**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 June 29, 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

 

2,950,732 shares of the registrant’s Common Stockwere outstanding on August 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 June 29, 2005 (Unaudited) and December 29,  2004 (Unaudited)                                             |   |
|          |                                                                                                                                                            |   |
| 2)            | Condensed  Consolidated Statements of Operations For the 13 and 26 Weeks Ended June 29,  2005 (Unaudited) and June 30, 2004 (as Restated) (Unaudited) |   |
|          |                                                                                                                                                            |   |
| 3)            | Condensed  Consolidated Statements of Cash Flow for the 26 Weeks Ended June 29,  2005 (Unaudited) and June 30, 2004 (as Restated) (Unaudited)         |   |
|          |                                                                                                                                                            |   |
| 4)            | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                                               |   |
|          |                                                                                                                                                            |   |
| Item 2.       | Management’s Discussion  and Analysis of Financial Condition and Results of Operations                                                                     |   |
|          |                                                                                                                                                            |   |
| Item 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)

 
| ** **                                                                                                       | ** ** | **June 29,  2005** | ** ** | **December 29,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                           |       |                    |       |                        |       |
| Current Assets:                                                                                                  |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                        |       | $                       | 14,520     |                        | $          | 12,291 |   |
| Restricted cash                                                                                                  |       | 2,189                   |       | 2,403                       |       |
| Accounts receivable                                                                                              |       | 1,100                   |       | 1,334                       |       |
| Inventories                                                                                                      |       | 1,465                   |       | 1,388                       |       |
| Prepaid expenses and other current assets                                                                        |       | 472                     |       | 534                         |       |
| Total current assets                                                                                             |       | 19,746                  |       | 17,950                      |       |
|                                                                                                             |       |                    |       |                        |       |
| Property and Equipment, at cost:                                                                                 |       |                    |       |                        |       |
| Land                                                                                                             |       | 259                     |       | 259                         |       |
| Buildings                                                                                                        |       | 697                     |       | 697                         |       |
| Capital leases - land and buildings                                                                              |       | 5,764                   |       | 5,764                       |       |
| Leasehold improvements                                                                                           |       | 67,351                  |       | 66,037                      |       |
| Furniture and equipment                                                                                          |       | 44,423                  |       | 43,248                      |       |
|                                                                                                             |       | 118,494                 |       | 116,005                     |       |
| Less - accumulated depreciation and  amortization                                                                |       | (57,671                 | )          | (51,517                     | )          |
|                                                                                                             |       | 60,823                  |       | 64,488                      |       |
| Construction work in process                                                                                     |       | —                  |       | 1,567                       |       |
| Net property and equipment                                                                                       |       | 60,823                  |       | 66,055                      |       |
|                                                                                                             |       |                    |       |                        |       |
| Goodwill                                                                                                         |       | 26,127                  |       | 26,127                      |       |
| Deferred finance costs, net                                                                                      |       | 2,514                   |       | 2,862                       |       |
| Liquor licenses, net                                                                                             |       | 2,386                   |       | 2,414                       |       |
| Other assets                                                                                                     |       | 572                     |       | 513                         |       |
| TOTAL ASSETS                                                                                                     |       | $                       | 112,168    |                        | $          | 115,921 |   |
|                                                                                                             |       |                    |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                      |       |                    |       |                        |       |
|                                                                                                             |       |                    |       |                        |       |
| Current Liabilities:                                                                                             |       |                    |       |                        |       |
| Promissory notes - current portion                                                                               |       | $                       | 41         |                        | $          | 40 |   |
| Capital lease obligations - current portion                                                                      |       | 83                      |       | 74                          |       |
| Accounts payable                                                                                                 |       | 7,344                   |       | 7,819                       |       |
| Accrued expenses                                                                                                 |       | 15,723                  |       | 16,457                      |       |
| Total current liabilities                                                                                        |       | 23,191                  |       | 24,390                      |       |
| Promissory notes, net of current portion                                                                         |       | 761                     |       | 781                         |       |
| Capital lease obligations, net of current  portion                                                               |       | 6,051                   |       | 6,102                       |       |
| Senior Notes                                                                                                     |       | 85,310                  |       | 85,310                      |       |
| Deferred gain on sale leaseback transaction                                                                      |       | 1,947                   |       | 2,002                       |       |
| Other long-term liabilities                                                                                      |       | 8,583                   |       | 8,368                       |       |
| Total liabilities                                                                                                |       | 125,843                 |       | 126,953                     |       |
| Commitments and Contingencies                                                                                    |       |                    |       |                        |       |
| Stockholders’ Deficit:                                                                                      |       |                    |       |                        |       |
| Common stock, $.01 par value                                                                                     |       |                    |       |                        |       |
| Authorized - 8,000,000 shares                                                                                    |       |                    |       |                        |       |
| Issued - 3,699,745 and 3,667,495 shares,  respectively; Outstanding 2,947,732 and 2,915,482 shares, respectively |       | 37                      |       | 37                          |       |
| Less treasury shares, 752,013 at cost                                                                            |       | (8,480                  | )          | (8,480                      | )          |
| Additional paid-in capital                                                                                       |       | 29,192                  |       | 29,046                      |       |
| Accumulated deficit                                                                                              |       | (34,424                 | )          | (31,635                     | )          |
| Total stockholders’ deficit                                                                                 |       | (13,675                 | )          | (11,032                     | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                 |       | $                       | 112,168    |                        | $          | 115,921 |   |

