          | (3,057 | ) |
|                                                                                      |       |                                  |       |   |   |
| Cash flows from  financing activities                                                     |       |                                  |       |   |   |
| Sale of common stock                                                                      |       | 39                                    |       | 400 |   |
| Purchase of treasury shares                                                               |       | (23                                   | )          | — |   |
| Payment on promissory note                                                                |       | (42                                   | )          | (41 | ) |
| Principal payments under capital lease obligations                                        |       | (66                                   | )          | (65 | ) |
| Net cash (used  in) provided by in financing activities                                   |       | (92                                   | )          | 294 |   |
|                                                                                      |       |                                  |       |   |   |
| Net (decrease)  increase in cash and cash equivalents                                     |       | (2,662                                | )          | 1,480 |   |
| Cash and cash  equivalents, beginning of year                                             |       | 21,382                                |       | 12,291 |   |
| Cash and cash  equivalents, end of period                                                 |       | $                                     | 18,720     |   | $ | 13,771 |   |
|                                                                                      |       |                                  |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                                        |       |                                  |       |   |   |
| Cash paid for interest                                                                    |       | $                                     | 9,855      |   | $ | 9,880 |   |
| Cash paid for income taxes                                                                |       | $                                     | 266        |   | $ | 50 |   |
| Promissory note issued in conjuction with  acquisition of business                        |       | $                                     | 3,800      |   | $ | — |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

5

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** **

**BERTUCCI’SCORPORATIONNotes To Condensed Consolidated Financial Statements**September27, 2006(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 unaudited interimcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for reporting onForm 10-Q. Accordingly, certain information and footnote disclosuresrequired for complete financial statements are not included herein. It issuggested that the Unaudited Financial Statements be read in conjunction withthe consolidated financial statements and notes included in the Company’sAnnual Report on Form 10-K for the year ended December 28,2005, which was filed with the Securities and Exchange Commission (the “SEC”)on March 28, 2006 (the “2005 Annual Report”). The operating results forthe thirteen and thirty-nine weeks ended September 27, 2006 may not beindicative of the results expected for any succeeding interim period or for theentire year ending January 3, 2007.

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates 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 and expensesduring the reporting period. Actual results could differ from those estimates.

*2.Restaurant Closing Reserves*

Restaurant closing reserves were established as partof the acquisition of Bertucci’s, Inc. in July 1998. These reserveswere related to estimated future lease commitments and exit costs to close 18Bertucci’s locations. It was originally expected the Company would be able toexit these locations, sublease the locations or otherwise be released from therelated leases. However, due to market conditions, the Company has beenunable to sublease, exit, or otherwise be released from certain of theseleases.

Theclosed restaurant reserve was calculated net of sublease income at ninelocations partially or fully subleased as of September 27, 2006. The Companyremains primarily liable for the remaining lease obligations should thesublessee default. Total sublease income excluded from the reserve isapproximately $5.4 million for subleases expiring at various dates through2017.

Activity withinthe reserve was as follows (in thousands):

|                                                         | ** ** | **Thirty-nine weeks ended** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **September 27, 2006**      | ** ** | **September 28, 2005** | ** ** |
|                                                    |       |                                  |       |   |   |
| Balance,  beginning of the year                         |       | $                                     | 372        |   | $ | 659 |   |
| Payments charged  and receipts credited against reserve |       | (88                                   | )          | (255 | ) |
| Balance, end of  period                                 |       | $                                     | 284        |   | $ | 404 |   |
|                                                    |       |                                  |       |   |   |
| Current portion  (included in accrued expenses)         |       | $                                     | 207        |   | $ | 288 |   |
| Noncurrent  portion                                     |       | 77                                    |       | 116 |   |
|                                                    |       | $                                     | 284        |   | $ | 404 |   |

 

*3. NetIncome (Loss) per Share*

Basic net income (loss) per share is computed bydividing net income (loss) by the weighted average number of common sharesoutstanding for the reporting period. Diluted net income (loss) per sharereflects the potential dilution that could occur if options to issue commonstock were exercised or converted into common stock. Dilutive shares added tothe weighted average number of common shares outstanding for the thirty-nineweeks ended September 27, 2006 for this calculation were 58,088.  Dilutive shares were determined using thetreasury stock method for in-the-money stock options as of September 27, 2006.   For the thirteen weeks ended September 27,2006 and for the thirteen and thirty-nine weeks ended September 28, 2005,options representing 1,003,073, 

6

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963,929 and 963,929 shares of common stock,respectively, were excluded from the calculation of diluted net income (loss)per share because of their anti-dilutive effect.

*4.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, the Companyis required to consider both negative and positive evidence in determining if avaluation allowance is required on a quarterly basis. Management previouslyrecorded a full valuation allowance for its deferred tax assets. Forthirty-nine weeks ended September 27, 2006, the Company recorded a provisionfor income tax of approximately $92,000 in the third quarter of 2006 which ispartially offset by the release of $61,000 from it’s valuation allowanceresulting in a net provision of $31,000 primarily for estimated statetaxes currently payable. FICA Tip Credits of approximately $375,000 and $1.1million favorably impacted income tax rates for the thirteen and thirty-nineweeks ended September 27, 2006, respectively.

The Company continues to maintain a valuationallowance for its deferred tax assets as the Company has experienced a historyof losses. Management continues to evaluate the need for a valuation allowanceon an on-going basis.

*5.Stock-Based Compensation*

EffectiveDecember 29, 2005, the Company adopted the provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 123R, *Share Based Payment*(“SFAS No. 123R”), using a modified prospective application, and as suchprior periods have not been restated. Under this method, compensation expenseis recorded on a straight-line basis for all unvested options over the relatedvesting period beginning in the period of adoption. As a result of the adoptionof SFAS No. 123R, the Company now recognizes stock-based compensationcosts ratably over the requisite service period. In March 2005, the SECissued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the Staff’sinterpretation of SFAS No. 123R. This interpretation provides the Staff’sviews regarding interactions between SFAS No. 123R and certain SECrules and regulations and provides interpretations of the valuation ofshare-based payments for public companies. The interpretive guidance isintended to assist companies in applying the provisions of SFAS No. 123Rand investors and users of the financial statements in analyzing theinformation provided. The Company follows the guidance prescribed in SABNo. 107 in connection with the adoption of SFAS No. 123R. The impactof the adoption of SFAS No. 123R and SAB No. 107 resulted in acompensation charge for the thirteen and thirty-nine weeks ended September 27,2006 of $21,000 and $92,000, respectively. This charge is included in Generaland Administrative expenses in the Condensed Consolidated Statements ofOperations for the periods indicated.

