**SECURITIES AND EXCHANGECOMMISSION**

**Washington,DC 20549**

**FORM 10-Q**

**x** Quarterly Report Filed Pursuant toSection 13 or 15(d) of the Securities and Exchange Act of 1934

**For the Quarterly Period Ended June 28, 2006**

**CommissionFile Number  333-62775**

**BERTUCCI’SCORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                                      |   | **06-1311266**          |
|---------------------------------------------------|--------|-------------------------|
| (State or other  jurisdiction of                  |   | (I.R.S. Employer        |
| incorporation or  organization)                   |   | Identification  Number) |
| ** **                                        |   | ** **              |
| **155  Otis Street, Northborough, Massachusetts** |   | **01532-2414**          |
| (Address of  principal executive offices)         |   | (Zip Code)              |

 

Registrant’stelephone number, including area code:**(508) 351-2500**

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for thepast 90 days.

Yes   o  No   x

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

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the ExchangeAct.

 

Yes x  Noo

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

Yes   o  No   x

3,015,982 shares of the registrant’s Common Stock wereoutstanding on August 11, 2006.

 

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**BERTUCCI’SCORPORATIONFORM 10-QTABLE OF CONTENTS**
| PART I:  | FINANCIAL  INFORMATION                                                                                                                       |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                         |   |
| Item 1.       | Financial Statements:                                                                                                                        |   |
|          |                                                                                                                                         |   |
| 1)            | Condensed  Consolidated Balance Sheets as of June 28, 2006 (Unaudited) and  December 28, 2005 (Unaudited)                          |   |
|          |                                                                                                                                         |   |
| 2)            | Condensed  Consolidated Statements of Operations for the 13 and 26 Weeks Ended  June 28, 2006 (Unaudited) and June 29, 2005 (Unaudited) |   |
|          |                                                                                                                                         |   |
| 3)            | Condensed  Consolidated Statements of Cash Flow for the 26 Weeks Ended June 28,  2006 (Unaudited) and June 29, 2005 (Unaudited)         |   |
|          |                                                                                                                                         |   |
| 4)            | Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                                            |   |
|          |                                                                                                                                         |   |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                  |   |
|          |                                                                                                                                         |   |
| Item 3.       | Quantitative  and Qualitative Disclosure About Market Risk                                                                                   |   |
|          |                                                                                                                                         |   |
| Item 4.       | Controls and  Procedures                                                                                                                     |   |
|          |                                                                                                                                         |   |
| PART II: | OTHER INFORMATION                                                                                                                            |   |
| Item 1.       | Legal Proceedings                                                                                                                            |   |
| Item 1A.      | Risk  Factors                                                                                                                                |   |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                 |   |
| Item 3.       | Defaults  Upon Senior Securities                                                                                                             |   |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                                         |   |
| Item 5.       | Other Information                                                                                                                            |   |
| Item 6.       | Exhibits                                                                                                                                     |   |
|          |                                                                                                                                         |   |
| SIGNATURES    |                                                                                                                                         |
|          |                                                                                                                                         |
| EXHIBITS      |                                                                                                                                         |

 

2

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PART I:FINANCIAL INFORMATION

Item 1. FINANCIALSTATEMENTS

**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(In thousands, exceptshare data)

(Unaudited)

 
| ** **                                                  | ** ** | **June 28, 2006** | ** ** | **December 28, 2005** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                        |       |                        |       |                            |       |
| ASSETS                                                      |       |                        |       |                            |       |
| Current Assets:                                             |       |                        |       |                            |       |
| Cash and cash  equivalents                                  |       | $                           | 23,090     |                            | $          | 21,382 |   |
| Restricted cash                                             |       | 2,186                       |       | 2,187                           |       |
| Accounts  receivable                                        |       | 900                         |       | 771                             |       |
| Inventories                                                 |       | 1,493                       |       | 1,534                           |       |
| Prepaid expenses  and other current assets                  |       | 578                         |       | 897                             |       |
| Total current  assets                                       |       | 28,247                      |       | 26,771                          |       |
|                                                        |       |                        |       |                            |       |
| Property and Equipment,  at cost:                           |       |                        |       |                            |       |
| Land                                                        |       | 259                         |       | 259                             |       |
| Buildings                                                   |       | 697                         |       | 697                             |       |
| Capital leases -  land and buildings                        |       | 5,764                       |       | 5,764                           |       |
| Leasehold  improvements                                     |       | 69,077                      |       | 68,433                          |       |
| Furniture and  equipment                                    |       | 49,230                      |       | 46,787                          |       |
|                                                        |       | 125,027                     |       | 121,940                         |       |
| Less -  accumulated depreciation and amortization           |       | (73,245                     | )          | (67,509                         | )          |
| Net property and  equipment                                 |       | 51,782                      |       | 54,431                          |       |
|                                                        |       |                        |       |                            |       |
| Goodwill                                                    |       | 26,127                      |       | 26,127                          |       |
| Deferred finance costs,  net                                |       | 1,817                       |       | 2,165                           |       |
| Liquor licenses, net                                        |       | 2,330                       |       | 2,358                           |       |
| Other assets                                                |       | 809                         |       | 693                             |       |
| TOTAL ASSETS                                                |       | $                           | 111,112    |                            | $          | 112,545 |   |
|                                                        |       |                        |       |                            |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                 |       |                        |       |                            |       |
|                                                        |       |                        |       |                            |       |
| Current Liabilities:                                        |       |                        |       |                            |       |
| Promissory notes  - current portion                         |       | $                           | 43         |                            | $          | 42 |   |
| Capital lease  obligations - current portion                |       | 117                         |       | 107                             |       |
| Accounts payable                                            |       | 8,434                       |       | 8,603                           |       |
| Accrued expenses                                            |       | 16,881                      |       | 19,129                          |       |
| Total current  liabilities                                  |       | 25,475                      |       | 27,881                          |       |
| Promissory notes, net  of current portion                   |       | 717                         |       | 738                             |       |
| Capital lease  obligations, net of current portion          |       | 5,933                       |       | 5,982                           |       |
| Senior Notes                                                |       | 85,310                      |       | 85,310                          |       |
| Deferred gain on sale  leaseback transaction                |       | 1,837                       |       | 1,892                           |       |
| Other long-term  liabilities                                |       | 7,715                       |       | 8,045                           |       |
| Total  liabilities                                          |       | 126,987                     |       | 129,848                         |       |
| Commitments and  Contingencies                              |       |                        |       |                            |       |
| Stockholders’ Deficit:                                 |       |                        |       |                            |       |
| Common stock,  $.01 par value                               |       |                        |       |                            |       |
| Authorized -  8,000,000 shares                              |       |                        |       |                            |       |
| Issued -  3,767,995 and 3,764,995 shares , respectively;    |       |                        |       |                            |       |
| Outstanding -  3,015,982 and 3,012,982 shares, respectively |       | 38                          |       | 38                              |       |
| Less treasury  shares - 752,013 at cost                     |       | (8,480                      | )          | (8,480                          | )          |
| Additional  paid-in capital                                 |       | 29,739                      |       | 29,617                          |       |
| Accumulated  deficit                                        |       | (37,172                     | )          | (38,478                         | )          |
| Total  stockholders’ deficit                           |       | (15,875                     | )          | (17,303                         | )          |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ DEFICIT           |       | $                           | 111,112    |                            | $          | 112,545 |   |