 

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

 

3

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except share and per sharedata)

(Unaudited)

 
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended**      | ** ** |
|---------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------|------------|
| ** **                                                          | ** ** | **June 29,  2005**  | ** ** | **June 30,  2004**         | ** ** | **June 29,  2005** | ** ** | **June 30,  2004** | ** ** |
| ** **                                                          | ** ** | ** **               | ** ** | **(As Restated - See  Note 3)** | ** ** | ** ** | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Net sales                                                           |       | $                        | 52,580     |                            | $          | 51,754 |   | $ | 102,532 |   | $ | 101,180 |   |
|                                                                |       |                     |       |                            |       |   |   |   |   |
| Cost of sales and expenses:                                         |       |                     |       |                            |       |   |   |   |   |
| Cost of sales                                                       |       | 12,322                   |       | 12,883                          |       | 24,182 |   | 24,439 |   |
| Operating expenses                                                  |       | 31,391                   |       | 33,469                          |       | 61,845 |   | 63,096 |   |
| General and administrative expenses                                 |       | 3,283                    |       | 3,478                           |       | 6,782 |   | 6,571 |   |
| Asset impairment charge                                             |       | 907                      |       | 3,894                           |       | 907 |   | 3,894 |   |
| Depreciation, amortization, deferred rent  and pre-opening expenses |       | 3,108                    |       | 3,261                           |       | 6,334 |   | 6,570 |   |
| Total cost of sales and expenses                                    |       | 51,011                   |       | 56,985                          |       | 100,050 |   | 104,570 |   |
| Income (loss) from operations                                       |       | 1,569                    |       | (5,231                          | )          | 2,482 |   | (3,390 | ) |
| Other income (expense):                                             |       |                     |       |                            |       |   |   |   |   |
| Interest expense, net                                               |       | (2,621                   | )          | (2,661                          | )          | (5,271 | ) | (5,299 | ) |
| Loss before income taxes                                            |       | (1,052                   | )          | (7,892                          | )          | (2,789 | ) | (8,689 | ) |
|                                                                |       |                     |       |                            |       |   |   |   |   |
| Income taxes                                                        |       | —                   |       | —                          |       | — |   | — |   |
|                                                                |       |                     |       |                            |       |   |   |   |   |
| Net loss                                                            |       | $                        | (1,052     | )                               | $          | (7,892 | ) | $ | (2,789 | ) | $ | (8,689 | ) |
|                                                                |       |                     |       |                            |       |   |   |   |   |
| Basic and diluted loss per share                                    |       | $                        | (0.36      | )                               | $          | (2.68 | ) | $ | (0.95 | ) | $ | (2.94 | ) |
|                                                                |       |                     |       |                            |       |   |   |   |   |
| Weighted-average shares outstanding - basic  and diluted            |       | 2,947,691                |       | 2,945,040                       |       | 2,936,626 |   | 2,951,738 |   |