TheCompany grants stock options under its Amended and Restated 1997 EquityIncentive Plan (“Equity Incentive Plan”), which provides for the issuance ofnonqualified stock options and allows the Company to provide equity incentivesto its key employees and directors. On September 27, 2005, the Company’sBoard of Directors approved the amendment and restatement of the EquityIncentive Plan which increased the number of shares of Common Stock availablefor issuance under the Equity Incentive Plan from 750,000 to 1,100,000. TheBoard of Directors administers the Equity Incentive Plan and may modify oramend it in any respect.

Stockoptions are: (1) issued at or above the fair value of the underlying stockon the date of the grant; (2) are exercisable either(a) cumulatively at the rate of 25% on or after each of the second,third, fourth and fifth anniversaries of the date of grant or (b) onlyupon the fifth anniversary of the date of grant; and (c) typically expire90 days following the tenth anniversary of the date of the grant. In addition,such options generally provide unvested options vest immediately and in fullupon a transaction constituting a “change of control” of the Company.

7

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Thegrant date fair value is calculated using the Black-Scholes option valuationmodel. The fair value of options granted during the thirteen and thirty-nineweeks ended September 27, 2006 and September 28, 2005, respectively, werecalculated using the following estimated weighted average assumptions:
| ** **                              | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                              | ** ** | **September 27,  2006**       | ** ** | **September 28,  2005**          | ** ** | **September 27,  2006** | ** ** | **September 28,  2005** | ** ** |
| Options granted                         |       | 8,000                              |       | 419,750                               |       | 66,000 |   | 582,500 |   |
| Weighted-average  exercise price        |       | $                                  | 18.47      |                                  | $          | 17.51 |   | $ | 17.63 |   | $ | 17.51 |   |
| Weighted-average  grant date fair value |       | $                                  | 5.40       |                                  | —     |   | $ | 4.06 |   | — |   |
| Assumptions:                            |       |                               |       |                                  |       |   |   |   |   |
| Risk free  interest rate                |       | 5.05                               | %          | 4.02                                  | %          | 4.69 | % | 3.98 | % |
| Expected life  (in years)               |       | 5                                  |       | 5                                     |       | 5 |   | 5 |   |
| Expected  volatility                    |       | 20                                 | %          | 0                                     | %          | 20 | % | 0 | % |
| Expected dividend yield                 |       | 0                                  | %          | 0                                     | %          | 0 | % | 0 | % |
|                                         |            |                                    |            |                                       |            |  |  |  |  |  |  |  |  |

 

**Expected volatility** — The Company is responsible for estimating volatility and has used 0%volatility historically to estimate the grant-date fair value of stock optionsas its common stock is not publicly traded. Effective December 29, 2005,management considered the guidance in SFAS No. 123R and now estimatesexpected volatility at 20%.

**Expected life**— The Company uses the full vesting period to estimate the expected lifeassumption for the Black-Scholes grant-date valuation. The Company believesthis is currently the best estimate of the expected life of a new option.

**Risk-free interest rate** — The market yield on U.S. Treasury securities at a 5-yearconstant maturity, quoted on investment basis, is used as the risk-freeinterest rate.

**Expected dividend yield** — The Company has notpaid any dividends in the last five years and currently intends to retain anyearnings to finance future growth and, therefore, does not anticipate payingany cash dividends on its common stock in the foreseeable future.

Prior toDecember 29, 2005, in accordance with SFAS No. 123, *Accounting for Stock-Based Compensation*(which has been replaced by SFASNo. 123R and supersedes Accounting Principles Board OpinionNo. 25 (“APB Opinion No. 25”)), the Company accounted for stock-basedcompensation under the intrinsic value method with disclosure of the effects offair value accounting on net income (loss) and earnings per share on a proforma basis. The Company’s stock-based compensation plan is described morefully in Note 9 of Notes to Consolidated Financial Statements in the 2005Annual Report. The Company had accounted for this plan under the recognitionand measurement principles of APB Opinion No. 25**andrelated interpretations. In 2005, stock based employee compensation expenseresulted from the granting of shares of the Company’s common stock to keyemployees and independent directors.  Allshares and options granted had an exercise price equal to, or in excess of, thefair value of the underlying common stock on the date of grant. The followingtable illustrates the effect on net loss and loss per share for the thirteenand thirty-nine weeks ended September 28, 2005, respectively, if the Companyhad applied the fair value recognition provisions of SFAS No. 123 (inthousands, except per share data):

 

|                                                                                                                 | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                      | ** ** | **September 28, 2005**   | ** ** | **September 28, 2005**      | ** ** |
| ** **                                                                                                      |       |                               |       |                                  |       |
| Net loss, as  reported                                                                                          |       | $                                  | (667       | )                                     | $          | (3,293 | ) |
|                                                                                                            |       |                               |       |                                  |       |
| Add: Stock-based  employee compensation expense included in reported net loss                                   |       | 26                                 |       | 172                                   |       |
|                                                                                                            |       |                               |       |                                  |       |
| Adjust: Net  stock-based employee compensation expense determined under fair value based  method for all awards |       | (3                                 | )          | (130                                  | )          |
|                                                                                                            |       |                               |       |                                  |       |
| Pro forma net  loss                                                                                             |       | $                                  | (644       | )                                     | $          | (3,251 | ) |
|                                                                                                            |       |                               |       |                                  |       |
| Basic and  diluted loss per share:                                                                              |       |                               |       |                                  |       |
| As reported                                                                                                     |       | $                                  | (0.23      | )                                     | $          | (1.12 | ) |
| Pro forma                                                                                                       |       | $                                  | (0.22      | )                                     | $          | (1.10 | ) |

 