 

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

3

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**BERTUCCI’S CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

(In thousands, exceptshare and per share data)

(Unaudited)

 
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                          | ** ** | **June 28, 2006**        | ** ** | **June 29, 2005**          | ** ** | **June 28, 2006** | ** ** | **June 29, 2005** | ** ** |
| ** **                                                          | ** ** | ** **                         | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                           |       | $                                  | 55,031     |                                 | $          | 52,580 |   | $ | 107,715 |   | $ | 102,532 |   |
|                                                                |       |                               |       |                                 |       |   |   |   |   |
| Cost of sales  and expenses:                                        |       |                               |       |                                 |       |   |   |   |   |
| Cost of sales                                                       |       | 12,490                             |       | 12,322                               |       | 24,432 |   | 24,182 |   |
| Operating expenses                                                  |       | 32,896                             |       | 31,391                               |       | 64,201 |   | 61,845 |   |
| General and administrative expenses                                 |       | 3,748                              |       | 3,283                                |       | 7,301 |   | 6,782 |   |
| Asset impairment charge                                             |       | —                             |       | 907                                  |       | — |   | 907 |   |
| Depreciation, amortization, deferred rent and  pre-opening expenses |       | 2,766                              |       | 3,029                                |       | 5,487 |   | 6,172 |   |
| Total cost of sales and expenses                                    |       | 51,900                             |       | 50,932                               |       | 101,421 |   | 99,888 |   |
| Income from operations                                              |       | 3,131                              |       | 1,648                                |       | 6,294 |   | 2,644 |   |
| Interest  expense, net                                              |       | (2,488                             | )          | (2,621                               | )          | (4,988 | ) | (5,271 | ) |
| Income (loss)  before income taxes                                  |       | 643                                |       | (973                                 | )          | 1,306 |   | (2,627 | ) |
| Income taxes                                                        |       | —                             |       | —                               |       | — |   | — |   |
|                                                                |       |                               |       |                                 |       |   |   |   |   |
| Net income (loss)                                                   |       | $                                  | 643        |                                 | $          | (973 | ) | $ | 1,306 |   | $ | (2,627 | ) |
|                                                                |       |                               |       |                                 |       |   |   |   |   |
| Basic net income  (loss) per share                                  |       | $                                  | 0.21       |                                 | $          | (0.33 | ) | $ | 0.43 |   | $ | (0.89 | ) |
|                                                                |       |                               |       |                                 |       |   |   |   |   |
| Diluted net  income (loss) per share                                |       | $                                  | 0.21       |                                 | $          | (0.33 | ) | $ | 0.43 |   | $ | (0.89 | ) |
|                                                                |       |                               |       |                                 |       |   |   |   |   |
| Weighted average  shares outstanding:                               |       |                               |       |                                 |       |   |   |   |   |
| Basic                                                               |       | 3,015,817                          |       | 2,947,691                            |       | 3,014,400 |   | 2,936,626 |   |
| Diluted                                                             |       | 3,057,108                          |       | 2,947,691                            |       | 3,055,920 |   | 2,936,626 |   |

 

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

4

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**BERTUCCI’SCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)