 

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

 

4

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

(Inthousands)

(Unaudited)

 
| ** **                                                                       | ** ** | **Twenty-six Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                       | ** ** | **June 29, 2005**     | ** ** | **June 30, 2004** | ** ** |
| ** **                                                                       | ** ** | ** **                 | ** ** | **(As Restated - See  Note 3)** | ** ** |
| Cash flows from operating activities                                             |       |                       |       |   |   |
| Net loss                                                                         |       | $                          | (2,789     | ) | $ | (8,689 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                       |       |   |   |
| Depreciation, amortization and deferred  rent                                    |       | 6,497                      |       | 6,685 |   |
| Asset impairment charge                                                          |       | 907                        |       | 3,894 |   |
| Stock compensation expense                                                       |       | 146                        |       | — |   |
| Changes in operating assets and liabilities                                      |       |                       |       |   |   |
| Inventories                                                                      |       | (77                        | )          | (156 | ) |
| Prepaid expenses, receivables and other                                          |       | 546                        |       | (31 | ) |
| Other accrued expenses                                                           |       | (728                       | )          | (549 | ) |
| Accounts payable                                                                 |       | (475                       | )          | 600 |   |
| Tenant allowance received                                                        |       | —                     |       | 356 |   |
| Other operating assets and liabilities                                           |       | (59                        | )          | (11 | ) |
|                                                                             |       |                       |       |   |   |
| Total adjustments                                                                |       | 6,757                      |       | 10,798 |   |
|                                                                             |       |                       |       |   |   |
| Net cash provided by operating activities                                        |       | 3,968                      |       | 2,099 |   |
|                                                                             |       |                       |       |   |   |
| Cash flows from investing activities                                             |       |                       |       |   |   |
| Additions to property and equipment                                              |       | (1,892                     | )          | (3,786 | ) |
| Decrease in restricted cash                                                      |       | 214                        |       | — |   |
|                                                                             |       |                       |       |   |   |
| Net cash used in investing activities                                            |       | (1,678                     | )          | (3,786 | ) |
|                                                                             |       |                       |       |   |   |
| Cash flows from financing activities                                             |       |                       |       |   |   |
| Purchase of treasury shares                                                      |       | —                     |       | (133 | ) |
| Sale of common stock from exercise of  options                                   |       | —                     |       | 10 |   |
| Payment on promissory note                                                       |       | (19                        | )          | (19 | ) |
| Principal payments under capital lease  obligations                              |       | (42                        | )          | (20 | ) |
|                                                                             |       |                       |       |   |   |
| Net cash used in financing activities                                            |       | (61                        | )          | (162 | ) |
|                                                                             |       |                       |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                            |       | 2,229                      |       | (1,849 | ) |
| Cash and cash equivalents, beginning of  year                                    |       | 12,291                     |       | 12,647 |   |
| Cash and cash equivalents, end of period                                         |       | $                          | 14,520     |   | $ | 10,798 |   |
|                                                                             |       |                       |       |   |   |
| Supplemental Disclosure of Cash Flow  Information:                               |       |                       |       |   |   |
| Cash paid for interest                                                           |       | $                          | 5,052      |   | $ | 5,042 |   |
| Cash paid for income taxes                                                       |       | $                          | 84         |   | $ | 354 |   |

 

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

 

5

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**BERTUCCI’SCORPORATION**

**Notes To Condensed Consolidated Financial Statements**

June 29, 2005

(Unaudited)

 

*1.  Basis of Presentation*

 

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

 

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

 

The Condensed Consolidated Statement of Cash Flows for the twenty-six weeks ended June 29, 2005 reflects a change in the classification of changes in restricted cash balances to present such changes as an investing activity. Such changes were previously presented as a financing activity.