8

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A summary of the activityunder the Company’s stock option plan as of September 27, 2006 and changesduring the thirty-nine week period then ended, is presented below:
| ** **                                          | ** ** | **Options** | ** ** | **Weighted-Average  Remaining Contractual  Life in Years** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-----------------------------------------------------|------------|-------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at  December 28, 2005                   |       | 970,929     |       |                                                                      |       | $                                              | 16.77      |                                |       |   |
| Granted                                             |       | 66,000      |       |                                                                      |       | $                                              | 17.63      |                                |       |   |
| Cancelled                                           |       | (33,856     | )          |                                                                      |       | $                                              | 17.02      |                                |       |   |
| Outstanding at  September 27, 2006                  |       | 1,003,073   |       | 7.1                                                                       |       | $                                              | 16.82      |                                | $          | 2,095,869 |   |
|                                                |       |        |       |                                                                      |       |                                           |       |                                |       |
| Fully vested and  exercisable at September 27, 2006 |       | 266,573     |       | 2.7                                                                       |       | $                                              | 14.96      |                                | $          | 933,327 |   |

 

As of September 27, 2006there was $319,000 of unrecognized compensation cost related to unvested stockoptions. That cost is expected to be recognized over a weighted average periodof 2.3 years.

6.  *Asset Impairment Charge*

The Company’s long-livedassets consist primarily of goodwill, other intangible assets, and leaseholdimprovements related to its restaurant operations. SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*,requires management to test the recoverability of long-lived assets (excludinggoodwill) by comparing estimated undiscounted future operating cash flowsexpected to be generated from these assets to the carrying amounts of theassets whenever events or changes in circumstances indicate the carrying valuemay not be recoverable.  If cash flows are not sufficient to recover thecarrying amount of the assets, impairment has occurred and the assets arewritten down to fair value.  Significant estimates and assumptionsregarding future sales, cost trends, productivity and market maturity arerequired to be made by management in order to test for impairment under thisstandard.

Duringthe third quarter of 2006, the Company assessed all restaurants forrecoverability and determined no impairment existed.  During the second quarter of 2005, theCompany assessed all restaurants for recoverability and determined animpairment of fixed assets existed at four restaurant locations.  TheCompany estimated the fair value of these assets based on the net present valueof the expected cash flows of the four restaurants.  The carrying amountof the assets exceeded the fair value of the assets by approximately $0.9million.  The Company recorded an impairment charge during that quarter toreflect the write down of the affected assets to fair value.

7.  *Recent Accounting Pronouncements*

In July 2006, the FASBissued Interpretation No. 48, “*Accounting for Uncertaintyin Income Taxes*” (“FIN 48”), an interpretation of SFAS No. 109, “*Accounting for Income Taxes*”. FIN 48 clarifies theaccounting for uncertainty in tax positions and requires that the impact of taxpositions be recorded in the financial statements if it is more likely than notthat such position will be sustained on audit, based on the technical merits ofthe position. The provisions of FIN 48 are effective for fiscal years beginningafter December 15, 2006. The Company has not yet adopted this pronouncement andis currently evaluating the expected impact that the adoption of FIN 48 willhave on its consolidated financial position and results of operations.

InSeptember 2006, the FASB issued SFAS 157, “*Fair Value Measurements*”(“SFAS No. 157”), which addresses how companies should measure fair value whenthey are required to use a fair value measure for recognition or disclosurepurposes under generally accepted accounting principles. The provisions of SFASNo. 157 are effective for fiscal years beginning after November 15, 2007. TheCompany has not yet adopted this pronouncement and is currently evaluating theexpected impact that the adoption of SFAS No. 157 will have on itsconsolidated financial position and results of operations.

9

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8. *Utility Purchase Commitments*

The Company has executedcontracts to provide electricity to thirty-nine restaurants at a fixed rate perkilowatt through 2009. The Company believes certain of these contracts qualifyfor the “normal purchases” exception as defined by SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*.Therefore, the contracts are not required to be marked to market through theCondensed Consolidated Statement of Operations. Certain contracts do notqualify for the “Normal Purchase” exception, and are not consideredhedges.  These contracts have been recorded on the balance sheet atfair value with adjustments to fair value being recognized in earnings whenthey occur. The purchase commitments below represent an estimate of the minimumusage per year multiplied by the contracted rates (in thousands):

| Year   | ** ** | ** ** | ** ** |
|--------|------------|------------|------------|
|   |       |       |       |
| 2006   |       | $          | 367        |   |
| 2007   |       | 1,468      |       |
| 2008   |       | 1,468      |       |
| 2009   |       | 1,345      |       |
|   |       | $          | 4,648      |   |

 

9.  *Gift Cards*

A liability isrecorded in the period in which a gift card is issued and proceeds arereceived. As gift cards are redeemed, this liability is reduced and revenue isrecognized. Gift card breakage income (“breakage”) is recognized when thelikelihood of the redemption of the card becomes remote. For the thirteen and thirty-nineweeks ended September 27, 2006, gift card breakage of $41,000 and $216,000,respectively, was recorded as a reduction of operating expenses.

10.  *Acquisition*

OnSeptember 25, 2006, the Company and Vinny T’s Acquisition Corporation, a newlyformed wholly-owned subsidiary of the Company (“Acquisition Sub”), executed aStock Purchase Agreement (the “Stock Purchase Agreement”) with BUCA, Inc. (“BUCA”)and one of its wholly owned subsidiaries, BUCA Restaurants 3, Inc. (“BUCA 3”),pursuant to which the Acquisition Sub acquired all of the outstanding capitalstock of BUCA 3 (the “BUCA 3 Acquisition”). As a result of the BUCA 3 Acquisition, BUCA 3 is now a wholly-owned subsidiary of the Acquisition Sub andcontinues to own and operate 11 Vinny T’s of Boston restaurants in four states.The Company believes the acquisition of the 11 restaurants will increaserevenues and income from operations while providing an acceptable return on theinvestment. In connection with the BUCA 3 Acquisition, the Acquisition Sub paidBUCA an aggregate purchase price of$6.8 million, of which $3.0 million was paid in cash and $3.8 million was paidthrough the issuance of a promissory note (the “Promissory Note”).  The Promissory Note bears interest at 9% perannum and matures on July 15, 2008 or earlier upon the occurrence of certainother events, including a Change in Control (as defined in the Promissory Note)of the Company, the consummation of an initial public offering by the Companyor the redemption, repurchase, refinancing or payment of the Company’soutstanding 10 3⁄4% Senior Notes due 2008.  In addition, the Companyexecuted and delivered a guaranty to BUCA which guarantees the payment of theamounts due and the performance of the obligations of the Acquisition Sub underthe Promissory Note and the Stock Purchase Agreement. The purchase price andPromissory Note are subject to a post-closing working capital adjustment as setforth in the Stock Purchase Agreement.

