**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K/A**

**(AmendmentNo. 1)**

 

**ý**** ANNUAL REPORT VOLUNTARILY FILED PURSUANT TO SECTION 13 OR15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended December 29, 2004**

 

**OR**

 

**o**** TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from             to**

 

**CommissionFile Number:  333-62775**

 

**BERTUCCI’S CORPORATION**

(Exact name of registrant asspecified in its charter)

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

 

**(508) 351-2500**

(Registrant’s telephone number,including area code)

 

Securities registered pursuantto Section 12(b) of the Act:

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

 

Securities registered pursuantto Section 12(g) of the Act:

**None**

Title of class

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.

 

Yes o             No ý

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes o             No ý

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this form 10-K or any amendmentto this Form 10-K.  ý

 

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. (Check one):

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

 

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

 

Yes o             No ý

 
| Documents Incorporated By Reference | None |
|-------------------------------------|------|

 

 

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**EXPLANATORYNOTE**

 

This Annual Report on Form 10-K/A (this “Form 10-K/A”) isbeing filed to amend Items 6, 7, 8, 9A and 15 of the Company’s Annual Report onForm 10-K for the fiscal year ended December 29, 2004, which wasoriginally filed with the Securities and Exchange Commission (the “SEC”) on April 13,2005 (the “Original 2004 10-K”).

 

Initial Restatement

 

As previously disclosed in the Original 2004 10-K, subsequent to theissuance of its financial statements for the year ended December 31, 2003,as a result of views expressed in a letter issued February 7, 2005 by theoffice of the Chief Accountant of the SEC to the AICPA regarding certainoperating lease-related accounting issues, the Company reviewed its leaseaccounting, including leased liquor licenses and leasehold depreciationpractices.  As a result, in the Original2004 10-K the Company corrected its accounting for leases and restated itshistorical financial statements and certain financial information for correctedperiods to correct errors in lease accounting policies (the “InitialRestatement”). The Company historically accounted for tenant improvementallowances as reductions to the related leasehold improvement asset on theconsolidated balance sheets and capital expenditures in investing activities onthe consolidated statements of cash flows. Also, the Company historically recognized rent on a straight-line basisover a lease term commencing with the initial occupancy date, or Company-operatedrestaurant opening date.  In addition,the depreciable lives of certain leasehold improvements and other long-livedassets on those properties were not aligned with the non-cancelable lease term.

 

Following a review of its lease accounting treatment and relevantaccounting literature, the Company determined it should:  (a) report tenant improvement allowancesas deferred liabilities in the consolidated balance sheets and initiate theamortization of those liabilities at the relevant initial occupancy date;  (b) classify the change in the deferredliability related to the tenant allowances in the operating activities on theConsolidated Statements of Cash Flows; (c) conform the depreciable livesfor buildings on leased land and other leasehold improvements to the shorter ofthe economic life of the asset or the lease term used for determining thecapital versus operating lease classification and calculating straight-linerent; and (d) include option periods in the depreciable lives assigned toleased buildings and leasehold improvements and in the calculation ofstraight-line rent expense only in instances in the which the exercise of theoption period can be reasonably assured and failure to exercise such optionswould result in an economic penalty.

 

The restatement for leaseholds also resulted in restatements of amountspreviously reported for asset impairments.

 

The Initial Restatement did not have any impact on the Company’spreviously reported net sales or compliance with any covenant under its debtinstruments. The cumulative effect of the accounting correction reported in theApril 2005 Initial Restatement resulted in a decrease in accumulateddeficit of $285,000 as of the beginning of fiscal 2002.

 

Current Restatement

 

In connection with the preparation of the Company’s Quarterly Report onForm 10-Q for the fiscal quarter ended September 28, 2005, theCompany discovered errors in its detailed property and equipment recordsadjusted during the Initial Restatement. Management then conducted an investigation into the extent and magnitudeof these errors, which involved the calculation of depreciation expense onmultiple property records and the related impact on income taxes for the fiscalyears 1998 through 2004, inclusive, and the first two fiscal quarters of 2005(the “Current Restatement Relevant Periods”), to determine if a restatement ofits financial statements was necessary. Based upon this investigation, in January 2006 the Companydetermined additional aggregate depreciation expense of approximately $3.5million was required for the Current Restatement Relevant Periods and incometax expense was not properly adjusted in the Initial Restatement. As a result,the Company further determined a restatement of its financial statements,including those contained in its: (1) Original 2004 10-K; (2) QuarterlyReport on Form 10-Q for the fiscal quarter ended March 30, 2005,which the Company filed with the SEC on May 11, 2005 (the “Original 2005First Quarter 10-Q”); and (3) Quarterly Report on Form 10-Q for thefiscal quarter ended June 29, 2005, which was filed with the SEC on August 12,2005 (the “Original 2005 Second Quarter 10-Q”), and together with the Original2004 10-K and the Original 2005 First Quarter 10-Q, (the “Subject Filings”),was necessary. Accordingly, the Company determined it should amend the SubjectFilings to reflect the proper recording of depreciation and income tax expenseand its impact on the consolidated Balance Sheets, Statements of Operations,Stockholders’ Deficit, and Cash Flows for the periods reported therein.

 

For further discussion of these matters, see Note 3 of Notes to theConsolidated Financial Statements in Part IV of this Annual Report.

 

2

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# **BERTUCCI’S CORPORATION**

**2004 FORM 10-K/AANNUAL REPORT**

**TABLE OFCONTENTS**

 
| Item 6.   | Selected  Financial Data                                                                    |   |
|-----------|---------------------------------------------------------------------------------------------|--------|
| Item 7.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
| Item 8.   | Financial  Statements and Supplementary Data                                                |   |
| Item 9A.  | Controls and  Procedures.                                                                   |   |
| Item  15. | Exhibits  and Financial Statement Schedules                                                 |   |

 

3

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# **ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA**

 

The data for fiscal years ended 2002through 2004 are derived from audited financial statements of the Company.  Selected consolidated financial data shouldbe read in conjunction with Management’s Discussion and Analysis of FinancialCondition and Results of Operations and the Consolidated Financial Statementsand the Notes thereto included elsewhere in this Form 10-K/A, particularlyNote 3 — Restatement of Financial Statements. Historical results are not necessarily indicative of results to be expectedin the future.  The Brinker Sale (b) andthe 53rd week of fiscal 2000 affect the comparability of results ona year-to-year basis.

 

| ** **                                                         | ** ** | **Statement of Operations Data  (in thousands except share and per share amounts)** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Fiscal Year Ended**                                                               | ** ** |
| ** **                                                         | ** ** | **December 29,  2004 (d)**                                                     | ** ** | **December 31,  2003 (d)** | ** ** | **January 1,  2003 (d)** | ** ** | **January 2,  2002 (d)** | ** ** | **January 3,  2001 (a)(d)** | ** ** |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Net sales                                                          |       | $                                                                                   | 200,408    |   | $ | 186,172 |   | $ | 162,319 |   | $ | 186,638 |   | $ | 284,933 |   |
| Cost of sales and expenses                                         |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Cost of  sales                                                     |       | 49,231                                                                              |       | 43,544 |   | 35,667 |   | 44,855 |   | 74,266 |   |
| Operating  expenses                                                |       | 122,056                                                                             |       | 113,036 |   | 96,413 |   | 111,795 |   | 162,098 |   |
| General and  administrative expenses                               |       | 13,065                                                                              |       | 11,320 |   | 12,124 |   | 12,548 |   | 16,392 |   |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 12,657                                                                              |       | 14,123 |   | 12,413 |   | 14,378 |   | 18,347 |   |
| Closed  restaurants charge                                         |       | —                                                                              |       | — |   | 236 |   | 3,654 |   | 479 |   |
| Asset  impairment charge                                           |       | 6,749                                                                               |       | 3,580 |   | — |   | 1,986 |   | — |   |
| Loss on  abandonment of Sal & Vinnie’s               |       | —                                                                              |       | — |   | — |   | — |   | 2,031 |   |
| Cost of  sales and expenses                                        |       | 203,758                                                                             |       | 185,603 |   | 156,853 |   | 189,216 |   | 273,613 |   |
| (Loss)  income from operations                                     |       | (3,350                                                                              | )          | 569 |   | 5,466 |   | (2,578 | ) | 11,320 |   |
| Other income (expense)                                             |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Gain on  Brinker Sale (b)                                          |       | —                                                                              |       | 650 |   | — |   | 36,932 |   | — |   |
| Gain on  retirement of Senior Notes                                |       | —                                                                              |       | — |   | — |   | 2,290 |   | — |   |
| Interest  expense, net                                             |       | (10,613                                                                             | )          | (10,133 | ) | (9,587 | ) | (11,365 | ) | (15,838 | ) |
| Other  (expense) income                                            |       | (10,613                                                                             | )          | (9,483 | ) | (9,587 | ) | 27,857 |   | (15,838 | ) |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| (Loss)  income before income tax provision (benefit)               |       | (13,963                                                                             | )          | (8,914 | ) | (4,121 | ) | 25,279 |   | (4,518 | ) |
| Income tax provision (benefit)                                     |       | —                                                                              |       | — |   | 4,145 |   | 10,854 |   | (510 | ) |
| Net (loss)  income                                                 |       | $                                                                                   | (13,963    | ) | $ | (8,914 | ) | $ | (8,266 | ) | $ | 14,425 |   | $ | (4,008 | ) |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Basic (loss) income per share                                      |       | $                                                                                   | (4.74      | ) | $ | (3.00 | ) | $ | (2.77 | ) | $ | 4.84 |   | $ | (1.34 | ) |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - basic                       |       | 2,943,841                                                                           |       | 2,970,403 |   | 2,978,955 |   | 2,978,955 |   | 2,981,414 |   |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Diluted (loss) income per share                                    |       | $                                                                                   | (4.74      | ) | $ | (3.00 | ) | $ | (2.77 | ) | $ | 4.43 |   | $ | (1.34 | ) |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - diluted                     |       | 2,943,841                                                                           |       | 2,970,403 |   | 2,978,955 |   | 3,252,605 |   | 2,981,414 |   |
|                                                               |       |                                                                                |       |   |   |   |   |   |   |   |   |
| Comparable restaurant sales (c)                                    |       | 1.4                                                                                 | %          | 4.1 | % | 5.8 | % | 2.2 | % | 4.8 | % |