 

*2. Recent Accounting Pronouncements*

 

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

 

In May 2005, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 154, *AccountingChanges and Error Corrections–A Replacement of APB Opinion No. 20 and FASBStatement No. 3.*  SFAS No. 154applies to all voluntary changes in accounting principle and requiresretrospective application to prior periods’ financial statements of changes inaccounting principle, unless it is impracticable.  SFAS No. 154 requires that a change indepreciation, amortization, or depletion method for long-lived, non-financialassets be accounted for as a change of estimate affected by a change inaccounting principle.  SFAS No. 154also carries forward without change the guidance in Accounting Principals Board(“APB”) Opinion No. 20 with respect to accounting for changes inaccounting estimates, changes in the reporting unit and correction of an errorin previously issued financial statements. The Company is required to adopt SFAS No. 154 for accountingchanges and corrections of errors made in fiscal years beginning after December 15,2005.  The adoption of SFAS No. 154is not expected to have a material effect on the Company’s consolidatedfinancial position or results of operations.

 

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

 

6

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*3. Restatement of Financial Statements*

 

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 leased land and other leaseholdimprovements to the shorter of the economic life of the asset or the lease termused for determining the capital versus operating lease classification andcalculating straight-line rent; and (d) include option periods in thedepreciable lives assigned to leased buildings and leasehold improvements andin the calculation of straight-line rent expense only in instances in the whichthe exercise of the option period can be reasonably assured and failure toexercise such options would result in an economic penalty.

 

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 and twenty-six weeks ended June 30, 2004 (in thousands, exceptper share data):

 
| ** **                                                          | ** ** | **Thirteen Weeks Ended**    | ** ** | **Twenty-six Weeks Ended** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                          | ** ** | **As previously  reported** | ** ** | **As Restated**            | ** ** | **As previously  reported** | ** ** | **As Restated** | ** ** |
| Operating expenses                                                  |       | $                           | 33,480     |                       | $          | 33,469 |   | $ | 63,119 |   | $ | 63,096 |   |
| Deferred rent, depreciation, amortization  and pre-opening expenses |       | 3,112                       |       | 3,261                      |       | 6,345 |   | 6,571 |   |
| Asset impairment charge                                             |       | 3,338                       |       | 3,894                      |       | 3,338 |   | 3,894 |   |
| Loss from operations                                                |       | (4,537                      | )          | (5,231                     | )          | (2,632 | ) | (3,390 | ) |
| Interest expense, net                                               |       | (2,652                      | )          | (2,661                     | )          | (5,280 | ) | (5,299 | ) |
| Net loss                                                            |       | (7,189                      | )          | (7,892                     | )          | (7,912 | ) | (8,689 | ) |
|                                                                |       |                        |       |                       |       |   |   |   |   |
| Basic and diluted loss per share                                    |       | $                           | (2.44      | )                          | $          | (2.68 | ) | $ | (2.68 | ) | $ | (2.94 | ) |
|                                                                |       |                        |       |                       |       |   |   |   |   |
| Cash flows from operating activities                                |       |                        |       |                       |       | $ | 1,738 |   | $ | 2,110 |   |
| Cash flows from investing activities                                |       |                        |       |                       |       | (3,430 | ) | (3,787 | ) |
| Cash flows from financing activities                                |       |                        |       |                       |       | (157 | ) | (172 | ) |

 

*4.  Liquor Licenses*

 

Transferable liquor licenses purchased are accountedfor at the lower of cost or fair market value and are not amortized. Annual renewal fees are expensed as incurred.  The carrying value oftransferable liquor licenses was $2.0 million at each of June 29, 2005 andDecember 29, 2004. Non-transferable liquor licenses are amortized ona straight-line basis over the contractual life of the license. Accumulated amortization at June 29, 2005 and December 29, 2004 fornon-transferable liquor licenses was $168,000 and $140,000, respectively. Amortization expense for the twenty-six weeks ended June 29, 2005 was $28,000and is expected to be $56,000 per year through fiscal 2010.

 

7

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*5. Restaurant Closing Reserves*

 

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

 

The closed restaurant reserve was calculatednet of sublease income at ten locations partially or fully subleased as of June 29,2005.  The Company remains primarily liable for the remaining leaseobligations should the sublessee default.  Total sublease incomeexcluded from the reserve is approximately $6.7 million for subleases expiringat various dates through 2017.  There have been no defaults by sublessorsto date.