The BUCA 3 Acquisitionwas accounted for by the Company under the purchase method of accounting inaccordance with SFAS No. 141, “*Business Combinations*.”Accordingly, the results of the BUCA 3 operations willbe included in the Company’s condensed  consolidated statements of operations from September 28, 2006.

10

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The cash paid at closingwas funded by available cash on hand. On a preliminary basis, the purchaseprice has been allocated based on the Company’s estimate of the fair value ofthe assets acquired and liabilities assumed at the date of acquisition in thetable below. The preliminary purchase price allocation is subject to revisionfor a post-closing working capital adjustment as set forth in the Stock PurchaseAgreement and adjustments to the fair value of the assets and liabilitiesacquired upon finalization of the valuation by the Company.

|                            | ** ** | **(In Thousands)** | ** ** |
|----------------------------|------------|-------------------------|------------|
| Assets acquired:           |       |                    |       |
| Receivables                |       | $                       | 300        |   |
| Inventory                  |       | 290                     |       |
| Prepaid Expenses           |       | 125                     |       |
| Property                   |       | 8,400                   |       |
| Other noncurrent assets    |       | 75                      |       |
| Less liabilities  assumed: |       |                    |       |
| Accounts Payable           |       | (700                    | )          |
| Accrued Expenses           |       | (1,600                  | )          |
| Noncurrent liabilities     |       | (90                     | )          |
| Net purchase  price        |       | $                       | 6,800      |   |

 

Thefollowing unaudited pro forma financial information is presented forillustrative purposes only and presents the results of operations for thethirteen and thirty-nine weeks ended September 27, 2006 and September 28,2005, as though the BUCA 3 Acquisition occurred on December 30, 2004. Theunaudited pro forma financial information is not intended to beindicative of the operating results that actually would have occurredif the BUCA 3 Acquisition had been consummated on the dateindicated, nor is the information intended to be indicative offuture operating results. The unaudited pro forma financialinformation reflects adjustments for (1) additional general andadministrative expenses for direct field supervision; (2) additionaldepreciation to more closely reflect allocated values at the BUCA 3Acquisition; and (3) additional interest expense on the Promissory Note issuedat closing. The pro forma financial information is based on preliminary resultsand not necessarily indicative of future results of the combined entities.
| ** **                                     | ** ** | **(In thousands, except per share amounts)** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **Thirteen weeks ended**                                    | ** ** | **Thirty-nine weeks ended** | ** ** |
| ** **                                     | ** ** | **September 27,  2006**                                          | ** ** | **September 28,  2005** | ** ** | **September 27,  2006** | ** ** | **September 28,  2005** | ** ** |
|                                           |       |                                                                  |       |   |   |   | ** ** | ** ** | ** ** |
| Net sales                                      |       | $                                                                     | 59,267     |   | $ | 57,425 |   | $ | 182,633 |   | $ | 176,454 |   |
|                                           |       |                                                                  |       |   |   |   |   |   |   |
| Net income (loss)                              |       | $                                                                     | (656       | ) | $ | (959 | ) | $ | 721 |   | $ | (3,320 | ) |
|                                           |       |                                                                  |       |   |   |   |   |   |   |
| Basic and diluted net  income (loss) per share |       | $                                                                     | (0.22      | ) | $ | (0.33 | ) | $ | 0.23 |   | $ | (1.13 | ) |

 

11.  *Subsequent Event*

In October 2006,the Company paid a $136,000 fee to an investor in conjunction with theBUCA 3 Acquisition. The Company’s Chairman of the Board of Directors isthe Managing General Partner of the investor.

11

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**Item 2.**                          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Forward-LookingStatements**

All statements other thanstatements of historical facts included in this Quarterly Report onForm 10-Q, including, without limitation, statements set forth inthis “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” regarding our future financial position, business strategy,budgets, projected costs, plans, and objectives of management for future operations,are forward-looking statements. These statements involve known and unknownrisks, uncertainties and other factors which may cause our or thefoodservice industry’s actual results, performance or achievements to bematerially different from any expected results, performance or achievements.Forward-looking statements include, but are not limited to, statementsregarding:

·        *Our highly competitive businessenvironment;*

·        *Exposure to food prices;*

·        *Risks associated with the foodservice industry suchas changes in consumer tastes and adverse publicity resulting from foodquality, illness, injury or other health concerns;*

·        *Our ability to retain and attract new employees;*

·        *Government regulations;*

·        *Our high geographic concentration in the Northeastand Mid-Atlantic states;*

·        *The attendant weather patterns in locations in whichwe operate;*

·        *The number of expected restaurant openings, includingthe appropriate conditions needed to meet new opening targets;*

·        *Our ability to service our debt and otherobligations;*

·        *Our ability to meet ongoing covenants contained inour debt instruments; and*

·        *Matters relating to litigation.*

Forward-lookingstatements generally can be identified by the use of forward-lookingterminology such as “may,”  “will,” “expect,” “intend,” “estimate,” “anticipate”or “believe” or the negative thereof or variations thereon or similarterminology. These statements are only predictions and involve known andunknown risks, uncertainties, and other factors that may cause actualresults, levels of activity, performance, or achievements to be materiallydifferent from any expected results, levels of activity, performance, orachievements expressed or implied by such forward-looking statements. Althoughwe believe the expectations reflected in such forward-looking statements willprove to be correct, we can give no assurance such expectations will prove tobe correct. You are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof. Weundertake no obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events. Factors causing orcontributing to such differences include those discussed in the risk factorsset forth in Item 1A of our Annual Report on Form 10-K for the yearended December 28, 2005 which was filed with the SEC on March 28,2006 (the “2005 Annual Report”), as well as those discussed elsewhere herein.

Unless the contextindicates otherwise, references herein to “we”, “us”, “our,” “Bertucci’s” orthe “Company” refer to Bertucci’s Corporation, its predecessors and itsconsolidated subsidiaries.

