**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

x  **ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year endedJanuary 3, 2007**

**OR**

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the transition periodfrom                to               **

**Commission FileNumber:  333-62775**

**BERTUCCI’S CORPORATION**

(Exact name of registrant asspecified in its charter)

| **Delaware**                              |   | **06-1311266**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
|                                      |   |                 |
| **155  Otis Street, Northborough, MA**    |   | **01532**            |
| (Address of  principal executive offices) |   | (Zip Code)           |

 

**(508) 351-2500**

(Registrant’s telephonenumber, including area code)

Securities registeredpursuant to Section 12(b) of the Act:

| Title of each class | ** ** | **Name of each exchange on which registered** |
|------------------------------------|------------|-----------------------------------------------------------------------------|
| **None**                           |       | ** **                                                                  |

 

Securities registered pursuant toSection 12(g) of the Act:

**None**

Title of class

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.

Yes  o  No  x

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Exchange Act.

Yes  x  No  o

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  x  No  o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer    o |   | Accelerated filer    o |   | Non-accelerated filer    x |
|---------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o  No  x

3,008,317shares of the registrant’s Common Stock, $0.01 par value per share, wereoutstanding on April 3, 2007.
| Documents Incorporated By Reference | ** ** | **None** |
|-------------------------------------|------------|----------|

 

 

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**CAUTIONARYSTATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995.**

All statements other than statements of historicalfacts included in this Annual Report on Form 10-K, including, withoutlimitation, statements set forth under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” regarding Bertucci’s futurefinancial position, business strategy, budgets, projected costs, plans, andobjectives of management for future operations, are forward-looking statements.These statements involve known and unknown risks, uncertainties and otherfactors which may cause our or the foodservice industry’s actual results,performance or achievements to be materially different from any expectedresults, performance or achievements. Forward-looking statements include, butare not limited to statements regarding:

·        *Our highlycompetitive business environment;*

·        *Exposure tofood prices;*

·        *Risksassociated with the foodservice industry such as changes in consumer tastes andadverse publicity resulting from food quality, illness, injury or other healthconcerns;*

·        *Our abilityto retain and attract new employees;*

·        *Governmentregulations;*

·        *Our highgeographic concentration in the Northeast and Mid-Atlantic states;*

·        *Theattendant weather patterns in locations in which we operate;*

·        *The numberof expected restaurant openings, including the appropriate conditions needed tomeet new opening targets;*

·        *Our abilityto service our debt and other obligations; and*

·        *Mattersrelating 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 variationsthereon or similar terminology. These statements are only predictions andinvolve known and unknown risks, uncertainties, and other factors thatmay cause actual results, levels of activity, performance, or achievementsto be materially different from any expected results, levels of activity,performance, or achievements expressed or implied by such forward-lookingstatements. Although we believe the expectations reflected in suchforward-looking statements will prove to be correct, we can give no assurancesuch expectations will prove to be correct. You are cautioned not to placeundue reliance on these forward-looking statements, which speak only as of thedate hereof. We undertake no obligation to publicly release any revisions tothese forward-looking statements to reflect events or circumstances after thedate hereof or to reflect the occurrence of unanticipated events. Factorscausing or contributing to such differences include those discussed in the riskfactors set forth in Item 1A below (the “Risk Factors”) as well as thosediscussed elsewhere herein.

Unless the context indicates otherwise,references herein to “we”, “us”, “our,” “Bertucci’s,” “Vinny Ts of Boston®” orthe “Company” refer to Bertucci’s Corporation, its predecessors and its consolidatedsubsidiaries.

**PART I**

**ITEM 1. BUSINESS**

**Overview**

We are a Delaware corporation which owns and operatestwo chains of full-service casual dining, Italian-style restaurants under thenames (1) Bertucci’s Brick Oven Pizzeria® or Bertucci’s Brick Oven Ristorante®;and (2) Vinny T’s of Boston®.  Weincorporated in 1994 as NE Restaurant Company, Inc. (“NERCO”) and formallychanged our name to Bertucci’s Corporation on August 16, 2001.  As ofJanuary 3, 2007, we operated 92 Bertucci’s restaurants and 11 Vinny T’s ofBoston® restaurants located primarily in the northeastern United States

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

On September 25, 2006, weand our newly formed wholly-owned subsidiary, Vinny T’s AcquisitionCorporation, (the “Acquisition Sub”), executed a Stock Purchase Agreement (the “StockPurchase Agreement”) with BUCA, Inc. (“BUCA”) and one of its wholly owned subsidiaries,BUCA Restaurants 3, Inc. (“BUCA 3”). Pursuant to the Stock Purchase Agreement, the Acquisition Sub acquiredall of the outstanding capital stock of BUCA 3, the entity which owns andoperates the Vinny T’s of Boston® chain of restaurants.  As a result of this acquisition (referred toin this Form 10-K as the “Vinny T’s Acquisition”),  BUCA 3 is now a wholly-owned subsidiary ofthe Acquisition Sub and continues to own and operate 11 Vinny T’s of Boston®restaurants in four states.  Inconnection with the Vinny T’s Acquisition, the Acquisition Sub initially paidBUCA an aggregate purchase price of$6.8 million, of which $3.0 million was paid in cash and $3.8 million was paidthrough the issuance of a promissory note (the “Original

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Promissory Note”).  The aggregate purchase price for thisacquisition was subsequently lowered to $6.66 million on March 29, 2007 whenthe Acquisition Sub and BUCA amended and restated the Promissory Note to reducethe outstanding principal amount to $3.66 million because of a post-closingadjustment contained in the Stock Purchase Agreement (the “Amended and RestatedPromissory Note”).  Hereinafter, theOriginal Promissory Note and the Amended and Restated Promissory Note arecollectively referred to as the “Promissory Note.” The Promissory Note bearsinterest at 9% and matures on July 15, 2008 or earlier upon the occurrence ofcertain other events, including if we have a Change in Control (as defined inthe Promissory Note), the consummation of an initial public offering by us orthe redemption, repurchase, refinancing or payment of our Senior Notes.  Inaddition, we executed and delivered a Guaranty to BUCA which guarantees thepayment of the amounts due and the performance of the obligations of theAcquisition Sub under the Promissory Note and the Stock Purchase Agreement.

**Concepts**

Our Bertucci’s restaurants are full-service, casual dining restaurantsoffering high quality, moderately priced Italian food. We are open seven days aweek for lunch and dinner, appealing to both families and the adult market. Wedifferentiate ourselves from other restaurants by offering a variety ofdistinctive and freshly prepared foods using high quality ingredients, brickoven baking techniques and an open-kitchen design. The first Bertucci’srestaurant opened in Somerville, Massachusetts in 1981.

Our Vinny T’s of Boston®restaurants are full service, casual dining restaurants based upon re-creationsof the high quality neighborhood Italian eateries prominent in theneighborhoods of lower Manhattan, Brooklyn, the north-end of Boston and SouthPhiladelphia in the 1940s.  Theserestaurants are open seven days a week for lunch and dinner offering highquality, moderately priced Italian food. The menu includes both individual and family-sized portions.  The first Vinny T’s restaurant opened inBrookline, Massachusetts in 1993.

**Restaurant Overview and Menu**

Our Bertucci’srestaurants offer a distinctive menu and a classic Tuscan-style designproviding a unique dining experience at a reasonable price. We specialize in a wide assortment of Italianregional pasta, chicken, veal and seafood dishes, salads, and premium brickoven pizzas. Our signature pizzas are prepared in brick ovens baking atunusually high temperatures, enabling the production of a light crust andpreservation of natural flavors and moisture of toppings. Natural freshingredients are used to ensure high quality and freshness. We make our owndough, sauces and toppings in each restaurant and prepare our menu fresh eachday. In addition, our menu features a variety of appetizers, soups,calzones, and desserts. We believe our original recipes and brick oven bakingtechniques combine to produce superior products difficult to duplicate. Wineand beer are available at all of our locations and full bar service isavailable at most of our restaurants. The price points generally range from$7.99 to $9.99 for lunch entrees and $10.99 to $19.99 for dinner entrees. Mostitems on our menu may be purchased for take-out service or delivery, whichtogether accounted for approximately 22.0% of our net sales in fiscal 2006.

Our Vinny T’s of Boston® restaurants offer a diverse menufeaturing a wide variety of appetizers, soups and salads, pastas, meats,seafood, parmigianas, pizzas, chicken and veal, and desserts.  We use thefreshest ingredients and make everything from scratch on a daily basisincluding sauces, dough and desserts.  Menu items include FriedMozzarella, Warm Tomato Salad, Homemade Lasagna, Grilled Pork Chops withPeppers, Linguini with Clam Sauce, Veal Parmigiana, Pepperoni Pizza, ChickenPiccata, and Cannoli.  Wine, beer, and spirits are available at alllocations.  The price points generally range from $5.50 to $9.95 for lunchentrees and $8.95 to $22.95 for dinner entrees.  Vinny T’s of Boston® notonly offers a la carte service but also offers family-style dining in alleleven units.  Private banquet rooms are available in five locationsoffering buffet or family-style service.

**Restaurant Design**

Our Bertucci’srestaurants are freestanding or in-line buildings averaging approximately 6,000square feet in size with an average seating capacity of approximately 170people. Each restaurant features a classic Tuscan-style, open-kitchen designcentered around brick ovens. Ingredients are displayed and food is prepared onpolished granite counters located in front of the brick ovens, in plain view ofour guests. We have historically built our restaurants in varying sizes and designs,with no two interiors exactly alike. Because we believe unit economics benefitfrom a standardized design, in 2000 we developed a prototype design. The firstrestaurant with this prototypical design opened in January 2001. We havesince modified the prototype design which currently envisions approximately6,500 square feet and 209 seats per location. Key features of the currentprototype design are a separate carryout designation, a bar/waiting area andmodification of interior elements, including new floor and ceiling materialsand new furniture.

Current Vinny T’slocations range in size from 5,900 to approximately 12,000 square feet andinclude both freestanding restaurants and restaurants within existingbuildings. The restaurants have an authentic, unique and festive atmospherewith post-War Italian-American decor including rich woods and decorative tiles,nostalgic photos and artwork on the walls, Big Band music piped through thespeakers and black-and-white checkered tablecloths on the tables.

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**RestaurantDevelopment**

*Expansion.*We expect togrow through the opening of new Bertucci’s restaurants over the next severalyears. It is anticipated there will be five Bertucci’s openings in fiscal 2007.No openings of Vinny T’s of Boston restaurants are anticipated in fiscal 2007.We expect to finance the development of Bertucci’s restaurants through acombination of cash on hand and cash from operations. See Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources.

*Site Selection and Construction.*We devotesignificant time and resources to identify and analyze potential new restaurantsites, as we believe site selection is crucial to our success. Our siteselection strategy focuses on high-density, high-traffic, high-visibility siteswhich are, for the most part, positioned within existing markets to takeadvantage of certain operational efficiencies. We seek out sites with a mixtureof retail, office, residential and entertainment concentration which promoteboth lunch and dinner business. In addition, we believe multiple locations indefined geographic areas will result in increased market penetration and brandrecognition, and will permit advertising, management, purchasing and administrativeefficiencies. The typical time period required to select a site, build and opena full-service restaurant averages 15 to 18 months.

*Franchising.*We do notcurrently have any franchisees or plans to develop a franchise program.

**QualityControl**

Eachof our restaurants typically has a general manager and two or three assistantmanagers who are responsible for assuring compliance with our operatingprocedures and for the training and supervision of restaurant employees. Thegeneral managers report to area directors who oversee, on average, between sixand nine of our restaurants. We believe our quality control operations areenhanced by the work of regional chefs who provide support to restaurantmanagement and ensure quality of food preparation.

**Training**

Weplace significant emphasis on the proper training of our employees. Training isdesigned to increase product quality, operational safety, overall productivityand guest satisfaction and to foster the concept of “continuous improvement.”

Werequire new non-management employees to undergo extensive training administeredby restaurant-level managers to improve the confidence, productivity,proficiency, and customer relations skills of such employees.

Wealso require new managers to complete our Company-developed comprehensivemanagement training program. There are two major components comprising thiseight week program. Restaurant specific training is conducted in one of ourcertified training restaurants and classroom training is conducted atBertucci’s University located at our corporate office. In the certifiedtraining restaurant the new manager spends seven weeks learning detailed,concept-specific food preparation standards and procedures as well asadministrative and human resource functions, including sanitation, safety, andhospitality. The program also uses position specific training manuals and otherwritten guides. At the Bertucci’s University component of management training,the new manager spends one week immersed in training at our headquarters wherewe also teach hospitality, human resource processes, leadership training,computer and information systems, responsible alcohol service and appliedfoodservice sanitation. At the end of the process, we test our trainee’s skillsby a variety of means including a full-day written examination. We believe therigorous training and testing during these sessions assures graduating managersare better prepared for running our restaurants. This management trainingprogram is typically followed up by periodic supplemental training modules suchas situational leadership or time management skills.

Whenwe open a new restaurant, we typically staff management positions withpersonnel who have had previous experience in a management position at anotherone of our restaurants. In addition, a highly experienced training team assistsin opening the restaurant. Prior to opening, this team conducts a week ofintensive training with our hourly staff for that specific restaurant.

**Advertisingand Marketing**

Ourmarketing objective is to increase the frequency of guest visits in primarymarkets and grow brand awareness in less penetrated markets, thereby increasingrevenues, profitability and market share. Key strategies include limited timeonly seasonal offerings, local store marketing, direct marketing initiatives,frequency driven promotions, and advertising. We have designed our advertisingplan to differentiate our brand from our competitors’ and increase our marketshare through media coverage in key markets. In support of our Bertucci’srestaurants we use radio, which affords continuity at competitive levels, asour primary advertising vehicle in all key markets and intend to continue withtelevision in the important Boston market in 2007. Due to a lack of moreefficient media vehicles, we primarily use newspaper inserts and direct mail tosupport our Vinny T’s of Boston® restaurants.

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**Purchasing**

Wenegotiate directly with suppliers of food and beverage products and otherrestaurant supplies to ensure consistent quality and freshness of products andto obtain competitive prices. Although we believe essential restaurant suppliesand products are available on short notice from several sources, we use onefull-service distributor for a substantial portion of our restaurant suppliesand product requirements, with such distributor charging us fixed mark-ups overprevailing wholesale****prices. Wehave two contracts with our full-service distributor which terminate in thenext five years.****There are no required quantitypurchases under these agreements. We also have arrangements with severalsmaller regional distributors for the balance of our purchases. Thesedistribution arrangements have allowed us to benefit from economies of scaleand have resulted in lower commodity costs. Smaller day-to-day purchasingdecisions are made at the individual restaurant level. We have not experiencedany significant delays in receiving food and beverage inventories or restaurantsupplies.

**InformationSystems and Restaurant Reporting**

*Information Systems.*Ourinformation systems provide detailed monthly financial statements for eachrestaurant, bi-monthly restaurant inventories, menu mix, cash management andpayroll analysis. Preliminary financial reports are available within two daysof the period close and we consolidate our restaurant-level information at ourheadquarters. Sales, menu mix, cash management and basic operating informationare each processed daily and reported in our internal system. As a result,restaurant managers are able to respond to changes in their business daily,weekly or monthly, as necessary.  Weconsolidate and process our other varying levels of systems data at ourheadquarters daily, weekly or monthly, as we deem appropriate.

*Point of Sale (“POS”).*All of our Bertucci’s restaurants use the Micros 3700 POSsystem, while our Vinny T’s of Boston® restaurant use the Squirrel 1.4 POSsystem. We believe the consistency and reliability of the POS systems is thebackbone of our technical infrastructure. The consistency between restaurantsprovides us with efficiencies for multi-restaurant operations, training andsupport. We retrieve our POS data from each restaurant daily and process thisdata at our headquarters.

*Data Warehouse.*We manage adata warehouse, tracking information as minute as guest check detail. Webelieve the data warehouse provides multiple views of operational data whichenables us to identify trends, evaluate price sensitivity and track new menuitems/combinations.

## **Trademarks, Service Marks and OtherIntellectual Property**

We haveregistered, among others, the names “Bertucci’s®”, “Bertucci’s Brick OvenPizzeria®”,  “Bertucci’s Brick OvenRistorante®”, “Come Eat At Our House®”, “Everbody Eats When They Come to OurHouse®”, “What’s Not to Love? SM”, “Vinny Testa’s®”, “Vinny Testa’s (anddesign)®”, and “Vinny T’s of Boston®” as service marks and/or trademarks withthe United States Patent and Trademark Office.

Weare aware of names similar to Bertucci’s used by third parties in certainlimited geographical areas. Such third-party use may prevent us from usingthe Bertucci’s mark for restaurants in such areas. Except for these areas, weare not aware of any infringing uses materially affecting our business.

## **Competition**

Ourbusiness, and the restaurant industry in general, is highly competitive and isoften affected by changes in consumer tastes and dining preferences, by localand national economic conditions and by population and traffic patterns. Wecompete directly or indirectly with all restaurants, from national and regionalchains to local establishments, as well as with other foodservice providers.Many of our competitors are significantly larger than us and have substantiallygreater resources.

**Employees**

AtJanuary 3, 2007, we had approximately 2,032 full-time employees (of whom 73 arebased at our headquarters) and approximately 5,613 part-time employees.****None of our employees are covered by a collectivebargaining agreement. We believe our relations with our employees are good.

We anticipate our continued success will depend to alarge degree on our ability to attract and retain high quality managementemployees. While we expect to continually address the high level of employeeattrition normal in the food service industry, we have taken steps to attractand keep qualified management personnel through the implementation of a varietyof employee benefit plans, including a management incentive plan, a 401(k)plan, and an equity incentive plan under which we grant equity awards to ourmanagement employees.

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**GovernmentRegulations**

Eachof our restaurants is subject to licensing and regulation by a number ofgovernmental authorities on matters which include, among other things, health,safety, fire and alcoholic beverage control in the state or municipality inwhich the restaurant is located. Difficulties or failures in obtaining requiredlicenses or approvals could delay or prevent the opening of a new restaurant ina particular area. In addition, failure to maintain a required license orapproval could result in the temporary or permanent closing of an existingrestaurant.

Alcoholicbeverage control regulations require each of our restaurants to apply to astate authority and, in certain locations, county or municipal authorities fora license or permit to sell alcoholic beverages on the premises and to provideservice for extended hours and on Sundays. Typically, licenses or permits mustbe renewed annually and may be revoked or suspended for cause at any time.Alcoholic beverage control regulations involve numerous aspects of the dailyoperations of our restaurants, including minimum age of patrons and employees,hours of operation, advertising, wholesale purchasing, inventory control andhandling, storage, and dispensing of alcoholic beverages.

Weare also subject to various other federal, state and local laws relating to thedevelopment and operation of restaurants, including those concerningpreparation and sale of food, relationships with employees (including minimumwage requirements, overtime and working conditions and citizenshiprequirements), land use, zoning and building codes, as well as other health,sanitation, safety and environmental matters.

**ITEM 1A. RISKFACTORS**

# **RiskFactors**

*This Report containsforward-looking statements involving risks and uncertainties, such asstatements of our plans, objectives, expectations and intentions. Thecautionary statements made in this Report should be read as being applicable toall forward-looking statements wherever they appear in this Report. Our actualresults could differ materially from those discussed herein. Factors causing orcontributing to such differences include those discussed below, as well asthose discussed elsewhere in this Report.*

***Oursubstantial debt could harm our business.***

We are highly leveraged.At the end of fiscal 2006, our aggregate outstanding indebtedness was $95.7million; total stockholders’ deficit was $14.8 million and we had $1.8 millionof working capital.

Our high degree ofleverage could have important consequences, including, but not limited to:

·            an inabilityto obtain additional financing for working capital, capital expenditures,acquisitions, general corporate purposes or other purposes;

·            asubstantial portion of our cash flow from operations must be dedicated to thepayment of principal and interest on our debt, which could reduce the fundsavailable to us for our operations and other purposes, including investments indevelopment and capital spending;

·            wemay be substantially more leveraged than certain of our competitors, whichmay place us at a competitive disadvantage; and

·            a limitingof our flexibility to adjust to changing market conditions, a reduction of ourability to withstand competitive pressures and a vulnerability to a downturn ingeneral economic and industry conditions.

***Ourability to service our debt will depend on many factors that are not within ourcontrol.***

Our ability to repay orto refinance our obligations with respect to our debt will depend on our futurefinancial and operating performance, which, in turn, will be subject toprevailing economic and competitive conditions and to certain financial,business, legislative, regulatory and other factors, many of which are beyondour control. These factors could include:

·    operating difficulties;

·    increased operating costs;

·    product pricing pressures;

·    the response of competitors;

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·    regulatory developments; and

·    delays in implementing strategic projects.

Our ability to meet ourdebt service and other obligations may depend in significant part onthe extent to which we can successfully implement our business strategy. Therecan be no assurance, however, we will be able to implement our strategy fullyor that the anticipated results of our strategy will be realized.

If our cash flow andcapital resources are insufficient to fund our debt service obligations, wemay be forced to reduce or delay capital expenditures, sell assets, seekto obtain additional equity capital, or to refinance or restructure our debt.There can be no assurance our cash flow and capital resources will besufficient for payment of principal of, and premium, if any, and interest on,our debt in the future, or any such alternative measures would be successful orwould permit us to meet our scheduled debt service obligations.

***Covenants in ourSenior Notes Indenture currently restrict our discretion in operating ourbusiness and failure to comply with these covenants could result in theacceleration of our obligations under the Senior Notes.***

Our Indenture for theSenior Notes (the “Senior Notes Indenture”) imposes significant operating andother restrictions on us. Such restrictions will affect, and in many respectssignificantly limit or prohibit, among other things, our ability to:

·    incur additional debt;

·    pay dividends or make other distributions;

·    make certain investments;

·    create certain liens;

·    sell certain assets;

·    enter into certain transactions withaffiliates; and

·    engage in certain mergers or consolidations.

A failure by us tocomply with these restrictions could lead to a default under the terms of theSenior Notes Indenture. In the event of a default, all amounts borrowedpursuant thereto could be declared immediately due and payable, together with apremium and accrued and unpaid interest. In such event, there can be noassurance that we would be able to make such payments or borrow sufficientfunds from alternative sources to make any such payments. Even if we were ableto obtain additional financing, there can be no assurance such financing wouldbe on terms favorable or acceptable to us.

***Wemay not be able to grow at a rate necessary to achieve profitable futureoperating results.***

Our future operatingresults will depend largely upon our ability to open and operate newrestaurants successfully and to manage a growing business profitably. This willdepend on a number of factors (some of which are beyond our control), including the:

·    selection and availability of suitablerestaurant locations;

·    negotiation of acceptable lease or financingterms;

·    securing of required governmental permitsand approvals;

·    timely completion of necessary constructionor remodeling of restaurants;

·    hiring and training of skilled managementand personnel;

·    successful integration of new or newlyacquired restaurants into our existing operations; and

·    recognition and response to regionaldifferences in guest menu and concept preferences.

There can be noassurance that we can achieve our expansion plans on a timely and profitablebasis, if at all, that we will be able to achieve results similar to thoseachieved in existing locations in prior periods, or that such expansion willnot result in reduced sales at existing restaurants. Any failure tosuccessfully and profitably execute our expansion plans could have a materialadverse effect on us.