 

Activity within the reservewas as follows (in thousands):

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

 

*6.  Loss per Share*

 

Basic loss per share is computed by dividing netloss by the weighted-average number of shares of common stock outstanding forthe reporting period. Diluted earnings per share reflects the potentialdilution that could occur if options or other contracts to issue common stockwere exercised or converted into common stock. For the periods ended June 29,2005 and June 30, 2004 options representing 534,179 and 560,146 shares ofcommon stock, respectively, were excluded from the calculation of diluted lossper share because of their anti-dilutive effect.

 

*7.  Income Taxes*

 

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

 

*8.  Stock-Based Compensation*

 

In accordance with SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFASNo. 123”), the Company has elected to account for stock-based compensationunder the intrinsic value method with disclosure of the effects of fair value accountingon net loss and loss per share on a pro forma basis. The Company’s stock-basedcompensation plan is described more fully in Note 10 of Notes to ConsolidatedFinancial Statements in its 2004 Annual Report. The Company accounts for thisplan under the recognition and measurement principles of APB Opinion No. *25, Accounting for Stock Issued to Employees,*andrelated interpretations. No stock-based employee compensation cost related tostock options is reflected in net loss, as all options granted had an exerciseprice equal to, or in excess of, the market value of the underlying commonstock on the date of grant. The following table illustrates the effect on netloss and loss per share if the Company had applied the fair value recognitionprovisions of SFAS No. 123 (in thousands, except per share data):

 

8

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| ** **                                                                                                               | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                               | ** ** | **June 29,  2005**  | ** ** | **June 30,  2004**    | ** ** | **June 29,  2005** | ** ** | **June 30,  2004** | ** ** |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Net loss, as reported                                                                                                    |       | $                        | (1,052     | )                          | $          | (7,892 | ) | $ | (2,789 | ) | $ | (8,689 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss                                            |       | 2                        |       | —                     |       | 146 |   | — |   |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Adjust: Net stock-based employee  compensation income (expense) determined under fair value based method for  all awards |       | 65                       |       | (78                        | )          | (126 | )  | (156 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Pro forma net loss                                                                                                       |       | $                        | (985       | )                          | $          | (7,970 | ) | $ | (2,769 | ) | $ | (8,845 | ) |
|                                                                                                                     |       |                     |       |                       |       |   |   |   |   |
| Basic and diluted loss per share                                                                                         |       |                     |       |                       |       |   |   |   |   |
| As reported                                                                                                              |       | $                        | (0.36      | )                          | $          | (2.68 | ) | $ | (0.95 | ) | $ | (2.94 | ) |
| Pro forma                                                                                                                |       | $                        | (0.33      | )                          | $          | (2.71 | ) | $ | (0.94 | ) | $ | (3.00 | ) |

 

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

 

The net stock-basedemployee compensation expense determined under the fair value based method forthe current periods includes income resulting from the forfeitures ofnon-vested options.

 

9. *AssetImpairment Charge*

 

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

 

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

 

**Item 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL 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

 

9

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Exchange Commission.  Investors are cautionednot to place undue reliance on these forward-looking statements, which speakonly as of the date hereof.  The Company undertakes no obligation topublicly release any revisions to these forward-looking statements to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.

 

The following discussion should be read inconjunction with the condensed consolidated financial statements of Bertucci’sCorporation (the “Company”), and the notes thereto included herein, as well asthe 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 June 29, 2005, the Companyoperated 92 restaurants located primarily in the northeastern United States.

 

In July 1998, the Company completed itsacquisition of Bertucci’s Restaurant Corp.’s parent entity, Bertucci’s, Inc.,for a purchase price, net of cash received, of approximately $89.4 million (the“Acquisition”).  The Company financed the Acquisition primarily through theissuance 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.

