**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-Q**

 

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

 

**For theQuarterly Period Ended March 30, 2005**

 

**CommissionFile Number  333-62775**

 

**BERTUCCI’S CORPORATION**

(Exact name of registrant asspecified in its charter)

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

 

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

 

Yes   ý   No   o

 

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

 

Yes   o   No   ý

 

2,947,732 shares of the registrant’s Common Stockwere outstanding on May 11, 2005.

 

 

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**BERTUCCI’SCORPORATION**

**FORM 10-Q**

**TABLE OFCONTENTS**

 
| PART I:  | FINANCIAL INFORMATION                                                                                                                        |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                         |   |
| Item 1.       | Financial Statements:                                                                                                                        |   |
|          |                                                                                                                                         |   |
| 1)            | Condensed  Consolidated Balance Sheets as of March 30, 2005 (Unaudited) and  December 29, 2004 (Unaudited)                         |   |
|          |                                                                                                                                         |   |
| 2)            | Condensed  Consolidated Statements of Operations for the 13 Weeks Ended March 30,  2005 (Unaudited) and March 31, 2004 (Unaudited) |   |
|          |                                                                                                                                         |   |
| 3)            | Condensed  Consolidated Statement of Changes in Stockholders’ Deficit for the 13 Weeks  Ended March 30, 2005 (Unaudited)           |   |
|          |                                                                                                                                         |   |
| 4)            | Condensed  Consolidated Statements of Cash Flow for the 13 Weeks Ended March 30,  2005 (Unaudited) and March 31, 2004 (Unaudited)  |   |
|          |                                                                                                                                         |   |
| 5)            | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                            |   |
|          |                                                                                                                                         |   |
| Item 2.       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                  |   |
|          |                                                                                                                                         |   |
| Item 3.       | Quantitative and Qualitative Disclosure About  Market Risk                                                                                   |   |
|          |                                                                                                                                         |   |
| Item 4.       | Controls and Procedures                                                                                                                      |   |
|          |                                                                                                                                         |   |
| PART II: | OTHER INFORMATION                                                                                                                            |   |
| Item 1.       | Legal Proceedings                                                                                                                            |   |
| Item  2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                 |   |
| Item 3.       | Defaults  Upon Senior Securities                                                                                                             |   |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                                                         |   |
| Item 5.       | Other Information                                                                                                                            |   |
| Item  6.      | Exhibits                                                                                                                                     |   |
|          |                                                                                                                                         |   |
| SIGNATURES    |                                                                                                                                         |   |
|          |                                                                                                                                         |   |
| EXHIBITS      |                                                                                                                                         |   |

 

2

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PART I:FINANCIAL INFORMATION

Item1. FINANCIAL STATEMENTS

 

**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Inthousands, except share data)

(Unaudited)