 
| ** **                                                                                | ** ** | **Twenty-six weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                | ** ** | **June 28, 2006**          | ** ** | **June 29, 2005** | ** ** |
|                                                                                      |       |                                 |       |   |   |
| Cash flows from  operating activities                                                     |       |                                 |       |   |   |
| Net income (loss)                                                                         |       | $                                    | 1,306      |   | $ | (2,627 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation, amortization and deferred rent                                              |       | 5,835                                |       | 6,335 |   |
| Asset impairment charge                                                                   |       | —                               |       | 907 |   |
| Stock compensation expense                                                                |       | 83                                   |       | 146 |   |
| Changes in operating assets and liabilities                                               |       |                                 |       |   |   |
| Inventories                                                                               |       | 41                                   |       | (77 | ) |
| Prepaid expenses, receivables and other                                                   |       | 188                                  |       | 546 |   |
| Other accrued expenses                                                                    |       | (2,372                               | )          | (728 | ) |
| Accounts payable                                                                          |       | (169                                 | )          | (475 | ) |
| Other operating assets and liabilities                                                    |       | (116                                 | )          | (59 | ) |
| Total adjustments                                                                         |       | 3,490                                |       | 6,595 |   |
| Net cash  provided by operating activities                                                |       | 4,796                                |       | 3,968 |   |
|                                                                                      |       |                                 |       |   |   |
| Cash flows from  investing activities                                                     |       |                                 |       |   |   |
| Additions to property and equipment                                                       |       | (3,069                               | )          | (1,892 | ) |
| Decrease in restricted cash                                                               |       | 1                                    |       | 214 |   |
| Net cash used in  investing activities                                                    |       | (3,068                               | )          | (1,678 | ) |
|                                                                                      |       |                                 |       |   |   |
| Cash flows from  financing activities                                                     |       |                                 |       |   |   |
| Sale of common stock                                                                      |       | 39                                   |       | — |   |
| Payment on promissory note                                                                |       | (20                                  | )          | (19 | ) |
| Principal payments under capital lease obligations                                        |       | (39                                  | )          | (42 | ) |
| Net cash used in  financing activities                                                    |       | (20                                  | )          | (61 | ) |
|                                                                                      |       |                                 |       |   |   |
| Net increase in  cash and cash equivalents                                                |       | 1,708                                |       | 2,229 |   |
| Cash and cash  equivalents, beginning of year                                             |       | 21,382                               |       | 12,291 |   |
| Cash and cash  equivalents, end of period                                                 |       | $                                    | 23,090     |   | $ | 14,520 |   |
|                                                                                      |       |                                 |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                                        |       |                                 |       |   |   |
| Cash paid for interest                                                                    |       | $                                    | 5,043      |   | $ | 5,052 |   |
| Cash paid for  income taxes                                                               |       | $                                    | 177        |   | $ | 84 |   |

 

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

5

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**BERTUCCI’SCORPORATIONNotes To Condensed Consolidated Financial Statements**June28, 2006(Unaudited)

*1.Basis of Presentation*

The unaudited condensed consolidated financialstatements (the “Unaudited Financial Statements”) presented herein have beenprepared by Bertucci’s Corporation and include all of its subsidiaries(collectively, the “Company”) after elimination of inter-company accounts andtransactions, without audit, and, in the opinion of management, reflect alladjustments (consisting of normal recurring adjustments) necessary for a fairstatement of the interim periods presented. The accompanying unaudited interimcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for reporting onForm 10-Q. Accordingly, certain information and footnote disclosuresrequired for complete financial statements are not included herein. It issuggested that the Unaudited Financial Statements be read in conjunction withthe consolidated financial statements and notes included in the Company’sAnnual Report on Form 10-K for the year ended December 28, 2005,which was filed with the Securities and Exchange Commission (the “SEC”) onMarch 28, 2006 (the “2005 Annual Report”). The operating results for thethirteen and twenty-six weeks ended June 28, 2006 may not be indicative of theresults expected for any succeeding interim period or for the entire yearending January 3, 2007.

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

*2. RestaurantClosing Reserves*

Restaurant closing reserves were established as partof the acquisition of Bertucci’s, Inc. in July 1998. These reserveswere related to estimated future lease commitments and exit costs to close 18Bertucci’s locations. In 2001, the Company accrued an additional $4.2 millionrelated to selected locations (all of which had been closed), consisting ofestimated lease commitments and certain exit costs. It was originally expectedthe Company would be able to exit these locations, sublease the locations orotherwise be released from the related leases. However, due to marketconditions, the Company has been unable to sublease, exit, or otherwise bereleased from certain of these leases.

Theclosed restaurant reserve was calculated net of sublease income at ninelocations partially or fully subleased as of June 28, 2006. The Company remainsprimarily liable for the remaining lease obligations should the sublesseedefault. Total sublease income excluded from the reserve is approximately $5.4million for subleases expiring at various dates through 2017.

6

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Activity within thereserve was as follows (in thousands):

 
|                                                 | ** ** | **Twenty-six weeks ended** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                      | ** ** | **June 28, 2006**          | ** ** | **June 29, 2005** | ** ** |
| Balance,  beginning of the year                 |       | $                                    | 372        |   | $ | 659 |   |
| Payments charged  against reserve               |       | (103                                 | )          | (225 | ) |
| Balance, end of  period                         |       | $                                    | 269        |   | $ | 434 |   |
|                                            |       |                                 |       |   |   |
| Current portion  (included in accrued expenses) |       | $                                    | 209        |   | $ | 252 |   |
| Noncurrent  portion                             |       | 60                                   |       | 182 |   |
|                                            |       | $                                    | 269        |   | $ | 434 |   |

 

*3. NetIncome (Loss) per Share*

Basic net income (loss) per share is computed bydividing net income (loss) by the weighted average number of common sharesoutstanding for the reporting period. Diluted net income (loss) per sharereflects the potential dilution that could occur if options to issue commonstock were exercised or converted into common stock. Net dilutive shares addedto the weighted average number of common shares outstanding for the thirteenand twenty-six weeks ended June 28, 2006 for this calculation were 41,291 and 41,520,respectively.  These were determinedusing the treasury stock method for in-the-money stock options as of June 28,2006. For the periods ended June 28, 2006 and June 29, 2005, optionsrepresenting 881,109 and 534,179 shares of common stock, respectively, wereexcluded from the calculation of diluted net income (loss) per share because oftheir anti-dilutive effect.

*4.Income Taxes*

The Company recognizes deferred tax assets andliabilities for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns. Additionally, the Companyis required to consider both negative and positive evidence in determining if avaluation allowance is required on a quarterly basis. Management previouslyrecorded a full valuation allowance for its deferred tax assets. For thethirteen and twenty-six weeks ended June 28, 2006, the Company recorded taxprovisions of approximately $80,000 and $98,000, respectively, which wereoffset by the release of like amounts from its valuation allowance. FICA TipCredits of approximately $375,000 and $750,000 favorably impact the effectiveincome tax rates for the thirteen and twenty-six weeks ended June 28, 2006,respectively.