 

**Results of Operations**

 

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

 

**STATEMENTSOF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                           | ** ** | **June 29,  2005**  | ** ** | **June 30,  2004**    | ** ** | **June 29,  2005** | ** ** | **June 30,  2004** | ** ** |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Net sales                                                            |       | 100.0                    | %          | 100.0                      | %          | 100.0 | % | 100.0 | % |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Cost of sales and expenses:                                          |       |                     |       |                       |       |   |   |   |   |
| Cost of sales                                                        |       | 23.4                     | %          | 24.9                       | %          | 23.6 | % | 24.2 | % |
| Operating expenses                                                   |       | 59.8                     | %          | 64.7                       | %          | 60.3 | % | 62.4 | % |
| General and administrative expenses                                  |       | 6.2                      | %          | 6.7                        | %          | 6.6 | % | 6.5 | % |
| Asset impairment charge                                              |       | 1.7                      | %          | 7.5                        | %          | 0.9 | % | 3.8 | % |
| Depreciation, amortization, deferred rent,  and pre-opening expenses |       | 5.9                      | %          | 6.3                        | %          | 6.2 | % | 6.5 | % |
| Total cost of sales and expenses                                     |       | 97.0                     | %          | 110.1                      | %          | 97.6 | % | 103.4 | % |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Income from operations                                               |       | 3.0                      | %          | (10.1                      | )%         | 2.4 | % | (3.4 | )% |
| Interest expense, net                                                |       | (5.0                     | )%         | (5.1                       | )%         | (5.1 | )% | (5.2 | )% |
| Loss before income taxes                                             |       | (2.0                     | )%         | (15.2                      | )%         | (2.7 | )% | (8.6 | )% |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Income taxes                                                         |       | —                   |       | —                     |       | — |   | — |   |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| Net loss                                                             |       | (2.0                     | )%         | (15.2                      | )%         | (2.7 | )% | (8.6 | )% |
|                                                                 |       |                     |       |                       |       |   |   |   |   |
| **Restaurant Operating Data:**                                       |       |                     |       |                       |       |   |   |   |   |
| Increase in comparable restaurant sales (a)                          |       | (0.7                     | )%         | 1.0                        | %          | (1.1 | )% | 2.9 | % |
| Number of restaurants:                                               |       |                     |       |                       |       |   |   |   |   |
| Restaurants open, beginning of period                                |       | 92                       |       | 90                         |       | 91 |   | 89 |   |
| Restaurants opened                                                   |       | —                   |       | —                     |       | 1 |   | 1 |   |
| Total restaurants open, end of period                                |       | 92                       |       | 90                         |       | 92 |   | 89 |   |

 

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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.

 

10

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

 

*Net Sales*.  Total net sales increased by approximately$800,000, or 1.5%, to $52.6 million during the second quarter of 2005 from $51.8million during the second quarter of 2004.  The increase was primarily dueto 26 incremental restaurant weeks from three restaurants opened since January 2004offset by a 0.7% decrease in the 89 comparable restaurants’ sales. ComparableBertucci’s restaurant dine-in guest counts decreased 0.8% for the secondquarter of 2005 as compared to the second quarter of 2004.  Bertucci’scomparable restaurant dine-in sales decreased 1.1% and comparable carry-out anddelivery sales increased 1.0% for the quarter as compared to the second quarterof 2004.  The Company believes comparable sales were down primarily due tothe aforementioned guest count decreases while an anticipated menu mix shift tolower priced items also contributed to the decrease.  For the 89comparable restaurants, average weekly sales were approximately $44,100 for thesecond quarter of 2005 compared to approximately $44,400 per week for the secondquarter of 2004.

 

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

 

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

 

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

 

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

 

Duringthe second quarter of 2005, the Company assessed certain non-performingrestaurants for recoverability and determined an impairment of fixed assetsexisted at four restaurant locations. The Company estimated the fair value ofthese assets based on the net present value of the expected cash flows of thefour restaurants. The carrying amount of the assets exceeded the fair value ofthe assets by approximately $0.9 million. The Company recorded an impairmentcharge during the quarter to reflect the write down of the affected assets tofair value.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $200,000, or 6.1%, to $3.1 million duringthe second quarter of 2005 from $3.3 million during the second quarter of 2004. The decrease is primarily due to reduced deferred rent and pre-opening expenses(fewer restaurant openings). Expressed as a percentage of net sales,depreciation, amortization, deferred rent and pre-opening expenses decreased to5.9% in the second quarter of 2005 from 6.3% during the second quarter of 2004.

 

*Interest Expense, net.*  Net interest expense wasessentially flat in the second quarter of 2005 compared to the second quarterof 2004.