The following discussion should be read in conjunctionwith our condensed consolidated financial statements, and the notes theretoincluded herein, as well as our 2005 Annual Report.

**General**

We own and operate two chains of full-service casualdining, Italian-style restaurants under the names (1) Bertucci’s Brick OvenPizzeria® and Bertucci’s Brick Oven Ristorante® and (2) Vinny T’s ofBoston®. As of September 27, 2006, we operated 92 Bertucci’s restaurantsand 11 Vinny T’s of Boston restaurants located primarily in the northeasternUnited States.

In July 1998, we completed our acquisition ofBertucci’s Restaurant Corp.’s parent entity, Bertucci’s, Inc., for apurchase price, net of cash received, of approximately $89.4 million (the “Bertucci’sAcquisition”). We financed the Bertucci’s Acquisition primarily through theissuance of $100 million of 103⁄4 % senior notes due 2008 (the “Senior Notes”).The Senior Notes are still outstanding as to $85.3 million in principal.

12

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On September 25, 2006, we and our newly formedwholly-owned subsidiary, Vinny T’s Acquisition Corporation, (“Acquisition Sub”),executed a Stock Purchase Agreement (the “Stock Purchase Agreement”) with BUCA,Inc. (“BUCA”) and one of its wholly owned subsidiaries, BUCA Restaurants 3,Inc. (“BUCA 3”), pursuant to which the Acquisition Sub acquired all of theoutstanding capital stock of BUCA 3 (the “BUCA 3 Acquisition”).  As a result of the BUCA 3 Acquisition,  BUCA 3 is now a wholly-owned subsidiary ofthe Acquisition Sub and continues to own and operate 11 Vinny T’s of Bostonrestaurants in four states.  Inconnection with the BUCA 3 Acquisition, the Acquisition Sub paid BUCA anaggregate purchase price of $6.8million, of which $3.0 million was paid in cash and $3.8 million was paidthrough the issuance of a promissory note (the “Promissory Note”).  The Promissory Note bears interest at 9% perannum and matures on July 15, 2008 or earlier upon the occurrence of certainother events, including if we have a Change in Control (as defined in thePromissory Note), the consummation of our initial public offering, if any, orthe redemption, repurchase, refinancing or payment of our Senior Notes.  Inaddition, we executed and delivered a Guaranty to BUCA which guarantees thepayment of the amounts due and the performance of the obligations of theAcquisition Sub under the Promissory Note and the Stock Purchase Agreement. Thepurchase price and Promissory Note are subject to a post-closing workingcapital adjustment as set forth in the Stock Purchase Agreement.

**Resultsof Operations**

The following table sets forth the percentage relationship to netsales, unless otherwise indicated, of certain items included in our condensedconsolidated statements of operations, as well as certain operating data, forthe periods indicated:

**STATEMENTS OFOPERATIONS DATA**(Percentageof Net Sales)
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                           | ** ** | **September 27,   2006** | ** ** | **September 28,  2005**          | ** ** | **September 27,  2006** | ** ** | **September 28,  2005** | ** ** |
| Net sales                                                            |       | 100.0                              | %          | 100.0                                 | %          | 100.0 | % | 100.0 | % |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| Cost of sales  and expenses:                                         |       |                               |       |                                  |       |   |   |   |   |
| Cost of sales                                                        |       | 22.6                               | %          | 22.8                                  | %          | 22.7 | % | 23.3 | % |
| Operating expenses                                                   |       | 61.3                               | %          | 60.5                                  | %          | 60.1 | % | 60.4 | % |
| General and administrative expenses                                  |       | 7.1                                | %          | 7.5                                   | %          | 6.9 | % | 6.9 | % |
| Asset impairment charge                                              |       | —                             |       | —                                |       | — |   | 0.6 | % |
| Depreciation, amortization, deferred rent, and  pre-opening expenses |       | 5.2                                | %          | 5.2                                   | %          | 5.1 | % | 5.8 | % |
| Total cost of sales and expenses                                     |       | 96.2                               | %          | 96.0                                  | %          | 94.8 | % | 97.0 | % |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| Income from operations                                               |       | 3.8                                | %          | 4.0                                   | %          | 5.2 | % | 3.0 | % |
| Interest  expense, net                                               |       | (4.7                               | )%         | (5.3                                  | )%         | (4.7 | )% | (5.2 | )% |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| Income (loss)  before income taxes                                   |       | (0.9                               | )%         | (1.3                                  | )%         | 0.5 | % | (2.2 | )% |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| Provision for  income taxes                                          |       | (0.1                               | )%         | —                                |       | — |   | — |   |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| Net income  (loss)                                                   |       | (1.0                               | )%         | (1.3                                  | )%         | 0.5 | % | (2.2 | )% |
|                                                                 |       |                               |       |                                  |       |   |   |   |   |
| **Restaurant  Operating Data:**                                      | ** ** | ** **                         | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Increase  (decrease) in comparable restaurant sales (a)              |       | 4.8                                | %          | (1.3                                  | )%         | 5.0 | % | (1.2 | )% |
| Number of  restaurants:                                              |       |                               |       |                                  |       |   |   |   |   |
| Restaurants open, beginning of period                                |       | 92                                 |       | 92                                    |       | 92 |   | 91 |   |
| Restaurants opened                                                   |       | —                             |       | —                                |       | — |   | 1 |   |
| Restaurants acquired                                                 |       | 11                                 |       | 11                                    |       |   |   |   |   |
| Total  restaurants open, end of period                               |       | 103                                |       | 92                                    |       | 103 |   | 92 |   |

----

(a)             Wedefine comparable restaurant sales as net sales from restaurants open for atleast one full fiscal year at the beginning of the fiscal year. The restaurantsacquired in September 2006 are not included in comparable restaurant sales orin the discussion of the results of operations below.