 

| ** **                                | ** ** | **Balance Sheet Data (in  thousands)** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|
| ** **                                | ** ** | **December 29,  2004**            | ** ** | **December 31,  2003 (d)** | ** ** | **January 1,  2003 (d)** | ** ** | **January 2,  2002 (d)** | ** ** | **January 3,  2001 (a)(d)** | ** ** |
|                                      |       |                                   |       |   |   |   |   |   |   |   |   |
| Total assets                              |       | $                                      | 112,221    |   | $ | 124,416 |   | $ | 123,121 |   | $ | 131,961 |   | $ | 183,219 |   |
| Long term obligations                     |       | $                                      | 92,367     |   | $ | 92,981 |   | $ | 87,167 |   | $ | 87,995 |   | $ | 100,000 |   |
| Total stockholders’ (deficit) equity |       | $                                      | (14,732    | ) | $ | (490 | ) | $ | 8,495 |   | $ | 16,761 |   | $ | 2,335 |   |

 
| ** **                           | ** ** | **Cash Flow Data (in thousands)** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|
| ** **                           | ** ** | **December 29,  2004**       | ** ** | **December 31,  2003 (d)** | ** ** | **January 1,  2003 (d)** | ** ** | **January 2,  2002 (d)** | ** ** | **January 3,  2001 (a)(d)** | ** ** |
|                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Cash flows from operating activities |       | $                                 | 7,881      |   | $ | 9,071 |   | $ | 9,169 |   | $ | 4,326 |   | $ | 10,371 |   |
| Cash flows from investing activities |       | (7,872                            | )          | (9,358 | ) | (19,271 | ) | 23,251 |   | (12,190 | ) |
| Cash flows from financing activities |       | (365                              | )          | (199 | ) | — |   | (11,944 | ) | 1,842 |   |
|                                 |       | $                                 | (356       | ) | $ | (486 | ) | $ | (10,102 | ) | $ | 15,633 |   | $ | 23 |   |

 

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(a)          Fiscal 2000 wascomprised of 53 weeks.  All other yearspresented were comprised of 52 weeks.

 

(b)         In April 2001,the Company completed the sale of 40 Chili’s Grill and Bar (“Chili’s”) andseven On The Border Mexican Cantina (“OTB”) restaurants to Brinker (the “BrinkerSale”) for a total consideration of $93.5 million. Brinker acquired theinventory, facilities, equipment and management teams associated with theserestaurants, as well as the four Chili’s restaurants under development by theCompany.  Further, Brinker assumed themortgage debt on the Company’s Chili’s and OTB restaurants.  The Companyrecorded a gain in 2001 on the Brinker Sale of $36.9 million before incometaxes.  During fiscal 2003 the Companyconcluded certain liabilities recorded in connection with the Brinker Sale wereno longer

 

4

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requiredand accordingly reversed $650,000 of accrued liabilities as an additional gainon the Brinker Sale.

 

(c)          The Companydefines comparable restaurant sales as net sales from restaurants that havebeen open for at least one full fiscal year at the beginning of the year.  The comparable sales in 2004, 2003, 2002 and2001 relate to Bertucci’s only and 2000 relates to all the restaurants operatedby the Company (Bertucci’s, Chili’s and OTB).

 

(d)         Statement ofOperations Data and Cash Flow Data for Fiscal Years 2004, 2003 and 2002 andBalance Sheet Data for 2004 and 2003 have been restated as discussed in Note 3of Notes to the Consolidated Financial Statements included in Item 15 of thisreport.  Earlier periods have beenrestated to give effect to: (i) corrections related to lease accountingand depreciation and income tax expense and (ii) a reclassification of changesin restricted cash balances.

 

**ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following discussion shouldbe read in conjunction with “Item 1. Business,” “Item 6.  SelectedFinancial Data,” the Company’s Consolidated Financial Statements and Notesthereto and the information described under the caption “Risk Factors” below.*

 

# **General**

# ** **

Bertucci’s Corporation, a Delaware corporation (the “Company”),is the owner and operator of a chain of full-service casual dining,Italian-style restaurants under the names Bertucci’s Brick Oven Pizzeria® andBertucci’s Brick Oven Ristorante®.  TheCompany was incorporated in 1994 as NE Restaurant Company, Inc. andformally changed its name to Bertucci’s Corporation on August 16,2001.  As of December 29, 2004, theCompany operated 91 restaurants located primarily in the northeastern UnitedStates.

 

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

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations gives effect to the restatements of the Consolidated FinancialStatements discussed in Note 3 of the Notes to Consolidated FinancialStatements.

 

**Results of Operations**

 

For all the Company’s restaurants, netsales consist of food, beverage and alcohol sales.  Cost of sales consists of food, beverage andalcohol costs as well as supplies used in carry-out and delivery sales.  Total operating expenses consist of fiveprimary categories:  (i) laborexpenses; (ii) restaurant operations; (iii) facility costs; (iv) officeexpenses; and  (v) non-controllable expenses, which include suchitems as Company advertising expenses, rent and insurance.  General and administrative expenses includecosts associated with those departments of the Company that assist inrestaurant operations and management of the business, including multi-unitsupervision, accounting, management information systems, training, executivemanagement, purchasing and construction.

 

The following table sets forth thepercentage-relationship to net sales, unless otherwise indicated, of certainitems included in the Company’s consolidated statements of operation, and the proforma consolidated statement of operations above (see reconciliation above),for the periods indicated:

 

5

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**STATEMENTOF OPERATIONS DATA**

**(Percentageof Net Sales for Fiscal Years Presented)**

 

| ** **                                                         | ** ** | **December 29,  2004** | ** ** | **December 31,  2003** | ** ** | **January 1,  2003** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------------|------------|
|                                                               |       |                        |       |                        |       |                      |       |
| Net sales                                                          |       | 100.0                       |       | 100.0                       |       | 100.0                     |       |
|                                                               |       |                        |       |                        |       |                      |       |
| Cost of sales and expenses:                                        |       |                        |       |                        |       |                      |       |
| Cost of  sales                                                     |       | 24.6                        |       | 23.4                        |       | 22.0                      |       |
| Operating  expenses                                                |       | 60.9                        |       | 60.7                        |       | 59.4                      |       |
| General and  administrative expenses                               |       | 6.5                         |       | 6.1                         |       | 7.5                       |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 6.3                         |       | 7.6                         |       | 7.6                       |       |
| Asset  impairment charge                                           |       | 3.4                         |       | 1.9                         |       | —                    |       |
| Closed  restaurants charge                                         |       | —                      |       | —                      |       | 0.1                       |       |
| Total cost  of sales and expenses                                  |       | 101.7                       |       | 99.7                        |       | 96.6                      |       |
|                                                               |       |                        |       |                        |       |                      |       |
| (Loss)  income from operations                                     |       | (1.7                        | )          | 0.3                         |       | 3.4                       |       |
|                                                               |       |                        |       |                        |       |                      |       |
| Other (expense) income:                                            |       |                        |       |                        |       |                      |       |
| Adjustment  of Gain on Brinker Sale                                |       | —                      |       | 0.3                         |       | —                    |       |
| Interest  expense, net                                             |       | (5.3                        | )          | (5.4                        | )          | (5.9                      | )          |
| Other  expense                                                     |       | (5.3                        | )          | (5.1                        | )          | (5.9                      | )          |
|                                                               |       |                        |       |                        |       |                      |       |
| Loss before income tax provision                                   |       | (7.0                        | )          | (4.8                        | )          | (2.5                      | )          |
|                                                               |       |                        |       |                        |       |                      |       |
| Income tax provision                                               |       | —                      |       | —                      |       | 2.6                       |       |
| Net loss                                                           |       | (7.0                        | )          | (4.8                        | )          | (5.1                      | )          |

 

**Year Ended December 29, 2004 Compared toYear Ended December 31, 2003**

 

*Net Sales*.  Total net sales increased by $14.2 million,or 7.6%, to $200.4 million during fiscal 2004 from $186.2 million during fiscal2003.  The increase was due to a 1.4%increase in the 79 comparable Bertucci’s restaurants, the incremental 264.7restaurant weeks resulting from full year operations of ten new restaurantsbuilt during 2003 and the addition of two new restaurant openings in 2004 thatcontributed an incremental 54.9 restaurant weeks.  Bertucci’s comparable restaurant dine-insales increased 1.7% while comparable Bertucci’s restaurant carry-out anddelivery sales increased 0.6% for fiscal 2004. The comparable guest counts, measured on dine-in business only,decreased by 4.3% in 2004 versus 2003. The Company believes that the majority of the comparable sales increaseshave been a result of a shift in menu mix and an approximate 3.6% priceincrease in January 2004.  Theaforementioned combined price increase and shift in menu mix combined to drivea 6.5% increase in dine-in revenue per person in 2004 versus 2003.  The 79 comparable restaurants’ sales averageduring 2004 was $2.2 million while the sales average for the ten restaurantsthat opened during 2003 and were opened a full year of 2004 was also $2.2million.  The average weekly sales forthe two restaurants opened during 2004 were $36,500.