 

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

 

11

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**Twenty-Six Weeks Ended June 29,2005 Compared****to Twenty-Six Weeks Ended June 30, 2004**

 

*Net Sales*.  Total net sales increased by approximately$1.3 million, or 1.3%, to $102.5 million during the first two quarters of 2005from $101.2 million during the first two quarters of 2004.  The increasewas primarily due to 58 incremental restaurant weeks from three restaurantsopened since January 2004 offset by a 1.1% decrease in the 89 comparablerestaurants’ sales. Comparable Bertucci’s restaurant dine-in guest countsdecreased 1.3% for the first two quarters of 2005 as compared to the first twoquarters of 2004.  Bertucci’s comparable restaurant dine-in salesdecreased 1.8% and comparable carry-out and delivery sales increased 1.3% forthe quarter as compared to the first two quarters of 2004.  The Company believescomparable sales were down primarily due to the aforementioned guest countdecreases while an anticipated menu mix shift to lower priced items alsocontributed to the decrease.  For the 89 comparable restaurants, averageweekly sales were approximately $43,000 for the first two quarters of 2005compared to approximately $43,500 per week for the first two quarters of 2004.

 

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

 

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

 

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

 

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

 

Duringthe second quarter of 2005, the Company assessed certain non-performingrestaurants for recoverability and determined an impairment of fixed assetsexisted at four restaurant locations. The Company estimated the fair value ofthese assets based on the net present value of the expected cash flows of thefour restaurants. The carrying amount of the assets exceeded the fair value ofthe assets by approximately $0.9 million. The Company recorded an impairmentcharge during the quarter to reflect the write down of the affected assets tofair value.

 

*Depreciation, Amortization,Deferred Rent and Pre-opening Expenses*.  Depreciation, amortization, deferred rent and pre-openingexpenses decreased by approximately $300,000, or 4.5%, to $6.3 million duringthe first two quarters of 2005 from $6.6 million during the first two quartersof 2004.  The decrease is primarily due to reduced deferred rent as themajority of restaurant leases are past the half-way point of their primaryterms (and renewal periods where properly includable). Expressed as apercentage of net sales, depreciation, amortization, deferred rent andpre-opening expenses decreased to 6.2% in the first two quarters of 2005 from6.5% during the first two quarters of 2004.

 

*Interest Expense, net.*  Net interest expense wasessentially flat in the first two quarters of 2005 compared to the first twoquarters of 2004.

 

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

 

12

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**Liquidity and Capital Resources**

 

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

 

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

 

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

 

As of June 29, 2005, the Company had $92.2million 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 August 12,2005.  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.

 

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

 

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

 

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

 

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

 

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

 

There have been no material changes tothe Company’s contractual obligations and commitments from those disclosed inthe Company’s 2004 Annual Report.

 

**Impact of Inflation**

 

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

 

13

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**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 related pre-openingand other startup expenses, net sales contributed by new restaurants, increasesor decreases in comparable restaurant sales, competition and overall economicconditions.  The Company’s business is also subject to seasonal influencesof consumer spending, dining out patterns and weather.  As is the casewith many restaurant companies, the Company typically experiences lower netsales and net income during the first and fourth quarters.  Because ofthese fluctuations in net sales and net loss, the results of operations of anyquarter are not necessarily indicative of the results that may be achieved fora full year or any future quarter.

 

**Critical Accounting Policies andEstimates**

 

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

 

TheCompany’s critical accounting policies affect the more significant judgmentsand estimates used in the preparation of the Company’s consolidated financialstatements.  The Company believes its critical accounting policies relateto the impairment of long-lived assets, income tax valuation allowances,self-insurance and closed restaurant reserves. For a more detailed discussionof the Company’s critical accounting policies and estimates, please refer to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Critical Accounting Policies and Estimates” contained in the Company’s 2004Annual Report.  There have been no material changes to the Company’scritical accounting policies and estimates from those disclosed in the 2004Annual 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**

 

*Disclosure Control and Procedures.*  The Company maintains disclosurecontrols and procedures designed to ensure information required to be disclosedin the Company’s reports under the Securities Exchange Act of 1934, as amended(the “Exchange Act”), is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms, and suchinformation is accumulated and communicated to the Company’s management,including the Company’s Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), as appropriate, to allow timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,management recognized controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, as the Company’s are designed to do, and managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

As of June 29, 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 June 29, 2005.