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

*5.Stock-Based Compensation*

EffectiveDecember 29, 2005, the Company adopted the provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 123R, *Share Based Payment*(“SFAS No. 123R”), using a modified prospective application, and as suchprior periods have not been restated. Under this method, compensation expenseis recorded on a straight-line basis for all unvested options over the relatedvesting period beginning in the period of adoption. As a result of the adoptionof SFAS No. 123R, the Company now recognizes stock-based compensationcosts rateably over the requisite service period. In March 2005, the SECissued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the Staff’sinterpretation of SFAS No. 123R. This interpretation provides the Staff’sviews regarding interactions between SFAS No. 123R and certain SECrules and regulations and provides interpretations of the valuation ofshare-based payments for public companies. The interpretive guidance isintended to assist companies in applying the provisions of SFAS No. 123Rand investors and users of the financial statements in analyzing theinformation provided. The Company follows the guidance prescribed in SABNo. 107 in connection with the adoption of SFAS No. 123R. The impactof the adoption of SFAS No. 123R and SAB No. 107 resulted in acompensation charge for the thirteen and twenty-six weeks ended June 28, 2006of $19,000 and $72,000, respectively. This charge is included in General andAdministrative expenses in the Condensed Consolidated Statements of Operationsfor the periods indicated.

7

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TheCompany currently grants stock options under its Amended and Restated 1997Equity Incentive Plan (“Equity Incentive Plan”), which provides for theissuance of nonqualified stock options and allows the Company to provide equityincentives to our key employees and directors. On September 27, 2005, theCompany’s Board of Directors approved the amendment and restatement of theEquity Incentive Plan which increased the number of shares of Common Stockavailable for issuance under the Equity Incentive Plan from 750,000 to1,100,000. The Board of Directors administers the Equity Incentive Plan andmay modify or amend it in any respect.

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

Thegrant date fair value is calculated using the Black-Scholes option valuationmodel. The fair value of options granted during the thirteen and twenty-sixweeks ended June 28, 2006 and June 29, 2005, respectively,  were calculated using the following estimatedweighted average assumptions:
| ** **                              | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **June 28, 2006**        | ** ** | **June 29, 2005**          | ** ** | **June 28, 2006** | ** ** | **June 29, 2005** | ** ** |
| Options granted                         |       | 29,000                             |       | 20,000                               |       | 58,000 |   | 162,750 |   |
| Weighted-average  exercise price        |       | $                                  | 17.51      |                                 | $          | 17.51 |   | $ | 17.51 |   | $ | 17.51 |   |
| Weighted-average  grant date fair value |       | $                                  | 4.67       |                                 | —     |   | $ | 3.88 |   | — |   |
| Assumptions:                            |       |                               |       |                                 |       |   |   |   |   |
| Risk free interest rate                 |       | 4.88                               | %          | 3.77                                 | %          | 4.64 | % | 3.88 | % |
| Expected life  (in years)               |       | 5                                  |       | 5                                    |       | 5 |   | 5 |   |
| Expected  volatility                    |       | 20                                 | %          | 0                                    | %          | 20 | % | 0 | % |
| Expected dividend yield                 |       | 0                                  | %          | 0                                    | %          | 0 | % | 0 | % |
|                                         |            |                                    |            |                                      |            |  |  |  |  |  |  |  |  |

 

**Expected volatility** — The Company is responsible for estimating volatility and has used0.0% volatility historically to estimate the grant-date fair value of stockoptions as its common stock is not publicly traded. Effective December 29,2005, management considered the guidance in SFAS No. 123R and nowestimates expected volatility at 20%.

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

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

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

Prior to December 29, 2005, in accordance withSFAS No. 123, *Accounting for Stock-BasedCompensation*(which hasbeen replaced by SFAS No. 123R and supersedes Accounting PrinciplesBoard Opinion No. 25 (“APB Opinion No. 25”)), the Company accountedfor stock-based compensation under the intrinsic value method with disclosureof the effects of fair value accounting on net income and earnings per share ona pro forma basis. The Company’s stock-based compensation plan is describedmore fully in Note 9 of Notes to Consolidated Financial Statements in the 2005Annual Report. The Company had accounted for this plan under the recognitionand measurement

8

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principles of APB Opinion No. 25**and related interpretations. In 2005, stock based employeecompensation expense resulted from the granting of shares of the Company’scommon stock to key employees and independent directors. All shares and optionsgranted had an exercise price equal to, or in excess of, the fair value of theunderlying common stock on the date of grant. The following table illustratesthe effect on net loss and loss per share for the thirteen and twenty-six weeksended June 29, 2005, respectively, if the Company had applied the fair valuerecognition provisions of SFAS No. 123 (in thousands, except per sharedata):

|                                                                                                                          | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                               | ** ** | **June 29, 2005**        | ** ** | **June 29, 2005**          | ** ** |
|                                                                                                                     |       |                               |       |                                 |       |
| Net loss, as  reported                                                                                                   |       | $                                  | (973       | )                                    | $          | (2,627 | ) |
| Add: Stock-based  employee compensation income (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                                 |       | (126                                 | )          |
| Pro forma net  loss                                                                                                      |       | $                                  | (906       | )                                    | $          | (2,607 | ) |
| Basic and  diluted loss per share:                                                                                       |       |                               |       |                                 |       |
| As reported                                                                                                              |       | $                                  | (0.33      | )                                    | $          | (0.89 | ) |
| Pro forma                                                                                                                |       | $                                  | (0.31      | )                                    | $          | (0.89 | ) |

 