 
| ** **                                                                                                        | ** ** | **March 30,  2005** | ** ** | **December 29,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                            |       |                     |       |                        |       |
| Current  Assets:                                                                                                  |       |                     |       |                        |       |
| Cash and  cash equivalents                                                                                        |       | $                        | 9,848      |                        | $          | 12,291 |   |
| Restricted  cash                                                                                                  |       | 2,178                    |       | 2,403                       |       |
| Accounts  receivable                                                                                              |       | 1,046                    |       | 1,334                       |       |
| Inventories                                                                                                       |       | 1,414                    |       | 1,388                       |       |
| Prepaid  expenses and other current assets                                                                        |       | 483                      |       | 534                         |       |
| Total  current assets                                                                                             |       | 14,969                   |       | 17,950                      |       |
|                                                                                                              |       |                     |       |                        |       |
| Property and  Equipment, at cost:                                                                                 |       |                     |       |                        |       |
| Land                                                                                                              |       | 259                      |       | 259                         |       |
| Buildings                                                                                                         |       | 697                      |       | 697                         |       |
| Capital  leases - land and buildings                                                                              |       | 5,764                    |       | 5,764                       |       |
| Leasehold  improvements                                                                                           |       | 67,665                   |       | 66,037                      |       |
| Furniture  and equipment                                                                                          |       | 43,887                   |       | 43,248                      |       |
|                                                                                                              |       | 118,272                  |       | 116,005                     |       |
| Less -  accumulated depreciation and amortization                                                                 |       | (54,521                  | )          | (51,517                     | )          |
|                                                                                                              |       | 63,751                   |       | 64,488                      |       |
| Construction  work in process                                                                                     |       | —                   |       | 1,567                       |       |
| Net property  and equipment                                                                                       |       | 63,751                   |       | 66,055                      |       |
|                                                                                                              |       |                     |       |                        |       |
| Goodwill                                                                                                          |       | 26,127                   |       | 26,127                      |       |
| Deferred  finance costs, net                                                                                      |       | 2,688                    |       | 2,862                       |       |
| Liquor  licenses, net                                                                                             |       | 2,400                    |       | 2,414                       |       |
| Other assets                                                                                                      |       | 517                      |       | 513                         |       |
| TOTAL ASSETS                                                                                                      |       | $                        | 110,452    |                        | $          | 115,921 |   |
|                                                                                                              |       |                     |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                       |       |                     |       |                        |       |
|                                                                                                              |       |                     |       |                        |       |
| Current  Liabilities:                                                                                             |       |                     |       |                        |       |
| Promissory  notes - current portion                                                                               |       | $                        | 41         |                        | $          | 40 |   |
| Capital  lease obligations - current portion                                                                      |       | 83                       |       | 74                          |       |
| Accounts  payable                                                                                                 |       | 6,726                    |       | 7,819                       |       |
| Accrued  expenses                                                                                                 |       | 13,498                   |       | 16,457                      |       |
| Total  current liabilities                                                                                        |       | 20,348                   |       | 24,390                      |       |
| Promissory  notes, net of current portion                                                                         |       | 761                      |       | 781                         |       |
| Capital  lease obligations, net of current portion                                                                |       | 6,073                    |       | 6,102                       |       |
| Senior Notes                                                                                                      |       | 85,310                   |       | 85,310                      |       |
| Deferred  gain on sale leaseback transaction                                                                      |       | 1,975                    |       | 2,002                       |       |
| Other  long-term liabilities                                                                                      |       | 8,610                    |       | 8,368                       |       |
| Total  liabilities                                                                                                |       | 123,077                  |       | 126,953                     |       |
| Commitments and Contingencies                                                                                     |       |                     |       |                        |       |
| Stockholders’  Deficit:                                                                                      |       |                     |       |                        |       |
| Common  stock, $.01 par value                                                                                     |       |                     |       |                        |       |
| Authorized -  8,000,000 shares                                                                                    |       |                     |       |                        |       |
| Issued -  3,698,995 and 3,667,495 shares, respectively; Outstanding 2,946,982 and  2,915,482 shares, respectively |       | 37                       |       | 37                          |       |
| Less  treasury shares, 752,013 at cost                                                                            |       | (8,480                   | )          | (8,480                      | )          |
| Additional  paid-in capital                                                                                       |       | 29,190                   |       | 29,046                      |       |
| Accumulated  deficit                                                                                              |       | (33,372                  | )          | (31,635                     | )          |
| Total  stockholders’ deficit                                                                                 |       | (12,625                  | )          | (11,032                     | )          |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                 |       | $                        | 110,452    |                        | $          | 115,921 |   |

 

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

 

3

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except share and per share data)

(Unaudited)

 
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                          | ** ** | **March 30,  2005** | ** ** | **March 31,  2004** | ** ** |
| ** **                                                          | ** ** | ** **               | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Net sales                                                           |       | $                        | 49,952     |   | $ | 49,426 |   |
|                                                                |       |                     |       |   |   |
| Cost of  sales and expenses:                                        |       |                     |       |   |   |
| Cost of  sales                                                      |       | 11,860                   |       | 11,556 |   |
| Operating  expenses                                                 |       | 30,454                   |       | 29,627 |   |
| General and  administrative expenses                                |       | 3,499                    |       | 3,093 |   |
| Depreciation,  amortization, deferred rent and pre-opening expenses |       | 3,226                    |       | 3,309 |   |
| Total cost  of sales and expenses                                   |       | 49,039                   |       | 47,585 |   |
| Income from  operations                                             |       | 913                      |       | 1,841 |   |
|                                                                |       |                     |       |   |   |
| Interest  expense, net                                              |       | (2,650                   | )          | (2,638 | ) |
| Loss before  income taxes                                           |       | (1,737                   | )          | (797 | ) |
|                                                                |       |                     |       |   |   |
| Income taxes                                                        |       | —                   |       | — |   |
|                                                                |       |                     |       |   |   |
| Net loss                                                            |       | $                        | (1,737     | ) | $ | (797 | ) |
|                                                                |       |                     |       |   |   |
| Basic and  diluted loss per share                                   |       | $                        | (0.59      | ) | $ | (0.27 | ) |
|                                                                |       |                     |       |   |   |
| Weighted  average shares outstanding - basic and diluted            |       | 2,925,520                |       | 2,958,436 |   |

 

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

 

4

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS’ DEFICIT**

(In thousands, except share data)