**ThirteenWeeks Ended September 27, 2006 Compared to Thirteen Weeks Ended September 28,2005**

*NetSales*. Total net sales increased by approximately $2.0million, or 4.0%, to $52.0 million during the third quarter of 2006 from $50.0million during the third quarter of 2005. The increase was primarily due to a4.8% increase in the 91 comparable restaurants’ sales. Comparable dine-in guestcounts increased 1.5% for the third quarter of 2006 as compared to the thirdquarter of 2005. Comparable dine-in sales increased 5.5% and comparablecarry-out and delivery sales increased 2.0% for the quarter as compared to thethird quarter of 2005. We believe comparable restaurant sales increases havebeen a result of increased guest visits combined with a shift in menu mix todinner entrees versus pizza, and an approximate 1.4% menu price increase inJanuary 2006. For the 91 comparable restaurants, average weekly sales wereapproximately $43,500 for the third quarter of 2006 compared to approximately$41,500 per week for the third quarter of 2005.

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*Cost ofSales.* Cost of sales increased by approximately$500,000, or 4.4%, to $11.8 million during the third quarter of 2006 from $11.3million during the third quarter of 2005. Expressed as a percentage of net sales, overall cost of sales decreasedto 22.6% during the third quarter of 2006 from 22.8% during the third quarterof 2005. The percentage decrease can be attributed to decreases in certainingredient costs, the benefit from the menu price increases, and better foodcost controls; all partially offset by a menu mix shift away from pizzas todinner entrees.

*OperatingExpenses.*Operating expenses increased by approximately $1.8million, or 6.0%, to $31.9 million during the third quarter of 2006 from $30.1million during the third quarter of 2005. Expressed as a percentage of net sales, overall operating expensesincreased to 61.3% during the third quarter of 2006 from 60.5% during the thirdquarter of 2005. The dollar increase can be attributed to (a) generalrestaurant operating expenses ($900,000) due to the increased sales volume, (b)increased group health insurance expenses ($554,000), and (c) higher utilitycosts ($209,000) primarily because of increased electric rates.

*Generaland Administrative Expenses.*General and administrativeexpenses in the third quarter of 2006 were $3.7 million; flat as compared tothe third quarter of 2005. Expressed as a percentage of net sales, general andadministrative expenses decreased to 7.1% in the third quarter of 2006 from7.5% in the third quarter of 2005.

*AssetImpairment Charge.* As discussed in Note 6 of Notes toCondensed Consolidated Financial Statements, we assessed all restaurants forrecoverability as of the end of the third quarter of 2006, but determined noimpairment existed. An impairment charge of approximately $907,000 was recordedin the second quarter of 2005.

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*.Depreciation, amortization, deferred rent and pre-opening expenses increased byapproximately $100,000 to $2.7 million during the third quarter of 2006 from$2.6 million during the third quarter of 2005. Expressed as a percentage of netsales, depreciation, amortization, deferred rent and pre-opening expenses wasflat at 5.2% in the third quarter of 2006 compared to the third quarter of2005.

*InterestExpense, net.* Net interest expense decreased byapproximately $200,000 to $2.4 million during the third quarter of 2006 from$2.6 million during the third quarter of 2005. Increased overnight investmentfunds and higher interest rates available thereon resulted in increased interestincome thereby reducing net interest expense.

*IncomeTaxes*. We have a history of recurring pre-tax losses. Wepreviously recorded a full valuation allowance for our net deferred tax assetand have also provided a full valuation allowance relating to the tax benefitsgenerated since 2003 (primarily from operating losses). We recorded a provisionfor income tax of approximately $31,000 in the third quarter of 2006 primarilyfor estimated state taxes currently payable. FICA Tip Credits of approximately$375,000 favorably impact the effective federal income tax rate for thethirteen weeks ended September 27, 2006.

**Thirty-NineWeeks Ended September 27, 2006 Compared to Thirty-Nine Weeks Ended September28, 2005**

*NetSales*. Total net sales increased by approximately $7.8million, or 5.1%, to $160.0 million during the first three quarters of 2006from $152.2 million during the first three quarters of 2005. The increase wasprimarily due to a 5.0% increase in the 91 comparable restaurants’ sales plusfive incremental restaurant weeks from one restaurant opened sinceJanuary 2005. Comparable dine-in guest counts increased 1.3% for the firstthree quarters of 2006 as compared to the first three quarters of2005. Comparable dine-in sales increased 5.0% and comparable carry-out anddelivery sales increased 4.9% for the first three quarters as compared to thefirst three quarters of 2005. We believe comparable restaurant sales increaseshave been a result of increased guest visits combined with a shift in menu mixto dinner entrees versus pizza, and an approximate 1.6% menu price increase inJanuary 2006. For the 91 comparable restaurants, average weekly sales wereapproximately $44,600 for the first three quarters of 2006 compared toapproximately $42,400 per week for the first three quarters of 2005.

*Cost ofSales.* Cost of sales increased by approximately$700,000, or 2.0%, to $36.2 million during the first three quarters of 2006from $35.5 million during the first three quarters of 2005.  Expressed as a percentage of net sales,overall cost of sales decreased to 22.7% during the first three quarters of2006 from 23.3% during the first three quarters of 2005. The percentagedecrease can be attributed to decreases in certain ingredient costs, thebenefit from the menu price increase, and better food cost controls; allpartially offset by a menu mix shift away from pizzas to dinner entrees.

*OperatingExpenses.*Operating expenses increased by approximately $4.2million, or 4.6%, to $96.1 million during the first three quarters of 2006 from$91.9 million during the first three quarters of 2005. Expressed as apercentage of net sales, operating expenses decreased to 60.1% in the firstthree quarters of 2006 from 60.4% during the first three quarters of 2005. Thedollar increase can be attributed to: (a) general restaurant operatingexpenses ($3.0 million) due to the increased sales volume, and (b)  higherutility costs ($800,000) because of increased electric and gas rates.

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*Generaland Administrative Expenses.*General and administrativeexpenses increased approximately $500,000 to $11.0 million during the firstthree quarters of 2006 compared to $10.5 million in the first three quarters of2005. The increase is primarily due to increased corporate salaries and relatedbenefits, including bonus plan accruals. Expressed as a percentage of net sales, general and administrativeexpenses were flat at 6.9% in the third quarter of 2006 compared to the thirdquarter of 2005.

*AssetImpairment Charge.* As discussed in Note 6 of Notes toCondensed Consolidated Financial Statements, we assessed all restaurants forrecoverability as of the end of the third quarter of 2006, but determined noimpairment existed. An impairment charge of approximately $907,000 was recordedin the second quarter of 2005.