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***Our business may be harmed by our recently completed Vinny T’sAcquisition.***

We recentlyacquired the Vinny T’s of Boston® restaurant chain consisting of 11 restaurantsin four states.  The success of thisacquisition will depend on our ability to realize the anticipated benefits fromthe acquired Vinny T’s of Boston® business. We may fail to realize theseanticipated benefits for a number of reasons, including the following:

·              problems mayarise with our ability to successfully integrate the acquired business, whichmay result in the combined company not operating as effectively and efficientlyas expected, which problems may include:

·              diversion ofmanagement time, as well as a shift of focus from operating the Bertucci’s andVinny T’s of Boston® businesses to issues related to integration andadministration;

·              failure toretain and motivate key employees;

·              failure tosuccessfully manage relationships with customers and suppliers;

·              failure toeffectively coordinate sales and marketing efforts;

·              failure todevelop new products and/or concepts relating to the acquired business;

·              potentialdifficulties integrating financial reporting systems; and

·              potentialdifficulties in implementing controls, procedures and policies appropriate fora larger company.

·              we may notbe able to achieve the expected benefits from the acquisition or it may takelonger than expected to achieve those benefits; and

·              the Vinny T’sAcquisition may involve unexpected costs or liabilities.

***Ourfood costs and supplies could be adversely affected by many factors not underour control.***

Our profitability isdependent on, among other things, our continuing ability to offer fresh, highquality food at moderate prices. Various factors beyond our control, such asadverse weather, labor disputes, increased pricing or other unforeseencircumstances, may affect our food costs and supplies. While managementhas been able to anticipate and react to changing food costs and supplies todate through our purchasing practices and menu price adjustments, there can beno assurance we will be able to do so in the future.

We also obtainapproximately 75% to 80% of our supplies through a single vendor pursuant tocontracts for delivery and distribution, with the vendor charging fixedmark-ups over prevailing wholesale prices. Although we believe that we would beable to replace any vendor if we were required to do so, any disruption insupply from vendors could result in short-term supply shortages and we could berequired to purchase supplies at higher prices until we are able to secure analternative supply source. Any delay we experience in replacing vendors ordistributors on acceptable terms could increase our food costs or, in extremecases, require us to temporarily remove items from our menus.

***Increasing labor costs couldadversely affect our profitability.***

Our restaurant operations are also subject to federaland state laws governing such matters as wages, hours, working conditions,civil rights and eligibility to work. Some states have set minimum wagerequirements higher than the federal level. Significant numbers of hourlypersonnel at our restaurants are paid at rates related to the federal minimumwage and, accordingly, increases in the minimum wage at a federal and/or statelevel could increase labor costs at our restaurants. Other governmentalinitiatives such as mandated health insurance, if implemented, could adverselyaffect us as well as the restaurant industry in general. We are currentlyoperating under a Tip Rate Alternative Commitment (“TRAC”) agreement with theInternal Revenue Service. Through increased educational and other efforts inthe restaurants, the TRAC agreement reduces the likelihood of potentialchain-wide employer-only FICA assessments for unreported tips, but we cannotensure that the implementation of the TRAC agreement will eliminate FICAassessments for unreported tips.

***Increased energy costs may adversely affect our profitability.***

Oursuccess depends in part on our ability to absorb increases in energycosts. The northeastern United States has recently experienced significantincreases in energy prices. If these increases should recur on a regular basisor become permanent, they may have an adverse effect on our profitability.

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***Weare vulnerable to fluctuations in economic conditions, particularly those inthe New England and Mid-Atlantic regions of the United States.***

Our business issensitive to our guests’ spending patterns, which in turn are subject toprevailing regional and national economic conditions such as unemployment,interest rates, taxation and consumer confidence. In addition, most of ourrestaurants are located in the northeastern United States, with a largeconcentration in New England. We also anticipate that substantially allrestaurants we open in the future will be in states where we presently haveoperations or in contiguous states.

Consequently, anyadverse changes in economic conditions, particularly in the New England orMid-Atlantic regions of the country, may have a material adverse effect onus.

***Wemay not be able to compete successfully with other restaurants and other “diningsources”, which could reduce our revenues.***

The restaurant industryis intensely competitive with respect to, among other things, price, service,location and food quality. We compete with many well-established national,regional and locally-owned foodservice companies with substantially greaterfinancial and other resources and longer operating histories, which, amongother things, may better enable them to react to changes in the restaurantindustry. With respect to quality and cost of food, size of food portions,decor and quality service, we compete with casual dining, family-stylerestaurants offering eat-in and take-out menus, including, but not limited to,Olive Garden, Romano’s Macaroni Grill, Carrabba’s, Applebee’s, TGI Friday’s,Ruby Tuesday, Pizzeria Uno Restaurants and Chili’s. Many of our restaurants arelocated in areas of high concentration of such restaurants. We also vie withall competitors in attracting guests, in obtaining premium locations forrestaurants (including shopping malls and strip shopping centers) and inattracting and retaining employees.

We also face growingcompetition from the supermarket industry, which now offers “convenient meals”in the form of improved entrees and side dishes from the deli section. Weexpect intense competition to continue, and possibly increase, in this area.

***Regulationsaffecting the operation of our restaurants, including “dram-shop” statutescould impair our profitability, increase our operating costs and/or restrictour growth.***

The restaurant industryis subject to extensive federal, state and local laws and regulations,including those relating to building and zoning requirements and those relatingto the preparation and sale of food. The development and operation ofrestaurants depend to a significant extent on the selection and acquisition ofsuitable sites, which are subject to zoning, land use, environmental, trafficand other regulations and requirements. We are also subject to licensing andregulation by state and local authorities relating to health, sanitation,safety and fire standards and liquor licenses, federal and state laws governingour relationships with employees (including the Fair Labor Standards Act andapplicable minimum wage requirements, overtime, family leave, tip credits, working conditions, safety standards andcitizenship requirements), federal and state laws which prohibit discriminationand other laws regulating the design and operation of facilities, such as theAmericans With Disabilities Act of 1990. In addition, we are subject to avariety of federal, state and local laws and regulations relating to the use,storage, discharge, emission, and disposal of hazardous materials. The impactof current laws and regulations, the effect of future changes in laws orregulations that impose additional requirements and the consequences oflitigation relating to current or future laws and regulations could increaseour compliance and other costs of doing business and therefore have a materialadverse effect on our results of operations.

Failure to comply with the laws and regulatoryrequirements of federal, state and local authorities could result in, amongother things, revocation of required licenses, administrative enforcementactions, fines and civil and criminal liability.

In addition, we aresubject in certain states to “dram-shop” statutes; which generally provide aperson injured by an intoxicated person the right to recover damages from anestablishment that wrongfully served alcoholic beverages to the intoxicatedperson. We carry liquor liability coverage as part of our existingcomprehensive general liability insurance. There can be no assurance, however,that this insurance will pay for all liabilities arising from a “dram-shop”lawsuit. We may also, in certain jurisdictions, be required to comply withregulations limiting smoking in restaurants.

***Our business may be harmedby highly publicized incidents at one or more of our restaurants.***

Multi-unit food service businesses, such as ours, canbe materially and adversely harmed by publicity resulting from poor foodquality, illness, injury or other health concerns or employee relations orother operating issues stemming from one location or a limited number of locations,whether or not the company is liable, or from consumer concerns with respect tothe nutritional value of certain food. In addition, we cannot guarantee thatour internal controls and training will be fully effective in preventing allfood-borne illnesses. Some food-borne illness incidents could be caused bythird party food suppliers and transporters outside of our control. Anyoutbreak of such illness attributed to one or more of our restaurants or to asimilar multi-unit restaurant chain, or the perception of such an outbreak,could harm our business.

9

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***We may not be able tosatisfactorily resolve other litigation matters.***

Our business is subject to the risk of litigation byemployees, consumers, suppliers, shareholders or others through privateactions, class actions, administrative proceedings, regulatory actions orother litigation. The outcome of litigation, particularly class actionlawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffsin these types of lawsuits may seek recovery of very large orindeterminate amounts, and the magnitude of the potential loss relating to suchlawsuits may remain unknown for substantial periods of time. The cost todefend future litigation may be significant. There may also be adversepublicity associated with litigation that could decrease customer acceptance ofour services, regardless of whether the allegations are valid or whether we areultimately found liable. As a result, litigation may materially andadversely affect our business, financial condition and results of operations.

***Anyfailure of, or disruption to, our information systems, could adversely affectour operations.***

We rely on variousinformation systems to manage our operations and regularly make investments toupgrade, enhance or replace such systems. Any failure of, or disruption to, ourinformation systems could adversely affect our operations and have a materialadverse effect on us.

***We havepreviously identified deficiencies in our internal control over financialreporting and disclosure controls and procedures, which, if not properlyremediated, could result in misstatements in our financial statements in futureperiods.***

In the first quarter of 2005, we restated ourhistorical financial statements for numerous periods to correct for errors inour lease accounting policies. In addition, during the first quarter of 2006 werestated our historical financial statements again to record an additionalaggregate depreciation expense of approximately $3.5 million and adjust ourincome tax expense. These restatements were the result of material weaknessesin the design or operation of our internal control over financial reporting andindicated our disclosure controls and procedures were not effective. In lightof these weaknesses in our internal control over financial reporting and theineffectiveness of our disclosure controls and procedures, we have institutedimprovements we believe will reduce the likelihood of similar errors. If theremedial policies and procedures we have implemented are insufficient toaddress the material weaknesses in our internal control over financialreporting or the deficiencies in our disclosure controls and procedures or ifadditional material weaknesses in our internal control over financial reportingor other conditions relating to our disclosure controls and procedures arediscovered in the future, we may fail to meet our future reportingobligations, our financial statements may contain misstatements and/or ouroperating results may be adversely affected. Although we believe we haveaddressed our weaknesses in internal control over financial reporting and thedeficiencies in our disclosure controls and procedures, we cannot guarantee themeasures we have taken to date or any future measures will remediate theweaknesses and deficiencies identified or that any additional weaknesses ordeficiencies will not arise in the future due to a failure to implement andmaintain adequate internal controls over financial reporting or disclosurecontrols and procedures.

***A failure to attract and retainqualified employees may adversely affect us.***

Our success and the successof our restaurants depend upon our ability to attract and retain a sufficientnumber of qualified employees, including skilled management, customer servicepersonnel and wait and kitchen staff. We face significant competition in therecruitment of qualified employees. Our inability to recruit and retainqualified individuals may delay the planned openings of new restaurants,result in higher employee turnover, and affect our ability to provide a highquality customer experience in restaurants or exert pressure on wages or otheremployee benefits to attract qualified personnel. Any of these consequencescould have a material adverse effect on our business and results of operations.

***We may not be able toprotect our trademarks and other proprietary rights.***

We believe our trademarks and other proprietary rightsare important to our success and competitive position. Accordingly, we devotesubstantial resources to the establishment and protection of our trademarks andproprietary rights. The actions we take to protect our intellectual property,however, may be inadequate to prevent imitation of our products andconcepts by others, which could be harmful to our business.

**ITEM1B. UNRESOLVED STAFF COMMENTS**

**None.**

10

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**ITEM 2.PROPERTIES**

Ourexecutive office is located in Northborough, Massachusetts. The office isoccupied under the terms of a lease covering approximately 18,155 square feetscheduled to expire in 2011 but has a five-year option to renew at the end ofthe existing term.  A separate officeleased by us in Westborough, Massachusetts is being sub-leased to a thirdparty.

**RestaurantLocations**

The table below identifies the location of the restaurants operated byus during fiscal 2006.

|                       | ** ** | **Open as of 01/03/2007** | ** ** |
|-----------------------|------------|------------------------------------------|------------|
| **State**             | ** ** | **Bertucci’s (1)**             | ** ** | **Vinny T’s of  Boston (2)** | ** ** | **Total** | ** ** |
| Connecticut           | ** ** | **11**                                   | ** ** | **1** | ** ** | **12** | ** ** |
| Delaware              | ** ** | **2**                                    | ** ** | **—** | ** ** | **2** | ** ** |
| District of  Columbia | ** ** | **2**                                    | ** ** | **—** | ** ** | **2** | ** ** |
| Maine                 | ** ** | **—**                               | ** ** | **1** | ** ** | **1** | ** ** |
| Maryland              | ** ** | **6**                                    | ** ** | **—** | ** ** | **6** | ** ** |
| Massachusetts         | ** ** | **39**                                   | ** ** | **8** | ** ** | **47** | ** ** |
| New Hampshire         | ** ** | **3**                                    | ** ** | **—** | ** ** | **3** | ** ** |
| New Jersey            | ** ** | **6**                                    | ** ** | **—** | ** ** | **6** | ** ** |
| New York              | ** ** | **3**                                    | ** ** | **—** | ** ** | **3** | ** ** |
| North Carolina        | ** ** | **2**                                    | ** ** | **—** | ** ** | **2** | ** ** |
| Pennsylvania          | ** ** | **8**                                    | ** ** | **1** | ** ** | **9** | ** ** |
| Rhode Island          | ** ** | **2**                                    | ** ** | **—** | ** ** | **2** | ** ** |
| Virginia              | ** ** | **8**                                    | ** ** | **—** | ** ** | **8** | ** ** |
| Total                 | ** ** | **92**                                   | ** ** | **11** | ** ** | **103** | ** ** |

 

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(1)          There wereno closings or openings during fiscal 2006.

(2)          Acquiredfrom BUCA, Inc. in September 2006.  Nofurther openings or closings took place in fiscal 2006.

Welease all but one of the 103 restaurants operated by us at January 3, 2007. Weown one restaurant in fee. Leases for existing restaurants are generally forterms of 15 to 20 years and provide for additional option terms ranging fromfive to 20 years and a specified annual rental. Most of these leases providefor additional rent based on sales volumes exceeding specified levels. Leases forfuture restaurants will likely include similar rent provisions. Remainingrestaurant lease terms range from less than one year to 22 years.

**ITEM 3.LEGAL PROCEEDINGS**

Weare involved in various legal proceedings from time to time incidental to theconduct of our business. In our opinion, any ultimate liability arising out ofany current legal proceedings will not have a material adverse effect on ourfinancial condition or the results of our operations.

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None.

11

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**PART II**

# **ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

# **MarketInformation**

Asof April 3, 2007, there was no established public trading market for our commonequity security.

# **RecordHolders**

Asof April 3, 2007, we had 102 holders of our Common Stock, $.01 par value pershare and we did not have any other class of common equity security issuedor outstanding.

# **Dividends**

We have not paid any dividends since 1998.Furthermore, we do not foresee declaring or paying any cash dividends in theimmediate future. Moreover, the Senior Notes Indenture significantly limits,and in certain cases prohibits, payment of cash dividends without the Indenturetrustee’s approval

# **RecentSales of Unregistered Securities**

None.

12

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**ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA**

Thedata for fiscal years ended 2002 through 2006 are derived from our auditedfinancial statements. Selected consolidated financial data should be read inconjunction with Management’s Discussion and Analysis of Financial Conditionand Results of Operations and the Consolidated Financial Statements and theNotes thereto included elsewhere in this Annual Report on Form 10-K.Historical results are not necessarily indicative of results to be expected inthe future. The acquisition of eleven Vinny T’s of Boston® restaurants inSeptember 2006 affects the comparability of fiscal 2006 to prior years.

Statement of OperationsData (in thousands except share and per share amounts)
| ** **                                                         | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **January 3,**             | ** ** | **December 28,** | ** ** | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
| ** **                                                         | ** ** | **2007 (a)**               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Net sales                                                          |       | $                               | 226,444    |   | $ | 204,784 |   | $ | 200,408 |   | $ | 186,172 |   | $ | 162,319 |   |
| Cost of sales and  expenses                                        |       |                            |       |   |   |   |   |   |   |   |   |
| Cost of sales                                                      |       | 51,638                          |       | 47,611 |   | 49,231 |   | 43,544 |   | 35,667 |   |
| Operating expenses                                                 |       | 135,136                         |       | 123,253 |   | 122,056 |   | 113,036 |   | 96,413 |   |
| General and  administrative expenses                               |       | 15,044                          |       | 14,442 |   | 13,065 |   | 11,320 |   | 12,124 |   |
| Deferred rent,  depreciation, amortization and preopening expenses |       | 11,399                          |       | 11,228 |   | 12,657 |   | 14,123 |   | 12,413 |   |
| Asset impairment charge                                            |       | 48                              |       | 982 |   | 6,749 |   | 3,580 |   | — |   |
| Closed restaurants  charge                                         |       | —                          |       | — |   | — |   | — |   | 236 |   |
| Cost of sales  and expenses                                        |       | 213,265                         |       | 197,516 |   | 203,758 |   | 185,603 |   | 156,853 |   |
| Income (loss)  from operations                                     |       | 13,179                          |       | 7,268 |   | (3,350 | ) | 569 |   | 5,466 |   |
| Other (expense) income                                             |       |                            |       |   |   |   |   |   |   |   |   |
| Gain on Brinker Sale  (c)                                          |       | —                          |       | — |   | — |   | 650 |   | — |   |
| Interest expense, net                                              |       | (10,143                         | )          | (10,411 | ) | (10,613 | ) | (10,133 | ) | (9,587 | ) |
| Other expense                                                      |       | (10,143                         | )          | (10,411 | ) | (10,613 | ) | (9,483 | ) | (9,587 | ) |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Income (loss) before  income tax provision                         |       | 3,036                           |       | (3,143 | ) | (13,963 | ) | (8,914 | ) | (4,121 | ) |
| Income tax provision                                               |       | 575                             |       | — |   | — |   | — |   | 4,145 |   |
| Net income  (loss)                                                 |       | $                               | 2,461      |   | $ | (3,143 | ) | $ | (13,963 | ) | $ | (8,914 | ) | $ | (8,266 | ) |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Basic income (loss) per  share                                     |       | $                               | 0.82       |   | $ | (1.06 | ) | $ | (4.74 | ) | $ | (3.00 | ) | $ | (2.77 | ) |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Weighted average shares  outstanding - basic                       |       | 3,014,363                       |       | 2,960,025 |   | 2,943,841 |   | 2,970,403 |   | 2,978,955 |   |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Diluted income (loss)  per share                                   |       | $                               | 0.80       |   | $ | (1.06 | ) | $ | (4.74 | ) | $ | (3.00 | ) | $ | (2.77 | ) |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Weighted average shares  outstanding - diluted                     |       | 3,090,053                       |       | 2,960,025 |   | 2,943,841 |   | 2,970,403 |   | 2,978,955 |   |
|                                                               |       |                            |       |   |   |   |   |   |   |   |   |   |
| Comparable restaurant  sales (b)                                   |       | 4.8                             | %          | 0.2 | % | 1.4 | % | 4.1 | % | 5.8 | % |   |
|                                                                    |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Balance Sheet Data (inthousands)

 
|                                            | ** ** | **January 3,** | ** ** | **December 28,** | ** ** | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
|--------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                 | ** ** | **2007**            | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003**              | ** ** | **2003**            | ** ** |
|                                       |       |                |       |                  |       |                  |       |                  |       |                |       |
| Total assets                               |       | $                   | 125,197    |                  | $          | 112,545               |       | $                     | 112,221    |                | $          | 124,416 |   | $ | 123,121 |   |
| Long term debt                             |       | $                   | 95,706     |                  | $          | 92,179                |       | $                     | 92,307     |                | $          | 92,981 |   | $ | 87,167 |   |
| Total  stockholders’ (deficit) equity |       | $                   | (14,801    | )                     | $          | (17,303               | )          | $                     | (14,732    | )                   | $          | (490 | ) | $ | 8,495 |   |
|                                       |       |                |       |                  |       |                  |       |                  |       |                |       |

 

Cash Flow Data (inthousands)

 
| ** **                                             | ** ** | **January 3,** | ** ** | **December 28,** | ** ** | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** |
|--------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                             | ** ** | **2007**            | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003**              | ** ** | **2003**            | ** ** |
|                                                   |       |                |       |                  |       |                  |       |                  |       |                |       |
| Cash flows  provided by operating activities           |       | $                   | 17,479     |                  | $          | 12,927                |       | $                     | 7,881      |                | $          | 9,071 |   | $ | 9,169 |   |
| Cash flows used  in investing activities               |       | (10,197             | )          | (4,108                | )          | (7,872                | )          | (9,358                | )          | (19,271             | )          |
| Cash flows (used  in) provided by financing activities |       | (218                | )          | 272                   |       | (365                  | )          | (199                  | )          | —              |       |
| Increase (decrease) in  cash                           |       | $                   | 7,064      |                  | $          | 9,091                 |       | $                     | (356       | )                   | $          | (486 | ) | $ | (10,102 | ) |
|                                                        |            |                     |            |                       |            |                       |            |                       |            |                     |            |  |  |  |  |  |  |  |  |

 

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(a)               Fiscal year 2006consisted of fifty-three weeks.  Allother years presented were fifty-two weeks.

(b)              We define comparablerestaurant sales as net sales from restaurants open and owned for at least onefull fiscal year at the beginning of the year.

(c)               InApril 2001, the Company completed the sale of a number of non-Bertucci’sbrand restaurants (the “Brinker Sale”) and recorded a gain of $36.9 millionbefore income taxes. During 2003 the Company concluded certain liabilitiesrecorded in connection with the Brinker Sale were no longer required aspart of the final settlement and accordingly reversed $650,000 of accruedliabilities as an additional gain on the Brinker Sale.

13

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**ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

*The following discussion shouldbe read in conjunction with “Item 1. Business”, “Item 1A. Risk Factors”, “Item6. Selected Financial Data”, and our Consolidated Financial Statements andNotes thereto.*

# **General**

Weare a Delaware corporation and the owner and operator of two chains offull-service casual dining, Italian-style restaurants under the names (1)Bertucci’s Brick Oven Pizzeria® or Bertucci’s Brick Oven Ristorante®; and (2)Vinny T’s of Boston®. We incorporated in 1994 as NE RestaurantCompany, Inc. and formally changed our name to Bertucci’s Corporation onAugust 16, 2001. As of January 3, 2007, we operated 92 Bertucci’srestaurants and 11 Vinny T’s of Boston® restaurants located primarily in thenortheastern United States.

In July 1998, we completed our acquisition ofBertucci’s Restaurant Corp.’s parent entity, Bertucci’s, Inc., for apurchase price, net of cash received, of approximately $89.4 million (the “Bertucci’sAcquisition”). We financed the Bertucci’s Acquisition primarily through theissuance of $100 million of 103⁄4% senior notes due 2008 (the “Senior Notes”). Asof January 3, 2007, $85.3 million in principal of the Senior Notes are stilloutstanding.

In September, 2006, theCompany executed a Stock Purchase Agreement with BUCA, Inc. and BUCARestaurants 3, Inc. (“BUCA 3”) the entity which owns and operates Vinny T’s ofBoston restaurants (“the Vinny T’s Acquisition”).  As a result of the Vinny T’s Acquisition,BUCA 3 is now a wholly-owned subsidiary of the Company and continues to own andoperate 11 Vinny T’s of Boston restaurants in four states. The Company believesthe acquisition of the 11 restaurants will increase revenues and incomefrom operations while providing an acceptable return on the investment. TheCompany paid BUCA an aggregate purchaseprice of $6.6 million, of which $3.0 million was paid in cash and $3.6 millionwas paid through the issuance of a Promissory Note. The Promissory Notecontains no covenants and bears interest at the rate of 9% payable in two equalinstallments on September 25, 2007 and July 15, 2008. See Item 1. Business – Overview

**Resultsof Operations**

For all our restaurants, net salesconsist of food, beverage and alcohol sales. Cost of sales consists of food,beverage and alcohol costs as well as supplies used in carry-out and deliverysales. Total operating expenses consist of five primary categories:  (i) labor expenses; (ii) restaurantoperations; (iii) facility costs; (iv) office expenses;and (v) other expenses, which include such items as advertisingexpenses, rent and insurance. General and administrative expenses include costsassociated with our departments assisting in restaurant operations andmanagement of the business, including multi-unit supervision, accounting,management information systems, training, executive management, purchasing andconstruction.