(Unaudited)

 
| ** **                      | ** ** | **Common Stock** | ** ** | **Treasury Stock** | ** ** | ** **    | ** ** | ** ** | ** ** | **Total**              | ** ** |
|---------------------------------|------------|------------------|------------|--------------------|------------|---------------|------------|------------|------------|------------------------|------------|
| ** **                      | ** ** | **Number of**    | ** ** | ** **         | ** ** | **Number of** | ** ** | ** ** | ** ** | **Additional Paid-In** | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                      | ** ** | **Shares**       | ** ** | **Amount**         | ** ** | **Shares**    | ** ** | **Amount** | ** ** | **Capital**            | ** ** | **Deficit** | ** ** | **Deficit** | ** ** |
|                            |       |             |       |               |       |          |       |       |       |                   |       |   |   |   |   |
| Balance December 29,  2004 |       | 3,667,495        |       | $                  | 37         |          | (752,013   | )          | $          | (8,480                 | )          | $ | 29,046 |   | $ | (31,635 | ) | $ | (11,032 | ) |
| Issuance of  common stock       |       | 31,500           |       | —             |       | —        |       | —     |       | 144                    |       | — |   | 144 |   |
| Net loss                        |       | —           |       | —             |       | —        |       | —     |       | —                 |       | (1,737 | ) | (1,737 | ) |
|                            |       |             |       |               |       |          |       |       |       |                   |       |   |   |   |   |
| Balance March 30,  2005    |       | 3,698,995        |       | $                  | 37         |          | (752,013   | )          | $          | (8,480                 | )          | $ | 29,190 |   | $ | (33,372 | ) | $ | (12,625 | ) |

 

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

 

5

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                   | ** ** | **March 30, 2005**  | ** ** | **March 31, 2004** | ** ** |
| ** **                                                                   | ** ** | ** **               | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Cash flows  from operating activities                                        |       |                     |       |   |   |
| Net loss                                                                     |       | $                        | (1,737     | ) | $ | (797 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                     |       |   |   |
| Depreciation,  amortization and deferred rent                                |       | 3,193                    |       | 3,285 |   |
| Stock  compensation expense                                                  |       | 144                      |       | — |   |
| Changes in  operating assets and liabilities                                 |       |                     |       |   |   |
| Inventories                                                                  |       | (26                      | )          | (140 | ) |
| Prepaid  expenses, receivables and other                                     |       | 339                      |       | (863 | ) |
| Other  accrued expenses                                                      |       | (2,681                   | )          | (2,291 | ) |
| Accounts  payable                                                            |       | (1,093                   | )          | (1,162 | ) |
| Tenant  allowance received                                                   |       | —                   |       | 356 |   |
| Other  operating assets and liabilities                                      |       | (4                       | )          | (67 | ) |
|                                                                         |       |                     |       |   |   |
| Total  adjustments                                                           |       | (128                     | )          | (882 | ) |
|                                                                         |       |                     |       |   |   |
| Net cash  used in operating activities                                       |       | (1,865                   | )          | (1,679 | ) |
|                                                                         |       |                     |       |   |   |
| Cash flows  from investing activities                                        |       |                     |       |   |   |
| Additions to  property and equipment                                         |       | (764                     | )          | (1,791 | ) |
|                                                                         |       |                     |       |   |   |
| Net cash  used in investing activities                                       |       | (764                     | )          | (1,791 | ) |
|                                                                         |       |                     |       |   |   |
| Cash flows  from financing activities                                        |       |                     |       |   |   |
| Decrease in  restricted cash                                                 |       | 225                      |       | — |   |
| Purchase of  treasury shares                                                 |       | —                   |       | (62 | ) |
| Payment on  promissory note                                                  |       | (19                      | )          | (19 | ) |
| Principal  payments under capital lease obligations                          |       | (20                      | )          | (9 | ) |
|                                                                         |       |                     |       |   |   |
| Net cash  provided by (used in) financing activities                         |       | 186                      |       | (90 | ) |
|                                                                         |       |                     |       |   |   |
| Net decrease  in cash and cash equivalents                                   |       | (2,443                   | )          | (3,560 | ) |
| Cash and  cash equivalents, beginning of year                                |       | 12,291                   |       | 12,647 |   |
| Cash and  cash equivalents, end of period                                    |       | $                        | 9,848      |   | $ | 9,087 |   |
|                                                                         |       |                     |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                           |       |                     |       |   |   |
| Cash paid  for interest                                                      |       | $                        | 4,822      |   | $ | 4,826 |   |
| Cash paid  for income taxes                                                  |       | $                        | 16         |   | $ | 18 |   |

 

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

 

6

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**BERTUCCI’SCORPORATION**

**Notes To Condensed Consolidated Financial Statements**

March 30, 2005

(Unaudited)

 