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*.Depreciation, amortization, deferred rent and pre-opening expenses decreased byapproximately $600,000 to $8.2 million during the first three quarters of 2006from $8.8 million during the first three quarters of 2005. The decrease can beprimarily attributed to: (a) decreased deferred rent ($300,000) as manyleases with step rent provisions now require cash payments (included inOperating Expenses) in excess of the calculated pro-rata rent expense, and (b)lower preopening expense ($200,000) because of one less restaurant opening in2006. Expressed as a percentage of net sales, depreciation, amortization,deferred rent and pre-opening expenses decreased to 5.1% in the first threequarters of 2006 from 5.8% during the first three quarters of 2005.

*InterestExpense, net.* Net interest expense decreased byapproximately $500,000 to $7.4 million during the first three quarters of 2006from $7.9 million during the first three quarters of 2005.  Increased overnight investment funds andhigher interest rates available thereon resulted in increased interest incomethereby reducing net interest expense.

*IncomeTaxes*. We have a history of recurring pre-tax losses. Wepreviously recorded a full valuation allowance for our net deferred tax assetand have also provided a full valuation allowance relating to the tax benefitsgenerated since 2003 (primarily from operating losses). We recorded a provisionfor income tax of approximately $31,000 in the third quarter of 2006 primarilyfor estimated state taxes currently payable. FICA Tip Credits of approximately$1.1 million favorably impact the effective federal income tax rate for thethirty-nine weeks ended September 27, 2006.

**Liquidityand Capital Resources**

We have historically met our capital expenditures andworking capital needs through a combination of operating cash flow and bankborrowings, the sale of the Senior Notes, the sale of Common Stock, and, infiscal 2003, two sale leaseback transactions. We expect our future capitaland working capital needs will be funded from net cash flows provided byoperating cash flow and cash on hand.

Net cash flows provided by operating activities were$4.8 million for the first three quarters of 2006, approximately $600,000 morethan the first three quarters of 2005. As of September 27, 2006, we had cashand cash equivalents of $18.7 million.

Our capital expenditures were $4.3 million during thefirst three quarters of 2006 as compared to $3.3 million for the comparableprior year period. The capital expenditures were primarily comprised ofremodeling and maintenance capital. We anticipate capital expenditures for theremainder of 2006 will be approximately $3.1 million, including capital relatedto the opening of a Bertucci’s restaurant in the first quarter of 2007. We alsoexpended $3.0 million in connection with the BUCA 3 Acquisition in the thirdquarter of 2006.

As of September 27, 2006, we had $95.9 million inconsolidated indebtedness which consisted of $85.3 million pursuant to theSenior Notes, $6.0 million of capital lease obligations, and $4.6 million ofpromissory notes. The Senior Notes contain no financial covenants and we are incompliance with all non-financial covenants as of November 10, 2006. The SeniorNotes bear interest at the rate of 103⁄4% per annum, payable semi-annually onJanuary 15 and July 15 and are due in full on July 15, 2008.

We may, at our option, redeem any or all of the SeniorNotes at face value. Additionally, under certain circumstances, including achange of control, the holders of the Senior Notes may require us to repurchasethe Senior Notes, at a redemption price of 101% of the unpaid principal amountthereof, plus accrued and unpaid interest. In the event of certain assetdispositions resulting in excess proceeds equal to or greater than $5.0million, the holders of the Senior Notes have the right to compel us topurchase on a pro rata basis Senior Notes up to a maximum principal amountequal to such excess proceeds at a purchase price equal to 100% of the unpaidprincipal amount thereof, plus accrued and unpaid interest.

We are operating without a line of credit and arefunding all of our capital expenditures, debt reductions and operating needsout of cash flows from operations and cash on hand.

We have established a $4.0 million (maximum) letter ofcredit facility (expiring in December 2006) as collateral with third party

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administrators for self insurance reserves. Letters ofcredit totaling $2.2 million were outstanding on September 27, 2006,collateralized by $2.2 million of cash restricted from general use.

We believe the cash flow generated from our operationsand cash on hand should be sufficient to fund our debt service requirements,lease obligations, expected capital expenditures and other operating expensesthrough 2006. Beyond 2006 and up to the July 15, 2008 maturity date of ourSenior Notes, we expect to be able to service our debt, but the lack of shortterm borrowing availability may impede growth. We are evaluating variousrefinancing alternatives for our Senior Notes.

Our future operatingperformance and ability to service or refinance the Senior Notes will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control. Significant liquidity demandswill arise from our repayment obligation under our Senior Notes when theymature on July 15, 2008.

## As of December 28, 2005 we had future contractual obligations asfollows:

|                                                     | ** ** | **Payments Due by Fiscal Year** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                          | ** ** | **(Dollars in Thousands)**                | ** ** |
| **Contractual Obligations:**                   | ** ** | **Total**                                           | ** ** | **2006** | ** ** | **2007 - 2008** | ** ** | **2009 - 2010** | ** ** | **After 2010** | ** ** |
| Operating Leases                                    |       | $                                                   | 96,954     |   | $ | 15,269 |   | $ | 25,859 |   | $ | 19,825 |   | $ | 36,001 |   |
| Capital Leases                                      |       | 12,749                                              |       | 693 |   | 1,419 |   | 1,416 |   | 9,221 |   |
| Senior Notes                                        |       | 103,652                                             |       | 9,171 |   | 94,481 |   | — |   | — |   |
| Promissory Notes                                    |       | 802                                                 |       | 97 |   | 228 |   | 276 |   | 201 |   |
| Closed  restaurants reserve, net of sublease income |       | 372                                                 |       | 270 |   | 102 |   | — |   | — |   |
| Total  Contractual Obligations                      |       | $                                                   | 214,529    |   | $ | 25,500 |   | $ | 122,089 |   | $ | 21,517 |   | $ | 45,423 |   |

 