The following table sets forth thepercentage-relationship to net sales, unless otherwise indicated, of certainitems included in our consolidated statements of operations, for the periodsindicated:

**STATEMENT OF OPERATIONS DATA**

**(Percentage of Net Sales for FiscalYears Presented)**
|                                                                    | ** ** | **January 3,** | ** ** | **December 28,** | ** ** | **December 29,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2007**            | ** ** | **2005**              | ** ** | **2004**              | ** ** |
|                                                               |       |                |       |                  |       |                  |       |
| Net sales                                                          |       | 100.0               |       | 100.0                 |       | 100.0                 |       |
|                                                               |       |                |       |                  |       |                  |       |
| Cost of sales  and expenses:                                       |       |                |       |                  |       |                  |       |
| Cost of sales                                                      |       | 22.8                |       | 23.2                  |       | 24.6                  |       |
| Operating expenses                                                 |       | 59.7                |       | 60.2                  |       | 60.9                  |       |
| General and administrative expenses                                |       | 6.6                 |       | 7.1                   |       | 6.5                   |       |
| Deferred rent, depreciation, amortization and  preopening expenses |       | 5.0                 |       | 5.5                   |       | 6.3                   |       |
| Asset impairment charge                                            |       | —              |       | 0.5                   |       | 3.4                   |       |
| Total cost of sales and expenses                                   |       | 94.1                |       | 96.5                  |       | 101.7                 |       |
|                                                               |       |                |       |                  |       |                  |       |
| Income (loss) from operations                                      |       | 5.9                 |       | 3.5                   |       | (1.7                  | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Interest  expense, net                                             |       | (4.5                | )          | (5.0                  | )          | (5.3                  | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Income (loss)  before income tax provision                         |       | 1.4                 |       | (1.5                  | )          | (7.0                  | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Income tax  provision                                              |       | 0.3                 |       | —                |       | —                |       |
|                                                               |       |                |       |                  |       |                  |       |
| Net income  (loss)                                                 |       | 1.1                 |       | (1.5                  | )          | (7.0                  | )          |

 
|  | The results of  the eleven Vinny T’s of Boston restaurants are included in fiscal 2006 from  their acquisition date. |
|--|---------------------------------------------------------------------------------------------------------------------------|

 

14

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**YearEnded January 3, 2007 Compared to Year Ended December 28, 2005**

*Net Sales*. Totalnet sales increased by approximately $21.6 million, or 10.5%, to $226.4 millionduring fiscal 2006 from $204.8 million during fiscal 2005. The increase was dueto a 4.8% increase in our 91 comparable Bertucci’s restaurants ($9.8 million),$4.3 million resulting from the fifty-third week of Bertucci’s restaurantoperations, and $7.6 million from the addition of the 11 Vinny T’s of Boston®restaurants as a result of the Vinny T’s Acquisition. Bertucci’s comparablerestaurant dine-in sales increased 5.1% and our comparable restaurant carry-outand delivery sales increased 4.0% in fiscal 2006 as compared to fiscal 2005.The Bertucci’s comparable guest counts, measured on dine-in business only,increased by 1.1% in 2006 versus 2005. The 91 comparable Bertucci’s restaurants’sales average during 2006 was $2.3 million per restaurant.

*Cost of Sales*.Cost of sales as a percentage of net sales decreased to 22.8% during fiscal2006 from 23.2% during fiscal 2005. The decrease (in Bertucci’s restaurants)was primarily attributable to a decrease in certain ingredient costs, primarilycheese and oil, increased inventory controls, as well as a menu mix shift tolower cost items introduced during 2006. Cost of sales in Vinny T’s of Boston®restaurants was 26.1% of sales for the fourteen weeks since the Vinny T’sAcqusition.

*Operating Expenses.*Operating expenses increased by approximately $11.8 million, or 9.6%, to $135.1million during fiscal 2006 from $123.3 million during fiscal 2005. Expressed asa percentage of net sales, operating expenses decreased to 59.7% in 2006 from60.2% in 2005. Nearly half of the dollar increase, $5.2 million, was due to increasedoperating expenses incurred as a result of the Vinny T’s Acquisition. Theremaining dollar increase, $6.5 million, in these expenses is primarilyattributable to increased payroll and related benefits ($4.1 million),occupancy and general facility expenses ($1.5 million) and utility costs,primarily natural gas ($1.4 million); partially offset by reduced advertising($0.2 million), and gift card breakage ($0.2 million).

*General and Administrative Expenses.*General and administrative expenses increased by $600,000, or 4.2%, to $15.0million during fiscal 2006 from $14.4 million during fiscal 2005. Expressed asa percentage of net sales, general and administrative expenses decreased to6.6% in fiscal 2006 from 7.1% during fiscal 2005. The dollar increase wasprimarily due to higher compensation and group health expenses.

*Deferred Rent,**Depreciation, Amortization and Preopening Expenses*.Deferred rent, depreciation, amortization and preopening expenses increased byapproximately $200,000 to $11.4 million during fiscal 2006 from $11.2 millionduring fiscal 2005. Deferred rent decreased by approximately $330,000 as moreleases with step rent provisions now require cash payments in excess of thecalculated pro-rata rent expense. Depreciation increased by approximately $700,000in 2006 as a result of the Vinny T’s Acquisition and remodel capitalexpenditures in Bertucci’s restaurants the last two fiscal years. Preopeningexpense decreased approximately $150,000 as no restaurant opened in fiscal2006.

*Asset Impairment Charge.*In 2006, we assessed certain non-performingrestaurants for recoverability of recorded amounts. As a result of ourevaluation, we determined an additional impairment of fixed assets existed attwo previously impaired restaurant locations during 2006 due to $48,000 ofmaintenance capital expended at these locations. We recorded an impairmentcharge in that amount to reflect the write down of the affected assets to fairvalue.

*Interest Expense, net.*Netinterest expense decreased by approximately $300,000 to $10.1 million duringfiscal 2006 from $10.4 million during fiscal 2005. Interest expense in 2006 wasprimarily comprised of $9.3 million accrued on the Senior Notes ($180,000 morethan fiscal 2005 Senior Notes interest expense due to the 53rd week in fiscal 2006) and $85,000 of interestaccrued on the Vinny T’s Acquisition Promissory Note.  Interest income increased by approximately $500,000million primarily due to increased overnight investment funds resulting fromreduced capital expenditures, and higher short term interest rates in 2006.

*Income Taxes.*Wehave a history of recurring pre-tax losses. We previously recorded a fullvaluation allowance for our net deferred tax assets and have also provided afull valuation allowance relating to the tax benefits generated since 2002(primarily from operating losses). We recorded a provision for income tax ofapproximately $575,000 in 2006 primarily for estimated state and minimumfederal taxes currently payable. FICA Tip Credits of approximately $1.7 millionfavorably impact the effective federal income tax rate for fiscal 2006. As ofJanuary 3, 2007, we had tax credit carryforwards totaling $7.5 million and netoperating loss carryforwards of $1.4 million (representing approximately $0.4million net of tax), including approximately $0.8 million and $1.3 million oftax credit carryforwards and net operating loss carryforwards, respectively,from the Vinny T’s Acquisition.

**YearEnded December 28, 2005 Compared to Year Ended December 29, 2004**

*Net Sales*. Totalnet sales increased by approximately $4.4 million, or 2.2%, to $204.8 millionduring fiscal 2005 from $200.4 million during fiscal 2004. The increasewas due to a 0.2% increase in our 89 comparable Bertucci’s restaurants, theincremental 49 restaurant weeks resulting from full year operations of two newrestaurants opened during 2004 and the addition of one new restaurant openingin 2005 (an incremental 47 restaurant weeks). Our comparable restaurant dine-insales decreased 0.5% while our comparable restaurant carry-out and deliverysales increased 2.9% in fiscal 2005. The comparable guest counts, measured ondine-in business only, were essentially flat in 2005 versus 2004. The 89comparable restaurants’ sales average during 2005 was $2.2 million perrestaurant while the sales average for the two restaurants opened during 2004was $1.9 million. The average weekly sales for the one restaurant opened during2005 was $43,500 during the 47 weeks it was opened in 2005.

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*Cost of Sales*.Cost of sales as a percentage of net sales decreased to 23.2% during fiscal2005 from 24.6% during fiscal 2004. The decrease was primarily attributable toa decrease in certain ingredient costs, primarily cheese and oil, increasedinventory controls, as well as a menu mix shift to lower cost items introducedduring 2005.

*Operating Expenses.*Operating expenses increased by approximately $1.2 million, or 1.0%, to $123.3million during fiscal 2005 from $122.1 million during fiscal 2004. Expressed asa percentage of net sales, operating expenses decreased to 60.2% in 2005 from60.9% in 2004. The key components of operating expenses were payroll (includingrelated employer taxes), utilities, restaurant facilities maintenance, rent andadvertising. The dollar increase in these expenses was primarily attributableto increased occupancy and general facility expenses ($1.7 million) and utilitycosts (primarily natural gas) ($1.4 million); offset by reduced payroll andbenefits ($0.8 million), advertising ($0.8 million), and property and liabilityinsurance premiums ($0.3 million).

*General and Administrative Expenses.*General and administrative expenses increased by approximately $1.3 million, or9.9%, to $14.4 million during fiscal 2005 from $13.1 million during fiscal2004. Expressed as a percentage of net sales, general and administrativeexpenses increased to 7.1% in fiscal 2005 from 6.5% during fiscal 2004. Thedollar and percentage increases were primarily due to higher incentivecompensation expense ($1.5 million) as our internal earnings target wasachieved and this triggered additional compensation obligations.

*Deferred Rent,**Depreciation, Amortization and Preopening Expenses*.Deferred rent, depreciation, amortization and preopening expenses decreased byapproximately $1.5 million, or 11.8%, to $11.2 million during fiscal 2005 from$12.7 million during fiscal 2004. As we only opened one restaurant in 2005,preopening expenses totaled only $185,000, a $300,000 decrease from 2004 duringwhich there were two restaurant openings. Deferred rent decreased byapproximately $500,000 as many leases with step rent provisions now requirecash payments in excess of the calculated pro-rata rent expense. Depreciationdecreased by approximately $800,000 in 2005 as prior period impairment chargesreduced the cost basis of certain assets and the associated depreciationexpense. Additionally, equipment acquired in the Bertucci’s Acquisition becamefully depreciated during 2005. These items more than offset incrementaldepreciation from fiscal 2005 and 2004 restaurant openings of approximately$273,000.

*Asset Impairment Charge.*In 2005, we assessed certain non-performingrestaurants for recoverability of recorded amounts. As a result of ourevaluation, we determined an impairment of fixed assets existed at sixrestaurant locations during 2005. We estimated the fair value of these assetsbased on the net present value of the expected cash flows from the restaurantsand determined the carrying amount of the assets exceeded their fair value byapproximately $982,000. We recorded an impairment charge in that amount toreflect the write down of the affected assets to fair value.

*Interest Expense, net.*Interestexpense decreased by approximately $200,000 to $10.4 million during fiscal 2005from $10.6 million during fiscal 2004. Interest expense in 2005 was primarilycomprised of $9.2 million paid on the Senior Notes in semi-annual installmentsand was consistent with interest expense recorded in fiscal 2004. Interestincome increased by $232,000 primarily due to increased overnight investmentfunds resulting from reduced capital expenditures and higher short terminterest rates in 2005. A reduction in interest capitalized of $60,000partially offset the increased interest income.

*Income Taxes.*Wehave an historical trend of recurring pre-tax losses. We previously recorded afull valuation allowance for our net deferred tax asset. We also provided afull valuation allowance relating to the tax benefits generated since 2002(primarily from our operating losses). As of December 28, 2005, we had netoperating loss and tax credit carryforwards totaling $13.1 million.

**Liquidityand Capital Resources**
|                                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                   |       |     |       |     |       |     |       |
| Cash flows  provided by operating activities           |       | $        | 17,479     |     | $          | 12,927   |       | $ | 7,881 |   |
|                                                   |       |     |       |     |       |     |       |
| Cash flows used  in investing activities               |       | (10,197  | )          | (4,108   | )          | (7,872   | )          |
|                                                   |       |     |       |     |       |     |       |
| Cash flows (used  in) provided by financing activities |       | (218     | )          | 272      |       | (365     | )          |
|                                                   |       |     |       |     |       |     |       |
| Net increase (decrease)  in cash                       |       | $        | 7,064      |     | $          | 9,091    |       | $ | (356 | ) |

 

We have historically metour capital expenditures and working capital needs through a combination ofoperating cash flow, bank and mortgage borrowings, the sale of the SeniorNotes, the sale of Common Stock, and sale-leaseback transactions. We expect ourfuture capital and working capital needs will be funded from operating cashflow and cash on hand.

Net cash flows fromoperating activities were $17.5 million for fiscal 2006 as compared to $12.9million for fiscal 2005. Our fiscal 2006 net income increased by $5.6 millionto $2.5 million from a loss of $3.1 million in fiscal 2005.  Included in the net income for fiscal 2006 isa fifty-third week. As of January 3, 2007, we had $28.4 million in cash andcash equivalents.

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Our capital expenditureswere $6.6 million, $4.3 million, and $8.6 million, for fiscal 2006, 2005, and2004, respectively. In fiscal 2006, $5.6 million of our capital spending wasattributable to remodeling and upgrading facilities in our existing restaurantsand $1.0 million was used for new restaurant development. We anticipate fiscal2007 capital expenditures will be approximately $18.2 million as we plan toopen five Bertucci’s restaurants.

As of January 3, 2007, wehad $95.7 million in consolidated indebtedness, $85.3 million pursuant to theSenior Notes, $6.0 million of capital lease obligations, and $4.4 million ofpromissory notes. The Senior Notes contain no financial covenants and we are incompliance with or have obtained waivers for all non-financial covenants as ofApril 3, 2007. The Senior Notes bear interest at the rate of 10 3⁄4% per annum,payable semi-annually on January 15 and July 15. The Senior Notes aredue in full on July 15, 2008 and may be redeemed at face value priorto maturity.  Additionally, under certaincircumstances, including a change of control or following certain asset sales,the holders of the Senior Notes may require us to repurchase the SeniorNotes at a redemption price of 101% of face value. See Note 5 of Notes toConsolidated Financial Statements.  ThePromissory Note, the principal balance of which was $3.66 million as of January3, 2007, contains no covenants and bears interest at the rate of 9% payable intwo equal installments on September 25, 2007 and July 15, 2008. The PromissoryNote is due in full on July 15, 2008 orearlier upon the occurrence of certain other events, including if we have aChange in Control (as defined in the Promissory Note), the consummation of aninitial public offering by us or the redemption, repurchase, refinancing orpayment of our Senior Notes.

We are operating withouta line of credit and are funding all of our growth, debt reductions andoperating needs out of cash flows from operations and cash on hand.

We have established a$4.0 million (maximum) letter of credit facility (expiring inDecember 2007) as collateral with third party administrators for selfinsurance reserves. As of January 3, 2007, this facility was collateralizedwith $2.2 million of cash restricted from general use. Letters of Credit totaling$2.2 million were outstanding on January 3, 2007 and December 28, 2005.

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

## The table below depicts ourfuture contractual obligations committed as of January 3, 2007:

|                                                     |   | **Payments Due by Fiscal Year** | ** ** |
|-----------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                |   | **(Dollars in Thousands)**                | ** ** |
|                                                |   | **Total**                                           | ** ** | **2007** | ** ** | **2008- 2009** | ** ** | **2010 - 2011** | ** ** | **After 2011** | ** ** |
| Contractual Obligations:                            |   |                                                |       |   |   |   |   |   |   |   |   |
| Operating leases  (a)                               |   | $                                                   | 117,017    |   | $ | 18,511 |   | $ | 32,840 |   | $ | 26,924 |   | $ | 38,742 |   |
| Capital leases (a)                                  |   | 12,056                                              |       | 704 |   | 1,440 |   | 1,389 |   | 8,523 |   |
| Senior notes (b)                                    |   | 103,651                                             |       | 9,171 |   | 94,480 |   | — |   | — |   |
| Promissory notes (c)                                |   | 4,970                                               |       | 426 |   | 4,209 |   | 223 |   | 112 |   |
| Utility purchase  commitments (d)                   |   | 5,176                                               |       | 2,363 |   | 2,813 |   | — |   | — |   |
| Capital expenditures (e)                            |   | 2,200                                               |       | 2,200 |   | — |   | — |   | — |   |
| Closed  restaurants reserve, net of sublease income |   | 286                                                 |       | 207 |   | 79 |   | — |   | — |   |
| Total contractual obligations                       |   | $                                                   | 245,356    |   | $ | 33,582 |   | $ | 135,861 |   | $ | 28,536 |   | $ | 47,377 |   |

 

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(a)- See Note 6 of Notes to Consolidated Financial Statements

(b)- Including interest at 10 3⁄4% per annum to maturity in July 2008.

(c)- Including interest at a weighted average rate of 8.7% per annum.

(d) - The Company has executed contracts to provide electricity tothirty-nine restaurants at a fixed rate per kilowatt through 2009. The Companybelieves these contracts qualify for the “normal purchases” exception as definedby SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities*. Therefore, the contracts are notrequired to be marked to market through the consolidated statement ofoperations. In addition, the Company executed contracts to provide natural gasto eighty-two restaurants at a fixed price per therm through May2007. These contracts do not qualify for the “Normal Purchase” exception,and are not considered hedges. These contracts have been recorded on thebalance sheet at fair value with adjustments to fair value being recognized inoperating expenses in the consolidated statement of operations when they occur.The purchase commitments represent an estimate of minimum usage per yearmultiplied by the contracted rates.

(e) - We had one restaurantunder construction at year end and had various purchase commitments related toremodeling projects at selected restaurants.

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We believe the cash flowgenerated from our operations and cash on hand should be sufficient to fund ourdebt service requirements, lease obligations, expected capital expenditures andother operating expenses through 2007. Beyond 2007 and up to the July 15, 2008maturity of our Senior Notes, we expect to be able to service our debt, but thelack of short term borrowing availability may impede our growth. We areevaluating various refinancing alternatives for our Senior Notes upon theirmaturity on July 15, 2008.

## **Impact of Inflation**

Inflationary factorssuch as increases in labor, food or other operating costs could adversely affectour operations. We do not believe inflation has had a material impact on ourfinancial position or results of operations for the periods discussed above. Webelieve through the proper leveraging of purchasing size, labor scheduling, andrestaurant development analysis, inflation will not have a material adverseeffect on our income during the foreseeable future. There can be no assuranceinflation will not materially adversely affect us.

## **Seasonality**

Our quarterly results ofoperations have fluctuated and are expected to continue to fluctuate dependingon a variety of factors, including the timing of new restaurant openings andrelated preopening and other startup expenses, net sales contributed by newrestaurants, increases or decreases in comparable restaurant sales, competitionand overall economic conditions. Our business is also subject to seasonalinfluences of consumer spending, dining out patterns and weather. As is thecase with many restaurant companies, we typically experience lower net sales andnet income during the first and fourth fiscal quarters. The current year fourthquarter is not comparable with the prior year or other quarters in 2006 becauseit comprised fourteen weeks and the Vinny T’s Acquisition. Because of thesefluctuations in net sales and net loss, the results of operations of anyquarter are not necessarily indicative of the results that will be achieved forthe full year or any future quarter.

**Critical Accounting 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, closed restaurants reserve and gift cards. Estimates are basedon historical experience and on various other assumptions believed to bereasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

We believe the followingcritical accounting policies affect the more significant judgments andestimates used in our preparation of our consolidated financial statements.

*Impairment of Long-Lived Assets*

We evaluate property andequipment held and used in the business for impairment whenever events orchanges in circumstances indicate the carrying amount of a restaurant’s assetsmay not be recoverable. An impairment is determined to exist if theestimated undiscounted future operating cash flows (which we estimate usinghistorical cash flows and other relevant facts and circumstances) for arestaurant exceeds the carrying amount of its assets. If an impairment exists,the amount of impairment is measured as the excess of the carrying amount overthe estimated discounted future operating cash flows of the asset and theexpected proceeds upon sale of the asset. The estimates and assumptions usedduring this process are subject to a high degree of judgment.

During each ofthe fiscal years 2006, 2005, and 2004 we assessed certain non-performingrestaurants for recoverability of recorded amounts and determined an impairmentof fixed assets existed at two restaurant locations in 2006, six restaurantlocations in 2005 and 12 restaurant locations in 2004. We estimated the fair valueof these assets based on the net present value of the expected cash flows fromthe restaurants and determined the carrying amount of the assets exceeded theirfair value by approximately $48,000, $982,000, and $6.7 million,respectively. We recorded impairment charges in those amounts to reflect thewrite down of the affected assets to fair value.

In addition, at leastannually, we assess the recoverability of goodwill and other intangible assetsrelated to our restaurant concept. These impairment tests require us toestimate fair values of our restaurant concept by making assumptions regardingfuture cash flows and other factors. If these assumptions change in the future,we may be required to record impairment charges for these assets. To date,such analysis has indicated no impairment of goodwill and other intangibleassets has occurred.

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*Income Tax Valuation Allowances*

The future tax benefitswhich give rise to the deferred tax asset remain statutorily available to us.We consider both negative and positive evidence in determining if a valuationallowance is appropriate. As of January 3, 2007, we had tax creditcarryforwards totaling $7.5 million and net operating loss carryforwards of$1.4 million (representing approximately $0.4 million net of tax), includingapproximately $0.8 million and $1.3 million of tax credit carryforwards and netoperating loss carryforwards, respectively, from the Vinny T’s Acquisition,which expire at various dates through 2026. We have an historical trend ofrecurring pre-tax losses. Based on the historical trend of losses, we concludeda valuation allowance for the net deferred tax asset remains appropriate.Actual amounts realized will be dependent on generating future taxable income.

*Self-Insurance*

We are self-insured forcertain losses related to general liability, group health insurance, andworkers’ compensation. We maintain stop loss coverage with third party insurersto limit our total exposure. The self-insurance liability represents anestimate of the ultimate cost of claims incurred as of the balance sheet date.The estimated liability is not discounted and is established based uponanalysis of historical data and estimates of the ultimate costs of claimsincurred, and are reviewed by us on a quarterly basis to ensure the liabilityis appropriate. If actual trends, including the severity or frequency ofclaims, differ from our estimates, our financial results could be impacted. Todate we are not aware of any activity requiring significant adjustments tothese reserves.

*ClosedRestaurants Reserve*

Weremain primarily liable on leases for nine closed locations whose terms expireat various dates through 2017. We review the specifics of each site on aquarterly basis to estimate our net remaining liability over the remaininglease term. Certain locations have subtenants in place while others remainvacant. Estimates must be made of future sublease income or lease assignmentpossibilities. If subtenants default on their subleases or projected futuresubtenants are not obtained, actual results could differ from our estimates,thereby impacting our financial results. All sublease and assignment activityin fiscal 2004 through 2006 has been consistent with reserves and no additionalincreases in the reserve were necessary.