*1.  Basis of Presentation*

 

The unaudited condensed consolidated financialstatements (the “Unaudited Financial Statements”) presented herein have beenprepared by Bertucci’s Corporation and include all of its subsidiaries(collectively, the “Company”) after elimination of inter-company accounts andtransactions, without audit, and, in the opinion of management, reflect alladjustments (consisting of normal recurring adjustments) necessary for a fairstatement of the interim periods presented.  The accompanying unauditedinterim condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for completefinancial statements are not included herein.  It is suggested theUnaudited Financial Statements be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 29, 2004 (the "2004 Annual Report"). The operating results for the thirteen weeks ended March 30, 2005 may notbe indicative of the results expected for any succeeding interim period or forthe entire year ending December 28, 2005.

 

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

 

*2. Recent Accounting Pronouncements*

 

In December 2004, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 123R, *Share-Based Payment*(“SFAS No. 123R”). This Statement is a revision of SFAS No. 123, *Accounting for Stock-Based Compensation*, and supersedesAccounting Principles Board Opinion No. 25, *Accountingfor Stock Issued to Employees*, and its related implementationguidance.  SFAS No. 123R focusesprimarily on accounting for transactions in which an entity obtains employeeservices in share-based payment transactions. The Statement requires entitiesto recognize stock compensation expense for awards of equity instruments toemployees based on the grant-date fair value of those awards (with limitedexceptions). SFAS No. 123R is effective for the first annual reportingperiod that begins after December 15, 2005.  The Company is evaluating the two methods ofadoption allowed by SFAS No. 123R; the modified-prospective transitionmethod and the modified-retrospective transition method.

 

*3. Restatement of Financial Statements*

 

Asdisclosed in its 2004 Annual Report, in the first quarter of 2005 the Companyinitiated a review of its lease accounting, including leased liquor licenses,and leasehold depreciation practices. As a result, the Company corrected itsaccounting for leases and restated its historical financial statements andcertain financial information to correct errors in lease accounting policies(the “Restatement”). The Company historically accounted for tenant improvementallowances as reductions to the related leasehold improvement asset on theconsolidated balance sheets and capital expenditures in investing activities onthe consolidated statements of cash flows. Also, the Company historically recognized rent on a straight-line basisover a lease term commencing with the initial occupancy date, orCompany-operated retail store opening date. In addition, the depreciable lives of certain leasehold improvements andother long-lived assets on those properties were not aligned with thenon-cancelable lease term.

 

Followinga review of its lease accounting treatment and relevant accounting literature,the Company determined it should:  (a) reporttenant improvement allowances as deferred liabilities in the consolidatedbalance sheets and initiate the amortization of those liabilities at therelevant initial occupancy date;  (b) classifythe change in the deferred liability related to the tenant allowances in theoperating activities on the Condensed Consolidated Statements of Cash Flows; (c) conformthe depreciable lives for buildings on 

 

7

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leasedland and other leasehold improvements to the shorter of the economic life ofthe asset or the lease term used for determining the capital versus operatinglease classification and calculating straight-line rent; and (d) includeoption periods in the depreciable lives assigned to leased buildings andleasehold improvements and in the calculation of straight-line rent expenseonly in instances in the which the exercise of the option period can be reasonablyassured and failure to exercise such options would result in an economicpenalty.

 

While the Restatement did not have any impact on theCompany’s previously reported net sales or compliance with any covenants underits debt instruments, the Company determined the correction of these errorsrequired it to restate its financial statements for all periods prior to September 29,2004. The following is a summary of the impact of the Restatement on theCompany’s condensed consolidated statements of operations and cash flow for thethirteen weeks ended March 31, 2004 (in thousands, except per share data):

 
| ** **                                                          | ** ** | **As previously  reported** | ** ** | **As Restated** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|-----------------|------------|
| Operating  expenses                                                 |       | $                           | 29,639     |            | $          | 29,627 |   |
| Deferred  rent, depreciation, amortization and pre-opening expenses |       | 3,232                       |       | 3,309           |       |
| Income from  operations                                             |       | 1,906                       |       | 1,841           |       |
| Interest  expense, net                                              |       | (2,629                      | )          | (2,638          | )          |
| Net loss                                                            |       | (723                        | )          | (797            | )          |
|                                                                |       |                        |       |            |       |
| Basic and  diluted loss per share                                   |       | $                           | (0.24      | )               | $          | (0.27 | ) |
|                                                                |       |                        |       |            |       |
| Cash flows  from operating activities                               |       | $                           | (2,038     | )               | $          | (1,679 | ) |
| Cash flows  from investing activities                               |       | (1,435                      | )          | (1,791          | )          |
| Cash flows  from financing activities                               |       | (87                         | )          | (90             | )          |