 

Therewere no significant changes in the Company’s internal control over financialreporting that occurred during the Company’s last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

14

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PART II:OTHER INFORMATION

 

Item 1.  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 OFEQUITY SECURITIES AND USE OF PROCEEDS

 

During the second quarter of 2005, the Companyissued 750 shares of Common Stock to anofficer as a bonus.  The Company recordeda compensation charge of $2,730 in connection with the grant of theseshares.  In addition, the Company issued3,000 shares to an officer as a bonus in the third quarter of 2005.  Each grantee acknowledged in writing thetransfer of their shares is subject to the provisions of a Stockholders’Agreement, which are summarized in “Security Ownership of Certain BeneficialOwners and Management - Shareholders Agreement” in the Company’s 2004 AnnualReport.  If the grants of such shares arecharacterized as sales under Section 5 of the Securities Act of 1933, asamended (the “Act”), then the Company believes the grants were exempt fromregistration under the Act pursuant to the exemption provided by Section 4(2) ofthe Act.  No commissions were paid to anyunderwriter in connection with the issuance of these shares.

 

The grants were issued asfollows:

 

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

On July 20, 2005, the Company issued 3,000shares of Common Stock to an officer.

 

Item 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4.  SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS

 

None

 

Item 5.  OTHER INFORMATION

 

Effective August 10, 2005, the Company’s ChiefExecutive Officer, Stephen V. Clark, [age 52], was named Vice Chairman of theBoard of Directors of the Company. Mr. Clark served as the Company’s ChiefExecutive Officer and President of the Company from August 2004 until August 10,2005 at which time Mr. Clark resigned as President of the Company;although he remains the Company’s Chief Executive Officer. Mr. Clark hasserved as a director of the Company since April 2002. Mr. Clark wasthe President and Chief Executive Officer of Taco Bueno, a quick serviceMexican restaurant chain of over 130 stores (“Taco Bueno”), from June 2001through August 10, 2005. He previously served as Taco Cabana Inc.’sChief Executive Officer from November 1996 through June 2001 and waspreviously the President, Chief Operating Officer, and a Director at TacoCabana from April 1995 through November 1996.  Prior to that, Mr. Clarkheld various positions with Church’s Chicken, a division of America’s FavoriteChicken, over seventeen years, the last having been Senior Vice President andConcept General Manager.

 

Effective August 10, 2005, David G. Lloyd, [age42], was named President of the Company. Mr. Lloyd served the  Company as Vice President and Chief FinancialOfficer since November 2004 and remains the Company’s Chief FinancialOfficer. Mr. Lloyd was the Chief Financial Officer of Taco Bueno, from June 2001through August 10, 2005. He previously served as Taco Cabana Inc.’s ChiefFinancial Officer from November 1994 through June 2001. Prior tothat, Mr. Lloyd, a Certified Public Accountant, was with Deloitte &Touche LLP from 1985 through 1994.

 

TacoBueno was previously indirectly controlled by Benjamin R. Jacobson, Chairman ofthe Board of Directors and Treasurer of the Company.  While Messrs. Clark and Lloyd heldpositions at both the Company and Taco Bueno, no agreement existed between thetwo entities as to the allocation of services by Mr. Clark or Mr. Lloyd,although effective December 30, 2004 compensation arrangements for theseindividuals were agreed to be borne equally by both companies. After August 10,2005, Messrs. Jacobson, Clark, and Clark have no financial interests in,or management commitments to, Taco Bueno and hold the positions detailed abovefor only the Company.

 

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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 (*).   |   |

 

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

 

SIGNATURES

 

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

 

 
|                       | BERTUCCI’S CORPORATION |
|----------------------------|-----------------------------|
|                       | (Registrant)                |
|                       |                        |   |
| Date: August 12, 2005 | By:                         | /s/ Stephen V. Clark |   |
|                       |                        | Chief Executive Officer and Director |
|                       |                        |   |
|                       |                        |   |
| Date: August 12, 2005 | By:                         | /s/ David G. Lloyd |   |
|                       |                        | Chief Financial Officer |

 

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