*Giftcards*

We record aliability in the period in which a gift card is issued and proceeds arereceived. As gift cards are redeemed, this liability is reduced and revenue isrecognized. We recognize gift card breakage income (“breakage”) when the likelihoodof the redemption of the card becomes remote.

***Recent Accounting Pronouncements***

InJuly 2006, the Financial Accounting Standards Board (“FASB”) issuedInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes* (“FIN 48”), an interpretation of Statement ofFinancial Accounting Standards (“SFAS”) No. 109, *Accountingfor Income Taxes*. FIN 48 clarifies the accounting for uncertainty intax positions and requires that the impact of tax positions be recorded in thefinancial statements if it is more likely than not that such position will besustained on audit, based on the technical merits of the position. Theprovisions of FIN 48 are effective for fiscal years beginning after December15, 2006.  We do not expect the adoptionof FIN 48 to have a material effect on our consolidated financial position orresults of operations

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS No. 157”), which addresses how companies should measure fair value whenthey are required to use a fair value measure for recognition or disclosurepurposes under generally accepted accounting principles. The provisions of SFASNo. 157 are effective for fiscal years beginning after November 15, 2007. Weare evaluating the expected impact the adoption of SFAS No. 157 will haveon our consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets and Liabilities* (“SFASNo. 159”).  SFAS No. 159 permits entitiesto choose to measure many financial instruments and certain other items at fairvalue. If the fair value option is elected, unrealized gains and losses will berecognized in earnings at each subsequent reporting date. SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007. We are evaluatingthe impact SFAS No. 159 may have on our consolidated financial positionand results of operations.

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**ITEM7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.**

In order to limit anypossible exposure to market risk from changes in the price of natural gas usedin the operations of our restaurants, we have contracted for minimum purchasequantities at fixed prices in selected restaurants through May 2007. Based uponsensitivity analysis as of January 3, 2007, a 10% change in the price ofnatural gas would cause the fair value of these contracts to increase /decreaseby approximately $90,000. In addition, we do not have operations outside of theUnited States of America which expose us to foreign currency risk andsubstantially all of our outstanding debt has fixed interest rates.

**ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

The financial statementsand supplementary data are listed under Part IV, Item 15 in this report.

**ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**

None.

**ITEM 9A. 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 SEC, and such information isaccumulated and communicated to management, including our Chief ExecutiveOfficer (the “CEO”) and Chief Financial Officer (the “CFO”), as appropriate, toallow timely decisions regarding required disclosure. In designing andevaluating our disclosure controls and procedures, we recognized controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, as ours aredesigned to do, and we necessarily were required to apply our judgment inevaluating the cost-benefit relationship of possible controls and procedures.

During the fourthquarter 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 January 3, 2007.

*Changes inInternal Control over Financial 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.

**ITEM9B. OTHER INFORMATION**

None.

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**PART III**

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THEREGISTRANT AND CORPORATE GOVERANCE**

The following table setsforth certain information with respect to our executive officers and directorsat the time of this filing:
| Name                 | ** ** | **Age** | ** ** | **Position**                                                      |
|----------------------|------------|---------|------------|-------------------------------------------------------------------|
| Stephen V. Clark     |       | 53      |       | Vice Chairman of the Board of Directors, Chief  Executive Officer |
| David G. Lloyd       |       | 43      |       | President, Chief Financial Officer and Director                   |
| Benjamin R. Jacobson |       | 62      |       | Chairman of the Board of Directors and Treasurer                  |
| Sally M. Dungan      |       | 53      |       | Director * ø                                                 |
| James J. Morgan      |       | 64      |       | Director #                                                        |
| James N. Moriarty    |       | 40      |       | Director * ø                                                 |
| James R. Parish      |       | 60      |       | Director ø                                                   |
| Heywood Wilansky     |       | 59      |       | Director * # ø                                               |

 

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*   Member of Audit Committee

#  Member of Compensation Committee

Ø Independent Director

**Stephen V. Clark.**Mr. Clarkbecame Chief Executive Officer in August 2004 and was named Vice Chairmanof the Board of Directors in August 2005. He was President fromOctober 2004 through August 2005, and has served as a director sinceApril 2002. Mr. Clark was the President and Chief Executive Officer ofTaco Bueno, a quick service Mexican restaurant chain of over 120 stores, fromJune 2001 through August 2005 (during which time he was also our ChiefExecutive Officer beginning in August 2004 and our President beginning inOctober 2004). He previously served as Taco Cabana Inc.’s Chief ExecutiveOfficer from November 1996 through April 2001 and was previously thePresident, Chief Operating Officer, and Director at Taco Cabana fromApril 1995 through November 1996. Prior to that, Mr. Clark heldvarious positions with Church’s Chicken, a division of America’s FavoriteChicken, over seventeen years, the last having been Senior Vice President andConcept General Manager.

**David G. Lloyd.** Mr. Lloydbecame our Chief Financial Officer in November 2004, assumed the role ofPresident in August 2005 and became a director in September 2005.Mr. Lloyd was the Chief Financial Officer of Taco Bueno, a quick serviceMexican restaurant chain of over 120 stores, from June 2001 throughAugust 2005 (during which time he was also our Chief Financial Officerbeginning in November 2004). He previously served as Taco Cabana Inc.’sChief Financial Officer from November 1994 through February 2001.Prior to that, Mr. Lloyd, a Certified Public Accountant, was withDeloitte & Touche LLP from 1985 through 1994.

**Benjamin R. Jacobson.**Mr. Jacobsonhas been Chairman of the Board of Directors since 1991 and was our ChiefExecutive Officer from October 1999 until August 2004. Since 1989,Mr. Jacobson has served as the Managing General Partner of JacobsonPartners, which specializes in direct equity investments. Mr. Jacobson isa director of a number of other privately-held corporations.

**Sally M. Dungan.**Ms. Dunganbecame a director and member of our audit committee in February 2004. Sheis the Chief Investment Officer (“CIO”) of Tufts University where she isresponsible for the investment policy and total fund structure of Tufts’ ****$1.0 billionin endowment and long term funds portfolio.****Priorto assuming the CIO position in September of 2002, Ms. Dungan was theDirector of Pension Fund Management for Siemens Corporation. Ms. Dungan isa Chartered Financial Analyst.

**James J. Morgan.**Mr. Morganbecame a director in December 1997. From 1963 until his retirement in1997, Mr. Morgan was employed by Philip Morris U.S.A. where he served asPresident and Chief Executive Officer from 1994 until his retirement in 1997.Prior to 1994, Mr. Morgan served in various capacities at Philip Morrisincluding Senior Vice President of Marketing, and Corporate Vice President ofMarketing Planning of the Philip Morris Companies Inc. Mr. Morgan also serveson the board of directors of Megadata Corporation. Mr. Morgan is a Partnerin Jacobson Partners.

**James N. Moriarty.**Mr. Moriartybecame a director and chairman of our audit committee in February 2004. Hehas been a partner in the accounting firm of Vitale, Caturano &Company, P.C., a full service CPA and business advisory firm, since 2002. He ishead of the firm’s restaurant practice. Prior to that, Mr. Moriarty waswith Arthur Andersen LLP for 14 years, the last four years as a partner in thatfirm. He is a member of the AICPA and the Massachusetts Society of CPA’s.

**James R. Parish.**Mr. Parishwas named a director in September 2005. He has been a principal of ParishPartners, Inc., an investment, advisory and consulting firm, since 1991.Parish Partners, Inc. provides executive-level strategic advice andcounseling to a wide range of restaurant industry executive teams.Mr. Parish also serves on the board of directors of Spirit FinanceCorporation and as a member of their audit committee. Mr. Parishpreviously served on our Board of Directors from July 1998 throughAugust 2003.

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**Heywood Wilansky.**Mr. Wilanskybecame a director and member of our audit committee in May 2004. He becamea member of the compensation committee in November 2004. Mr. Wilanskyhas been the President and Chief Executive Officer of Retail Ventures, Inc.(“RVI”) since November 2004, and was named a director of DSW ShoeWarehouse (“DSW”) in March, 2005. RVI owns a controlling interest in DSW. FromFebruary 2003 through November 2004, he was the President and ChiefExecutive Officer of Filene’s Basement, Inc. Prior to that, he was aProfessor at the University of Maryland, Smith School of Business fromAugust 2002 through January 2003. He was the President and CEO ofStrategic Management Resources, LLC, a management consulting service, fromJuly 2000 through January 2003 and was the President and CEO ofBon-Ton Stores, Inc. from 1995 through 2000.

**Term ofDirectors**

Ourdirectors serve in such capacity until the next annual meeting of ourshareholders or until their successors are duly elected and qualified.

**Director Nominations**

We do not maintain aformal policy with respect to the review of potential nominees to our Board ofDirectors. All of the members of our Board of Directors participate in thereview of potential nominees to our Board of Directors. The Board of Directorshas determined that, given the size of the Board of Directors and theimportance of the director nomination process, the entire Board of Directorsshould participate in the evaluation of potential directors.

**Director Independence**

Our Board of Directorsconsists of eight directors.  Of theseeight directors, the Board of Directors has reviewed the qualifications of Ms.Dungan, Mr. Moriatry, Mr. Parish and Mr. Wilansky and has determined they are “independent”under the applicable definition contained in Rule 4200(a)(15) of the NASD’slisting standards. Mr. Moriarty was formerly a partner with ArthurAndersen LLP which audited our financial statements prior to fiscal 2002 and hewas involved in the audit of those financial statements. Mr. Moriarty hasno relationship with Deloitte & Touche LLP, our current auditor.

**AuditCommittee**

Wehave an Audit Committee, which consists of Sally M. Dungan, Heywood Wilansky,and James N. Moriarty (Chairman). The Board of Directors has reviewed the qualificationsof Ms. Dungan, Mr. Wilansky and Mr. Moriarty and have determinedthey are “independent” under the applicable definition contained inRule 4200(a)(15) of the NASD’s listing standards. The Board of Directorsappointed Mr. Moriarty to the Audit Committee because of his auditing andaccounting expertise. Our Board of Directors has determined Mr. Moriartyqualifies as an Audit Committee Financial Expert, as defined in Item407(d)(5) of Regulation S-K.

**Code of Ethics**

Wehave adopted a Code of Ethics for Senior Financial Officers including ourprincipal executive officer, principal financial officer, principal accountingofficer and controller, and other persons performing similar functions. If wemake any substantive amendments to the Code of Ethics or grant any waivers,including any implicit waiver, from a provision of the Code of Ethics to any ofour principal executive officer, principal financial officer, principalaccounting officer, controller or other persons performing similar functions, wemust disclose the nature of such amendment or waiver, the name of the person towhom the waiver was granted and the date of the amendment or waiver. A copy ofour Code of Ethics for Senior Financial Officers is filed as Exhibit 14.1to our Annual Report for the fiscal year ended December 31, 2003. Inaddition, we will provide any person, without charge, a copy of the Code ofEthics for Senior Financial Officers, if such person delivers a written requestto us at Bertucci’s Corporation, 155 Otis Street, Northborough, MA 01532, Attn:Compliance Officer.

**ITEM 11.EXECUTIVE COMPENSATION**

**COMPENSATIONDISCLOSURE AND ANALYSIS**

**Overview of Compensation Program**

The Chairman of ourBoard of Directors, Benjamin R. Jacobson (the “Chairman”), the CompensationCommittee of the Board of Directors (the “Compensation Committee”) and allother members of our Board of Directors, (collectively, the “Compensation Group”),has the responsibility for establishing, implementing and monitoring theCompany’s executive compensation programs. The Compensation Group isresponsible for ensuring that total compensation paid to our executives iscompetitive, reasonable, fair and adheres to the Company’s compensationphilosophy and objectives.

Throughoutthis Compensation Disclosure and Analysis (“CD&A”), the individuals whoserved as our Chief Executive Officer and our President and Chief FinancialOfficer during fiscal 2006 are referred to as the “Named Executive Officers.”

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**CompensationPhilosophy and Objectives**

The Compensation Group is committed to implementing executivecompensation programs that support our business objectives, including growingrevenues and earnings by building on and reinforcing the Bertucci’s and Vinny T’sof Boston brands.  Our executivecompensation programs are intended to accomplish the following objectives:

·         Strengthen the relationship between pay andperformance by emphasizing variable, at-risk compensation that is dependent onthe achievement of corporate performance goals.

·         Align executives’ interests with those ofshareholders by rewarding the achievement of specific annual strategic goals,with the ultimate objective of improving shareholder value.

·         Attract, retain and motivate qualified executivescapable of creating shareholder value.

·         Generally mirror those compensation programsoffered by comparable organizations within the restaurant industry.

The above policies guide the Compensation Group in assessing andevaluating the appropriate allocation between long-term compensation, currentcash compensation and annual bonus compensation.  The Compensation Group also considers ourbusiness objectives, our fiduciary and corporate responsibilities, competitivepractices and trends and regulatory requirements.

The Board of Directors elects our Named Executive Officers and suchofficers serve at the discretion of the Board of Directors.  We have not entered into any: (1)  employment agreements; (2) terminationagreements or arrangements (including severance or retirement agreements orarrangements); or (3) change of control agreements or arrangements, except asdiscussed below under the heading “Stock Options and Change of Control” belowin this CD&A, with any of our Named Executive Officers.

**Role ofExecutive Officers in Compensation Decisions**

Generally, annualsalaries for Named Executive Officers are determined by the Chairman of theBoard and are submitted to the Compensation Committee for approval.  The Compensation Committee consists of twodirectors:  James J. Morgan and HeywoodWilansky.  The Board of Directors hasdetermined that Mr. Wilansky is “independent” under the applicable definitioncontained in Rule 4200(a)(15) of the NASD’s listing standards.

In addition, under ourPay for Performance Plan for Executive Officers (the “PFP”) our Named ExecutiveOfficers are eligible to receive annual non-equity incentive cash bonuses.  The amount of these bonuses, if any, ismeasured by: (1) our financial performance for the year in question (measuredby a target that is closely related to EBITDA (the “EBITDA Target”)); and (2) amatrix of percentages (the “Percentage Matrix”) which determines whatpercentage of a Named Executive Officer’s base salary will be awarded as a cashbonus.   Our Named Executive Officers (inaddition to other members of management), recommend the yearly EBITDA Target toour Board of Directors which must approve such target.  The Chairman and the Compensation Committeedetermine the Percentage Matrix for the applicable year.

Our Board of Directorsadministers our Amended and Restated 1997 Equity Incentive Plan (the “EquityIncentive Plan”) under which we are able to issue options and other equitybased awards.  Although our NamedExecutive Officers are members of the Board of Directors, they do notparticipate in any deliberations or decisions concerning the awards that may bemade to them under the Equity Incentive Plan.

**Setting Executive Compensation**

Based on our philosophyand objectives, the Compensation Group has designed our compensation programsto motivate and reward executives for achieving business goals.

The Company competes withmany larger companies for top executive-level talent. As such, the CompensationGroup generally sets total compensation for the Named Executive Officerscompetitive with total compensation paid to similarly situated executives ofsimilarly situated companies.  Variationsto this objective may occur as dictated by the experience level of the individualand market factors.

The Compensation Group’s policy for allocating betweencurrent and long-term compensation is to ensure adequate base compensation toattract and retain qualified personnel, while providing incentives to maximizelong-term value for the Company and its shareholders.  The Company provides current compensation inthe form of: (1) base salary to provide fixed compensation based on competitivemarket practice and to reward good performance on an annual basis; and (2)non-equity incentive cash bonus compensation under the PFP to reward superiorperformance against specific short-term goals. The Company also provides long-term incentive compensation through theaward of stock options.

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Basesalary for the Company’s Named Executive Officers is reviewed and set annuallyas described above by the Chairman and the Compensation Committee.  The Chairman and the Compensation Committeealso annually review the results from the prior year to determine whether prioryear corporate and individual performance goals have been achieved.

With regard to the PFP,upon the recommendation of management, including the Named Executive Officers,the Board of Directors establishes the EBITDA Target and the CompensationCommittee, upon the recommendation of the Chairman, establishes the PercentageMatrix.  For purposes of setting theCompany’s performance-based compensation factor under the PFP, the primaryfactor considered by the Board of Directors is a Company-defined profitabilitytarget, closely related to EBITDA. The Board of Directors believes this isgenerally the “common denominator” in valuing non-publicly traded restaurantcompanies and this performance measure is an appropriate benchmark to assesshow well the Company is performing from a financial standpoint.

In making its compensation decisions, the Compensation Group reviews andconsiders the deductibility of executive compensation under Section 162(m) ofthe Internal Revenue Code of 1986, as amended (the “Code”), which provides thatwe may not deduct compensation of more than $1 million that is paid to ourChief Executive Officer and President and Chief Financial Officer (who are ouronly Named Executive Officers).  Webelieve that compensation paid under our incentive plans are generally fullydeductible for federal income tax purposes. However, in certain situations, theCompensation Group may approve compensation that will not meet theserequirements in order to ensure competitive levels of total compensation forour executive officers.

**ExecutiveCompensation Components**

For the fiscal year ended January 3, 2007, the principal componentsof compensation for the Named Executive Officers were:

·                  Base salary;

·                  PFP; and

·                  Perquisites and other personal benefits.

Base Salaries

Base salaries are targeted to becompetitive with similarly situated executives at similar situated companieswith adjustments above or below market to recognize varying levels ofresponsibility, prior experience, breadth of knowledge and internal equityissues. The Chairman and the Compensation Committee determine whether to make amerit increase to base salaries based on their review of the performance of theCompany and the individual.

Annual Non-Equity Incentives

Each year, upon the recommendation of management, the Board of Directorsapproves the PFP which is designed to provide a variable pay opportunity to ourNamed Executive Officers based on our performance.  In connection with the PFP, the Board ofDirectors establishes the EBITDA Target and the Chairman and the CompensationCommittee establish the Percentage Matrix. During the past three fiscal years we have not amended or adjusted ourEBITDA Target or the Percentage Matrix once they have been established.

Under the PFP, wetypically provide our Named Executive Officers with cash awards, ranging from25% to 100% of their base salaries, depending on achievement of a minimum of95% of the EBITDA Target to a maximum of 110% of the EBITDA Target.  PFP awards are paid annually once the Company’sfiscal year results are finalized.

Perquisites and Other Personal Benefits

We also provide Named Executive Officers with perquisites and otherbenefits that we and our Board of Directors believe to be reasonable andnecessary to attract and retain employees in critical managementpositions.  The Named Executive Officersare provided with either a car allowance or a Company car, and in the case ofMr. Clark only, rent, utilities and a tax “gross up” for an apartment inMassachusetts. These benefits are described below in the “Summary CompensationTable,” except where not required by the rules and regulations promulgated bythe SEC.

Wemaintain the Bertucci’s 401(k) Plan, a defined contribution plan (the “401(k)Plan”). Under the 401(k) Plan, substantially all of our exempt and non-exemptcorporate office employees may defer a portion of their current salary, ona pretax basis, to the 401(k) Plan. We make matching contributions to the401(k) Plan. These matching contributions are allocated to the participantsbased on a formula as defined in the 401(k) Plan. Matching contributions madeby us under the 401(k) Plan for the fiscal years 2006, 2005, and 2004 wereapproximately $149,000, $130,000, and $98,000, respectively.

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As a result of discrimination requirements imposed on definedcontribution plans under the Code, such as the 401(k) Plan, we have determinedthat Named Executive Officers cannot participate in the 401(k) Plan.

In 1999, we established the Bertucci’s Corporation Executive Savingsand Investment Plan, a non-qualified compensation plan, to which our highlycompensated executives, including the Named Executive Officers, may electto defer a portion of their salary and/or earned bonus (including bonusesawarded pursuant to the PFP).  We contribute matching funds to the Executive Savingsand Investment Plan up to specified limits.

We replaced the original trustee of theExecutive Savings and Investment Plan, Scudder Kemper Investments (“Scudder”),in December 2004 with Reliance Trust Company (“Reliance”) pursuant to anew Trust Agreement.  The Trust Agreementbetween us and Reliance is for the purpose of paying benefits under ExecutiveSavings and Investment Plan and its terms are substantially similar to thetrust agreement the Company entered into with Scudder in 1999. We haveestablished an irrevocable grantor trust under the Trust Agreement and we arethe grantor.

The trust assets are held separately from our other funds, but remainsubject to claims of our general creditors in the event of our insolvency. Asof January 3, 2007, there were 19 participants in the plan with assets in thetrust having an aggregate market value of approximately $734,000.

The Named Executive Officers are eligible to participate in the ExecutiveSavings and Investment Plan.  None of ourNamed Executive Officers, however, participates in this plan at the currenttime although they remain eligible to do so, subject to an annual election.

Stock Options and Change of Control

Our Equity Incentive Plan provides for theissuance of nonqualified stock options, among other kinds of awards, and allowsus to provide equity incentives to our Named Executive Officers, key employeesand directors. On September 27, 2005, the Company’s Board of Directorsapproved the amendment and restatement of this plan which increased the numberof shares of Common Stock that are available for issuance under the plan from750,000 to 1,100,000. The Board of Directors administers the Equity IncentivePlan and may modify or amend it in any respect.

 In general, ifstock options are granted to a Named Executive Officer or another member ofmanagement, they are granted at times determined in the sole discretion of theBoard of Directors.  The number of stockoptions awarded under Equity Incentive Plan is determined by the Board ofDirectors in its discretion.  In addition, stock options are occasionallyissued to newly hired executive officers on the date of hire.

Stock options issued under the Equity Incentive Plan aregenerally: (1) granted at or above the fair value of a share of the Company’sCommon Stock on the date of grant, as determined by the Board of Directors; and(2) exercisable either (a) cumulatively at the rate of 25% onor after each of the second, third, fourth and fifth anniversaries of the dateof grant; or (b) only upon the fifth anniversary of the date ofgrant.  They typically expire 90days following the tenth anniversary of the date of the grant.

Inaddition, such options, including the options held by the Named ExecutiveOfficers, generally provide that unvested options vest immediately and in fullupon a transaction constituting a “Change of Control” of the Company.  With regard to the options held by the NamedExecutive Officers, a “Change of Control” occurs if: (1) any individual, entityor group acquires beneficial ownership of 50% or more of the outstanding CommonStock of the Company (subject to standard exceptions); (2) the Companyconsummates a reorganization, merger or consolidation with respect to which allor substantially all of the individuals and entities who were the beneficialowners of the Company’s Common Stock immediately prior to such transaction donot own more than 50% of the outstanding shares of the common stock of theentity resulting from such transaction; or (3) there is a sale or otherdisposition of all or substantially all of the assets of the Company (excludinga sale or disposition to a subsidiary of the Company).