 

*4.  Liquor Licenses*

 

Transferable liquor licenses purchased are accountedfor at the lower of cost or fair market value and are not amortized. Annual renewal fees are expensed as incurred.  The carrying value oftransferable liquor licenses was $2.0 million at each of March 30, 2005and December 29, 2004. Non-transferable liquor licenses are amortizedon a straight-line basis over the contractual life of the license. Accumulated amortization at March 30, 2005 and December 29, 2004 fornon-transferable liquor licenses was $154,000 and $140,000, respectively. Amortization expense for the thirteen weeks ended March 30, 2005 was $14,000and is expected to be $56,000 per year through fiscal 2010.

 

*5.  Restaurant ClosingReserves*

 

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

 

The closed restaurant reserve was calculated net ofsublease income at 12 locations partially or fully subleased as of March 30,2005.  The Company remains primarily liable for the remaining leaseobligations

 

8

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should the sublessee default.  Total subleaseincome excluded from the reserve is approximately $6.9 million for subleasesexpiring at various dates through 2017.  There have been no defaults bysublessors to date.

 

Activity within the reservewas as follows (in thousands):

 
| ** **                                      | ** ** | **Thirteen weeks ended** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|
| ** **                                      | ** ** | **March 30,  2005** | ** ** | **March 31,  2004** | ** ** |
|                                            |       |                     |       |   |   |
| Balance,  beginning of the year                 |       | $                        | 659        |   | $ | 1,449 |   |
| Payments  charged against reserve               |       | (157                     | )          | (184 | ) |
| Balance, end  of period                         |       | $                        | 502        |   | $ | 1,265 |   |
| Current  portion (included in accrued expenses) |       | $                        | 324        |   | $ | 615 |   |
| Noncurrent  portion                             |       | 178                      |       | 650 |   |
|                                            |       | $                        | 502        |   | $ | 1,265 |   |

 

*6.  Loss per Share*

 

Basic loss per share is computed by dividing netloss by the weighted average number of common shares outstanding for thereporting period. Diluted earnings per share reflects the potential dilutionthat could occur if options or other contracts to issue common stock wereexercised or converted into common stock. For the periods ended March 30,2005 and March 31, 2004 options representing 531,429 and 592,396 shares ofcommon stock, respectively, were excluded from the calculation of diluted lossper share because of their anti-dilutive effect.

 

*7.  Income Taxes*

 

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

 

*8.  Stock-Based Compensation*

 

In accordance with SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFASNo. 123”), the Company has elected to account for stock-based compensationunder the intrinsic value method with disclosure of the effects of fair valueaccounting on net loss and loss per share on a pro forma basis. The Company’sstock-based compensation plan is described more fully in Note 10 of Notes toConsolidated Financial Statements in its 2004 Annual Report. The Companyaccounts for this plan under the recognition and measurement principles of APBOpinion No. *25, Accounting for StockIssued to Employees,*and related interpretations. With the exceptionof one modification to a grant during 2003, no stock-based employeecompensation cost related to stock options is reflected in net loss, as alloptions granted had an exercise price equal to, or in excess of, the marketvalue of the underlying common stock on the date of grant. The following tableillustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123 (inthousands, except per share data): 

 

9

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| ** **                                                                                                      | ** ** | **Thirteen weeks ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                                      | ** ** | **March 30,  2005** | ** ** | **March 31,  2004** | ** ** |
|                                                                                                            |       |                     |       |   |   |
| Net loss, as  reported                                                                                          |       | $                        | (1,737     | ) | $ | (797 | ) |
| Add:  Stock-based employee compensation expense included in reported net loss                                   |       | 144                      |       | — |   |
|                                                                                                            |       |                     |       |   |   |
| Adjust: Net  stock-based employee compensation expense determined under fair value based  method for all awards |       | (191                     | )          | (96 | ) |
|                                                                                                            |       |                     |       |   |   |
| Pro forma  net loss                                                                                             |       | $                        | (1,784     | ) | $ | (893 | ) |
|                                                                                                            |       |                     |       |   |   |
| Basic and diluted  loss per share                                                                               |       |                     |       |   |   |
| As reported                                                                                                     |       | $                        | (0.59      | ) | $ | (0.27 | ) |
| Pro forma                                                                                                       |       | $                        | (0.61      | ) | $ | (0.30 | ) |

 

During the quarter ended March 30,2005, the Company awarded bonuses to two senior employees and certain officersand independent members of the Board of Directors consisting of an aggregate of31,500 shares of Common Stock with a fair value of $4.56 per share.Accordingly, the grant of such shares resulted in a $144,000 compensationcharge to the Company. The recipients of these awards acknowledged in writing thetransfer of their shares is subject to the provisions of a Stockholders’ Agreement,which are summarized in "Security Ownership of Certain Beneficial Ownersand Management - Shareholders Agreement" in the Company's 2004 AnnualReport.