 

*Cost of Sales*.  Cost of sales as a percentage of net salesincreased to 24.6% during fiscal 2004 from 23.4% during fiscal 2003.  The increase was primarily attributable to an increase in certain ingredient costs,primarily cheese and oil, as well as a menu mix shift to higher cost items introducedin 2004.

 

*Operating Expenses.*Operating expenses increased by $9.0 million, or 8.0%, to $122.0 million duringfiscal 2004 from $113.0 million during fiscal 2003.  The key components of operating expenses arepayroll (including related employer taxes), utilities, restaurant facilitiesmaintenance, rent and advertising.  Thedollar increase in these expenses is primarily attributable to the additionalrestaurants being operated and a $1.0 million increase in advertising expensewhich totaled $6.6 million in 2004.  Theincrease as a percentage of net sales to 60.8% in fiscal 2004 from 60.7% infiscal 2003 resulted primarily from the advertising expense increase.

 

*General and Administrative Expenses.*General and administrative expenses increased by $1.8 million, or 15.9%, to$13.1 million during fiscal 2004 from $11.3 million during fiscal 2003.  Expressed as a percentage of net sales,general and administrative expenses increased to 6.5% in fiscal 2004 from 6.1%during fiscal 2003.  The dollar andpercentage increases were primarily due to higher benefit expenses and higher professional fees.

 

*Deferred Rent,**Depreciation, Amortization and Preopening Expenses*.  Deferred rent, depreciation, amortization andpreopening expenses decreased by approximately $1.4 million, or 9.9%, to $12.7million during fiscal 2004 from $14.1 million during fiscal 2003. Due to onlytwo restaurant openings in 2004, pre-opening expenses totaled $519,000, a $1.6million decrease over 2003 during which there were ten restaurant openings.Deferred rent decreased by approximately $300,000. The additional restaurant

 

6

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openings in both fiscal 2004 and 2003 resulted in an incremental$800,000 of depreciation expense in fiscal 2004.

 

*Asset ImpairmentCharge. *The Company assessed certain non-performingrestaurants for recoverability of recorded amounts. The Company determined animpairment of fixed assets existed at twelve restaurant locations during 2004.  An estimate of the fair value of these assetsbased on the net present value of the expected cash flows of the restaurantswas made and the carrying amount of the assets was found to exceed the fairvalue of the assets by approximately $6.7 million.  An impairment charge in that amount wasrecorded to reflect the write down of the affected assets to fair value.

 

*Interest Expense, net.*  Interest expense, net of amounts capitalizedfor new construction, increased by approximately $500,000 to $10.6 million duringfiscal 2004 from $10.1 million during fiscal 2003.  Interest expense is primarily comprised of$9.2 million paid in semi-annual installments on the 10 3/4% Senior Notes.  In fiscal 2004, $539,000 of interest wasincurred on capital lease obligations, $229,000 higher than last year (when theunderlying sale leaseback transactions were recorded). Interest capitalized toconstruction decreased $161,000 due to fewer restaurant openings.  Additionally, interest income decreased by$41,000 primarily due to lower interest rates. Lastly, deferred finance costs amortization increased approximately$40,000 in conjunction with the 2003 sale leaseback transactions (See Note 7 ofNotes to Consolidated Financial Statements).

 

*Income Taxes.*  The Company has an historical trend ofrecurring pre-tax losses.  During thefourth quarter of 2002 the Company recorded a full valuation allowance for itsnet deferred tax asset.  The Company alsoprovided a full valuation allowance relating to the tax benefits generatedduring 2004 and 2003 (primarily from its operating losses).  For the year ended December 29, 2004,the Company has net operating loss and tax credit carryforwards totaling $7.8million.

 

**Year Ended December 31, 2003 Compared toYear Ended January 1, 2003**

 

*Net Sales*.  Total net sales increased by $23.9 million,or 14.7%, to $186.2 million during fiscal 2003 from $162.3 million duringfiscal 2002.  The increase was due to a4.1% increase in the 73 comparable Bertucci’s restaurants, the incremental 232restaurant weeks resulting from full year operations of seven new restaurantsbuilt during 2002 (including the closing of one of those restaurants) and theaddition of 10 new restaurant openings in 2003 that contributed an incremental207 restaurant weeks partially offset by the closing of one restaurant in mid-2002.  Bertucci’s comparable restaurant dine-insales increased 4.8% while comparable Bertucci’s restaurant carry-out anddelivery sales increased 1.6% for fiscal 2003. The comparable guest counts, measured on dine-in business only,decreased by 1.3% in 2003 versus 2002. The Company believes that the majority of the comparable sales increaseshave been a result of a shift in menu mix and an approximate 2.1% priceincrease in March 2003.  Theaforementioned combined price increase and shift in menu mix combined to drivea 6.4% increase in dine-in revenue per person in 2003 versus 2002.  The 73 comparable restaurants’ sales averageduring 2003 was $2.2 million while the sales average for the six restaurantsthat opened during 2002 and were opened a full year of 2003 was $1.9million.  The average weekly sales forthe 10 restaurants opened during 2003 was $41,200.

 

*Cost of Sales*.  Cost of sales as a percentage of net salesincreased to 23.4% during fiscal 2003 from 22.0% during fiscal 2002.  The increase was primarily attributable to acost increase in certain ingredients, primarily seafood, oil, flour, selecteddairy products, as well as a shift to new menu items introduced in 2003 whichhave higher ingredient costs (expressed as a percent of selling prices).

 

*Operating Expenses.*Operating expenses increased by $16.6 million, or 17.2%, to $113.0 millionduring fiscal 2003 from $96.4 million during fiscal 2002.  The key components of operating expenses arepayroll (including related employer taxes), utilities, restaurant facilitiesmaintenance, rent and advertising.  Thedollar increase in these expenses is primarily attributable to the additionalrestaurants.  The percentage increase to60.7% in fiscal 2003 from 59.4% in fiscal 2002 resulted primarily from costincreases in payroll taxes, benefits, and utilities and negative leverage ofrestaurant manager payroll and occupancy over the lower new restaurant sales.

 

*General and Administrative Expenses.*General and administrative expenses decreased by $800,000, or 6.6%, to $11.3million during fiscal 2003 from $12.1 million during fiscal 2002.  Expressed as a percentage of net sales,general and administrative expenses decreased to 6.1% in fiscal 2003 from 7.5%during fiscal 2002.  The dollar andpercentage decreases were primarily due to a $1.1 million decrease in incentivepayments to corporate management as the Company did not meet its internalearnings target in fiscal 2003, lower restaurant management recruiting and trainingcosts partially offset by higher travel and real estate selection costs.

 

*Deferred Rent,**Depreciation, Amortization and Preopening Expenses*.  Deferred rent, depreciation, amortization andpreopening expenses increased by approximately $1.7 million, or 13.7%, to $14.1million during fiscal 2003 from $12.4 million during fiscal 2002.  Due to ten restaurant openings in 2003, theCompany incurred $2.1 million in preopening expenses, a $600,000 increase over2002 during which there were seven restaurant openings. The additionalrestaurants from both fiscal 2003 and 2002 resulted in an incremental $1.1million of depreciation expense in fiscal 2003.

 

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*Asset ImpairmentCharge. *The Company assessed certain non-performingrestaurants for recoverability as required. The Company determined an impairment of fixed assets existed at fourrestaurant locations.  An estimate of thefair value of these assets based on the net present value of the expected cashflows of the restaurants was made and the carrying amount of the assets wasfound to exceed the fair value of the assets by approximately $3.6million.  An impairment charge in thatamount was made to reflect the write down of the affected assets to fair value.

 

*Adjustment of Gain onBrinker Sale.*The Company recorded a gain in 2001 on the Brinker Sale of$36.9 million before income taxes. During 2003 the Company concluded certainliabilities recorded in connection with the Brinker Sale were no longerrequired as part of the final settlement and accordingly reversed $650,000 ofaccrued liabilities as an additional gain on the Brinker Sale.

 

*Interest Expense, net.*  Interest expense, net, increased byapproximately $500,000 to $10.1 million during fiscal 2003 from $9.6 millionduring fiscal 2002.  Interest expense isprimarily comprised of $9.2 million paid in semi annual installments on the 103/4% Senior Notes.  In fiscal 2003,$309,000 of interest was incurred on capital lease obligations recorded inconjunction with two sale leaseback transactions. Additionally, interest incomedecreased by $166,000 primarily due to lower interest rates.  Lastly, deferred finance costs amortizationincreased approximately $70,000 as approximately $530,000 was capitalized infiscal 2003 in conjunction with the sale leaseback transactions (See Note 7 ofNotes to Consolidated Financial Statements).

 

*Income Taxes.*  The Company has an historical trend ofrecurring pre-tax losses since 1998 excluding the Brinker Sale.  During the fourth quarter of 2002 the Companyrecorded a full valuation allowance for its net deferred tax asset.  The Company also provided a full valuationallowance relating to the tax benefits generated during 2003 (primarily fromits operating losses).

 

**Liquidity and Capital Resources**

 

| ** **                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |     |       |
| Cash Flows from Operating Activities |       | $        | 7,881      |     | $          | 9,071    |       | $ | 9,169 |   |
| Cash Flows from Investing Activities |       | (7,872   | )          | (9,358   | )          | (19,271  | )          |
| Cash Flows from Financing Activities |       | (365     | )          | (199     | )          | —   |       |
| Net decrease in cash                 |       | $        | (356       | )        | $          | (486     | )          | $ | (10,102 | ) |

 

The Company has historically met itscapital 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, in fiscal 2003, two sale leasebacktransactions.  Future capital and workingcapital needs are expected to be funded from operating cash flow and cash onhand.