In fiscal 2006, we did not award any stock options to the Named ExecutiveOfficers.  Assuming that a “Change ofControl” of the Company occurred on January 3, 2007 the accelerated vesting ofMr. Clark’s and Mr. Lloyd’s stock options to purchase 170,000 shares each ofour Common Stock would have resulted in a benefit to each of Mr. Clark and Mr.Lloyd of $1,076,000**.**

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The following table summarizes stock option activityfor all Company optionees during the period of September 15, 1997 throughJanuary 3, 2007:
| Year of  Original Issue | ** ** | **Average  Original  Issue Price** | ** ** | **Originally  Granted** | ** ** | **Since  Forfeited** | ** ** | **Exercised** | ** ** | **Outstanding at  January 3,  2007** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|-------------------------|------------|----------------------|------------|---------------|------------|------------------------------------------------|------------|
| 1997                              |       | $                                       | 11.63      |                    | 331,123    |                 | (245,692   | )             | (11,020    | )                                              | 74,411     |   |
| 1998                              |       | $                                       | 17.51      |                    | 58,429     |                 | (58,429    | )             | —     |                                           | —     |   |
| 1999                              |       | $                                       | 15.00      |                    | 23,541     |                 | (15,541    | )             | —     |                                           | 8,000      |   |
| 2000                              |       | $                                       | 13.37      |                    | 199,750    |                 | (86,750    | )             | (1,125     | )                                              | 111,875    |   |
| 2001                              |       | $                                       | 17.51      |                    | 332,500    |                 | (299,656   | )             | —     |                                           | 32,844     |   |
| 2002                              |       | $                                       | 17.51      |                    | 26,000     |                 | (22,000    | )             | —     |                                           | 4,000      |   |
| 2003                              |       | $                                       | 14.48      |                    | 40,079     |                 | (3,636     | )             | —     |                                           | 36,443     |   |
| 2004                              |       | $                                       | 17.51      |                    | 111,000    |                 | (27,000    | )             | —     |                                           | 84,000     |   |
| 2005                              |       | $                                       | 17.51      |                    | 602,500    |                 | (52,750    | )             | —     |                                           | 549,750    |   |
| 2006                              |       | $                                       | 17.62      |                    | 69,000     |                 | (1,000     | )             | —     |                                           | 68,000     |   |
|                              |       |                                    |       |                    |       |                 |       |          |       |                                           |       |
|                              |       |                                    |       | 1,793,922               |       | (812,454             | )          | (12,145       | )          | 969,323                                        |       |

 

On January 3, 2007, 130,677 shares of Common Stockwere available for grants under the Equity Incentive Plan.

The following tablesummarizes the compensation for the Named Executive Officers during 2006:

**SummaryCompensation Table**
| Name and Principal  Position                            | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  (a)($)** | ** ** | **Change in Pension  Value and  Nonqualified  Deferred  Compensation  Earnings($)** | ** ** | **All Other  Compensation  (b) ($)** | ** ** | **Total  ($)** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|----------------------------|------------|-------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|----------------|------------|
| Stephen V. Clark                                                  |       | 2006     |       | 356,731         |       | —         |       | —                     |       | —                  |       | 249,712                                                   |       | —                                                                                             |       | 36,000                                         |       | 642,443        |       |
| Chief Executive Officer,  Vice Chairman of the Board of Directors |       |     |       |            |       |           |       |                       |
| David G. Lloyd                                                    |       | 2006     |       | 356,731         |       | —         |       | —                     |       | —                  |       | 249,712                                                   |       | —                                                                                             |       | —                                         |       | 606,443        |       |
| Chief  Financial Officer, President                               |       |     |       |            |       |           |       |                       |       |                    |       |                                                      |       |
|                                                                   |            |          |            |                 |            |                |            |                            |            |                         |            |                                                           |            |                                                                                                    |            |                                                |            |                |            |  |  |  |  |  |  |  |  |

 

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(a) These awards werepaid pursuant to the PFP.

(b) This compensation consisted of: (i) use of a rental apartment by Mr.Clark at a cost of $22,000 during fiscal 2006; and (ii) a “gross-up” payment toMr. Clark of $14,000 to reimburse him for taxes owed in connection with the useof the rental apartment.

The following table shows all plan-basedawards granted to the Named Executive Officers during fiscal 2006.

**GRANTS OFPLAN BASED AWARDS - All awards reflected in this table were granted pursuant tothe PFP.**
| ** **                                                        | ** ** | ** **          | ** ** | **Estimated Future Payouts Under Non-Equity Incentive   Plan Awards** | ** ** | **Estimated Future Payouts Under Equity Incentive Plan  Awards** | ** ** | **All Other   Stock  Awards:  Number of  Shares of  Stock or  Units (#)** | ** ** | **All Other   Stock Awards:  Number of  Securities  Under-lying  Options (#)** | ** ** | **Exercise of  Base Price  of Option  Awards  ($/sh)** | ** ** | **Grant Date  Fair Value  of Stock  and  Options  Awards** | ** ** |
|-------------------------------------------------------------------|------------|---------------------|------------|----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| **Name**                                                          | ** ** | **Grant Date** | ** ** | **Threshold ($)**                                                                                        | ** ** | **Target ($)**                                                                                 | ** ** | **Maximum ($)**                                                                                         | ** ** | **Threshold (#)**                                                                                       | ** ** | **Target (#)**                                                        | ** ** | **Maximum (#)**                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | ** **          | ** ** | ** **                                                                                               | ** ** | ** **                                                                                     | ** ** | ** **                                                                                              | ** ** | ** **                                                                                              | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stephen V. Clark                                                  |       | 12/13/2005          |       | 87,500                                                                                                   |       | 175,000                                                                                        |       | 350,000                                                                                                 |       | —                                                                                                  |       | —                                                                |       | —                                                                    |       | — |   | — |   | — |   | — | ** ** |
| Chief Executive Officer, Vice Chairman  of the Board of Directors | ** ** | ** **          | ** ** | ** **                                                                                               | ** ** | ** **                                                                                     | ** ** | ** **                                                                                              | ** ** | ** **                                                                                              | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** |
|                                                              | ** ** | ** **          | ** ** | ** **                                                                                               | ** ** | ** **                                                                                     | ** ** | ** **                                                                                              | ** ** | ** **                                                                                              | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| David G. Lloyd                                                    |       | 12/13/2005          |       | 87,500                                                                                                   |       | 175,000                                                                                        |       | 350,000                                                                                                 |       | —                                                                                                  |       | —                                                                |       | —                                                                    |       | — |   | — |   | — |   | — | ** ** |
| Chief Financial Officer, President                                |       |                |       |                                                                                                     |       |                                                                                           |       |                                                                                                    |       |                                                                                                    |       |                                                                  |       |                                                                      |       |   |   | ** ** |

 

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The followingtable shows all outstanding equity awards held by the Named Executive Officersat the end of fiscal 2006:

**OUTSTANDING EQUITY AWARDS AT FISCALYEAR END**
| ** **       | ** ** | **Option Awards**                                                       | ** ** | **Stock Awards**                                                                                                                | ** ** |
|------------------|------------|------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **       | ** ** | **Number of securities Underlying  Unexercised Options** | ** ** | **Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised   Unearned  Options  (#)** | ** ** | **Option Exercise  Price   ($)** | ** ** | **Option  Expiration Date** | ** ** | ** ** | **Number of  Shares or  Units of   Stock That  Have Not  Vested  (#)** | ** ** | **Market Value of  Shares or Units  of Stock That  Have Not Vested  ($)** | ** ** | **Equity Incentive  Plan Awards:  Number of  Unearned  Shares, Units or  Other Rights  That Have Not  Vested   (#)** | ** ** | **Equity Incentive  Plan Awards:  Market or  Payout Value of  Unearned  Shares, Units or  Other Rights  That Have Not  Vested   ($)** | ** ** |
| **Name**         | ** ** | **# Exercisable**                                                       | ** ** | **# Unexercisable**                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stephen V. Clark |       | —                                                                       |       | 170,000                                                                                                                              |       | — |   | $ | 17.51 |   | 09/27/2015 |   |   | — |   | — |   | — |   | — |   |
| David G. Lloyd   |       | —                                                                       |       | 170,000                                                                                                                              |       | — |   | $ | 17.51 |   | 09/27/2015 |   |   | — |   | — |   | — |   | — |   |

 

There were no exercise ofoptions by Named Executive Officers during fiscal 2006 and no shares of commonstock currently owned by Named Executive Officers (see Item 12 – “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters”) are subject to any vesting requirements.

**Compensationof Directors**

The following table summarizes certaininformation regarding compensation earned or paid to the Company’s directorsduring fiscal 2006:

We reimburse ourdirectors for any expenses incurred by them in connection with their attendanceat meetings of the Board of Directors, or any committee thereof. In addition,all directors are eligible to receive options under our equity incentive plans.

**DIRECTOR COMPENSATION**
| Name                       | ** ** | **Fees Earned or  Paid in Cash  ($)** | ** ** | **Stock Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in Value  and Nonqualified  Deferred  Compensation  Earnings ($)** | ** ** | **All Other  Compensation (a)  ($)** | ** ** | **Total ($)** | ** ** |
|----------------------------|------------|-----------------------------------------------------------|------------|----------------------------|------------|------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|---------------|------------|
|  Benjamin R. Jacobson |       | —                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | 15,728                                         |       | 15,728        |       |
|  James J. Morgan      |       | —                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | 11,460                                         |       | 11,460        |       |
|  Sally M. Dungan      |       | 22,500                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | —                                         |       | 22,500        |       |
|  James N. Moriarty    |       | 27,500                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | —                                         |       | 27,500        |       |
|  James R. Parish      |       | 17,500                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | —                                         |       | 17,500        |       |
|  Heywood Wilanksy     |       | 22,500                                                    |       | —                     |       | —                       |       | —                                                 |       | —                                                                                          |       | —                                         |       | 22,500        |       |

 

(a)          – Mr.Jacobson and Mr. Morgan have automobile leases paid on their behalf by theCompany.

Independent directorsare paid: (1) a quarterly stipend of $2,500 for serving on the Board ofDirectors; (2) a payment of $2,500 for each Board of Directors meetingthey attend (either in person or telephonically); and (3) if they are amember of the Audit Committee, a payment of $1,000 for each Audit Committeemeeting they attend (either in person or telephonically).

We reimburse ourdirectors for any expenses incurred by them in connection with their attendanceat meetings of the Board of Directors, or any committee thereof.  In addition, all directors are eligible toreceive options under our Equity Incentive Plan.

Directors receive noother compensation from us for serving on the Board of Directors or a committeeof the Board of Directors.

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**CompensationCommittee Report**

The Compensation Committee reviewed and discussed theabove CD&A with the Company’s management.  Based on the review anddiscussions, the Compensation Committee recommended to the Company’s Board ofDirectors that the CD&A be included in this Annual Report on Form 10-K.
|        | Compensation  Committee |
|--------|-------------------------|
|   |                    |
|   | James J. Morgan         |
|   | Heywood Wilansky        |

 

**Compensation Committee Interlocks and InsiderParticipation**

Effective as of January 1, 1998, theBoard of Directors appointed a Compensation Committee. During fiscal 2006,Mr. Morgan and Mr. Wilansky were the only members of the CompensationCommittee. Mr. Morgan has been a Partner with Jacobson Partners since2001. We entered into a financial advisory services agreement with JacobsonPartners in 1998 pursuant to which we have been paying Jacobson Partnersconsulting fees and reimbursing Jacobson Partners for certain travel and otherincidental expenses. We paid Jacobson Partners $386,000 in fiscal 2006(including $136,000 in connection with the Vinny T’s Acquisition) and $250,000in fiscal 2005 for its services under this agreement. See “Item 13. CertainRelationships and Related Transactions.”

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**ITEM 12. SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

The following table provides information at April 3,2007, with respect to ownership of our Common Stock, $0.01 par value per share,by (i) each beneficial owner of five percent or more of our Common Stock,(ii) each of our directors who beneficially owns shares of Common Stock,(iii) each of the Named Executive Officers and (iv) all directors andexecutive officers as a group. For the purpose of computing the percentage ofthe shares of Common Stock owned by each person or group listed in this table,shares which are subject to options exercisable within 60 days after April 3,2007 have been deemed to be outstanding and owned by such person or group, but havenot been deemed to be outstanding for the purpose of computing the percentageof the shares of Common Stock owned by any other person. Except as indicated inthe footnotes to this table, the persons named in the table have sole votingand investment power with respect to all shares of Common Stock shown asbeneficially owned by them.
|                                                                   | ** ** | **Shares**       | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                        | ** ** | **Beneficially** | ** ** | **Percent**       | ** ** |
| **Name and Address of Beneficial Owner** | ** ** | **Owned**        | ** ** | **of Class** | ** ** |
| ** **                                                        | ** ** | ** **       | ** ** | ** **        | ** ** |
| Benjamin R. Jacobson (1)                                          |       | 986,201          |       | 31.2              | %          |
| 595 Madison Avenue                                                |       |             |       |              |       |
| New York, New York 10022                                          |       |             |       |              |       |
|                                                              |       |             |       |              |       |
| Thomas R. Devlin (2)                                              |       | 316,660          |       | 10.3              | %          |
| 1313 North Webb Road                                              |       |             |       |              |       |
| P.O. Box 782170                                                   |       |             |       |              |       |
| Wichita, Kansas 67206                                             |       |             |       |              |       |
|                                                              |       |             |       |              |       |
| Dennis D. Pedra (3)                                               |       | 230,605          |       | 7.7               | %          |
|                                                              |       |             |       |              |       |
| James J. Morgan (4)                                               |       | 51,833           |       | 1.7               | %          |
|                                                              |       |             |       |              |       |
| Stephen V. Clark                                                  |       | 46,192           |       | 1.5               | %          |
|                                                              |       |             |       |              |       |
| David G. Lloyd                                                    |       | 39,716           |       | 1.3               | %          |
|                                                              |       |             |       |              |       |
| James R. Parish                                                   |       | 18,422           |       | *                 |       |
|                                                              |       |             |       |              |       |
| Sally M. Dungan                                                   |       | 4,000            |       | *                 |       |
|                                                              |       |             |       |              |       |
| Heywood Wilansky                                                  |       | 5,000            |       | *                 |       |
|                                                              |       |             |       |              |       |
| James N. Moriarty                                                 |       | 3,500            |       | *                 |       |
|                                                              |       |             |       |              |       |
| All directors and executive  officers as a group (8 persons) (5)  |       | 1,154,804        |       | 36.9              | %          |

 

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* Less than 1%

(1)               Includes (a) 613,273 shares of CompanyCommon Stock held by J.P. Acquisition Fund II, L.P., a Delaware limitedpartnership (“JPAF II”), (b) 149,599 shares of Company Common Stockissuable upon exercise of outstanding stock options within the parametersdescribed above, and (c) 21,217 shares of Company Common Stock held bytrusts for the benefit of Mr. Jacobson’s children, with respect to which athird party is trustee and has voting control. JPAF, Limited Partnership, aDelaware limited partnership (“JPAF LP”) is the General Partner of JPAF II. TheGeneral Partner of JPAF LP is JPAF, Inc., a Delaware corporation.Mr. Jacobson is the president and majority shareholder of JPAF, Inc.Mr. Jacobson disclaims beneficial ownership of the shares described(i) in clause (a) above, except to the extent of his generalpartnership interest in JPAF II, and (ii) in clause (c) above.

(2)               Includes (a) 67,834 shares of CompanyCommon Stock held by JPAF II, representing Mr. Devlin’s pro rata interestas a limited partner of JPAF II; and (b) 4,000 shares of Company CommonStock issuable upon exercise of outstanding stock options within the parametersdescribed above.

(3)               Includes 33,000 shares of Company Common Stockheld by trusts for the benefit of Mr. Pedra’s children, with respect towhich Mr. Pedra’s sister is trustee and has sole voting control.

(4)               Includes (a) 8,482 shares of CompanyCommon Stock held by JPAF II, representing Mr. Morgan’s pro rata interestas a limited partner of JPAF II; and (b) 6,000 shares of Company CommonStock issuable upon exercise of outstanding stock options within the parametersdescribed above.

(5)               Includes (a) 161,599 shares of CompanyCommon Stock issuable upon exercise of outstanding stock options within theparameters described above; and (b) the 8,482 shares described in(4) above.

29

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**ShareholdersAgreement**

We are a party to a shareholder agreement with ourcurrent shareholders (collectively, the “Shareholder Agreement”).  The Shareholder Agreement provides, amongother things, that (i) a shareholder may not transfer his or itsshares in the Company, whether voluntarily or by operation of law, other thanin certain limited circumstances specified therein, including transfers througha right of first refusal procedure, distributions by certain legal entities tothe constituents of such entities (i.e. a partnership to its partners), transfersby will or intestate succession, transfers approved by the Board of Directorsto an affiliate of a shareholder or to another shareholder, transfers to familymembers or trusts for their benefit, and any transfer unanimously approved bythe Board of Directors, (ii) we have the option to purchase the shares ofany shareholder who is an employee of ours following the termination of suchshareholder’s employment with us for any reason at a purchase price equal tothe fair value or original purchase price (plus accrued interest in certaincircumstances) depending upon the reason for such termination, (iii) wehave the option to purchase the shares of any shareholder who is an employee ofours following certain transfer events, including such shareholders’ bankruptcyor a court-ordered transfer of such shareholder’s stock, (iv) if we failto exercise our option to purchase as described in the immediately precedingclause (iii), the remaining shareholders have the option to purchase theapplicable shares, (v) in the event an employee shareholder leaves ouremployment due to death, disability or hardship or, with respect to certainshares, is terminated by us without cause, such shareholder has a one-timeoption to require us to purchase such shareholder’s shares at the greater offair value or the original purchase price, subject to certain approval by theBoard of Directors, excluding effected employees, (vi) no transfer ofshares may occur unless the transferee thereof agrees to be bound by theterms of the Shareholders Agreement and (vii) all share certificates mustbear customary legends and all share transfers must be in compliance withapplicable securities laws.

**EquityCompensation Plan Information**

We maintain equity compensation plans for employees,officers, directors and others whose efforts contribute to our success. Thetable below sets forth certain information as of our fiscal year ended January3, 2007 regarding shares of our Common Stock available for grant or grantedunder the equity compensation plans (i) approved by our stockholders; and(ii)  not approved by our stockholders.
| **Plan Category**                                      | ** ** | **Number of securities to be issued upon  exercise of outstanding options, warrants  and rights** | ** ** | **Weighted-average exercise price of  outstanding options, warrants and rights** | ** ** | **Number of securities remaining available  for future issuance under equity  compensation plans (excluding securities  reflected in column (a))** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                                                                  | ** ** | **(b)**                                                                                                             | ** ** | **(c)**                                                                                                                                                                                                                  | ** ** |
| Equity compensation  plans approved by security holders     |       | 680,394                                                                                                                                                  |       | $                                                                                                                   | 16.51      |                                                                                                                                                                                                                     | 69,606     |   |
| Equity compensation  plans not approved by security holders |       | 288,929                                                                                                                                                  |       | $                                                                                                                   | 17.55      |                                                                                                                                                                                                                     | 61,071     |   |
| Total                                                       |       | 969,323                                                                                                                                                  |       | $                                                                                                                   | 16.82      |                                                                                                                                                                                                                     | 130,677    |   |

 

In 1997, the Board of Directors adopted the EquityIncentive Plan, pursuant to which we authorized 750,000 shares of Common Stockfor issuance in connection with equity incentive awards. Our shareholdersoriginally approved the Equity Incentive Plan in 1997. In 2005, however, theBoard of Directors amended and restated the Equity Incentive Plan (the “Amendedand Restated Equity Incentive Plan”) to, among other things, increase the totalnumber of shares of Common Stock authorized for issuance under the plan to1,100,000 shares without seeking additional shareholder approval. Accordingly,in the foregoing chart, shares of Common Stock subject to awards under theAmended and Restated Equity Incentive Plan are included in columns (a) and(c) under both the “approved by security holders” and “not approved bysecurity holders” categories. Shares of Common Stock covered by awards thatexpire or otherwise terminate will again become available for grant.  A copy of the Amended and Restated EquityIncentive Plan is attached as Exhibit 10.22 to our Current Report on Form 8-Kfiled with the Securities and Exchange Commission (the “SEC”) on October 3,2005.

**ITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

**Disclosureof Related-Party Transactions**

Benjamin R. Jacobson, our Chairman of the Board ofDirectors and Treasurer, is the Managing Partner of Jacobson Partners. Inaddition, James Morgan, one of our directors and a member of our compensationcommittee, is a Partner of Jacobson Partners. In connection with the Bertucci’sAcquisition, in 1998 we entered into a financial advisory services agreementwith Jacobson Partners. Under this agreement (a) Jacobson Partnersprovides various financial advisory services to us, including, among otherthings, assistance in preparing internal budgets, performing cash managementactivities, maintaining and improving accounting and other managementinformation systems, negotiating financing arrangements, complying with publicreporting and disclosure requirements and communicating with creditors andinvestors, and (b) we pay Jacobson Partners consulting fees and reimburseJacobson Partners for certain travel and other incidental expenses. We paidJacobson Partners $386,000 in fiscal 2006 (including $136,000 in connectionwith the Vinny T’s Acquisition) and $250,000 in fiscal 2005 for its servicesunder this agreement. We believe the financial advisory services agreement wasmade on terms no less favorable to us than those obtainable from an unrelatedparty.

30

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During 1999, we established the Bertucci’s CorporationExecutive Savings and Investment Plan to which our highly compensatedexecutives may elect to defer a portion of their salary and (or) earnedbonus. In connection with this plan, we maintain an irrevocable grantor trustwhich has been established by us, as grantor, pursuant to a Trust Agreementwith Reliance Trust Company, dated December 2004. The agreement is betweenus and Reliance Trust Company, as trustee, and is for the purpose of payingbenefits under the Executive Savings and Investment Plan to certain members ofmanagement. The trust assets are held separately from our other funds, butremain subject to claims of our general creditors in the event of ourinsolvency. As of January 3, 2007, there were 19 participants in the plan withassets in the trust with an aggregate market value of approximately $734,000.

**Review,Approval or Ratification of Transactions with Related Persons**

Our Board of Directors is responsible for reviewingand approving related-party transactions, as defined by the SEC, for potentialconflict of interest situations on an ongoing basis, unless such duty has beendelegated to another committee of the Board of Directors.  Management reports any related-partytransactions under consideration at each Board of Directors meeting and, afterreview, the Board of Directors approves or disapproves such transactions,provided that any director who has an interest in such related-partytransaction recuses himself from participating in the review and voteconcerning the related-party transaction. If advanced approval of a related-party transaction is not feasible,then the related-party transaction is considered, and, if the Board ofDirectors determines it to be appropriate, ratified at the next Board ofDirectors meeting.

In reviewing, approving or ratifying related-partytransactions, the Board of Directors is responsible for obtaining the materialfacts of the related-party transaction, reviewing whether the related-partytransaction is on terms no less favorable than terms generally available to anunaffiliated third party under the same or similar circumstances, andconsidering such factors as it deems appropriate.

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

Thefollowing is a summary of the fees billed to us by Deloitte & ToucheLLP (“Deloitte”) for professional services rendered for the fiscal years 2006and 2005:
| Fee Category | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------|------------|----------|------------|----------|------------|
| Audit Fees        |       | $        | 253,825    |     | $          | 236,700 |   |
| Tax Fees          |       | 50,100   |       | 51,000   |       |
| All Other Fees    |       | 21,168   |       | 99,007   |       |
| Total Fees        |       | $        | 325,093    |     | $          | 386,707 |   |

 

*Audit Fees.*TheAudit Fees consist of aggregate fees incurred for professional servicesrendered for the audit of our annual consolidated financial statements andreview of our interim consolidated financial statements included in quarterlyreports.