 

10

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

 

**Forward-Looking Statements**

 

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

 

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

 

**General**

 

Bertucci’s Corporation, a Delaware corporation (the “Company”),is the owner and operator of a chain of full-service casual dining,Italian-style restaurants under the names Bertucci’s Brick Oven Pizzeria® andBertucci’s Brick Oven Ristorante®. As of March 30, 2005, the Companyoperated 92 restaurants located primarily in the northeastern United States.

 

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

 

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

 

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**Results of Operations**

 

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

 

**STATEMENTS OF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                           | ** ** | **March 30,  2005** | ** ** | **March 31,  2004** | ** ** |
|                                                                 |       |                     |       |   |   |
| Net sales                                                            |       | 100.0                    | %          | 100.0 | % |
|                                                                 |       |                     |       |   |   |
| Cost of  sales and expenses:                                         |       |                     |       |   |   |
| Cost of  sales                                                       |       | 23.7                     | %          | 23.4 | % |
| Operating  expenses                                                  |       | 61.0                     | %          | 59.9 | % |
| General and  administrative expenses                                 |       | 7.0                      | %          | 6.3 | % |
| Depreciation,  amortization, deferred rent, and pre-opening expenses |       | 6.5                      | %          | 6.7 | % |
| Total cost  of sales and expenses                                    |       | 98.2                     | %          | 96.3 | % |
|                                                                 |       |                     |       |   |   |
| Income from  operations                                              |       | 1.8                      | %          | 3.7 | % |
| Interest  expense, net                                               |       | (5.3                     | )%         | (5.3 | )% |
| Loss before  income taxes                                            |       | (3.5                     | )%         | (1.6 | )% |
|                                                                 |       |                     |       |   |   |
| Income taxes                                                         |       | —                   |       | — |   |
| Net loss                                                             |       | (3.5                     | )%         | (1.6 | )% |
|                                                                 |       |                     |       |   |   |
| **Restaurant  Operating Data:**                                      |       |                     |       |   |   |
| Increase in  comparable restaurant sales (a)                         |       | (1.6                     | )%         | 4.9 | % |
| Number of  restaurants:                                              |       |                     |       |   |   |
| Restaurants  open, beginning of period                               |       | 91                       |       | 89 |   |
| Restaurants  opened                                                  |       | 1                        |       | 1 |   |
| Total  restaurants open, end of period                               |       | 92                       |       | 90 |   |

 

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(a)    TheCompany defines comparable restaurant sales as net sales from restaurants thathave been open for at least one full fiscal year at the beginning of the fiscalyear.

 

**Thirteen Weeks Ended March 30,2005 Compared****to Thirteen Weeks Ended March 31, 2004**

 

*Net Sales*.  Total net sales increased by $600,000,or 1.2%, to $50.0 million during the first quarter of 2005 from $49.4 millionduring the first quarter of 2004.  The increase was primarily due to 32incremental restaurant weeks from three restaurants opened since January 2004offset by a 1.6% decrease in the 89 comparable restaurants’ sales. ComparableBertucci’s restaurant dine-in guest counts decreased 1.9% for the first quarterof 2005 as compared to the first quarter of 2004.  Bertucci’s comparablerestaurant dine-in sales decreased 2.5% and comparable carry-out and deliverysales increased 1.5% for the quarter as compared to the first quarter of 2004. The Company believes comparable sales were down primarily due to theaforementioned guest count decreases while an anticipated menu mix shift to lowerpriced items also contributed to the decrease.  For the 89 comparablerestaurants, average weekly sales were approximately $42,000 for the firstquarter of 2005 compared to approximately $42,600 per week for the firstquarter of 2004.

 

*Cost of Sales.*  Cost of sales increased byapproximately $300,000, or 2.6%, to $11.9 million during the first quarter of2005 from $11.6 million during the first quarter 2004.  Expressed as apercentage of net sales, overall cost of sales increased to 23.7% during the firstquarter of 2005 from 23.4% during the first quarter of 2004.  Of this$300,000 increase approximately $125,000 resulted from the increase in netsales, and approximately $175,000 can be attributed to increases in certainingredient costs, such as chicken, tomatoes, flour and bacon.

 

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*Operating Expenses.*  Operating expenses increased by $900,000or 3.0%, to $30.5 million during the first quarter of 2005 from $29.6 millionduring the first quarter of 2004.  Expressed as a percentage of net sales,operating expenses increased to 61.0% in the first quarter of 2005 from 59.9%during the first quarter of 2004.  The dollar increase was primarily dueto the opening and operation of the three non-comparable restaurants.