A summary of the activityunder the Company’s stock option plans as of June 28, 2006 and changes duringthe twenty-six week period then ended, is presented below:
| ** **                                             | ** ** | **Options  Outstanding** | ** ** | **Weighted-Average  Remaining  Contractual Life  in Years** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|
| Options  outstanding at December 28, 2005              |       | 970,929                  |       |                                                        |       | $                                     | 16.77      |                           |       |   |
| Granted                                                |       | 58,000                   |       |                                                        |       | $                                     | 17.51      |                           |       |   |
| Cancelled                                              |       | (32,856                  | )          |                                                        |       | $                                     | 16.26      |                           |       |   |
| Options  outstanding at June 28, 2006                  |       | 996,073                  |       | 7.4                                                         |       | $                                     | 16.83      |                           | $          | 621,219 |   |
|                                                   |       |                     |       |                                                        |       |                                  |       |                           |       |
| Options fully vested  and exercisable at June 28, 2006 |       | 266,573                  |       | 3.0                                                         |       | $                                     | 14.96      |                           | $          | 621,219 |   |

 

As of June 28, 2006 therewas $297,000 of unrecognized compensation cost related to unvested stockoptions. That cost is expected to be recognized over a weighted average periodof 2.1 years.

6.  *Asset Impairment Charge*

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

Duringthe second quarter of 2006, the Company assessed certain non-performingrestaurants for recoverability and determined no impairment existed.  During the second quarter of 2005, theCompany assessed certain non-performing restaurants for recoverability anddetermined an impairment of fixed assets existed at four restaurant

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locations. The Company estimated the fair value of these assets based on the net presentvalue of the expected cash flows of the four restaurants.  The carryingamount of the assets exceeded the fair value of the assets by approximately$0.9 million.  The Company recorded an impairment charge during thequarter to reflect the write down of the affected assets to fair value.

7.  *Recent Accounting Pronouncements*

In July 2006, theFinancial Accounting Standards Board issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASB StatementNo. 109*, effective for fiscal years beginning after December15, 2006 (“FIN 48”). FIN 48 requires a two-step approach for recognizing andmeasuring tax benefits and employs a “more likely than not” threshold forrecognition. FIN 48 also requires enterprises to make explicit disclosuresabout uncertainties in their income tax positions, including a detailedrollforward of tax benefits taken not qualifying for financial statementrecognition.  The Company is evaluatingwhether the adoption of FIN 48 will have a material effect on its consolidatedfinancial position or results of operations.

8. *UtilityPurchase Commitments*

 

The Company has executed contracts to provideelectricity to thirty-nine restaurants at a fixed rate per kilowatt through2009. The Company believes these contracts qualify for the “normal purchases”exception as defined by SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities*. Therefore, the contracts are notrequired to be marked to market through the Condensed Consolidated Statement ofOperations. The purchase commitments below represent an estimate of the minimumusage per year multiplied by the contracted rates (dollars in thousands):

| Year   | ** ** | ** ** | ** ** |
|--------|------------|------------|------------|
|   |       |       |       |
| 2006   |       | $          | 706        |   |
| 2007   |       | 1,468      |       |
| 2008   |       | 1,468      |       |
| 2009   |       | 1,345      |       |
|   |       | $          | 4,986      |   |

 

9.  *Gift Cards*

 

A liability is recorded in the period in which a giftcard is issued and proceeds are received. As gift cards are redeemed, thisliability is reduced and revenue is recognized. Gift card breakage income(“breakage”) is recognized when the likelihood of the redemption of the cardbecomes remote. In the second quarter of 2006, $175,000 of breakage, was recordedas a reduction of Operating expenses.

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**Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Forward-LookingStatements**

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

·        *Our highly competitive business environment;*

·        *Exposure to food prices;*

·        *Risks associated with the foodservice industry such as changes inconsumer tastes and adverse publicity resulting from food quality, illness,injury or other health concerns;*

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

·        *Government regulations;*

·        *Our high geographic concentration in the Northeast and Mid-Atlanticstates;*

·        *The attendant weather patterns in locations in which we operate;*

·        *The number of expected restaurant openings, including the appropriate conditionsneeded to meet new opening targets;*

·        *Our ability to service our debt and other obligations;*

·        *Our ability to meet ongoing financial covenants contained in our debtinstruments; and*

·        *Matters relating to litigation.*

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

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

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

**General**

We own and operate a chain of full-service casualdining, Italian-style restaurants under the names Bertucci’s Brick OvenPizzeria® and Bertucci’s Brick Oven Ristorante®. As of June 28, 2006, weoperated 92 restaurants located primarily in the northeastern United States.

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In July 1998, we completed our acquisition ofBertucci’s Restaurant Corp.’s parent entity, Bertucci’s, Inc., for apurchase price, net of cash received, of approximately $89.4 million (the “Acquisition”).We financed the Acquisition primarily through the issuance of $100 million of10 3⁄4 % senior notes due 2008 (the “Senior Notes”). The Senior Notes are stilloutstanding as to $85.3 million in principal.