*Audit-Related Fees.*Wedid not incur any Audit-Related Fees in fiscal 2006 or 2005.

*Tax Fees*. The TaxFees consist of aggregate fees incurred for professional services for taxcompliance, tax advice and tax planning. These services included assistanceregarding federal and state tax compliance.

*All Other Fees*.Fees incurred for professional services rendered in connection with the Vinny T’sAcquisition (2006) and the restatements of our financial statements (2005) areincluded in All Other Fees.

**Audit Pre-Approval of Policies andProcedures**

The Audit Committee’s policy, since its formation inFebruary 2004, has been to pre-approve all audit and permissible non-auditservices provided by our independent auditors. These services may includeaudit services, audit-related services, tax services and other services. TheAudit Committee may also pre-approve particular services on a case-by-casebasis.

**Audit Committee Approval of Fees**

Our Audit Committee approved all Audit-Related Fees,Tax Fees and All Other Fees listed above and provided by Deloitte to us duringfiscal 2006.

31

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# **ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

| (a)    | The following  documents are filed as part of this report: |
|--------|-----------------------------------------------------------------|
|   |                                                            |
|   | (1)                                                             | Financial  Statements: |
|   |                                                            |   |
|   |                                                            | Report of Independent Registered Public Accounting Firm |
|   |                                                            |   |
|   |                                                            | Consolidated  Balance Sheets as of January 3, 2007 and December 28, 2005 |
|   |                                                            |   |
|   |                                                            | Consolidated  Statements of Operations for each of the years ended January 3, 2007,  December 28, 2005, and December 29, 2004 |
|   |                                                            |   |
|   |                                                            | Consolidated  Statements of changes in Stockholders’ Deficit for each of the years ended  January 3, 2007, December 28, 2005, and December 29, 2004 |
|   |                                                            |   |
|   |                                                            | Consolidated  Statements of Cash Flow for each of the years January 3, 2007,  December 28, 2005, and December 29, 2004 |
|   |                                                            |   |
|   |                                                            | Notes to  Consolidated Financial Statements |
|   |                                                            |   |
|   | (2)                                                             | Exhibit Index |

 

32

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly causedthis report to be signed on its behalf by the undersigned, thereunto duly authorized.
|        | BERTUCCI’S CORPORATION |                                                    |
|--------|-----------------------------|---------------------------------------------------------|
|   |                        |                                                    |   |
|   |                        |                                                    |   |
|   | By:                         |    /s/ Stephen V. Clark                  |   |   |
|   |                        | Stephen V. Clark, Chief Executive Officer and  Director |
|   |                        |                                                    |   |
|   | Date: April 3, 2007         |                                                    |
|        |                             |                                                         |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Company and in the capacities and on the datesindicated.
| SIGNATURE                       | ** ** | **TITLE**  | ** **                                          | **DATE**   |
|---------------------------------|------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | ** ** | ** **                                          | ** ** | ** ** |
|  /s/ Benjamin  R. Jacobson |       |       | Chairman of the Board of Directors                  |       | April 3, 2007 |
| Benjamin R. Jacobson            |       |       |                                                |       |   |
|                            |       |       |                                                |       |   |
|  /s/ Stephen  V. Clark     |       |       | Vice Chairman of the Board of Directors, Chief      |       | April 3, 2007 |
| Stephen V. Clark                |       |       | Executive Officer and Director (Principal Executive |       |   |
|                            |       |       | Officer)                                            |       |   |
|                            |       |       |                                                |       |   |
|  /s/ David G.  Lloyd       |       |       | President, Chief Financial Officer and Director     |       | April 3, 2007 |
| David G. Lloyd                  |       |       | (Principal Financial and Accounting Officer)        |       |   |
|                            |       |       |                                                |       |   |
|  /s/ Sally M.  Dungan      |       |       | Director                                            |       | April 3, 2007 |
| Sally M. Dungan                 |       |       |                                                |       |   |
|                            |       |       |                                                |       |   |
| /s/ James J. Morgan             |       |       | Director                                            |       | April 3, 2007 |
| James J. Morgan                 |       |       |                                                |       |   |
|                            |       |       |                                                |       |   |
| /s/ James N. Moriarty           |       |       | Director                                            |       | April 3, 2007 |
| James N. Moriaty                |       |       |                                                |       |   |
|                            |       |       |                                                |       |   |
| /s/ James R. Parish             |       |       | Director                                            |       | April 3, 2007 |
| James R. Parish                 |       |       |                                                |       |   |
|                            |       |       |                                                |       |   |
| /s/ Heywood Wilansky            |       |       | Director                                            |       | April 3, 2007 |
| Heywood Wilansky                |       |       |                                                |       |   |

 

33

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsand Stockholders of Bertucci’s Corporation

Northborough,Massachusetts

We have audited theaccompanying consolidated balance sheets of Bertucci’s Corporation and subsidiaries(the “Company”) as of January 3, 2007 and December 28, 2005, and the relatedconsolidated statements of operations, changes in stockholders’ deficit, andcash flows for each of the years ended January 3, 2007, December 28, 2005 andDecember 29, 2004. These financial statements are the responsibility of theCompany’s management.  Our responsibilityis to express an opinion on the financial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of January 3, 2007 and December 28, 2005,and the results of its operations and its cash flows for each of the yearsended January 3, 2007, December 28, 2005 and December 29, 2004, in conformitywith accounting principles generally accepted in the United States of America.

As discussed in Note 2 tothe consolidated financial statements, the Company adopted the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 123R, *Share-Based Payment*, effective December 29, 2005.
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
| Boston, Massachusetts              |
| April 3, 2007                      |

 

34

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BERTUCCI’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

 
| ** **                                                       | ** ** | **January 3,** | ** ** | **December 28,** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | **2007**            | ** ** | **2005**              | ** ** |
| ASSETS                                                           |       |                |       |                  |       |
| Current Assets:                                                  |       |                |       |                  |       |
| Cash and cash  equivalents                                       |       | $                   | 28,446     |                  | $          | 21,382 |   |
| Restricted cash                                                  |       | 2,185               |       | 2,187                 |       |
| Accounts  receivable                                             |       | 1,143               |       | 771                   |       |
| Inventories                                                      |       | 1,698               |       | 1,534                 |       |
| Prepaid expenses  and other current assets                       |       | 2,618               |       | 897                   |       |
| Total current  assets                                            |       | 36,090              |       | 26,771                |       |
| Property and Equipment,  at cost:                                |       |                |       |                  |       |
| Land                                                             |       | 259                 |       | 259                   |       |
| Buildings                                                        |       | 697                 |       | 697                   |       |
| Capital leases -  land and buildings                             |       | 5,764               |       | 5,764                 |       |
| Leasehold  improvements                                          |       | 77,554              |       | 68,433                |       |
| Furniture and  equipment                                         |       | 52,000              |       | 46,787                |       |
|                                                             |       | 136,274             |       | 121,940               |       |
| Less -  accumulated depreciation and amortization                |       | (79,033             | )          | (67,509               | )          |
|                                                             |       | 57,241              |       | 54,431                |       |
| Construction  work in process                                    |       | 999                 |       | —                |       |
| Net property and  equipment                                      |       | 58,240              |       | 54,431                |       |
|                                                             |       |                |       |                  |       |
| Goodwill                                                         |       | 26,127              |       | 26,127                |       |
| Deferred finance costs,  net                                     |       | 1,469               |       | 2,165                 |       |
| Liquor licenses, net                                             |       | 2,301               |       | 2,358                 |       |
| Other assets                                                     |       | 970                 |       | 693                   |       |
| TOTAL ASSETS                                                     |       | $                   | 125,197    |                  | $          | 112,545 |   |
|                                                             |       |                |       |                  |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                      |       |                |       |                  |       |
|                                                             |       |                |       |                  |       |
| Current Liabilities:                                             |       |                |       |                  |       |
| Promissory notes  - current portion                              |       | $                   | 43         |                  | $          | 42 |   |
| Capital lease  obligations - current portion                     |       | 126                 |       | 107                   |       |
| Accounts payable                                                 |       | 12,033              |       | 8,603                 |       |
| Accrued expenses                                                 |       | 22,078              |       | 19,129                |       |
| Total current  liabilities                                       |       | 34,280              |       | 27,881                |       |
| Promissory notes, net  of current portion                        |       | 4,356               |       | 738                   |       |
| Captial lease  obligations, net of current portion               |       | 5,871               |       | 5,982                 |       |
| Senior Notes                                                     |       | 85,310              |       | 85,310                |       |
| Deferred gain on sale  leaseback transaction                     |       | 1,782               |       | 1,892                 |       |
| Deferred rent and other  long-term liabilities                   |       | 8,399               |       | 8,045                 |       |
| Total liabilities                                                |       | 139,998             |       | 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 -  3,008,317 and 3,012,982 shares, respectively      |       | 38                  |       | 38                    |       |
| Less 759,678 and  752,013 treasury shares, respectively, at cost |       | (8,603              | )          | (8,480                | )          |
| Additional  paid-in capital                                      |       | 29,781              |       | 29,617                |       |
| Accumulated  deficit                                             |       | (36,017             | )          | (38,478               | )          |
| Total  stockholders’ deficit                                |       | (14,801             | )          | (17,303               | )          |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ DEFICIT                |       | $                   | 125,197    |                  | $          | 112,545 |   |

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

35

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BERTUCCI'S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except share and per share data)

 
| ** **                                                         | ** ** | **January 3,** | ** ** | **December 28,** | ** ** | **December 29,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2007**            | ** ** | **2005**              | ** ** | **2004**              | ** ** |
|                                                               |       |                |       |                  |       |                  |       |
| Net sales                                                          |       | $                   | 226,444    |                  | $          | 204,784               |       | $ | 200,408 |   |
|                                                               |       |                |       |                  |       |                  |       |
| Cost of sales and  expenses:                                       |       |                |       |                  |       |                  |       |
| Cost of sales                                                      |       | 51,638              |       | 47,611                |       | 49,231                |       |
| Operating expenses                                                 |       | 135,136             |       | 123,253               |       | 122,056               |       |
| General and  administrative expenses                               |       | 15,044              |       | 14,442                |       | 13,065                |       |
| Deferred rent,  depreciation, amortization and preopening expenses |       | 11,399              |       | 11,228                |       | 12,657                |       |
| Asset impairment charge                                            |       | 48                  |       | 982                   |       | 6,749                 |       |
| Total cost of sales and  expenses                                  |       | 213,265             |       | 197,516               |       | 203,758               |       |
|                                                               |       |                |       |                  |       |                  |       |
| Income (loss) from  operations                                     |       | 13,179              |       | 7,268                 |       | (3,350                | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Interest expense, net                                              |       | (10,143             | )          | (10,411               | )          | (10,613               | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Income (loss) before  income tax provision                         |       | 3,036               |       | (3,143                | )          | (13,963               | )          |
|                                                               |       |                |       |                  |       |                  |       |
| Income tax provision                                               |       | 575                 |       | —                |       | —                |       |
|                                                               |       |                |       |                  |       |                  |       |
| Net income (loss)                                                  |       | $                   | 2,461      |                  | $          | (3,143                | )          | $ | (13,963 | ) |
|                                                               |       |                |       |                  |       |                  |       |
| Basic income (loss) per  share                                     |       | $                   | 0.82       |                  | $          | (1.06                 | )          | $ | (4.74 | ) |
|                                                               |       |                |       |                  |       |                  |       |
| Basic weighted average  shares outstanding                         |       | 3,014,363           |       | 2,960,025             |       | 2,943,841             |       |
|                                                               |       |                |       |                  |       |                  |       |
| Diluted income (loss)  per share                                   |       | $                   | 0.80       |                  | $          | (1.06                 | )          | $ | (4.74 | ) |
|                                                               |       |                |       |                  |       |                  |       |
| Diluted weighted average shares outstanding                        |       | 3,090,053           |       | 2,960,025             |       | 2,943,841             |       |

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

36

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BERTUCCI'S CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(In thousands except share data)

 
| ** **                                     | ** ** | **Common Stock** | ** ** | **Treasury Stock** | ** ** | ** **         | ** ** | ** ** | ** ** | **Total**                | ** ** |
|------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------------|------------|------------|------------|--------------------------|------------|
| ** **                                     | ** ** | **Number of**    | ** ** | ** **              | ** ** | **Number of** | ** ** | ** ** | ** ** | **Additional Paid** | ** ** | **Accumulated** | ** ** | **Stockholders'** | ** ** |
| ** **                                     | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Shares**         | ** ** | **Amount** | ** ** | **In Capital**      | ** ** | **Deficit** | ** ** | **Deficit** | ** ** |
| Balance December 31,  2003                     |       | 3,666,370             |       | $                       | 37         |               | (704,818   | )          | $          | (8,190                   | )          | $ | 29,035 |   | $ | (21,372 | ) | $ | (490 | ) |
| Net loss                                       |       | —                |       | —                  |       | —             |       | —     |       | —                   |       | (13,963 | ) | (13,963 | ) |
| Sale of common stock  from exercise of options |       | 1,125                 |       | —                  |       | —             |       | —     |       | 11                       |       | — |   | 11 |   |
| Purchase of common  stock for treasury         |       | —                |       | —                  |       | (47,195            | )          | (290       | )          | —                   |       | — |   | (290 | ) |
| Balance December 29,  2004                     |       | 3,667,495             |       | $                       | 37         |               | (752,013   | )          | $          | (8,480                   | )          | $ | 29,046 |   | $ | (35,335 | ) | $ | (14,732 | ) |
| Net loss                                       |       | —                |       | —                  |       | —             |       | —     |       | —                   |       | (3,143 | ) | (3,143 | ) |
| Issuance of common  stock                      |       | 37,500                |       | —                  |       | —             |       | —     |       | 172                      |       | — |   | 172 |   |
| Sale of common stock                           |       | 60,000                |       | 1                       |       | —             |       | —     |       | 399                      |       | — |   | 400 |   |
| Balance December 28,  2005                     |       | 3,764,995             |       | $                       | 38         |               | (752,013   | )          | $          | (8,480                   | )          | $ | 29,617 |   | $ | (38,478 | ) | $ | (17,303 | ) |
| Net income                                     |       | —                |       | —                  |       | —             |       | —     |       | —                   |       | 2,461 |   | 2,461 |   |
| Sale of common stock                           |       | 3,000                 |       | —                  |       | —             |       | —     |       | 39                       |       | — |   | 39 |   |
| Purchase of common  stock for treasury         |       | —                |       | —                  |       | (7,665             | )          | (123       | )          | —                   |       | — |   | (123 | ) |
| Stock compensation  expense                    |       | —                |       | —                  |       | —             |       | —     |       | 125                      |       | — |   | 125 |   |
| Balance January 3, 2007                        |       | 3,767,995             |       | $                       | 38         |               | (759,678   | )          | $          | (8,603                   | )          | $ | 29,781 |   | $ | (36,017 | ) | $ | (14,801 | ) |

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

37

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BERTUCCI'S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

 
| ** **                                                                                | ** ** | **January 3, 2007** | ** ** | **December 28, 2005** | ** ** | **December 29, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
|                                                                                      |       |                          |       |                            |       |                            |       |
| Cash flows from  operating activities                                                     |       |                          |       |                            |       |                            |       |
| Net income  (loss)                                                                        |       | $                             | 2,461      |                            | $          | (3,143                          | )          | $ | (13,963 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                          |       |                            |       |                            |       |
| Stock  compensation expense                                                               |       | 125                           |       | 172                             |       | —                          |       |
| Loss on  equipment disposals                                                              |       | 72                            |       | 170                             |       | —                          |       |
| Asset impairment  charge                                                                  |       | 48                            |       | 982                             |       | 6,749                           |       |
| Deferred rent,  depreciation, and amortization                                            |       | 11,977                        |       | 11,568                          |       | 12,863                          |       |
| Changes in  operating assets and liabilities                                              |       |                          |       |                            |       |                            |       |
| Inventories                                                                               |       | 114                           |       | (146                            | )          | (120                            | )          |
| Prepaid expenses  and receivables                                                         |       | (1,666                        | )          | 200                             |       | 643                             |       |
| Other accrued  expenses                                                                   |       | 1,753                         |       | 2,270                           |       | 2,186                           |       |
| Income taxes  payable                                                                     |       | 372                           |       | —                          |       | (413                            | )          |
| Accounts payable                                                                          |       | 2,435                         |       | 784                             |       | (607                            | )          |
| Tenant  allowances received                                                               |       | —                        |       | 250                             |       | 577                             |       |
| Other operating  assets and liabilities                                                   |       | (212                          | )          | (180                            | )          | (34                             | )          |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Total  adjustments                                                                        |       | 15,018                        |       | 16,070                          |       | 21,844                          |       |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Net cash provided by  operating activities                                                |       | 17,479                        |       | 12,927                          |       | 7,881                           |       |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Cash flows from  investing activities                                                     |       |                          |       |                            |       |                            |       |
| Acquistion of  business                                                                   |       | (3,643                        | )          | —                          |       | —                          |       |
| Additions to  property and equipment                                                      |       | (6,556                        | )          | (4,324                          | )          | (8,598                          | )          |
| Decrease in  restricted cash                                                              |       | 2                             |       | 216                             |       | 726                             |       |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Net cash used in investing  activities                                                    |       | (10,197                       | )          | (4,108                          | )          | (7,872                          | )          |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Cash flows from  financing activities                                                     |       |                          |       |                            |       |                            |       |
| Sale of common  stock                                                                     |       | 39                            |       | 400                             |       | 11                              |       |
| Purchase of  treasury shares                                                              |       | (123                          | )          | —                          |       | (290                            | )          |
| Payment on  promissory notes                                                              |       | (42                           | )          | (40                             | )          | (39                             | )          |
| Principal  payments under capital lease obligations                                       |       | (92                           | )          | (88                             | )          | (47                             | )          |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Net cash (used in)  provided by financing activities                                      |       | (218                          | )          | 272                             |       | (365                            | )          |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Net incease (decrease)  in cash and cash equivalents                                      |       | 7,064                         |       | 9,091                           |       | (356                            | )          |
| Cash and cash  equivalents, beginning of year                                             |       | 21,382                        |       | 12,291                          |       | 12,647                          |       |
| Cash and cash  equivalents, end of year                                                   |       | $                             | 28,446     |                            | $          | 21,382                          |       | $ | 12,291 |   |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Supplemental Disclosure  of Cash Flow Information:                                        |       |                          |       |                            |       |                            |       |
| Cash paid for  interest                                                                   |       | $                             | 10,079     |                            | $          | 10,096                          |       | $ | 10,090 |   |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Cash paid for  income taxes                                                               |       | $                             | 203        |                            | $          | —                          |       | $ | 377 |   |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Promissory note  issued in acquisition of business                                        |       | $                             | 3,661      |                            | $          | —                          |       | $ | - |   |
|                                                                                      |       |                          |       |                            |       |                            |       |
| Capital leases entered  into during period                                                |       | $                             | —     |                            | $          | —                          |       | $ | 175 |   |

 

38

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**BERTUCCI’S CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 3, 2007

(1)                                 ORGANIZATIONAND OPERATIONS

Bertucci’s Corporation, a Delaware corporation (the “Company”),owns and operates two chains of full-service casual dining, Italian-style restaurantsunder the names (1) Bertucci’s Brick Oven Pizzeria® or Bertucci’s Brick OvenRistorante®; and (2) Vinny T’s of Boston®. The Company was incorporated in 1994as NE Restaurant Company, Inc. and formally changed its name to Bertucci’sCorporation on August 16, 2001. As of January 3, 2007, the Companyoperated 92 Bertucci’s restaurants and 11 Vinny T’s of Boston® restaurantslocated primarily in the northeast 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“Bertucci’s Acquisition”). The Company financed the Bertucci’s Acquisitionprimarily through the issuance of $100 million of 103⁄4% senior notes due 2008(the “Senior Notes”). $85.3 million in principal of the Senior Notes are stilloutstanding.

***FiscalYear End***

The Company’s fiscal year is the 52 or 53-week periodending on the Wednesday closest to December 31st. Fiscal year 2006consisted of 53 weeks. All other fiscal years presented herein were 52 weeks.

*Basis ofConsolidation*

The consolidatedfinancial statements include the accounts of the Company and its subsidiaries.All intercompany balances and transactions have been eliminated in consolidation.

(2)                                 SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

***RevenueRecognition***

The Company records revenuefrom the sale of food, beverage and alcohol when sales occur. When agift card is issued and proceeds are received, a liability is recorded. As giftcards are redeemed, this liability is reduced and revenue is recognized. Giftcard breakage income (“breakage”) is recognized when the likelihood of theredemption of the card becomes remote. Gift card breakage of $262,000 wasrecorded as a reduction of operating expenses in fiscal 2006.

***Cashand Cash Equivalents***

Cash and cashequivalents are comprised of institutional money market accounts, demand andinterest bearing accounts with original maturities of no more than sixty days.These money market accounts allow daily settlement without penalty. The Companytypically invests on an overnight basis and considers such amounts to be cashequivalents. The Company utilizes zero balance disbursement accounts for cashmanagement purposes and maintains a cash balance sufficient to coverdisbursements from these accounts when checks are presented for payment.Outstanding checks written against the disbursement accounts of $2.9 millionand $0.9 million at January 3, 2007 and December 28, 2005, respectively, areincluded in accounts payable in the accompanying consolidated balance sheets. Thecarrying value of these instruments approximates market value due to theirshort term nature.

*RestrictedCash*

The Company is required to maintain cash as collateralfor outstanding letters of credit under its letter of credit facility.

*Concentrations of Credit Risk*

Financial instruments potentially exposing the Company toconcentrations of credit risk consist mainly of cash and cash equivalents. TheCompany maintains its cash and cash equivalents in financial institutions ofhigh credit standing.  The Company believes no significant credit riskexists as of January 3, 2007 and December 28, 2005.

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***Inventories***

Inventories are carriedat the lower of cost (first-in, first-out) or market value, and consist of thefollowing (dollars in thousands):
|                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |
| Food            |       | $        | 904        |     | $          | 847 |   |
| Liquor          |       | 686      |       | 578      |       |
| Supplies        |       | 108      |       | 109      |       |
| Total inventory |       | $        | 1,698      |     | $          | 1,534 |   |

 

***Property and Equipment***

Property and equipment are carried at cost. The Company provides fordepreciation and amortization using the straight-line method to charge the costof property and equipment to expense over the estimated useful lives of theassets. The lives used are as follows:
| Asset Classification     | ** ** | **Estimated   Useful Life**                                                     |
|--------------------------|------------|---------------------------------------------------------------------------------|
|                     |       |                                                                            |
| Buildings                |       | 20 years                                                                        |
| Leasehold  improvements  |       | Shorter of term  of the lease (ranging   between 10-20 years), or life of asset |
| Furniture and  equipment |       | 3-7 years                                                                       |

 

Depreciation expense was$11.8 million, $10.8 million, and $11.5 million in fiscal 2006, 2005, and 2004,respectively.

The Company evaluatesproperty and equipment held and used in the business for impairment wheneverevents or changes in circumstances indicate the carrying amount of a restaurant’sassets may not be recoverable. An impairment is determined by comparingestimated undiscounted future operating cash flows for a restaurant to thecarrying amount of its assets. If an impairment exists, the amount ofimpairment is measured as the excess of the carrying amount over the estimateddiscounted future operating cash flows of the asset and the expected proceedsupon sale of the asset.