 

*General and AdministrativeExpenses.* General and administrative expenses increased by approximately $400,000, or 12.9%,to $3.5 million during the first quarter of 2005 from $3.1 million during the firstquarter of 2004.  Expressed as a percentage of net sales, general andadministrative expenses increased to 7.0% in the first quarter of 2005 from6.3% in the first quarter of 2004.  The dollar increase over the prioryear period is primarily attributable to: (a) stock compensation expenserelating to the award of 31,500 shares of common stock to key members ofmanagement and independent members of the Board of Directors; and (b) bonusexpense accruals as year-to-date results are currently exceeding targetedlevels under the Company’s bonus plan.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $100,000, or 3.0%, to $3.2 million duringthe first quarter of 2005 from $3.3 million during the first quarter of 2004. The decrease is primarily due to reduced deferred rent. Expressed as apercentage of net sales, depreciation, amortization, deferred rent and pre-openingexpenses decreased to 6.5% in the first quarter of 2005 from 6.7% during the firstquarter of 2004.

 

*Interest Expense, net.*  Net interest expense wasessentially flat in the first quarter of 2005 compared to the first quarter of2004.

 

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

 

**Liquidity and Capital Resources**

 

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

 

Net cash flows used in operating activities were $1.9million for the first quarter of 2005, approximately $200,000 more than the $1.7million used during the first quarter of 2004.  As of March 30, 2005,the Company had cash and cash equivalents of $9.8 million.

 

The Company’s capital additions were $764,000 duringthe first quarter of 2005 compared to $1.8 million for the comparable prioryear period.  The capital expenditures were primarily comprised of $367,000for a new restaurant which opened in the first quarter of 2005 and $397,000 forremodeling and maintenance capital.  The Company anticipates capitalexpenditures for the remainder of 2005 will be approximately $4.3 million.

 

As of March 30, 2005, the Company had $92.2million in consolidated indebtedness, $85.3 million pursuant to the SeniorNotes, $6.1 million of capital lease obligations, and $0.8 million ofpromissory notes.  The Senior Notes contain no financial covenants and theCompany is in compliance with all non-financial covenants as of May 11,2005.  The Senior Notes bear interest atthe rate of 10 3⁄4% per annum, payable semi-annually on January 15 and July 15.  The Senior Notes are due in full on July 15,2008.

 

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Through July 15, 2006, the Company may, at itsoption, redeem any or all of the Senior Notes at face value, plus a decliningpremium, which is 3.58% through July 14, 2005 and 1.79% from July 15,2005 through July 15, 2006.  After July 15,2006, the Senior Notes may be redeemed at face value. Additionally, undercertain circumstances, including a change of control or following certain assetsales, the holders of the Senior Notes may require the Company to repurchasethe Senior Notes, at a redemption price of 101% of face value.

 

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

 

The Company has established a $4.0 million (maximum)letter of credit facility (expiring in December 2005) as collateral withthird party administrators for self insurance reserves.  As of March 30,2005, this facility is collateralized with $2.2 million of cash restricted fromgeneral use.  Letters of credit totaling $2.2 million were outstanding on March 30,2005.

 

The Company believes the cash flow generated fromits operations and cash on hand should be sufficient to fund its debt servicerequirements, lease obligations, expected capital expenditures and otheroperating expenses through 2005.  Beyond 2005 and up to the 2008 maturityof its Senior Notes, the Company expects to be able to service its debt, butthe lack of short term borrowing availability may impede growth. The Company isevaluating various refinancing alternatives for its Senior Notes upon theirmaturity in 2008.

 

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

 

There have been no material changes to theCompany's contractual obligations and commitments from those disclosed in theCompany's 2004 Annual Report.

 

**Impact of Inflation**

 

Inflationary factors such as increases in labor,food or other operating costs could adversely affect the Company’s operations. The Company does not believe inflation has had a material impact on itsfinancial position or results of operations for the periods discussedabove.  Management believes through the proper leveraging of purchasingsize, labor scheduling, and restaurant development analysis, inflation will nothave a material adverse effect on operations during the foreseeablefuture.  There can be no assurance inflation will not materially adverselyaffect the Company.