**Resultsof Operations**

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

**STATEMENTS OF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                           | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                           | ** ** | **June 28, 2006**        | ** ** | **June 29, 2005**          | ** ** | **June 28, 2006** | ** ** | **June 29, 2005** | ** ** |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                                            |       | 100.0                              | %          | 100.0                                | %          | 100.0 | % | 100.0 | % |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Cost of sales  and expenses:                                         |       |                               |       |                                 |       |   |   |   |   |
| Cost of sales                                                        |       | 22.7                               | %          | 23.4                                 | %          | 22.7 | % | 23.6 | % |
| Operating expenses                                                   |       | 59.8                               | %          | 59.8                                 | %          | 59.6 | % | 60.3 | % |
| General and administrative expenses                                  |       | 6.8                                | %          | 6.2                                  | %          | 6.8 | % | 6.6 | % |
| Asset impairment charge                                              |       | —                             |       | 1.7                                  | %          | — |   | 0.9 | % |
| Depreciation, amortization, deferred rent, and  pre-opening expenses |       | 5.0                                | %          | 5.8                                  | %          | 5.1 | % | 6.0 | % |
| Total cost of sales and expenses                                     |       | 94.3                               | %          | 96.9                                 | %          | 94.2 | % | 97.4 | % |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Income from operations                                               |       | 5.7                                | %          | 3.1                                  | %          | 5.8 | % | 2.6 | % |
| Interest  expense, net                                               |       | (4.5                               | )%         | (5.0                                 | )%         | (4.6 | )% | (5.1 | )% |
| Income (loss)  before income taxes                                   |       | 1.2                                | %          | (1.9                                 | )%         | 1.2 | % | (2.5 | )% |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Income taxes                                                         |       | —                             |       | —                               |       | — |   | — |   |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Net income  (loss)                                                   |       | 1.2                                | %          | (1.9                                 | )%         | 1.2 | % | (2.5 | )% |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| **Restaurant  Operating Data:**                                      |       |                               |       |                                 |       |   |   |   |   |
| Increase  (decrease) in comparable restaurant sales (a)              |       | 4.9                                | %          | (0.7                                 | )%         | 5.1 | % | (1.1 | )% |
| Number of  restaurants:                                              |       |                               |       |                                 |       |   |   |   |   |
| Restaurants open, beginning of period                                |       | 92                                 |       | 92                                   |       | 92 |   | 91 |   |
| Restaurants opened                                                   |       | —                             |       | —                               |       | — |   | 1 |   |
| Total  restaurants open, end of period                               |       | 92                                 |       | 92                                   |       | 92 |   | 92 |   |

 

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(a)            We define comparablerestaurant sales as net sales from restaurants open for at least one fullfiscal year at the beginning of the fiscal year.

 

**ThirteenWeeks Ended June 28, 2006 Compared to Thirteen Weeks Ended June 29, 2005**

*NetSales*. Total net sales increased by approximately $2.4million, or 4.6%, to $55.0 million during the second quarter of 2006 from $52.6million during the second quarter of 2005. The increase was primarily due to a4.9% increase in the 91 comparable restaurants’ sales. Comparable dine-in guestcounts increased 1.4% for the second quarter of 2006 as compared to the secondquarter of 2005. Comparable dine-in sales increased 4.3% and comparablecarry-out and delivery sales increased 7.3% for the quarter as compared to thesecond quarter of 2005. We believe comparable restaurant sales increases havebeen a result of increased guest visits combined with a shift in menu mix todinner entrees versus pizza, and an approximate 1.7% menu price increase inJanuary 2006. For the 91 comparable restaurants, average weekly sales wereapproximately $46,100 for the second quarter of 2006 compared to approximately$43,900 per week for the second quarter of 2005.

*Cost ofSales.* Cost of sales increased by approximately$168,000, or 1.6%, to $12.5 million during the second quarter of 2006 from$12.3 million during the second quarter of 2005.  Expressed as a percentage of net sales, overallcost of sales decreased to 22.7% during the second quarter of 2006 from 23.4%during the second quarter of 2005. The percentage decrease can be attributed todecreases in certain ingredient costs, the benefit from the menu priceincreases, and better food cost controls; all partially offset by a menu mixshift away from pizzas to dinner entrees.

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*OperatingExpenses.*Operating expenses increased by approximately $1.5million or 4.8%, to $32.9 million during the second quarter of 2006 from $31.4million during the second quarter of 2005. Expressed as a percentage of netsales, operating expenses were flat in the second quarter of 2006 as comparedto the second quarter of 2005. The dollar increase can be attributed to(a) general restaurant operating expenses ($860,000) due to the increasedsales volume, (b) increased advertising expense ($720,000) the majority ofwhich is a timing issue, (c) higher utility costs ($250,000) primarily becauseof increased electric rates, and (d) increased occupancy costs ($175,000) dueto scheduled rent increases; all partially offset by decreased worker’scompensation and group health insurance expenses ($380,000) and gift cardbreakage income ($175,000).

*Generaland Administrative Expenses.*General and administrativeexpenses increased approximately $400,000 to $3.7 million during the secondquarter of 2006 compared to approximately $3.3 million in the second quarter of2005. The increase is primarily due to increased corporate salaries and relatedbenefits, including bonus plan accruals. Expressed as a percentage of netsales, general and administrative expenses increased to 6.8% in the secondquarter of 2006 from 6.2% in the second quarter of 2005.

*AssetImpairment Charge.* As discussed in Note 6 of Notes toCondensed Consolidated Financial Statements, the Company assessed certainnon-performing restaurants for recoverability but determined no impairmentexisted as of the end of the second quarter of 2006. An impairment charge ofapproximately $907,000 was recorded in the second quarter of 2005.

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*.Depreciation, amortization, deferred rent and pre-opening expenses decreased byapproximately $200,000 to $2.8 million during the second quarter of 2006 from$3.0 million during the second quarter of 2005. The decrease is primarily dueto decreased deferred rent as many leases with step rent provisions now requirecash payments in excess of the calculated pro-rata rent expense.  Expressed as a percentage of net sales,depreciation, amortization, deferred rent and pre-opening expenses decreased to5.0% in the second quarter of 2006 from 5.8% during the second quarter of 2005.

*InterestExpense, net.* Net interest expense decreased byapproximately $100,000 to $2.5 million during the second quarter of 2006 from$2.6 million during the second quarter of 2005. Increased overnight investmentfunds and higher interest rates available thereon have resulted in increasedinterest income thereby reducing net interest expense.

*IncomeTaxes*. We have an historical trend of recurring pre-taxlosses. We previously recorded a full valuation allowance for our net deferredtax asset and have also provided a full valuation allowance relating to the taxbenefits generated since 2003 (primarily from operating losses).  We recorded a tax provision of approximately$80,000 in the second quarter of 2006 which was offset by the release of a likeamount from our valuation allowance. FICA Tip Credits of approximately $375,000 favorably impact theeffective income tax rate for the thirteen weeks ended June 28, 2006.