The Company regularly assesses its restaurants’performance for recoverability to determine if an impairment of fixed assetsexists at any location. The Company estimates the fair value of assets based onthe net present value of the expected cash flows for each restaurant. If thecarrying amount of the assets (including any non-transferable liquor licenses)exceeds the fair value of the assets, the Company records an impairment chargeto reflect the write down of the affected assets to fair value. Impairmentcharges recorded were $48,000, $1.0 million, and $6.7 million in fiscal 2006,2005, and 2004, respectively. Impairment charges recorded in fiscal 2006represent maintenance capital in two previously fully impaired restaurants.

***Interest***

Total interest costs incurred, interest income realized and amountscapitalized are as follows (dollars in thousands):

|                       | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
|                  |       |     |       |     |       |     |       |
| Interest expense      |       | $        | 11,048     |     | $          | 10,766   |       | $ | 10,799 |   |
| Interest income       |       | (885     | )          | (341     | )          | (109     | )          |
| Interest  capitalized |       | (20      | )          | (14      |       | (77      | )          |
| Interest expense, net |       | $        | 10,143     |     | $          | 10,411   |       | $ | 10,613 |   |

 

The Company capitalizesinterest expense into leasehold improvements based on the costs incurred toconstruct new restaurants.

*Self-Insurance*

The Company isself-insured for certain losses related to general liability, group healthinsurance, and workers’ compensation. The Company maintains stop loss coveragewith third party insurers to limit its total exposure. The self-insuranceliability is not discounted and represents an estimate of the ultimate cost ofclaims incurred as of the balance sheet date based upon analysis of historicaldata and estimates.

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***Accrued Expenses***

Accrued expenses consisted of the following as of January 3, 2007 andDecember 28, 2005 (dollars in thousands):
|                                          | ** ** | **2006** | ** ** | **2005**   | ** ** |
|------------------------------------------|------------|----------|------------|------------|------------|
|                                     |       |     | ** ** | ** ** |       |
| Accrued payroll  and related benefits    |       | $        | 7,125      | ** ** | $          | 5,994 |   |
| Unredeemed gift  cards                   |       | 5,142    | ** ** | 4,392      |       |
| Accrued interest                         |       | 4,500    | ** ** | 4,228      |       |
| Other accrued  liabilities               |       | 3,022    | ** ** | 2,669      |       |
| Deferred rent  and other occupancy costs |       | 2,289    | ** ** | 1,846      |       |
|                                     |       |     | ** ** |       |       |
| TOTAL                                    |       | $        | 22,078     | ** ** | $          | 19,129 |   |

 

*Goodwill*

The Company tests goodwill for impairment annually onthe first day after the fiscal year end. This same impairment test is performedat other times during the course of the year should an event occur indicatinggoodwill may be impaired. There was no impairment of goodwill at January 3,2007 or December 28, 2005.

***Deferred Finance Costs***

Underwriting, legal and other direct costs incurred in connection withthe issuance of the Senior Notes and the completion of the sale-leasebacktransactions discussed in Note 6 have been capitalized and are being amortizedinto interest expense over the life of the related borrowings and underlyingleases, respectively.

***Liquor Licenses***

Transferable liquor licenses are accounted for at the lower of cost ormarket and are not amortized. Annual renewal fees are expensed as incurred.Non-transferable liquor licenses are amortized on a straight-line basis overthe contractual life of the license. The carrying value of transferable liquorlicenses was $2.0 million at each of January 3, 2007 and December 28, 2005.Amortization expense for non-transferable liquor licenses was $56,000, $56,000,and $82,000 in fiscal 2006, 2005, and 2004, respectively. For existinglicenses, amortization expense is expected to be $56,000 per year for each ofthe next five fiscal years.

***Fair Value of FinancialInstruments***

The Company’s financial instruments mainly consist of cash and cashequivalents, restricted cash, accounts receivable, accounts payable, utilitypurchase contracts, and long-term debt. The carrying amounts of the Company’scash and cash equivalents, restricted cash, accounts receivable and accountspayable approximate fair value due to the short-term nature of theseinstruments. The fair value of the Company’s long term debt, consisting of theSenior Notes and promissory notes, is based on the present value of remainingprincipal and interest payments discounted at a comparable borrowing rate eachfiscal year and approximates fair value.

***Comprehensive Income***

***Comprehensiveincome is equal to net income as reported for all three fiscal years reportedherein.***

***Preopening Expenses***

Preopening costs are expensed as incurred. These costs include thetraining of new restaurant management teams; travel and lodging for both thetraining and opening unit management teams; and the food, beverage and suppliescosts incurred to perform the training and testing of all equipment,concept systems and recipes.

***Advertising***

Advertising costs are expensed as incurred.Advertising costs were $5.8 million in fiscal 2006 and 2005, and $6.6 millionin fiscal 2004, and are included in operating expenses in the consolidatedstatements of operations.

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*Utility Purchase Commitments*

The Company has executed contracts to provide electricity tothirty-nine restaurants at a fixed rate per kilowatt through 2009. The Companybelieves these contracts qualify for the “normal purchases” exception asdefined by Statement of Financial Accounting Standards (“SFAS”) No. 133, *Accounting for Derivative Instruments and HedgingActivities*. Therefore, the contracts are not required to be markedto market through the Consolidated Statement of Operations. The purchasecommitments below represent an estimate of the minimum usage per yearmultiplied by the contracted rates (dollars in thousands):
| Year   | ** ** | ** ** | ** ** |
|--------|------------|------------|------------|
| 2007   |       | $          | 1,468      |   |
| 2008   |       | 1,468      |       |
| 2009   |       | 1,345      |       |
|   |       | $          | 4,281      |   |

 

In addition, the Company  executed contracts to provide naturalgas to eighty-two restaurants at a fixed price per therm through May2007. These contracts do not qualify for the “Normal Purchase” exception,and are not considered hedges.  The Company has recorded a $181,000unrealized loss in operating expenses in the consolidated statement ofoperations in order to mark these contracts to market as of January 3, 2007.The purchase commitment through the remaining contract period is $900,000.

***Earnings Per Share***

Basic income or loss per share is computed by dividing net income orloss by the weighted average number of common shares outstanding for thereporting period. Diluted income per share reflects the potential dilution thatcould occur if options or other contracts to issue common stock were exercisedor converted into common stock. Dilutive shares added to the weighted averagenumber of common shares outstanding for the fiscal year 2006 for thiscalculation were 75,691. Dilutive shares were determined using the treasurystock method for in-the-money stock options as of January 3, 2007. For thefiscal years ended December 28, 2005 and December 29, 2004 optionsrepresenting 970,929 and 548,171 shares of common stock, respectively, wereexcluded from the calculation of diluted loss per share because of theiranti-dilutive effect.

*Stock-BasedCompensation*

Effective December 29,2005, the Company adopted the provisions of SFAS No. 123R, “Share-Based Payment”(“SFAS No. 123R”), and Staff Accounting Bulletin No. 107 (“SAB 107”) using themodified prospective method. Under the modified prospective provisions of SFASNo. 123R, compensation expense is recorded for the unvested portion ofpreviously granted awards that were outstanding on December 29, 2005 and allsubsequent awards. SFAS No. 123R requires that all stock-based compensationexpense be recognized in the financial statements based on the fair value ofthe awards. Stock-based compensation cost is measured at the grant date basedon the fair value of the award and is recognized as expense over the requisiteservice period. The Company calculates the fair value of stock options usingthe Black-Scholes option-pricing model. SFAS No. 123R also amends SFAS No. 95, “Statementof Cash Flows”, to require that excess tax benefits related to stock-basedcompensation be reflected as cash flows from financing activities rather thancash flows from operating activities.

***Segment Reporting***

TheCompany’s operations have been aggregated into one single reporting segment, aspermitted by SFAS No. 131, *Disclosure about Segmentsof an Enterprise and Related Information*, since its operations havesimilar economic characteristics, products, production processes, types ofcustomers and distribution methods.

***Use of ManagementEstimates***

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions affecting the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Significant estimates include the reservefor closed restaurant locations, impairment analysis on long-lived assets, and self-insurancereserves. Actual results could differ from those estimates.

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***Recent Accounting Pronouncements***

In July 2006, the Financial Accounting Standards Board(“FASB”) issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes* (“FIN 48”), an interpretation of SFAS No. 109, *Accounting for Income Taxes*. FIN 48 clarifies the accountingfor uncertainty in tax positions and requires that the impact of tax positionsbe recorded in the financial statements if it is more likely than not that suchposition will be sustained on audit, based on the technical merits of theposition. The provisions of FIN 48 are effective for fiscal years beginningafter December 15, 2006. The Company does not expect the adoption of FIN 48 tohave a material effect on its consolidated financial position or results ofoperations.

In September 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements* (“SFAS No. 157”), which addresses how companies shouldmeasure fair value when they are required to use a fair value measure forrecognition or disclosure purposes under generally accepted accountingprinciples. The provisions of SFAS No. 157 are effective for fiscal yearsbeginning after November 15, 2007. The Company is evaluating the expectedimpact that the adoption of SFAS No. 157 will have on its consolidatedfinancial position and results of operations.

In February 2007, the FASB issued SFAS No.159, *The Fair Value Option for Financial Assets andLiabilities* (“SFAS No. 159”). SFAS No. 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. If the fair value option is elected, unrealized gains and losses will berecognized in earnings at each subsequent reporting date. SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007. The Company isevaluating the impact SFAS No. 159 may have on its consolidatedfinancial position and results of operations.

(3)                                  CLOSEDRESTAURANT RESERVE

The Company has recordedreserves relating to lease commitments at certain closed locations, includingother exit costs for which the Company is still primarily liable. It wasoriginally expected the Company would be able to exit these locations, subleasethe locations or otherwise be released from the related leases. However, due tomarket conditions, the Company was unable to sell, sublease or exit certain ofthese leases as originally anticipated.

Activity within the Company’s closed restaurants reserve was as follows(dollars in thousands):
|                                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of year                 |       | $        | 372        |     | $          | 659      |       | $ | 1,449 |   |
| Lease and  related costs charged to reserve |       | (86      | )          | (287     | )          | (790     | )          |
| Balance, end of year                        |       | $        | 286        |     | $          | 372      |       | $ | 659 |   |
|                                        |       |     |       |     |       |     |       |
| Current portion                             |       | $        | 207        |     | $          | 270      |       | $ | 484 |   |
| Noncurrent  portion                         |       | 79       |       | 102      |       | 175      |       |
|                                        |       | $        | 286        |     | $          | 372      |       | $ | 659 |   |

 

The closed restaurantreserve was calculated net of sublease income at nine locations partially orfully subleased as of January 3, 2007. The Company remains primarily liable forthe remaining lease obligations should the sublessee default. Total subleaseincome excluded from the reserve is approximately $5.0 million for subleasesexpiring at various dates through 2017. One tenant has defaulted under theterms of the Company’s sublease but the net exposure to the Company has beenprovided for in the reserves above.

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(4)                                  INCOMETAXES

The components of theprovision for income taxes for the fiscal years 2006, 2005, and 2004, respectively,are as follows (dollarsin thousands):
|                                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:                          |       |     |       |     |       |     |       |
| Federal                           |       | $        | 315        |     | $          | —   |       | $ | — |   |
| State                             |       | 260      |       | —   |       | —   |       |
|                              |       | 575      |       | —   |       | —   |       |
| Deferred:                         |       |     |       |     |       |     |       |
| Federal                           |       | (2,491   | )          | (1,473   | )          | (5,669   | )          |
| State                             |       | (266     | )          | (95      | )          | (413     | )          |
|                              |       | (2,757   | )          | (1,568   | )          | (6,082   | )          |
| Valuation  allowance              |       | 2,757    |       | 1,568    |       | 6,082    |       |
| Total provision for  income taxes |       | $        | 575        |     | $          | —   |       | $ | — |   |

 

A reconciliation of theamount computed by applying the statutory federal income tax rate of 35% to theincome (loss) before income tax provision for the fiscal years 2006, 2005, and2004, respectively, is as follows (dollars in thousands):
|                                                                  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income tax  expense (benefit) computed at federal statutory rate |       | $        | 1,063      |     | $          | (1,100   | )          | $ | (4,887 | ) |
| State taxes, net  of federal benefit                             |       | 138      |       | (95      | )          | (413     | )          |
| Employment  related tax credits and other, net                   |       | (2,985   | )          | (983     | )          | (782     | )          |
| Other                                                            |       | (398     | )          | 610      |       | —   |       |
| Valuation  allowance                                             |       | 2,757    |       | 1,568    |       | 6,082    |       |
| Income tax  provision                                            |       | $        | 575        |     | $          | —   |       | $ | — |   |

 

Significant items givingrise to deferred tax assets and deferred tax liabilities at January 3, 2007 andDecember 28, 2005 are as follows (dollars in thousands):
|                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets–                           |       |     |       |     |       |
| Property and equipment, including impairment charges |       | $        | 9,398      |     | $          | 5,931 |   |
| Net operating loss and tax credit carryforwards      |       | 7,909    |       | 6,418    |       |
| Goodwill and other intangible assets                 |       | 3,215    |       | —   |       |
| Deferred rent                                        |       | 3,041    |       | 3,226    |       |
| All other deferred tax assets                        |       | 3,390    |       | 2,505    |       |
|                                                 |       | 26,953   |       | 18,080   |       |
| Deferred tax  liabilities–                      |       |     |       |     |       |
| Liquor licenses                                      |       | (532     | )          | (234     | )          |
|                                                 |       | (532     | )          | (234     | )          |
|                                                 |       |     |       |     |       |
| Total net  deferred tax assets                       |       | 26,421   |       | 17,846   | )          |
| Valuation  allowance                                 |       | (26,421  | )          | (17,846  | )          |
| Carrying value  of net deferred tax assets           |       | $        | —     |     | $          | — |   |

 

The Company acquired approximately $5.8 million of future income taxbenefits statutorily available to the Company through the Vinny T’sAcquisition. Because of the history of tax losses of the Company and Vinny T’s,the Company concluded a valuation allowance for the amount of the net future taxbenefits was appropriate.

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Thefuture tax benefits which give rise to the deferred tax asset remainstatutorily available to the Company. The Company considers both negative andpositive evidence in determining if a valuation allowance is appropriate. TheCompany had tax credit carryforwards of $7.5 million and net operating losscarryforwards of $1.4 million (representing $0.4 million net of tax) as ofJanuary 3, 2007 which expire at various dates through 2026. The Company has anhistorical trend of recurring pre-tax losses. Based on the historical trend oflosses, the Company concluded a valuation allowance for the net deferred taxasset remains appropriate. Actual amounts realized will be dependent ongenerating future taxable income.

(5)                                  SENIORNOTES AND PROMISSORY NOTES PAYABLE

TheCompany has outstanding 103⁄4% Senior Notes with a current face value of $85.3million due 2008 (the “Senior Notes”). Interest on the Senior Notes is payablesemi-annually on January 15 and July 15. Through maturity in 2008, theCompany may, at its option, redeem any or all of the Senior Notes at facevalue. Under certain circumstances, including a change of control or followingcertain asset sales, the holders of the Senior Notes may require theCompany to repurchase the Senior Notes, at a redemption price of 101%. TheSenior Notes are fully and unconditionally guaranteed, on a joint and severalbasis, on an unsecured senior basis, by all of the Company’s subsidiaries. TheSenior Notes contain no financial covenants and the Company is in compliance withor has obtained waivers for all non-financial covenants as of January 3, 2007.

In connection with theVinny T’s Acquisition, the Company issued a Promissory Note to BUCA. Theprincipal balance of the Promissory Note was $3.6 million as of January 3,2007. The Promissory Note contains no covenants and bears interest at the rateof 9% payable in two equal installments on September 25, 2007 and July 15,2008. The Promissory Note is due in full on July 15, 2008 or earlier upon the occurrence of certain other events,including if the Company has a change in control (as defined in the PromissoryNote), the consummation of an initial public offering, or the redemption,repurchase, refinancing or payment of the Company’s Senior Notes.

 (6)                               COMMITMENTS ANDCONTINGENCIES

***Letter of Credit Facility***

The Company has a $4.0 million (maximum) letter of credit facility ascollateral with third party administrators for self insurance reserves. As ofJanuary 3, 2007, this facility was collateralized with $2.2 million of cashrestricted from general use. Letters of credit totaling $2.2 million wereoutstanding pursuant to this facility as of January 3, 2007 andDecember 28, 2005 and expire in December 2007.

***Operating Leases***

The Company has entered into numerous lease arrangements, primarily forrestaurant land, equipment and buildings, which are non-cancelable and expireon various dates through 2027.

Some operating leases contain rent escalation clauses whereby the rentpayments increase over the term of the lease. Rent expense includes base rentamounts, percentage rent payable periodically, as defined in each lease, andrent expense accrued to recognize lease escalation provisions on astraight-line basis over the lease term. Cash rent expense recognized inoperating expenses in the accompanying consolidated statements of income wasapproximately $17.0 million, $15.5 million, and $14.8 million for the fiscalyears 2006, 2005, and 2004, respectively. The annual difference of accrued rentversus amounts paid is classified as deferred rent in the accompanyingconsolidated statements of operations and the cumulative difference is includedin other long-term liabilities in the accompanying consolidated balance sheets.Certain leases require the payment of an additional amount, calculated as apercentage of annual sales, as defined in the lease agreement, which exceedsannual minimum rentals. Such percentage rent expense was $273,000, $200,000,and $154,000 for fiscal 2006, 2005, and 2004, respectively.

Future minimum rental payments due under non-cancelable operatingleases as of January 3, 2007 for operating locations were as follows (dollarsin thousands):
| Year       | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|
| 2007       |       | $          | 18,511     |   |
| 2008       |       | 17,097     |       |
| 2009       |       | 15,743     |       |
| 2010       |       | 14,029     |       |
| 2011       |       | 12,895     |       |
| Thereafter |       | 38,742     |       |
|       |       | $          | 117,017    |   |

 

In addition to the leases summarized above, the Company is primarilyliable on nine locations for approximately $5.3 million in gross leasecommitments over the remaining terms of the leases. The locations are subleasedto tenants under sublease obligations aggregating $5.0 million. The differenceof $0.3 million represents the Company’s closed restaurant reserve at January3, 2007.

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***Capital Leases***

The Company previouslycompleted two sale-leaseback transactions on four restaurant properties. TheCompany agreed to lease back the properties for a 20-year period. Both leasesinclude two five-year renewal terms, which the Company may exercise at itsoption. The Company is required to maintain the properties for the term of theleases and to pay all taxes, insurance, utilities and other costs associatedwith those properties. Under the leases, the Company agreed to customaryindemnities and, in the event the Company defaults on any lease, the landlordmay terminate the lease, accelerate rental payments and collect liquidateddamages.

Payments under capital lease commitments for these restaurants are asfollows (dollars in thousands):
| Year                               | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|
| 2007                               |       | $          | 704        |   |
| 2008                               |       | 715        |       |
| 2009                               |       | 725        |       |
| 2010                               |       | 691        |       |
| 2011                               |       | 698        |       |
| Thereafter                         |       | 8,523      |       |
|                               |       | 12,056     |       |
| Less amount  representing interest |       | 6,059      |       |
| Present value of  minimum payments |       | $          | 5,997      |   |
| Current portion                    |       | 126        |       |
| Long-term  portion                 |       | 5,871      |       |
|                               |       | $          | 5,997      |   |

 

***Contingencies***

The Company is subject to various legal proceedings arising in theordinary course of business. Management believes the amount of ultimateliability with respect to these actions will not be material to the financialposition, cash flows or results of operations of the Company.

(7)                                  RELATEDPARTIES

The stockholders haveconsented to the payment of an ongoing financial consulting fee to JacobsonPartners, a stockholder of the Company. Fees of $250,000 were paid to JacobsonPartners for each of the fiscal years ended January 3, 2007, December 28,2005, and December 29, 2004. The Board of Directors approved an additionalfee of $136,000 paid in fiscal 2006 in connection with the Vinny T’sAcquisition and an additional fee of $175,000 in fiscal 2004. Fees are includedin general and administrative expenses in the accompanying consolidatedstatements of operations, except for the fee paid in in connection with theVinny T’s Acquisition which is capitalized in the purchase price.

Benjamin R. Jacobson, Chairman of the Company, is the Managing GeneralPartner of Jacobson Partners. Jacobson Partners, through its varioussubsidiaries and investments, owns a controlling interest in the Company.Jacobson Partners also previously held a controlling interest in Taco Bueno.Stephen V. Clark, Vice Chairman of the Board of Directors and Chief ExecutiveOfficer of the Company, and David G. Lloyd, President and Chief FinancialOfficer of the Company, held senior management positions with Taco Bueno until August 2005,when Jacobson Partners sold its interest in Taco Bueno.

(8)                                  401(k)PROFIT SHARING PLAN AND DEFERRED COMPENSATION PLAN

The Company maintains a defined contribution plan known as the Bertucci’s401(k) Plan. Under the Bertucci’s 401(k) Plan, substantially all salariedemployees of the Company may defer a portion of their current salary, on apretax basis. The Company makes a matching contribution to the Bertucci’s401(k) Plan allocated, based on a formula as defined by the Bertucci’s 401(k)Plan, to Plan participants. Matching contributions made by the Company for thefiscal years 2006, 2005, and 2004 were approximately $149,000, $130,000,$98,000, respectively.

In 1999, the Companyestablished the Bertucci’s Corporation Executive Savings and Investment Plan, anon-qualified compensation plan, to which highly compensated executives of theCompany may elect to defer a portion of their salary and/or earned bonus. Theassets of the plan are held separately from other funds of the Company, butremain subject to claims of the Company’s general creditors in the event of theCompany’s insolvency. As of January 3, 2007, there were 19 participants in theplan with assets with an aggregate market value of approximately $734,000. Theassets are included in other long-term assets in the consolidated balance sheetand a corresponding liability is included in other long term liabilities.

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(9)                                  STOCKBASED COMPENSATION AND EQUITY INCENTIVE PLAN

Effective December 29, 2005, the Company adopted the provisions of SFASNo. 123R and SAB 107 using the modified prospective method. Under the modifiedprospective provisions of SFAS No. 123R, compensation expense is recorded forthe unvested portion of previously granted awards that were outstanding onDecember 29, 2005 and all subsequent awards. SFAS No. 123R requires that allstock-based compensation expense be recognized in the financial statementsbased on the fair value of the awards. Stock-based compensation cost ismeasured at the grant date based on the fair value of the award and isrecognized as expense over the requisite service period. As required under thenew standards, compensation expense is based on the number of options expectedto vest. Forfeitures estimated when recognizing compensation expense are adjustedwhen actual forfeitures differ from the estimate.****The impact of the adoption of SFAS No. 123R and SABNo. 107 resulted in a compensation charge of $125,000 in fiscal 2006,which is included in general and administrative expenses in the ConsolidatedStatement of Operations.

The Company grants stock options under its Amended and Restated 1997Equity Incentive Plan (the “Equity Incentive Plan”), which provides for theissuance of nonqualified stock options and allows the Company to provide equityincentives to its key employees and directors. On September 27, 2005, theCompany’s Board of Directors approved an amendment of the plan which increasedthe number of shares of Common Stock available for issuance under the EquityIncentive Plan from 750,000 to 1,100,000. The Board of Directors administersthe Equity Incentive Plan and may modify or amend it in any respect. As ofJanuary 3, 2007 there were 130,677 authorized shares of Common Stock remainingfor issuance under the Equity Incentive Plan.