 

**Seasonality**

 

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

 

**Critical Accounting Policies andEstimates**

 

The discussion and analysis of theCompany’s financial condition and results of operations are based upon itsconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financial statementsrequires the Company to make estimates and judgments affecting the reportedamounts of assets, liabilities,

 

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revenues and expenses, and relateddisclosure of contingent assets and liabilities.  On an on-going basis, estimates areevaluated, including those related to the impairment of long-lived assets, self-insurance,and closed restaurants reserve. Estimates are based on historical experienceand on various other assumptions believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities not readily apparent from othersources. Actual results may differ from these estimates under differentassumptions or conditions. For a discussion of how these and other factors mayaffect the Company's business, see the "Forward-Looking Statements"above and other factors included in the Company's other filings with theSecurities and Exchange Commission.

 

The Company's critical accountingpolicies affect the more significant judgments and estimates used in thepreparation of the Company’s consolidated financial statements.  The Company believes its critical accountingpolicies relate to the impairment of long-lived assets, income tax valuationallowances, self-insurance and closed restaurant reserves. For a more detaileddiscussion of the Company’s critical accounting policies and estimates, pleaserefer to "Management's Discussion and Analysis of Financial Condition andResults of Operations - Critical Accounting Policies and Estimates"contained in the Company's 2004 Annual Report. There have been no material changes to the Company's critical accountingpolicies and estimates from those disclosed in the 2004 Annual Report.

 

**Item 3.****  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET RISK**

 

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

 

**Item 4.****CONTROLS AND PROCEDURES**

 

*a) Disclosure Control andProcedures.*  TheCompany maintains disclosure controls and procedures designed to ensureinformation required to be disclosed in the Company’s reports under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and such information is accumulated and communicated tothe Company’s management, including the Company’s Chief Executive Officer (“CEO”)and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisionsregarding required disclosure. In designing and evaluating the disclosurecontrols and procedures, management recognized controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, as the Company’s are designed to do,and management necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

As of March 30, 2005, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act).  Based on that evaluation, the Company’s CEO and CFOconcluded that the Company’s disclosure controls and procedures were effectiveas of March 30, 2005.

 

*b) Changes inInternal Controls Over Financial Reporting*.  Inconnection with preparation of the Company’s 2004 Annual Report, and inlight of the restatement of all financial statements for all periods prior to September 29,2004 discussed in Note 3 of Notes to Consolidated Financial Statements includedin the 2004 Annual Report, the Company concluded a material weaknessexisted in the Company’s internal control over financial reporting as itrelated to it lease accounting and lease depreciation practices.  In March 2005,a review of lease accounting practices was completed and additional controlsover lease accounting and lease depreciation practices were implemented.  There were no other changes in the Company’sinternal control over financial reporting that occurred during the Company’slast fiscal quarter that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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PART II:OTHER INFORMATION

 

Item1.  LEGAL PROCEEDINGS

 

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

 

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

 

During the first quarter of 2005, the Company issuedan aggregate of 31,500 shares of its Common Stock as bonuses to two senioremployees and several of its officers and independent directors.  Each share of Common Stock was valued at$4.56.  The Company recorded a $144,000 compensation charge in connection with thegrant of these shares. In addition, the Company issued 750 shares of CommonStock to an officer as a bonus in the second quarter of 2005. Each granteeacknowledged in writing the transfer of his or her shares is subject to theprovisions of a Stockholder Agreement discussed in Note 8 of the Notes to theCondensed Consolidated Financial Statements. If the grants of such shares are characterized as sales under Section 5of the Securities Act of 1933, as amended (the “Act”), then the Company believesthe grants were exempt from registration under the Act pursuant to theexemption provided by Section 4(2) of the Act.  No commissions were paid to any underwriterin connection with the issuance of these shares.

 

The grants were issued asfollows:

 

On March 1, 2005, the Companyissued 2,000 shares of Common Stock to each of the three independentdirectors of the Company (6,000 total shares).

 

On March 1, 2005, the Companyissued a total of 25,500 shares of Common Stock to two senioremployees and certain officers (nine individuals).

 

On April 5, 2005, the Companyissued 750 shares of Common Stock to an officer.

 

Item 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

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

 

None

 

Item5.  OTHER INFORMATION

 

As described in Part II, Item 2 above, theCompany issued an aggregate of: (1) 31,500 shares of unregistered CommonStock on March 1, 2005; and (2) 750 shares of unregistered CommonStock on April 5, 2005.

 

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

 

SIGNATURES

 

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

 

 
|                    | BERTUCCI’S CORPORATION |
|-------------------------|-----------------------------|
|                    | (Registrant)                |
|                    |                        |   |
| Date: May 11, 2005 | By:                         | /s/ Stephen V. Clark |   |
|                    |                        | Chief Executive Officer and Director |
|                    |                        |   |
|                    |                        |   |
| Date: May 11, 2005 | By:                         | /s/ David G. Lloyd |   |
|                    |                        | Chief Financial Officer |

 

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