 

Net cash flows from operating activitieswere $7.9 million for fiscal 2004 as compared to $9.1 million for fiscal 2003.While the fiscal 2004 net loss increased $5.6 million over that of fiscal 2003,included in the net loss was a $6.7 million non-cash asset impairment charge.The $12.6 million of cash on hand at the beginning of fiscal 2004 allowed theCompany to fund capital expenditures totaling $8.6 million. As of December 29,2004, the Company had $12.3 million in cash and cash equivalents.

 

The Company’s capital expenditures were$8.6 million, $17.4 million, and $18.2 million, for fiscal 2004, 2003, and2002, respectively.  In fiscal 2004, $4.7million of the capital spending was for new restaurant development.  The remaining $3.9 million was primarily forremodeling and upgrading facilities in the existing restaurants. The Companyanticipates fiscal 2005 capital expenditures will be approximately $5.0million.

 

As of December 29, 2004, the Companyhad $92.2 million in consolidated indebtedness, $85.3 million pursuant to theSenior Notes, $6.1 million of capital lease obligations, and $0.8 million ofpromissory notes.  The Senior Notes contain no financial covenants and theCompany is in compliance with all non-financial covenants as of April 12,2005.  The Senior Notes bear interest atthe rate of 10 3⁄4% per annum, payable semi-annually on January 15 and July 15.  The Senior Notes are due in full on July 15,2008.  Through July 15, 2006, theCompany may, at its option, redeem any or all of the Senior Notes at facevalue, plus a declining premium, which is 3.58% through July 14, 2005 and1.79% from July 15, 2005 through July 15, 2006.  After July 15, 2006, the Senior Notesmay be redeemed at face value. Additionally, under certain circumstances,including a change of control or following certain asset sales, the holders ofthe Senior Notes may require the Company to repurchase the Senior Notes, at aredemption price of 101% of face value. See Note 6 of Notes to Consolidated Financial Statements.

 

The Company is operating without a lineof credit and is funding all of its growth, debt reductions and operating needsout of

 

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cash flows from operations and cash onhand.

 

The Company has established a $4.0million (maximum) letter of credit (expiring in December 2005) ascollateral with third party administrators for self insurance reserves. As of December 29, 2004, this facility is collateralized with $2.4 millionof cash restricted from general use. Letters of Credit totaling $2.2 million were outstanding on December 29,2004, a $900,000 decrease from the fiscal 2003 ending balance.

 

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

 

## **Thetable below depicts the Company’s future contractual obligations committed asof December 29, 2004:**

 
| ** **                                          | ** ** | **Payments Due by Fiscal Year  (Dollars in Thousands)** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Contractual Obligations:**                        | ** ** | **Total**                                               | ** ** | **2005** | ** ** | **2006 - 2007** | ** ** | **2008 - 2009** | ** ** | **After 2009** | ** ** |
| Operating Leases (a)                                |       | $                                                       | 119,993    |   | $ | 15,655 |   | $ | 29,856 |   | $ | 23,777 |   | $ | 50,705 |   |
| Capital Leases (a)                                  |       | 13,428                                                  |       | 679 |   | 1,397 |   | 1,439 |   | 9,913 |   |
| Senior Notes (b)                                    |       | 121,994                                                 |       | 9,171 |   | 18,342 |   | 94,481 |   | — |   |
| Promissory Notes (c)                                |       | 905                                                     |       | 98 |   | 196 |   | 275 |   | 336 |   |
| Closed  restaurants reserve, net of sublease income |       | 659                                                     |       | 484 |   | 175 |   | — |   | — |   |
| Total Contractual Obligations                       |       | $                                                       | 256,979    |   | $ | 26,087 |   | $ | 49,966 |   | $ | 119,972 |   | $ | 60,954 |   |

 

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(a) - See Note 7 of Notes to ConsolidatedFinancial Statements

(b) - including interest at 10 3⁄4% per annum tomaturity in July 2008.

(c) - including interest at a weighted averagerate of 7.05% per annum.

 

The Company believes the cash flowgenerated from its operations and cash on hand should be sufficient to fund itsdebt service requirements, lease obligations, expected capital expenditures andother operating expenses through 2005.  Beyond 2005 and up to 2008maturity of its Senior Notes, the Company expects to be able to service itsdebt, but the lack of short term borrowing availability may impede growth. TheCompany is evaluating various refinancing alternatives for its Senior Notesupon their maturity in 2008.

 

## **Impactof Inflation**

## ** **

Inflationary factors such as increases inlabor, food or other operating costs could adversely affect the Company’soperations.  The Company does not believethat inflation has had a material impact on its financial position or resultsof operations for the periods discussed above. Management believes that through the proper leveraging of purchasingsize, labor scheduling, and restaurant development analysis, inflation will nothave a material adverse effect on income during the foreseeable future.  There can be no assurance that inflation willnot materially adversely affect the Company.

 

## **Seasonality**

## ** **

The Company’s 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.  TheCompany’s business is also subject to seasonal influences of consumer spending,dining out patterns and weather.  As isthe case with many restaurant companies, the Company typically experienceslower net sales and net income during the first and fourth fiscal quarters.  Because of these fluctuations in net salesand net loss, the results of operations of any quarter are not necessarilyindicative of the results that may be achieved for a full year or any futurequarter.

 

**Critical Accounting Policies and Estimates**

 

The discussion and analysis of theCompany’s financial condition and results of operations are based upon itsconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financial statementsrequires the Company to make estimates and judgments affecting the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities.  Onan on-going basis, estimates are evaluated, including those related to theimpairment of long-lived assets, self-insurance, and closed

 

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

 

The Company believes the followingcritical accounting policies affect the more significant judgments andestimates used in the preparation of its consolidated financial statements.

 

*Impairment of Long-Lived Assets*

 

The Company evaluates 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 isdetermined by comparing estimated undiscounted future operating cash flows(which the Company estimates using historical cash flows and other relevantfacts and circumstances) for a restaurant to the carrying amount of itsassets.  If an impairment exists, theamount of impairment is measured as the excess of the carrying amount over theestimated discounted future operating cash flows of the asset and the expectedproceeds upon sale of the asset.  Theestimates and assumptions used during this process are subject to a high degreeof judgment.

 

During 2004, the Company assessed certainnon-performing restaurants for recoverability and determined an impairment offixed assets existed at twelve restaurant locations.  The Company estimated the fair value of theseassets based on the net present value of the expected cash flows of therestaurants.  The carrying amount of theassets exceeded the fair value of the assets by approximately $6.7million.  In 2004, the Company recordedan impairment charge to reflect the write down of the affected assets to fairvalue.

 

A similar analysis in 2003 determined thecarrying amount of the assets in four restaurants exceeded the fair value ofthe assets by approximately $3.6 million. Accordingly, the Company recorded an impairment charge to reflect thewrite down of the affected assets to fair value in 2003.

 

In addition, at least annually, theCompany assesses the recoverability of goodwill and other intangible assetsrelated to its restaurant concepts. These impairment tests require the Companyto estimate fair values of its restaurant concepts by making assumptionsregarding future cash flows and other factors. If these assumptions change in the future, the Company may be requiredto record impairment charges for these assets. To date, such analysis hasindicated no impairment of goodwill and other intangible assets has occurred.

 

*Income Tax Valuation Allowances*

 

The future tax benefits which give riseto the deferred tax asset remain statutorily available to the Company.  The Company considers both negative andpositive evidence in determining if a valuation allowance is appropriate.  The Company had net operating losses and taxcredit carry forwards of $7.8 million as of December 29, 2004 which expireat various dates through 2019.  TheCompany has an historical trend of recurring pre-tax losses.  Based on the recent losses and the historicaltrend of losses, the Company concluded a valuation allowance for the netdeferred tax asset remains appropriate. Actual amounts realized will be dependent on generating future taxableincome.

 

*Self-Insurance*

 

The Company is self-insured for certainlosses related to general liability, group health insurance, and workers’compensation.  The Company maintains stoploss coverage with third party insurers to limit its total exposure.  The self-insurance liability represents anestimate of the ultimate cost of claims incurred as of the balance sheetdate.  The estimated liability is notdiscounted and is established based upon analysis of historical data andestimates of the ultimate costs of claims incurred, and is reviewed by theCompany on a quarterly basis to ensure that the liability is appropriate.  If actual trends, including the severity orfrequency of claims, differ from the Company’s estimates, the Company’sfinancial results could be impacted. To date the Company is not aware of anyactivity requiring significant adjustments to these reserves.

 

*ClosedRestaurants Reserve*

 

The Companyremains primarily liable on leases for 13 closed locations. Management reviewsthe specifics of each site on a quarterly basis to estimate the Company’s netremaining liability over the remaining lease term. Certain locations havesubtenants in place while others remain vacant. Estimates must be made offuture sublease income or lease assignment possibilities. If subtenants defaulton their subleases or projected future subtenants are not obtained, actualresults could differ from the Company’s estimates, thereby impacting theCompany’s financial results. Such a review resulted in a charge of $236,000 in2002 when an additional restaurant was closed prior to its lease termination.All other activity in fiscal 2002 through 2004 has been consistent withreserves and no additional increases in the reserve were necessary.

 

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***RecentAccounting Pronouncements***

* *

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”)  No. 123R,*Share-Based Payment* (“SFAS No. 123R”).This Statement is a revision of SFAS No. 123, *Accounting for Stock-Based Compensation,* and supersedesAccounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees,* and its relatedimplementation guidance.  SFAS No. 123Rfocuses primarily on accounting for transactions in which an entity obtainsemployee services in share-based payment transactions. The Statement requiresentities to recognize stock compensation expense for awards of equityinstruments to employees based on the grant-date fair value of those awards (withlimited exceptions). SFAS No. 123R is effective for the first annualreporting period that begins after December 15, 2005.  The Company is evaluating the two methods ofadoption allowed by SFAS No. 123R; the modified-prospective transitionmethod and the modified-retrospective transition method.