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

The grant date fair value is calculated using the Black-Scholes optionvaluation model. The fair value of options granted during fiscal 2006, 2005,and 2004, were calculated using the following estimated weighted averageassumptions:
|                                         | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Options granted                         |       | 69,000     |       | 602,500    |       | 111,000    |       |
| Weighted-average  exercise price        |       | $          | 17.69      |       | $          | 17.51      |       | $ | 17.51 |   |
| Weighted-average  grant date fair value |       | $          | 4.12       |       | —     |       | —     |   |
|                                    |       |       |       |       |       |       |       |
| Assumptions:                            |       |       |       |       |       |       |       |
| Risk free  interest rate                |       | 4.69       | %          | 3.99       | %          | 3.53       | %          |
| Expected life  (in years)               |       | 5          |       | 5          |       | 5          |       |
| Expected  volatility                    |       | 20         | %          | —     |       | —     |       |
| Expected dividend yield                 |       | —     |       | —     |       | —     |       |
|                                         |            |            |            |            |            |            |            |  |  |  |

 

**Expected volatility** — The Company is responsible for estimatingvolatility and has used 0% volatility historically to estimate the grant-datefair value of stock options as its common stock is not publicly traded.Effective December 29, 2005, management considered the guidance in SFASNo. 123R and now estimates expected volatility at 20%.

**Expected life** — The Company uses the full vesting period toestimate the expected life assumption for the Black-Scholes grant-datevaluation. The Company believes this is the best estimate of the expected lifeof a new option.

**Risk-free interest rate** — The market yield on U.S. Treasurysecurities at a 5-year constant maturity, quoted on investment basis, isused as the risk-free interest rate.

**Expecteddividend yield** — The Company has not paid any dividends in the lastfive years and intends to retain any earnings to finance future growth and,therefore, does not anticipate paying any cash dividends on its common stock inthe foreseeable future.

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A summary of the Amended and Restated Equity Incentive Plan activityfor fiscal 2006 is presented below.
|                                              | ** ** | **Shares** | ** ** | **Weighted   Average  Exercise  Price** | ** ** | **Weighted Average  Remaining  Contractural Term** | ** ** | **Aggregate Intrinsic  Value (thousands)** | ** ** |
|----------------------------------------------|------------|------------|------------|----------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Outstanding at  beginning of year            |       | 970,929    |       | $                                            | 16.77      |                                                         |       |                                                 |       |   |
| Granted                                      |       | 69,000     |       | $                                            | 17.69      |                                                         |       |                                                 |       |   |
| Forfeited                                    |       | (70,606    | )          | $                                            | (16.93     | )                                                            |       |                                                 |       |   |
| Outstanding at  end of year                  |       | 969,323    |       | $                                            | 16.82      |                                                         | 6.8        |                                                 | $          | 3,300 |   |
|                                         |       |       |       |                                         |       |                                                         |       |                                                 |       |
| Fully vested and  exercisable at end of year |       | 265,573    |       | $                                            | 14.96      |                                                         | 2.4        |                                                 | $          | 1,100 |   |

 

As of January 3, 2007 there was $288,000 of unrecognized compensationcost related to unvested stock options. That cost is expected to be recognizedover a weighted average period of 1.9 years.

Prior to December 29, 2005, in accordance with SFAS No. 123, *Accounting for Stock-Based Compensation*(which has been replaced by SFASNo. 123R and supersedes Accounting Principles Board OpinionNo. 25 (“APB Opinion No. 25”)), the Company accounted for stock-basedcompensation under the intrinsic value method with disclosure of the effects offair value accounting on net loss and loss per share on a pro forma basis. TheCompany had accounted for the Equity Incentive Plan under the recognition andmeasurement principles of APB Opinion No. 25**andrelated interpretations. In 2005, stock based employee compensation expenseresulted from the granting of shares of the Company’s common stock to keyemployees and independent directors. All shares and options were granted atprices equal to, or in excess of, the fair value of the underlying common stockon the date of grant. The following table illustrates the effect on net lossand loss per share for fiscal 2005 and fiscal 2004, respectively, as if theCompany had applied the fair value recognition provisions of SFAS No. 123(in thousands, except per share data):
|                                                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                             |       |     |       |     |       |
| Net loss, as  reported                                                                                           |       | $        | (3,143     | )        | $          | (13,963 | ) |
| Add: Stock-based  employee compensation expense included in reported net loss.                                   |       | 172      |       | —   |       |
| Deduct: Net  stock-based employee compensation expense determined under fair value based  method for all awards. |       | (116     | )          | (77      | )          |
| Pro forma net  loss                                                                                              |       | $        | (3,087     | )        | $          | (14,040 | ) |
| Basic and diluted  loss per share                                                                                |       |     |       |     |       |
| As reported                                                                                                      |       | $        | (1.06      | )        | $          | (4.74 | ) |
| Pro forma                                                                                                        |       | $        | (1.04      | )        | $          | (4.77 | ) |

 

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The Company’s shareholders are parties to a shareholder agreement (the “ShareholderAgreement”) which restricts their ability to transfer their shares without theapproval of the Company’s Board of Directors. The Shareholder Agreementprovides, among other things, that (i) a shareholder may not transferhis or its shares in the Company, whether voluntarily or by operation of law,other than in certain limited circumstances specified therein, includingtransfers through a right of first refusal procedure, distributions by certainlegal entities to the constituents of such entities (i.e. a partnership to itspartners), transfers by will or intestate succession, transfers approved by theBoard of Directors to an affiliate of a shareholder or to another shareholder,transfers to family members or trusts for their benefit, and any transferunanimously approved by the Board of Directors, (ii) the Company has the optionto purchase the shares of any shareholder who is an employee of the Companyfollowing the termination of such shareholder’s employment with the Company forany reason at a purchase price equal to the fair market value or originalpurchase price (plus accrued interest in certain circumstances) depending uponthe reason for such termination, (iii) the Company has the option topurchase the shares of any shareholder who is an employee of the Companyfollowing certain transfer events, including such shareholders’ bankruptcy or acourt-ordered transfer of such shareholder’s stock, (iv) if the Companyfails to exercise its option to purchase as described in the immediatelypreceding clause (iii), the remaining shareholders have the option to purchasethe applicable shares, (v) in the event an employee shareholder leaves theCompany due to death, disability or hardship or, with respect to certainshares, is terminated by the Company without cause, such shareholder has aone-time option to require the Company to purchase such shareholder’s shares atthe greater of fair value or the original purchase price, subject to approvalby the Board of Directors, excluding effected employees, (vi) no transferof shares may occur unless the transferee thereof agrees to be bound bythe terms of the Shareholder Agreement, and (vii) all share certificatesmust bear customary legends and all share transfers must be in compliance withapplicable securities laws. At January 3, 2007, 150,149 options are subject tothe provisions of (ii) and (v) above.

(10)                             ACQUISITION

In September,2006, the Company executed a Stock Purchase Agreement with BUCA, Inc. and BUCARestaurants 3, Inc. (“BUCA 3”) the entity which owns and operates Vinny T’s ofBoston restaurants (“the Vinny T’s Acquisition”). As a result of the Vinny T’sAcquisition, BUCA 3 is now a wholly-owned subsidiary of the Company andcontinues to own and operate 11 Vinny T’s of Boston restaurants in four states.The Company believes the acquisition of the 11 restaurants will increaserevenues and income from operations while providing an acceptable return on theinvestment. The Company paid BUCA an aggregate purchase price of $6.6 million, of which $3.0 million was paid in cashand $3.6 million was paid through the issuance of a Promissory Note. ThePromissory Note contains no covenants and bears interest at the rate of 9% perannum payable in two equal installments on September 25, 2007 and July 15,2008.

The Vinny T’s Acquisition was accounted for by the Company under thepurchase method of accounting in accordance with SFAS No. 141, *Business Combinations*.Accordingly, the results of the Vinny T’s of Boston operations havebeen included in the Company’s consolidated statements of operations fromSeptember 28, 2006.

The cash paid at closing was funded by available cash on hand. Thepurchase price has been allocated based on the Company’s estimate of the fairvalue of the assets acquired and liabilities assumed at the date of acquisitionin the table below. Included in the purchase price are direct acquisition costsof $645,000. The preliminary purchase price allocation for assets acquired andliabilities assumed is subject to adjustment upon finalization of the valuationof property and equipment by the Company (dollars in thousands).
| Assets acquired:           | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|
| Receivables                |       | $          | 283        |   |
| Inventory                  |       | 278        |       |
| Prepaid Expenses           |       | 144        |       |
| Property                   |       | 9,186      |       |
| Other noncurrent  assets   |       | 65         |       |
|                       |       |       |       |
| Less liabilities  assumed: |       |       |       |
| Accounts payable           |       | (995       | )          |
| Accrued expenses           |       | (1,657     | )          |
| Net purchase price         |       | $          | 7,304      |   |

 

The Company has also acquired approximately $5.8 million of futureincome tax benefits statutorily available to the Company through the Vinny T’sAcquisition. Because of the history of tax losses of the Company and Vinny T’s,the Company concluded a valuation allowance for the amount of the net futuretax benefits was appropriate.

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The following pro forma financial information presents the results ofoperations for each of the fiscal years 2006 and 2005, as though the Vinny T’sAcquisition occurred at the beginning of the periods presented. The pro formafinancial information is not intended to be indicative of theoperating results that actually would have occurred if the VinnyT’s Acquisition had been consummated at the beginning of the periodspresented, nor is the information intended to be indicative of futureoperating results. The pro forma financial information reflectsadjustments for (1) additional general and administrative expenses for directfield supervision; (2) additional depreciation to more closely reflectallocated values at the Vinny T’s Acquisition; and (3) additional interestexpense on the Promissory Note (dollars in thousands, except per shareamounts).
|                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Net Sales                        |       | $        | 249,393    |     | $          | 236,856 |   |
|                             |       |     |       |     |       |
| Net income (loss)                |       | $        | 2,102      |     | $          | (3,423 | ) |
|                             |       |     |       |     |       |
| Basic income  (loss) per share   |       | $        | 0.70       |     | $          | (1.16 | ) |
|                             |       |     |       |     |       |
| Diluted income (loss)  per share |       | $        | 0.68       |     | $          | (1.16 | ) |

 

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(11)                            UNAUDITEDQUARTERLY RESULTS

The unaudited quarterlyinformation depicted below details results of operations for each of the fiscalquarters of 2006 and 2005.
| ** **                                                         | ** ** | **Quarter 1** | ** ** | **Quarter 2** | ** ** | **Quarter 3**     | ** ** | **Quarter 4**  | ** ** | **Year**            | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                                         | ** ** | **March 29,** | ** ** | **June 28,**  | ** ** | **September 27,** | ** ** | **January 3,** | ** ** | **January 3,** | ** ** |
| ** **                                                         | ** ** | **2006**           | ** ** | **2006**           | ** ** | **2006**               | ** ** | **2007 (1)**   | ** ** | **2007**            | ** ** |
| Net sales                                                          | ** ** | $                  | 52,684     |               | $          | 55,031                 |       | $                   | 51,969     |                | $          | 66,760 |   | $ | 226,444 |   |
| Cost of sales  and expenses:                                       | ** ** |               |       |               |       |                   |       |                |       |                |       |
| Cost of sales                                                      | ** ** | 11,942             |       | 12,490             |       | 11,762                 |       | 15,444              |       | 51,638              |       |
| Operating expenses                                                 | ** ** | 31,305             |       | 32,896             |       | 31,856                 |       | 39,079              |       | 135,136             |       |
| General and administrative expenses                                | ** ** | 3,553              |       | 3,748              |       | 3,705                  |       | 4,038               |       | 15,044              |       |
| Deferred rent, depreciation, amortization and  preopening expenses | ** ** | 2,721              |       | 2,766              |       | 2,696                  |       | 3,216               |       | 11,399              |       |
| Asset impairment charge                                            |       | —             |       | —             |       | —                 |       | 48                  |       | 48                  |       |
| Total cost of sales and expenses                                   |       | 49,521             |       | 51,900             |       | 50,019                 |       | 61,825              |       | 213,265             |       |
| Income from operations                                             |       | 3,163              |       | 3,131              |       | 1,950                  |       | 4,935               |       | 13,179              |       |
| Other expense:                                                     |       |               |       |               |       |                   |       |                |       |                |       |
| Interest expense, net                                              |       | (2,500             | )          | (2,488             | )          | (2,438                 | )          | (2,717              | )          | (10,143             | )          |
| Other expense                                                      |       | (2,500             | )          | (2,488             | )          | (2,438                 | )          | (2,717              | )          | (10,143             | )          |
| Loss before  income tax provision                                  |       | 663                |       | 643                |       | (488                   | )          | 2,218               |       | 3,036               |       |
| Income tax  provision                                              |       | —             |       | —             |       | 31                     |       | 544                 |       | 575                 |       |
| Net loss                                                           |       | $                  | 663        |               | $          | 643                    |       | $                   | (519       | )                   | $          | 1,674 |   | $ | 2,461 |   |
| Basic income per  share                                            |       | $                  | 0.22       |               | $          | 0.21                   |       | $                   | (0.17      | )                   | $          | 0.56 |   | $ | 0.82 |   |
| Basic weighted  average shares outstanding                         |       | 3,012,982          |       | 3,015,817          |       | 3,014,968              |       | 3,009,146           |       | 3,014,363           |       |
| Diluted income  per share                                          |       | $                  | 0.22       |               | $          | 0.21                   |       | $                   | (0.17      | )                   | $          | 0.53 |   | $ | 0.80 |   |
| Diluted weighted  average shares outstanding                       |       | 3,034,435          |       | 3,057,108          |       | 3,014,968              |       | 3,138,685           |       | 3,090,053           |       |

 

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(1) Includes results for the 11 Vinny T’s of Bostonrestaurants acquired in September 2006, and the 53rd week.
| ** **                                                         | ** ** | **Quarter 1** | ** ** | **Quarter 2** | ** ** | **Quarter 3**     | ** ** | **Quarter 4**    | ** ** | **Year**              | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **March 30,** | ** ** | **June 29,**  | ** ** | **September 28,** | ** ** | **December 28,** | ** ** | **December 28,** | ** ** |
| ** **                                                         | ** ** | **2005**           | ** ** | **2005**           | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2005**              | ** ** |
| Net sales                                                          |       | $                  | 49,952     |               | $          | 52,580                 |       | $                     | 49,654     |                  | $          | 52,598 |   | $ | 204,784 |   |
| Cost of sales  and expenses:                                       |       |               |       |               |       |                   |       |                  |       |                  |       |
| Cost of sales                                                      |       | 11,860             |       | 12,322             |       | 11,316                 |       | 12,113                |       | 47,611                |       |
| Operating expenses                                                 |       | 30,454             |       | 31,391             |       | 30,051                 |       | 31,357                |       | 123,253               |       |
| General and administrative expenses                                |       | 3,499              |       | 3,283              |       | 3,740                  |       | 3,920                 |       | 14,442                |       |
| Deferred rent, depreciation, amortization and  preopening expenses |       | 3,142              |       | 3,029              |       | 2,601                  |       | 2,456                 |       | 11,228                |       |
| Asset impairment charge                                            |       | —             |       | 907                |       | —                 |       | 75                    |       | 982                   |       |
| Total cost of sales and expenses                                   |       | 48,955             |       | 50,932             |       | 47,708                 |       | 49,921                |       | 197,516               |       |
| Income from operations                                             |       | 997                |       | 1,648              |       | 1,946                  |       | 2,677                 |       | 7,268                 |       |
| Other expense:                                                     |       |               |       |               |       |                   |       |                  |       |                  |       |
| Interest expense, net                                              |       | (2,650             | )          | (2,621             | )          | (2,613                 | )          | (2,527                | )          | (10,411               | )          |
| Other expense                                                      |       | (2,650             | )          | (2,621             | )          | (2,613                 | )          | (2,527                | )          | (10,411               | )          |
| Net loss                                                           |       | $                  | (1,653     | )                  | $          | (973                   | )          | $                     | (667       | )                     | $          | 150 |   | $ | (3,143 | ) |
| Basic and diluted  loss per share                                  |       | $                  | (0.57      | )                  | $          | (0.33                  | )          | $                     | (0.23      | )                     | $          | 0.05 |   | $ | (1.06 | ) |
| Weighted average shares  outstanding - basic and diluted           |       | 2,925,520          |       | 2,947,691          |       | 2,953,864              |       | 3,012,982             |       | 2,960,025             |       |

 

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(12)                           SUBSEQUENT EVENTS

In the first quarter of fiscal 2007, the Company closedthree restaurant locations as they were not meeting Company sales and profitexpectations. Net Sales from these locations totaled $3.5 million in fiscal2006. One location was closed in conjunction with a lease termination agreementwhile the other two locations have continuing lease obligations totaling $2.4million through 2013. The Company anticipates being able to sublease theproperties or negotiate lease termination agreements, but estimates it willincur net costs (rental costs net of sublease income, as well as legal,brokerage and other fees) of approximately $400,000 on these two locations andanticipates recording a closed restaurant charge in that amount in the firstquarter of fiscal 2007.

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**EXHIBIT LISTING AND INDEX**
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1 (a)              |       | Agreement and Plan of Merger, dated as of  May 13, 1998 among Bertucci’s, Inc., NE Restaurant  Company, Inc. (“NERCO”) and NERC Acquisition Corp.                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1 (a)              |       | Certificate of  Incorporation of NERCO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2 (a)              |       | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 1,  1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.3 (a)              |       | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 20,  1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.4 (a)              |       | By-laws of  NERCO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.25 (d)             |       | Certificate of  Amendment of Certificate of Incorporation of NERCO, dated August 16,  2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1 (a)              |       | Indenture, dated  July 20, 1998 between NERCO and United States Trust Company of New York  (“U.S. Trust”) as Trustee (including the form of 10 3⁄4% Senior Note due  July 15, 2008).                                                                                                                                                                                                                                                                                                                                                   |
| 4.2 (a)              |       | Supplemental  Indenture, dated as of July 21, 1998 by and among Bertucci’s, Inc.,  Bertucci’s Restaurant Corp., Bertucci’s Securities Corporation,  Berestco, Inc., Sal & Vinnie’s Sicilian Steakhouse, Inc.,  Bertucci’s of Anne Arundel County, Inc., Bertucci’s of  Columbia, Inc., Bertucci’s of Baltimore County, Inc., Bertucci’s of  Bel Air, Inc. and Bertucci’s of White Marsh, Inc. (collectively,  the “Guarantors”), NERCO and U.S. Trust |
| 4.3 (a)              |       | Purchase  Agreement, dated July 13, 1998 by and among NERCO, Chase Securities Inc.  and BancBoston Securities Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.4 (a)              |       | Amendment  No. 1 to the Purchase Agreement, dated July 21, 1998 by and among  NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5 (a)              |       | Exchange and  Registration Rights Agreement, dated July 20, 1998 by and among NERCO,  Chase Securities Inc. and BancBoston Securities Inc.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6 (a)              |       | Amendment  No. 1 to Exchange and Registration Rights Agreement, dated July 21,  1998 by and among NERCO, Chase Securities Inc., BancBoston Securities Inc.  and the Guarantors.                                                                                                                                                                                                                                                                                                                                                                          |
| 4.9 (d)              |       | Form of  Stockholders Agreement, dated March 14, 2000 by and among certain  stockholders of NERCO and NERCO.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.10 (i)             |       | Supplemental  Indenture, dated as of September 22, 2006 among Vinny T’s Acquisition  Corporation, Bertucci’s Corporation and The Bank of New York Trust Company,  N.A. (“BONY”) (as successor Trustee to U.S. Trust).                                                                                                                                                                                                                                                                                                                          |
| 4.11 (i)             |       | Supplemental  Indenture, dated as of October 5, 2006, among BUCA Restaurants 3, Inc.,  Bertucci’s Corporation, and BONY (as successor trustee to U.S. Trust.                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1 (f)             |       | The Company’s  Amended and Restated 1997 Equity Incentive Plan for certain key employees and  directors of the Company.*                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.21 (a)            |       | Financial  Advisory Services Agreement, dated July 21, 1998 by and between the  Company and Jacobson Partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.32 (b)            |       | Primary  Distribution Agreement dated as of May 13, 1999 by and between Maines  Paper & Food Service, Inc. and Bertucci’s Corporation.                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.33 (g)            |       | Bertucci’s  Corporation Savings and Investment Plan amended as of December 15,  2004.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.34 (g)            |       | Bertucci’s  Corporation Executive Savings and Investment Plan amended as of  December 15, 2004.*                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.35 (g)            |       | Stock Purchase  Agreement among BUCA, Inc., BUCA Restaurants 3, Inc., the Company, and Vinny  T’s Acquisition Corporation dated as of September 25, 2006.                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.36 (i)            |       | Amended and Restated  Promissory Note dated as of September 25, 2006 in the face principal amount  of $3,661,293.00 issued by Vinny T’s Acquisition Corporation to BUCA, Inc.                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.37  (h)           |       | Guaranty  dated as of September 25, 2006 by the Company, in favor and for the benefit  of BUCA, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.38  (i)           |       | Amendment  No. 1 to Guaranty dated as of March 29, 2007 by and between the Company and  BUCA, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.39  (i)           |       | Corporate  Pay for Performance Plan for Executive Officers.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 14.1  (e)            |       | Code  of Ethics for Senior Financial Officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 21.1  (i)            |       | Subsidiaries  of Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 31.1  (i)            |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by  Stephen V. Clark.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2  (i)            |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by  David G. Lloyd.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 99-1  (c)            |       | Asset  Purchase and Sales Agreement dated November 20, 2000 and fully executed  on April 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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| (a) |   | Filed as an Exhibit, with the same  Exhibit number, to Amendment No. 3 to the Company’s registration  statement on Form S-4 filed with the Securities and Exchange Commission  on November 12, 1998. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | Filed as an Exhibit, with the same  Exhibit number, to the Company’s Quarterly Report on Form 10-Q  filed with the Securities and Exchange Commission on May 15, 2000.                                    |
| (c) |   | Filed as an Exhibit, with the same  Exhibit number, to the Company’s Quarterly Report on Form 10-Q  filed with the Securities and Exchange Commission on May 18, 2001.                                    |
| (d) |   | Filed as an Exhibit, with the same  Exhibit number, to the Company’s Annual Report on Form 10-K filed  with the Securities and Exchange Commission on April 1, 2002.                                      |
| (e) |   | Filed as an Exhibit, with the same  Exhibit number, to the Company’s Annual Report on Form 10-K filed  with the Securities and Exchange Commission on March 28, 2004.                                     |
| (f) |   | Filed as Exhibit 10.22 to the Company’s current  report on Form 8-K filed with the Securities and Exchange Commission on  October 3, 2005.                                                                |
| (g) |   | Filed as Exhibit, with the same  Exhibit number Company’s Annual Report on Form 10-K filed with the  Securities and Exchange Commission on March 28, 2006.                                                |
| (h) |   | Filed as Exhibit, with the same  Exhibit number, to the Company’s Form 8-K filed with the Securities  and Exchange Commission on September 25, 2006.                                                      |
| (i) |   | Filed herewith.                                                                                                                                                                                                               |
| *   |   | Management compensation plan or arrangement.                                                                                                                                                                                  |

 

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