We executedcontractual obligations subsequent to December 28, 2005 as follows:

|                                   | ** ** | **Payments Due by Fiscal Year** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|
| ** **                        | ** ** | **(Dollars in Thousands)**                | ** ** |
| **Contractual Obligations:** | ** ** | **Total**                                           | ** ** | **2006** | ** ** | **2007 - 2008** | ** ** | **2009 - 2010** | ** ** | **After 2010** | ** ** |
| Operating Leases                  |       | $                                                   | 16,371     |   | $ | 321 |   | $ | 5,374 |   | $ | 5,852 |   | $ | 4,824 |   |
| Operating Leases—Acquisition |       | $                                                   | 21,657     |   | $ | 563 |   | $ | 4,569 |   | $ | 4,614 |   | $ | 11,911 |   |
| Promissory Note                   |       | $                                                   | 4,421      |   | $ | 94 |   | $ | 341 |   | $ | 3,986 |   | — |   |
| Utility purchase  commitments (1) |       | 4,647                                               |       | 367 |   | 2,935 |   | 1,345 |   | — |   |
|                              |       | $                                                   | 47,096     |   | $ | 1,345 |   | $ | 13,219 |   | $ | 15,797 |   | $ | 16,735 |   |

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(1)             Wehave executed contracts to provide electricity to thirty-nine restaurants at afixed rate per kilowatt through 2009. We believe certain of these contractsqualify for the “normal purchases” exception prescribed by SFAS Statement No.133, Accounting for Derivative Instruments and Hedging Activities. Therefore,the contracts are not required to be marked to market.  Certain contracts do not qualify for the“Normal Purchase” exception, and are not considered hedges.  These contracts have been recorded on theBalance sheet at fair value with adjustments to fair value being recognized inearnings when they occur. The purchase commitments represent an estimate ofminimum usage per year multiplied by the contracted rates.

**Impactof Inflation**

Inflationary factors such as increases in labor, foodor other operating costs could adversely affect our operations. We do notbelieve inflation has had a material impact on our financial position orresults of operations for the periods discussed above. We believe through theproper leveraging of purchasing size, labor scheduling, and restaurantdevelopment, inflation will not have a material adverse effect on ouroperations during the foreseeable future. There can be no assurance, however,inflation will not materially adversely affect us.

**Seasonality**

Our quarterly results of operations have fluctuatedand are expected to continue to fluctuate depending on a variety of factors,including the timing of new restaurant openings and related pre-opening andother startup expenses, net sales contributed by new restaurants, increases ordecreases in comparable restaurant sales, competition and overall economicconditions. Our business is also

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subject to seasonal influences of consumer spending,dining out patterns and weather. As is the case with many restaurant companies,we typically experience lower net sales and net income from operations duringthe first and fourth quarters. Because of these fluctuations, the results of operationsof any quarter are not necessarily indicative of the results that may beachieved for a full year or any future quarter.

**CriticalAccounting Policies and Estimates**

The discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States of America.The preparation of these financial statements requires us to make estimates andjudgments affecting the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. On anon-going basis, estimates are evaluated, including those related to theimpairment of long-lived assets, income tax valuation allowances,self-insurance, and closed restaurants reserve. Estimates are based onhistorical experience and on various other assumptions believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities notreadily 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 our business, see the “Forward-LookingStatements” and other factors included in the 2005 Annual Report and otherfilings with the SEC.

Our critical accountingpolicies affect the more significant judgments and estimates used in thepreparation of our consolidated financial statements. We believe our criticalaccounting policies relate to the impairment of long-lived assets, income taxvaluation allowances, self-insurance and closed restaurants reserves. For amore detailed discussion of our critical accounting policies and estimates,please refer to “Management’s Discussion and Analysis of Financial Conditionand Results of Operations - Critical Accounting Policies and Estimates”contained in our 2005 Annual Report. There have been no material changes to ourcritical accounting policies and estimates from those disclosed in our 2005Annual Report, except as noted below.

*Gift cards*

We record aliability in the period in which a gift card is issued and proceeds arereceived. As gift cards are redeemed, this liability is reduced and revenue isrecognized. We recognize gift card breakage income (“breakage”) when thelikelihood of the redemption of the card becomes remote.  For the thirteen and thirty-nine weeks endedSeptember 27, 2006, gift card breakage of $41,000 and $216,000, respectively,was recorded as a reduction of operating expenses.

**Item 3.**                          QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have no exposure tospecific risks related to derivatives or other “hedging” types of financialinstruments. In addition, we do not have operations outside of the UnitedStates of America which would expose us to foreign currency risk and ouroutstanding debt has fixed interest rates.

**Item 4.**                          CONTROLSAND PROCEDURES

*DisclosureControls and Procedures*. We maintain disclosure controlsand procedures designed to ensure information required to be disclosed in ourreports under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the SEC, and such information isaccumulated and communicated to management, including our Chief ExecutiveOfficer (the “CEO”) and Chief Financial Officer (the “CFO”), as appropriate, toallow timely decisions regarding required disclosure. In designing andevaluating our disclosure controls and procedures, we recognized controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, as ours aredesigned to do, and we necessarily were required to apply our judgment inevaluating the cost-benefit relationship of possible controls and procedures.

During the thirdquarter of fiscal 2006, we performed an evaluation under the supervision andwith the participation of our management, including our CEO and CFO, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the ExchangeAct). Based on that evaluation, our CEO and CFO concluded our disclosurecontrols and procedures were effective as of September 27, 2006.

***Changes in Internal Control overFinancial Reporting***.  There were no significant changes to ourinternal control over financial reporting occurring during our last fiscalquarter materially affecting, or reasonably likely to materially affect, ourinternal control over financial reporting, except for the BUCA 3Acquisition discussed in Note 10.

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**PART II:OTHER INFORMATION**

**Item1.   LEGAL PROCEEDINGS**

We are involved invarious legal proceedings from time to time incidental to the conduct of ourbusiness. In our opinion, any ultimate liability arising out of suchproceedings will not have a material adverse effect on our financial conditionor our results of operations.

**Item1A.   RISK FACTORS**

None

**Item2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None

**Item3.   DEFAULTS UPON SENIOR SECURITIES**

None

**Item4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None

**Item5.   OTHER INFORMATION**

None

**Item 6.**  **EXHIBITS**

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

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(*)   —   Included withthis 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: November 10,  2006 |   | By:                         |   | /s/ Stephen V. Clark |
|                     |   |                        |   | Chief Executive Officer and Director |
|                     |   |                        |   |   |
| Date: November 10,  2006 |   | By:                         |   | /s/ David G. Lloyd |
|                     |   |                        |   | President, Chief Financial Officer and Director |

 

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