 

# **Risk Factors**

# ** **

*This Report containsforward-looking statements that involve risks and uncertainties, such asstatements of the Company’s plans, objectives, expectations andintentions.  The cautionary statementsmade in this Report should be read as being applicable to all forward lookingstatements wherever they appear in this Report. The Company’s actual results could differ materially from thosediscussed herein.  Factors that couldcause or contribute to such differences include those discussed below, as wellas those discussed elsewhere in this Report.*

 

*Substantial Leverage; PotentialInability to Service Indebtedness. *The Companyis highly leveraged.  At the end offiscal 2004, the Company’s aggregate outstanding indebtedness was $92.2million, the Company’s had an accumulated deficit of $14.7 million and aworking capital deficit of $6.4 million.

 

The Company’s high degree of leveragecould have important consequences, including but not limited to the following: (i) theCompany’s ability to obtain additional financing for working capital, capitalexpenditures, acquisitions, general corporate purposes or other purposes may beimpaired in the future; (ii) a substantial portion of the Company’s cashflow from operations must be dedicated to the payment of principal and intereston its indebtedness, thereby reducing the funds available to the Company forits operations and other purposes, including investments in development andcapital spending; (iii) the Company may be substantially more leveragedthan certain of its competitors, which may place the Company at a competitivedisadvantage; and (iv) the Company’s substantial degree of leverage maylimit its flexibility to adjust to changing market conditions, reduce itsability to withstand competitive pressures and make it more vulnerable to adownturn in general economic conditions or in its business.  The Company’s ability to repay or torefinance its obligations with respect to its indebtedness will depend on itsfuture financial 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 beyondthe Company’s control.  These factorscould include operating difficulties, increased operating costs, productpricing pressures, the response of competitors, regulatory developments, anddelays in implementing strategic projects. The Company’s ability to meet its debt service and other obligations maydepend in significant part on the extent to which the Company can implementsuccessfully its business strategy. There can be no assurance that the Company will be able to implement itsstrategy fully or that the anticipated results of its strategy will berealized.

 

If the Company’s cash flow and capitalresources are insufficient to fund its debt service obligations, the Companymay be forced to reduce or delay capital expenditures, sell assets, seek toobtain additional equity capital, or to refinance or restructure its debt.  There can be no assurance the Company’s cashflow and capital resources will be sufficient for payment of principal of, andpremium, if any, and interest on, its indebtedness in the future, or any suchalternative measures would be successful or would permit the Company to meetits scheduled debt service obligations.

 

*Restrictive Debt Covenants. *The Indenture for the Senior Notesimposes significant operating and financial restrictions on the Company and itssubsidiaries.  Such restrictions willaffect, and in many respects significantly limit or prohibit, among otherthings, the ability of the Company to incur additional indebtedness, paydividends or make other distributions, make certain investments, create certainliens, sell certain assets, enter into certain transactions with affiliates, orengage in certain mergers or consolidations involving the Company.  A failure by the Company to comply with therestrictions could lead to a default under the terms of the Indenture.  In the event of a default, the indenturetrustee could elect to declare all amounts borrowed pursuant thereto, and allamounts due may be, immediately due and payable, together with a premium andaccrued and unpaid interest.  In such event,there can be no assurance that the Company would be able to make such paymentsor borrow sufficient funds from alternative sources to make any suchpayment.  Even if additional financingcould be obtained, there can be no assurance that it would be on terms that arefavorable or acceptable to the Company.

 

*Potential Inability to ManageExpansion.* The Company’s future operating results will depend largely upon itsability to open and operate new restaurants successfully and to manage agrowing business profitably.  This willdepend on a number of factors (some of which are beyond the control of the Company), including (i) selectionand availability of suitable restaurant locations,

 

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(ii) negotiation of acceptable leaseor financing terms, (iii) securing of required governmental permits andapprovals, (iv) timely completion of necessary construction or remodelingof restaurants, (v) hiring and training of skilled management andpersonnel, (vi) successful integration of new or newly acquiredrestaurants into the Company’s existing operations and (vii) recognitionand response to regional differences in guest menu and concept preferences.

 

There can be no assurance the Company’sexpansion plans can be achieved on a timely and profitable basis, if at all, orthat it will be able to achieve results similar to those achieved in existinglocations in prior periods or such expansion will not result in reduced salesat existing restaurants. Any failure to successfully and profitably execute itsexpansion plans could have a material adverse effect on the Company.

 

*Changes in Food Costs andSupplies; Key Supplier*. The Company’s profitability is dependent on, among other things, itscontinuing ability to offer fresh, high quality food at moderate prices.  Various factors beyond the Company’s control,such as adverse weather, labor disputes, increased pricing or other unforeseencircumstances, may affect its food costs and supplies.  While management has been able to anticipateand react to changing food costs and supplies to date through its purchasingpractices and menu price adjustments, there can be no assurance that it will beable to do so in the future.

 

The Company obtains approximately 75% to80% of its supplies through a single vendor pursuant to a contract for deliveryand distribution, with the vendor charging fixed mark-ups over prevailingwholesale prices.  The Company has asix-year contract with this vendor which expires in 2011. The Company believesit would be able to replace any vendor if it were required to do so, however,any disruption in supply from vendors or the Company’s inability to replacevendors, when required, may have a material adverse effect on the Company.

 

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*Possible Adverse Impact ofEconomic, Regional and Other Business Conditions on the Company. *The Company’s business is sensitive toguests’ spending patterns, which in turn are subject to prevailing regional andnational economic conditions such as unemployment, interest rates, taxation andconsumer confidence.  Most of therestaurants owned by the Company are located in the northeastern United States,with a large concentration in New England. In addition, the Company anticipates substantially all restaurants to beopened in the future will be in states where the Company presently hasoperations or in contiguous states.  As aresult, if the New England or Mid-Atlantic regions of the country sufferprolonged adverse economic conditions, this may have a material adverse effecton the Company.

 

*Competition. *The restaurant industry is intenselycompetitive with respect to, among other things, price, service, location andfood quality.  The Company competes withmany well-established national, regional and locally-owned foodservicecompanies with substantially greater financial and other resources and longeroperating histories than the Company, which, among other things, may betterenable them to react to changes in the restaurant industry.  With respect to quality and cost of food,size of food portions, decor and quality service, the Company competes withcasual dining, family-style restaurants 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, and Pizzeria Uno Restaurants.  As a result of the Brinker Sale (as definedin footnote (b) in Item 6), the Company also competes with Chili’s and, toa lesser extent, OTB.  Many of theCompany’s restaurants are located in areas of high concentration of suchrestaurants.  The Company also vies withall competitors in attracting guests, in obtaining premium locations forrestaurants (including shopping malls and strip shopping centers) and in attractingand retaining employees.

 

*Possible Adverse Impact ofGovernment Regulation on the Company. *Therestaurant business is subject to extensive federal, state and local laws andregulations relating to the development and operation of restaurants, includingthose concerning alcoholic beverage sales, preparation and sale of food,relationships with employees (including minimum wage requirements, overtime andworking conditions and citizenship requirements), land use, zoning and buildingcodes, as well as other health, sanitation, safety and environmentalmatters.  Compliance with such laws andregulations can impede the operations of existing Company restaurants and maydelay or preclude construction and completion of new Company restaurants.  The Company is subject in certain states to ‘‘dram-shop’’statutes, which generally provide a person injured by an intoxicated person theright to recover damages from an establishment that wrongfully served alcoholicbeverages to the intoxicated person.  TheCompany carries liquor liability coverage as part of its existing comprehensivegeneral liability insurance.  Inaddition, the Company may also, in certain jurisdictions, be required to complywith regulations limiting smoking in restaurants.

 

*Reliance on InformationSystems. *The Companyrelies on various information systems to manage its operations and regularlymakes investments to upgrade, enhance or replace such systems.  Any disruption affecting the Company’sinformation systems could have a material adverse effect on the Company.

 

**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

The financial statements andsupplementary data are listed under Part IV, Item 15 in this report.

 

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**ITEM9A. CONTROLS AND PROCEDURES**

 

TheCompany maintains disclosure controls and procedures designed to ensure thatinformation required to be disclosed in the Company’s reports under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized and reported within the time periods specified in the rules andforms of the SEC, and that such information is accumulated and communicated tomanagement, including the Company’s Chief Executive Officer (the “CEO”) andChief Financial Officer (the “CFO”), as appropriate, to allow timely decisionsregarding required disclosure.  Indesigning and evaluating the disclosure controls and procedures, managementrecognized that controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, as the Company’s are designed to do, and managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

Despitethese controls and procedures: (1) inthe Original 2004 10-K and in connection with the Initial Restatement, theCompany restated certain of its previously issued financial statements toreflect corrections in its lease accounting and leasehold depreciationpractices; and (2) the Company isrestating in this Form 10-K/A and in its Form 10-Q/A’s relating tothe first and second quarters of fiscal 2005 (which the Company is filing withthe SEC immediately after the filing of this Form 10-K/A) certain of itspreviously issued financial statements to reflect corrections in the recordingof depreciation and income tax expense. See the Explanatory Note in this Form 10-K/A and Note 3 ofNotes to the Consolidated Financial Statements.