**TwentySix-Weeks Ended June 28, 2006 Compared to Twenty-Six Weeks Ended June 29,2005**

*NetSales*. Total net sales increased by approximately $5.2million, or 5.1%, to $107.7 million during the first two quarters of 2006 from$102.5 million during the first two quarters of 2005. The increase wasprimarily due to a 5.1% increase in the 91 comparable restaurants’ sales plusfive incremental restaurant weeks from one restaurant opened sinceJanuary 2005. Comparable dine-in guest counts increased 1.2% for the firsttwo quarters of 2006 as compared to the first two quarters of2005. Comparable dine-in sales increased 4.7% and comparable carry-out anddelivery sales increased 6.3% for the first two quarters as compared to thefirst two quarters of 2005. We believe comparable restaurant sales increaseshave been a result of increased guest visits combined with a shift in menu mixto dinner entrees versus pizza, and an approximate 1.7% menu price increase inJanuary 2006. For the 91 comparable restaurants, average weekly sales wereapproximately $45,100 for the first two quarters of 2006 compared toapproximately $43,900 per week for the first two quarters of 2005.

*Cost ofSales.* Cost of sales increased by approximately $250,000,or 0.8%, to $24.4 million during the first two quarters of 2006 from $24.2million during the first two quarters of 2005. Expressed as a percentage of net sales,

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overall cost of sales decreased to 22.7% during thefirst two quarters of 2006 from 23.6% during the first two quarters of 2005.The percentage decrease can be attributed to decreases in certain ingredientcosts, the benefit from the menu price increase, and better food cost controls;all partially offset by a menu mix shift away from pizzas to dinner entrees.

*OperatingExpenses.*Operating expenses increased by approximately $2.4million, or 3.9%, to $64.2 million during the first two quarters of 2006 from$61.8 million during the first two quarters of 2005. Expressed as a percentageof net sales, operating expenses decreased to 59.6% in the first two quartersof 2006 from 60.3% during the first two quarters of 2005. The dollar increasecan be attributed to: (a) general restaurant operating expenses ($1.8million) due to the increased sales volume, (b) increased advertisingexpense ($240,000), (c) higher utility costs ($590,000) because of increasedelectric and gas rates, and (d) increased occupancy costs ($400,000) due toscheduled rent increases; all partially offset by decreased worker’scompensation and health insurance expenses ($540,000) and gift card breakageincome ($175,000).

*Generaland Administrative Expenses.*General and administrativeexpenses increased approximately $500,000 to $7.3 million during the first twoquarters of 2006 compared to $6.8 million in the first two quarters of 2005.The increase is primarily due to increased corporate salaries and relatedbenefits, including bonus plan accruals. Expressed as a percentage of net sales, general and administrativeexpenses increased to 6.8% in the first two quarters of 2006 from 6.6% in thefirst two quarters of 2005.

*AssetImpairment Charge.* As discussed in Note 6 of Notes toCondensed Consolidated Financial Statements, the Company assessed certainnon-performing restaurants for recoverability but determined no impairmentexisted as of the end of the second quarter of 2006. An impairment charge ofapproximately $907,000 was recorded in the second quarter of 2005.

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*.Depreciation, amortization, deferred rent and pre-opening expenses decreased byapproximately $700,000 to $5.5 million during the first two quarters of 2006from $6.2 million during the first two quarters of 2005. The decrease can beattributed to: (a) lower preopening expense ($200,000) because of one lessrestaurant opening in 2006, (b) depreciation expense ($300,000) becauseprior impairment charges have reduced the cost basis of certain assets and theassociated depreciation expense and equipment acquired in the Acquisition havebecome fully depreciated, and (c) decreased deferred rent ($200,000) asmany leases with step rent provisions now require cash payments in excess ofthe calculated pro-rata rent expense. Expressed as a percentage of net sales,depreciation, amortization, deferred rent and pre-opening expenses decreased to5.1% in the first two quarters of 2006 from 6.0% during the first two quartersof 2005.

*InterestExpense, net.* Net interest expense decreased byapproximately $300,000 to $5.0 million during the first two quarters of 2006from $5.3 million during the first two quarters of 2005. Increased overnightinvestment funds and higher interest rates available thereon have resulted inincreased interest income thereby reducing net interest expense.

*IncomeTaxes*. We have an historical trend of recurring pre-taxlosses. We previously recorded a full valuation allowance for our net deferredtax asset and have also provided a full valuation allowance relating to the taxbenefits generated since 2003 (primarily from operating losses).  We recorded a tax provision of approximately$98,000 for the twenty-six weeks ended June 28, 2006, which was offset by therelease of a like amount from our valuation allowance.  FICA Tip Credits of approximately $750,000favorably impact the effective income tax rate for the twenty-six weeks endedJune 28, 2006.

**Liquidityand Capital Resources**

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

Net cash flows provided by operating activities were$4.8 million for the first two quarters of 2006, approximately $800,000 morethan the first two quarters of 2005. As of June 28, 2006, we had cash and cashequivalents of $23.1 million.

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Our capital additions were $3.1 million during thefirst two quarters of 2006 as compared to $1.9 million for the comparable prioryear period. The capital expenditures were primarily comprised of remodelingand maintenance capital. We anticipate capital expenditures for the remainderof 2006 will be approximately $3.8 million, including capital related to theopening of a restaurant.

As of June 28, 2006, we had $92.1 million inconsolidated indebtedness which consisted of $85.3 million pursuant to the SeniorNotes, $6.0 million of capital lease obligations, and $0.8 million ofpromissory notes. The Senior Notes contain no financial covenants and we are incompliance with all non-financial covenants as of August 10, 2006. The SeniorNotes bear interest at the rate of 10 3⁄4% per annum, payable semi-annually onJanuary 15 and July 15 and are due in full on July 15, 2008.