 

**Prior Review**

 

*Disclosure Controls and Procedures*.  Inconnection with the preparation of the Original 2004 10-K, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act) as of December 29, 2004. In performing the evaluation, management reviewed the Company’s leaseaccounting and leasehold depreciation practices partially in light of the thenrecent attention and focus on such practices by restaurant and retailcompanies.

 

On March 14, 2005, the Audit Committee met withmanagement to discuss the results of the evaluation.  At this meeting, theAudit Committee and management concluded that the Company’s previouslyestablished lease accounting and leasehold depreciation practices were notappropriate and determined to restate certain of its previously issuedfinancial statements to reflect the correction in the Company’s leaseaccounting and leasehold depreciation practices.  The restatement appliedto the financial statements for all fiscal years prior to January 1, 2004and each of the first three quarters of fiscal 2004 (collectively, the “InitialRestatement Subject Financial Statements”).  See Note 3 of Notes to theConsolidated Financial Statements.

 

Based on the determination that the Company’s leaseaccounting and lease depreciation practices were not appropriate as of December 29,2004, the Company’s CEO and CFO concluded that the Company’s disclosurecontrols and procedures were not effective as of that date.

 

*Internal Control Over FinancialReporting*. Based on the definition of “material weakness” in the Public Company AccountingOversight Board’s Auditing Standard No. 2, (*An Audit of Internal Control Over Financial Reporting Performed inConjunction With an Audit of Financial Statements*), restatement ofthe Initial Restatement Subject Financial Statements was a strong indicator ofthe existence of a “material weakness” in the design or operation of internalcontrol over financial reporting. Based on the evaluation of the Company’scontrols and procedures, management concluded a material weakness existed inthe Company’s internal control over financial reporting as it related to itslease accounting and lease depreciation practices, and disclosed this to theAudit Committee and to the Company’s independent registered public accountants.

 

*Remediation Steps to AddressMaterial Weakness*. To remediate this material weakness in the Company’s internal control overfinancial reporting, in the first quarter of 2005 the Company implementedadditional review procedures over the selection and monitoring of appropriateassumptions and factors affecting lease accounting and leasehold depreciationaccounting practices and corrected its method of accounting for tenantimprovement allowances and rent holidays.

 

*Change in Internal Control OverFinancial Reporting*. There were no changes in the Company’s internal control over financialreporting that occurred during the Company’s fourth fiscal quarter of 2004 thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.  During the first quarter of2005, however, the Company did make changes to its internal control overfinancial reporting in connection with its lease accounting and leasedepreciation practices as set forth above.

 

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**Current Review**

 

*Disclosure Controls and Procedures*. In connection with the preparation of the Company’s Quarterly Report on Form 10-Qfor the fiscal quarter ended September 28, 2005, the Company performed anevaluation under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act).  In performing thisevaluation, management became aware of errors in its detailed property andequipment records adjusted during the Initial Restatement.  These errors involved the calculation ofdepreciation expense on multiple property records and the related impact onincome taxes for the fiscal years 1998 through 2004, inclusive, and the firsttwo fiscal quarters of 2005 (the “Current Restatement Subject Periods”).

 

Subsequentto the discovery of these errors, management conducted an investigationconcerningthe extent andmagnitude of these errors.  As a resultof this inquiry, on January 12, 2006 the Audit Committee and managementconcluded that: (1) the Company’s depreciation expense accountingpractices were not appropriate as of December 29, 2004; (2) aggregateadditional depreciation and income tax expense of approximately $3.5 millionneeded to be recorded in its financial statements for the Current RestatementSubject Periods, and income tax expense was not properly adjusted in theInitial Restatement, and therefore, its financial statements relating to theCurrent Restatement Subject Periods were required to be restated; and (3) theCompany needed to amend the Original 2004 10-K, the Original 2005 First Quarter10-Q and the Original 2005 Second Quarter 10-Q to restate the financialstatements contained therein and reflect the proper recording of depreciationand income tax expense for the periods reported therein (collectively, the “CurrentRestatement Subject Financial Statements”). See Note 3 of Notes to the Consolidated Financial Statements.  Based on the determination that the Company’sdepreciation and income tax expense accounting practices were not appropriateas of December 29, 2004, the Company’s CEO and CFO concluded that theCompany’s disclosure controls and procedures were not effective as of thatdate.

 

*Internal Control Over Financial Reporting*. Based on the definition of “material weakness” in the Public Company AccountingOversight Board’s Auditing Standard No. 2, (*An Audit of Internal Control Over Financial Reporting Performed inConjunction With an Audit of Financial Statements*), restatement ofthe Current Restatement Subject Financial Statements is a strong indicator ofthe existence of a “material weakness” in the design or operation of internalcontrol over financial reporting. Based on the evaluation of the Company’scontrols and procedures, management concluded a material weakness existed inthe Company’s internal control over financial reporting as it related to itsdepreciation expense accounting practices, and disclosed this to the AuditCommittee and to the Company’s independent registered public accounting firm.

 

*Remediation Steps to Address Material Weakness*. To remediate the material weakness in the Company’s internal control overfinancial reporting, the Company has re-performed all of the necessarycalculations and added sufficient review and approval procedures to assuremanagement the material weakness has been corrected.

 

*Change in Internal Control Over Financial Reporting*. There were no changes in the Company’s internal control over financialreporting that occurred during the Company’s fourth fiscal quarter of 2004 thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.  The Company did, however, makechanges to its internal control over financial reporting during the firstfiscal quarter of 2006, by making the changes to its depreciation and incometax expense accounting practices set forth above.

 

# **ITEM 15. EXHIBITS, FINANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM 8K**

 
| (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 December 29, 2004 (as  Restated) and December 31, 2003  (as Restated)                                                                                       |   |
|   |                                                       |                                                                                                                                                                                                    |   |
|   |                                                       | Consolidated Statements of Operations for each of the years ended December 29,  2004 (as Restated),  December 31, 2003(as Restated), and January 1, 2003 (as Restated).                  |   |
|   |                                                       |                                                                                                                                                                                                    |   |
|   |                                                       | Consolidated Statements of Stockholders’ Equity for each of the years  ended December 29, 2004 (as  Restated), December 31, 2003 (as Restated), and January 1, 2003 (as  Restated). |   |

 

15

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Consolidated Statements of Cash Flows for each of the years ended December 29,  2004 (as Restated),  December 31, 2003 (as Restated), and January 1, 2003 (as Restated). |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                    |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Notes to Consolidated Financial Statements.                                                                                                                                             |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                    |   |
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Exhibit Index                                                                                                                                                                      |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                    |   |
| (b)    | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company did not file any reports on Form 8-K  during the last quarter of the period covered by this Annual Report on Form 10-K.  The Company did, however, file a Current Report on Form 8-K with the SEC  on January 18, 2006 advising of the impending restatement of its  financial statements for the Current Restatement Subject Periods,  as discussed more fully in Note 3 of Notes to Consolidated Financial  Statements. |

 

SIGNATURES

 

Pursuant to the requirements of Section 13or 15 (d) of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   | BERTUCCI’S CORPORATION |
|--------|-----------------------------|
|   |                        |
|   |                        |
|   | By:                         | /s/ Stephen  V. Clark |   |
|   |                        | Stephen V. Clark, Chief Executive Officer |
|   |                        |   |
|   | Date: January 19, 2006 |

 

16

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

To the Board of Directors and Shareholders of Bertucci’s Corporation

Northborough, MA

 

We have audited the accompanying consolidated balance sheets ofBertucci’s Corporation and subsidiaries (the “Company”) as of December 29,2004 and December 31, 2003, and the related consolidated statements ofoperations, stockholders’ deficit and cash flows for each of the years ended December 29,2004, December 31, 2003, and January 1, 2003. These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. An audit includes consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly,in all material respects, the financial position of the Company as of December 29,2004 and December 31, 2003, and the results of its operations and its cashflows for each of the years ended December 29, 2004, December 31,2003, and January 1, 2003, in conformity with accounting principlesgenerally accepted in the United States of America.

 

As discussed in Note 3, the accompanying consolidated financialstatements have been restated.

 
| /s/ DELOITTE & TOUCHE LLP                                                                    |   |
|-------------------------------------------------------------------------------------------------------|--------|
| Boston, MA                                                                                            |
| April 12, 2005 (January 18, 2006  as to the effects of the restatement discussed in Note 3) |

 