We may, at our option, redeem any or all of the SeniorNotes at face value. Additionally, under certain circumstances, including achange of control or following certain asset sales, the holders of the SeniorNotes may require us to repurchase the Senior Notes, at a redemption price of101% of face value.

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

We have established a $4.0 million (maximum) letter ofcredit facility (expiring in December 2006) as collateral with third partyadministrators for self insurance reserves. Letters of credit totaling $2.2million were outstanding on June 28, 2006, collateralized by $2.2 million ofcash restricted from general use.

We believe the cash flow generated from our operationsand cash on hand should be sufficient to fund our debt service requirements,lease obligations, expected capital expenditures and other operating expensesthrough 2006. Beyond 2006 and up to the 2008 maturity of our Senior Notes, weexpect to be able to service our debt, but the lack of short term borrowingavailability may impede growth. We are evaluating various refinancingalternatives for our Senior Notes upon their maturity in 2008.

Our future operatingperformance and ability to service or refinance the Senior Notes will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control. Significant liquidity demandswill arise from debt service on our Senior Notes.

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

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

 

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We executedcontractual obligations subsequent to December 28, 2005 as follows:
|                                   | ** ** | **(Dollars in Thousands)** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| **Contractual Obligations:** | ** ** | **Total**                            | ** ** | **2006** | ** ** | **2007 - 2008** | ** ** | **2009 - 2010** | ** ** | **After 2010** | ** ** |
|                              |       |                                 |       |   |   |   |   |   |   |   |   |
| Operating Leases                  |       | $                                    | 10,579     |   | $ | 321 |   | $ | 3,633 |   | $ | 3,880 |   | $ | 2,745 |   |
| Utility purchase  commitments (1) |       | 4,986                                |       | 706 |   | 2,935 |   | 1,345 |   | — |   |
|                              |       | $                                    | 15,565     |   | $ | 1,027 |   | $ | 6,568 |   | $ | 5,225 |   | $ | 2,745 |   |

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(1)    We have executedcontracts to provide electricity to thirty-nine restaurants at a fixed rate perkilowatt through 2009.  The Companybelieves these contracts qualify for the “normal purchases” exception asdefined by SFAS Statement No. 133, *Accounting for DerivativeInstruments and Hedging Activities.* Therefore, the contracts are not required to be marked to market throughthe Condensed Consolidated Statement of Operations.  The purchase commitments represent an estimateof the minimum usage per year multiplied by the contracted rates.

**Impactof Inflation**

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

**Seasonality**

Our quarterly results of operations have fluctuatedand are expected to continue to fluctuate depending on a variety of factors,including the timing of new restaurant openings and related pre-opening andother startup expenses, net sales contributed by new restaurants, increases ordecreases in comparable restaurant sales, competition and overall economicconditions. Our business is also subject to seasonal influences of consumerspending, dining out patterns and weather. As is the case with many restaurantcompanies, we typically experience lower net sales and net income fromoperations during the first and fourth quarters. Because of these fluctuations,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.

**CriticalAccounting Policies and Estimates**

The discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States of America.The preparation of these financial statements requires us to make estimates andjudgments affecting the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. On anon-going basis, estimates are evaluated, including those related to theimpairment of long-lived assets, income tax valuation allowances,self-insurance, and closed restaurants reserve. Estimates are based onhistorical experience and on various other assumptions believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities not readilyapparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions. For a discussion of how these andother factors may affect our business, see the “Forward-Looking Statements” andother factors included in the 2005 Annual Report and other filings with theSecurities and Exchange Commission.

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

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*Gift cards*

We record a liability inthe period in which a gift card is issued and proceeds are received. As giftcards are redeemed, this liability is reduced and revenue is recognized. Werecognize gift card breakage income (“breakage”) when the likelihood of theredemption of the card becomes remote. In the second quarter of 2006, werecognized $175,000 of breakage, recorded as a reduction of Operating expenses.

**Item3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

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

**Item 4. CONTROLS AND PROCEDURES**

*DisclosureControls and Procedures*. We maintain disclosure controlsand procedures designed to ensure information required to be disclosed in ourreports under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the Securities and Exchange Commission(the “SEC”), and such information is accumulated and communicated tomanagement, including our Chief Executive Officer (the “CEO”) and ChiefFinancial Officer (the “CFO”), as appropriate, to allow timely decisionsregarding required disclosure. In designing and evaluating our disclosurecontrols and procedures, we recognized controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achievingthe desired control objectives, as ours are designed to do, and we necessarilywere required to apply our judgment in evaluating the cost-benefit relationshipof possible controls and procedures.

During the secondquarter of fiscal 2006, we performed an evaluation under the supervision andwith the participation of our management, including our CEO and CFO, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the ExchangeAct). Based on that evaluation, our CEO and CFO concluded our disclosurecontrols and procedures were effective as of June 28, 2006.

***Changes in Internal Control overFinancial Reporting***.  There were no significant changes to ourinternal control over financial reporting occurring during our last fiscalquarter materially affecting, or reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART II: OTHER INFORMATION**

 

**Item1. LEGAL PROCEEDINGS**

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

**Item1A. RISK FACTORS**

None

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

None

**Item3.   DEFAULTS UPON SENIOR SECURITIES**

None

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

None

**Item5. OTHER INFORMATION**

None

**Item 6.EXHIBITS**

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

 

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(*)    —   Includedwith 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 11,  2006 |   | By:                         |   | /s/ Stephen V. Clark |
|                   |   |                        |   | Chief Executive Officer and Director |
|                   |   |                        |   |   |
| Date: August 11,  2006 |   | By:                         |   | /s/ David G. Lloyd |
|                   |   |                        |   | President, Chief Financial Officer and Director |

 

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