17

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BERTUCCI’S CORPORATION

CONSOLIDATEDBALANCE SHEETS

(In thousands except share data)

 
| ** **                                                                                                                                                                       | ** ** | **December 29,  2004**    | ** ** | **December 31,  2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **(As Restated - See Note 3)** | ** ** |
| ASSETS                                                                                                                                                                           |       |                           |       |                        |       |
| Current Assets:                                                                                                                                                                  |       |                           |       |                        |       |
| Cash and  cash equivalents                                                                                                                                                       |       | $                              | 12,291     |                        | $          | 12,647 |   |
| Restricted  cash                                                                                                                                                                 |       | 2,403                          |       | 3,129                       |       |
| Accounts  receivable                                                                                                                                                             |       | 1,334                          |       | 753                         |       |
| Inventories                                                                                                                                                                      |       | 1,388                          |       | 1,268                       |       |
| Prepaid  expenses and other current assets                                                                                                                                       |       | 534                            |       | 1,758                       |       |
| Total  current assets                                                                                                                                                            |       | 17,950                         |       | 19,555                      |       |
|                                                                                                                                                                             |       |                           |       |                        |       |
| Property and Equipment, at cost:                                                                                                                                                 |       |                           |       |                        |       |
| Land                                                                                                                                                                             |       | 259                            |       | 259                         |       |
| Buildings                                                                                                                                                                        |       | 697                            |       | 697                         |       |
| Capital  leases - land and buildings                                                                                                                                             |       | 5,764                          |       | 5,764                       |       |
| Leasehold  improvements                                                                                                                                                          |       | 66,632                         |       | 67,999                      |       |
| Furniture  and equipment                                                                                                                                                         |       | 44,537                         |       | 42,072                      |       |
|                                                                                                                                                                             |       | 117,889                        |       | 116,791                     |       |
| Less -  accumulated depreciation and amortization                                                                                                                                |       | (57,101                        | )          | (45,234                     | )          |
|                                                                                                                                                                             |       | 60,788                         |       | 71,557                      |       |
| Construction  work in process                                                                                                                                                    |       | 1,567                          |       | 301                         |       |
| Net property  and equipment                                                                                                                                                      |       | 62,355                         |       | 71,858                      |       |
|                                                                                                                                                                             |       |                           |       |                        |       |
| Goodwill                                                                                                                                                                         |       | 26,127                         |       | 26,127                      |       |
| Deferred finance costs, net                                                                                                                                                      |       | 2,862                          |       | 3,559                       |       |
| Liquor licenses, net                                                                                                                                                             |       | 2,414                          |       | 2,838                       |       |
| Other assets                                                                                                                                                                     |       | 513                            |       | 479                         |       |
| TOTAL ASSETS                                                                                                                                                                     |       | $                              | 112,221    |                        | $          | 124,416 |   |
|                                                                                                                                                                             |       |                           |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                                                                                      |       |                           |       |                        |       |
|                                                                                                                                                                             |       |                           |       |                        |       |
| Current Liabilities:                                                                                                                                                             |       |                           |       |                        |       |
| Promissory  notes - current portion                                                                                                                                              |       | $                              | 40         |                        | $          | 39 |   |
| Capital  lease obligations - current portion                                                                                                                                     |       | 74                             |       | 31                          |       |
| Accounts  payable                                                                                                                                                                |       | 7,819                          |       | 8,426                       |       |
| Accrued  expenses                                                                                                                                                                |       | 16,457                         |       | 14,026                      |       |
| Total  current liabilities                                                                                                                                                       |       | 24,390                         |       | 22,522                      |       |
| Promissory notes, net of current portion                                                                                                                                         |       | 781                            |       | 821                         |       |
| Captial lease obligations, net of current  portion                                                                                                                               |       | 6,102                          |       | 6,017                       |       |
| Senior Notes                                                                                                                                                                     |       | 85,310                         |       | 85,310                      |       |
| Deferred gain on sale leaseback transaction                                                                                                                                      |       | 2,002                          |       | 2,112                       |       |
| Other long-term liabilities                                                                                                                                                      |       | 8,368                          |       | 8,124                       |       |
| Total  liabilities                                                                                                                                                               |       | 126,953                        |       | 124,906                     |       |
| Commitments and Contingencies                                                                                                                                                    |       |                           |       |                        |       |
| Stockholders’ Deficit:                                                                                                                                                      |       |                           |       |                        |       |
| Common  stock, $.01 par value  Authorized - 8,000,000 shares  Issued - 3,667,495 and 3,666,370 shares, respectively; Outstanding -  2,915,482 and 2,961,552 shares, respectively |       | 37                             |       | 37                          |       |
| Less  treasury shares of 752,013 and 704,818, respectively, at cost                                                                                                              |       | (8,480                         | )          | (8,190                      | )          |
| Additional  paid-in capital                                                                                                                                                      |       | 29,046                         |       | 29,035                      |       |
| Accumulated  deficit                                                                                                                                                             |       | (35,335                        | )          | (21,372                     | )          |
| Total  stockholders’ deficit                                                                                                                                                |       | (14,732                        | )          | (490                        | )          |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                |       | $                              | 112,221    |                        | $          | 124,416 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

18

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BERTUCCI’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except share and per sharedata)

 
| ** **                                                         | ** ** | **December 29,  2004**    | ** ** | **December 31,  2003** | ** ** | **January 1,  2003** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                                         | ** ** | **(As Restated - See Note 3)** | ** ** |
| Net sales                                                          |       | $                              | 200,408    |                        | $          | 186,172                   |       | $ | 162,319 |   |
|                                                               |       |                           |       |                        |       |                      |       |
| Cost of sales and expenses:                                        |       |                           |       |                        |       |                      |       |
| Cost of  sales                                                     |       | 49,231                         |       | 43,544                      |       | 35,667                    |       |
| Operating  expenses                                                |       | 122,056                        |       | 113,036                     |       | 96,413                    |       |
| General and  administrative expenses                               |       | 13,065                         |       | 11,320                      |       | 12,124                    |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 12,657                         |       | 14,123                      |       | 12,413                    |       |
| Asset  impairment charge                                           |       | 6,749                          |       | 3,580                       |       | —                    |       |
| Closed  restaurants charge                                         |       | —                         |       | —                      |       | 236                       |       |
| Total cost  of sales and expenses                                  |       | 203,758                        |       | 185,603                     |       | 156,853                   |       |
|                                                               |       |                           |       |                        |       |                      |       |
| (Loss)  income from operations                                     |       | (3,350                         | )          | 569                         |       | 5,466                     |       |
|                                                               |       |                           |       |                        |       |                      |       |
| Other expense                                                      |       |                           |       |                        |       |                      |       |
| Adjustment  of gain on Brinker Sale                                |       | —                         |       | 650                         |       | —                    |       |
| Interest  expense, net                                             |       | (10,613                        | )          | (10,133                     | )          | (9,587                    | )          |
| Other  expense                                                     |       | (10,613                        | )          | (9,483                      | )          | (9,587                    | )          |
|                                                               |       |                           |       |                        |       |                      |       |
| Loss before income tax provision                                   |       | (13,963                        | )          | (8,914                      | )          | (4,121                    | )          |
|                                                               |       |                           |       |                        |       |                      |       |
| Income tax provision                                               |       | —                         |       | —                      |       | 4,145                     |       |
|                                                               |       |                           |       |                        |       |                      |       |
| Net loss                                                           |       | $                              | (13,963    | )                           | $          | (8,914                    | )          | $ | (8,266 | ) |
|                                                               |       |                           |       |                        |       |                      |       |
| Basic and diluted loss per share                                   |       | $                              | (4.74      | )                           | $          | (3.00                     | )          | $ | (2.77 | ) |
|                                                               |       |                           |       |                        |       |                      |       |
| Weighted average shares outstanding - basic  and diluted           |       | 2,943,841                      |       | 2,970,403                   |       | 2,978,955                 |       |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

19

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BERTUCCI’S CORPORATION

STATEMENTSOF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands except share data)

 
| ** **                                                 | ** ** | **Common Stock**      | ** ** | **Treasury Stock** | ** ** | ** **            | ** ** | ** ** | ** ** | **Total**                       | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|-----------------------|------------|------------|------------|---------------------------------|------------|
| ** **                                                 | ** ** | **Number of  Shares** | ** ** | **Amount**         | ** ** | **Number of  Shares** | ** ** | **Amount** | ** ** | **Additional Paid  In Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Stockholders’  Equity (Deficit)** | ** ** |
|                                                       |       |                  |       |               |       |                  |       |       |       |                            |       |   |   |   |   |
| Balance January 2,  2002 (As Previously Restated)     |       | 3,666,370             |       | $                  | 37         |                  | (687,415   | )          | $          | (8,088                          | )          | $ | 29,004 |   | $ | (1,642 | ) | $ | 19,311 |   |
| Prior period adjustment (see Note 3)                       |       | —                |       | —             |       | —                |       | —     |       | —                          |       | (2,550 | ) | (2,550 | ) |
| Balance January 2,  2002 (As Restated - See Note 3)   |       | 3,666,370             |       | $                  | 37         |                  | (687,415   | )          | $          | (8,088                          | )          | $ | 29,004 |   | $ | (4,192 | ) | $ | 16,761 |   |
| Net loss (As Restated - See Note 3)                        |       | —                |       | —             |       | —                |       | —     |       | —                          |       | (8,266 | ) | (8,266 | ) |
| Balance January 1,  2003 (As Restated - See Note 3)   |       | 3,666,370             |       | $                  | 37         |                  | (687,415   | )          | (8,088     | )                               | $          | 29,004 |   | $ | (12,458 | ) | $ | 8,495 |   |
| Net loss (As Restated - See Note 3)                        |       | —                |       | —             |       | —                |       | —     |       | —                          |       | (8,914 | ) | (8,914 | ) |
| Compensation expense associated with option grants         |       | —                |       | —             |       | —                |       | —     |       | 31                              |       | — |   | 31 |   |
| Purchase of common stock for treasury                      |       | —                |       | —             |       | (17,403               | )          | (102       | )          | —                          |       | — |   | (102 | ) |
| Balance December 31,  2003 (As Restated - See Note 3) |       | 3,666,370             |       | $                  | 37         |                  | (704,818   | )          | (8,190     | )                               | $          | 29,035 |   | $ | (21,372 | ) | $ | (490 | ) |
| Net loss (As Restated - See Note 3)                        |       | —                |       | —             |       | —                |       | —     |       | —                          |       | (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 (As Restated - See Note 3) |       | 3,667,495             |       | $                  | 37         |                  | (752,013   | )          | $          | (8,480                          | )          | $ | 29,046 |   | $ | (35,335 | ) | $ | (14,732 | ) |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

20

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BERTUCCI’S CORPORATION

CONSOLIDATEDSTATEMENTS OF CASH FLOW

(In thousands)

 
| ** **                                                                       | ** ** | **December 29, 2004**     | ** ** | **December 31, 2003** | ** ** | **January 1, 2003** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                                                                       | ** ** | **(As Restated - See Note 3)** | ** ** |
| Cash flows from operating activities                                             |       |                           |       |                       |       |                     |       |
| Net loss                                                                         |       | $                              | (13,963    | )                          | $          | (8,914                   | )          | $ | (8,266 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                           |       |                       |       |                     |       |
| Adjustment  of gain on Brinker Sale                                              |       | —                         |       | (650                       | )          | —                   |       |
| Gain on sale  of property                                                        |       | —                         |       | —                     |       | (235                     | )          |
| Loss on sale  leaseback transaction                                              |       | —                         |       | 59                         |       | —                   |       |
| Stock  compensation expense                                                      |       | —                         |       | 31                         |       | —                   |       |
| Closed  restaurant charge                                                        |       | —                         |       | —                     |       | 236                      |       |
| Asset  impairment charge                                                         |       | 6,749                          |       | 3,580                      |       | —                   |       |
| Deferred  rent, depreciation, and amortization                                   |       | 12,863                         |       | 12,658                     |       | 11,540                   |       |
| Deferred  income taxes                                                           |       | —                         |       | —                     |       | 9,145                    |       |
| Changes in  operating assets and liabilities                                     |       |                           |       |                       |       |                     |       |
| Inventories                                                                      |       | (120                           | )          | (368                       | )          | (95                      | )          |
| Prepaid  expenses and receivables                                                |       | 643                            |       | 1,217                      |       | (1,126                   | )          |
| Other  accrued expenses                                                          |       | 2,186                          |       | 106                        |       | (1,131                   | )          |
| Income taxes  payable                                                            |       | (413                           | )          | 409                        |       | (1,149                   | )          |
| Accounts  payable                                                                |       | (607                           | )          | 457                        |       | (822                     | )          |
| Tenant  allowances received                                                      |       | 577                            |       | 658                        |       | 997                      |       |
| Other  operating assets and liabilities                                          |       | (34                            | )          | (172                       | )          | 75                       |       |
|                                                                             |       |                           |       |                       |       |                     |       |
| Total  adjustments                                                               |       | 21,844                         |       | 17,985                     |       | 17,435                   |       |
|                                                                             |       |                           |       |                       |       |                     |       |
| Net cash provided by operating activities                                        |       | 7,881                          |       | 9,071                      |       | 9,169                    |       |
|                                                                             |       |                           |       |                       |       |                     |       |
| Cash flows from investing activities                                             |       |                           |       |                       |       |                     |       |
| Additions to  property and equipment                                             |       | (8,598                         | )          | (17,396                    | )          | (18,212                  | )          |
| Net proceeds  from sale leaseback transactions                                   |       | —                         |       | 8,977                      |       | —                   |       |
| Decrease  (increase) in restricted cash                                          |       | 726                            |       | (661                       | )          | (1,455                   | )          |
| Proceeds  from sale of restaurants                                               |       | —                         |       | —                     |       | 413                      |       |
| Acquisition  of liquor licenses                                                  |       | —                         |       | (278                       | )          | (17                      | )          |
|                                                                             |       |                           |       |                       |       |                     |       |
| Net cash used in investing activities                                            |       | (7,872                         | )          | (9,358                     | )          | (19,271                  | )          |
|                                                                             |       |                           |       |                       |       |                     |       |
| Cash flows from financing activities                                             |       |                           |       |                       |       |                     |       |
| Sale of  common stock from exercise of options                                   |       | 11                             |       | —                     |       | —                   |       |
| Purchase of  treasury shares                                                     |       | (290                           | )          | (102                       | )          | —                   |       |
| Payment on  promissory note                                                      |       | (39                            | )          | (81                        | )          | —                   |       |
| Principal  payments under capital lease obligations                              |       | (47                            | )          | (16                        | )          | —                   |       |
|                                                                             |       |                           |       |                       |       |                     |       |
| Net cash used in financing activities                                            |       | (365                           | )          | (199                       | )          | —                   |       |
|                                                                             |       |                           |       |                       |       |                     |       |
| Net decrease in cash and cash equivalents                                        |       | (356                           | )          | (486                       | )          | (10,102                  | )          |
| Cash and cash equivalents, beginning of  year                                    |       | 12,647                         |       | 13,133                     |       | 23,235                   |       |
| Cash and cash equivalents, end of year                                           |       | $                              | 12,291     |                       | $          | 12,647                   |       | $ | 13,133 |   |
|                                                                             |       |                           |       |                       |       |                     |       |
| Supplemental Disclosure of Cash Flow  Information:                               |       |                           |       |                       |       |                     |       |
| Cash paid  for interest                                                          |       | $                              | 10,090     |                       | $          | 9,804                    |       | $ | 9,750 |   |
| Cash paid  (refunded) for income taxes                                           |       | $                              | 377        |                       | $          | (408                     | )          | $ | (3,863 | ) |
| Capital  leases entered into during period                                       |       | $                              | 175        |                       | $          | 6,066                    |       | $ | — |   |
| Promissory  note issued in exchange for liquor license rights                    |       | $                              | —     |                       | $          | 555                      |       | $ | — |   |
|                                                                             |       |                           |       |                       |       |                     |       |
| Promissory  note issued in exchange for settlement of lease liability            |       | $                              | —     |                       | $          | 386                      |       | $ | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

21

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# **BERTUCCI’S CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 29, 2004

 

(1)                                  ORGANIZATIONAND OPERATIONS

 

Bertucci’s Corporation, a Delaware corporation (the “Company”),is the owner and operator of a chain of full-service casual dining,Italian-style restaurants under the names Bertucci’s Brick Oven Pizzeria® andBertucci’s Brick Oven Ristorante®. The Company was incorporated in 1994 as NERestaurant Company, Inc. and formally changed its name to Bertucci’sCorporation on August 16, 2001. As of December 29, 2004, the Companyoperated 91 restaurants located primarily in the northeastern United States.

 

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

 

*FiscalYear End*

* *

The Company’s fiscal year is the 52 or 53-week periodended on the Wednesday closest to December 31st. All years presentedconsist of 52 weeks.

 

*Basis of Consolidation*

 

The consolidated financial statements includethe accounts of the Company and its subsidiaries. All intercompany balances andtransactions have been eliminated in consolidation.

 

(2)                                SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

*RevenueRecognition*

* *

The Company records revenue from the sale of food,beverage and alcohol when sales occur. Proceeds from the sale of gift cards arerecorded as deferred revenue and recognized as income when redeemed by theholder.

 

*Cashand Cash Equivalents*

* *

Cash and equivalents are comprised of demandand interest bearing accounts with original maturities of no more than sixtydays. The Company utilizes zero balance disbursement accounts for cashmanagement purposes and maintains a cash balance sufficient to coverdisbursements from these accounts when the check is presented for payment.Outstanding checks written against the disbursement accounts of $1.4 millionand $4.0 million at December 29, 2004 and December 31, 2003,respectively, are included in accounts payable in the accompanying consolidatedbalance sheets.

 

*Restricted Cash*

 

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

 

22

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*Inventories*

* *

Inventories are carried at the lower of cost(first-in, first-out) or market value, and consist of the following (dollars inthousands):

 

| ** **       | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------|------------|----------|------------|----------|------------|
|             |       |     |       |     |       |
| Food             |       | $        | 750        |     | $          | 705 |   |
| Liquor           |       | 542      |       | 471      |       |
| Supplies         |       | 96       |       | 92       |       |
| Total  inventory |       | $        | 1,388      |     | $          | 1,268 |   |

* *

*Propertyand Equipment*

* *

Property and equipment are carried at cost. TheCompany provides for depreciation and amortization using the straight-linemethod to charge the cost of property and equipment to expense over theestimated useful lives of the assets. 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                                                                      |       |

 

TheCompany evaluates property and equipment held and used in the business forimpairment whenever events or changes in circumstances indicate that thecarrying amount of a restaurant’s assets may not be recoverable. An impairmentis determined by comparing estimated undiscounted future operating cash flowsfor a restaurant to 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.

 

TheCompany regularly assesses restaurants’ performance for recoverability todetermine if an impairment of fixed assets exists at any location. The Companyestimates the fair value of assets based on the net present value of theexpected cash flows for each restaurant. If the carrying amount of the assets(including any nontransferable liquor licenses) exceeds the fair value of theassets, the Company records an impairment charge to reflect the write down ofthe affected assets to fair value. Any impairment is charged to earnings andincluded in the accompanying consolidated statements of operations. For fiscal2004 and 2003, impairment charges of $6.7 million and $3.6 million,respectively, were recorded.

 

*CapitalizedInterest*

* *

The Company capitalizes interest costs (in leaseholdimprovements) based on new restaurant capital expenditures. Total interestcosts incurred and amounts capitalized are as follows (dollars in thousands):

 

| ** **                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |     |       |
| Total interest expense    |       | $        | 10,690     |     | $          | 10,371   |       | $ | 9,713 |   |
| Less - Amount capitalized |       | 77       |       | 238      |       | 126      |       |
| Interest  expense, net    |       | $        | 10,613     |     | $          | 10,133   |       | $ | 9,587 |   |

 

*Self-Insurance*

 

*The Company is self-insured forcertain losses related to general liability, group health insurance, andworkers’ compensation. The Company maintains stop loss coverage with thirdparty insurers to limit its total exposure. The self-insurance liability is notdiscounted and represents an estimate of the ultimate cost of claims incurredas of the balance sheet date based upon analysis of historical data andestimates.*

 

23

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*AccruedExpenses*

* *

Accrued expenses consisted of the following as of December 29,2004 and December 31, 2003 (dollars in thousands):

 

| ** **                              | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrued payroll and related benefits    |       | $          | 4,810      |       | $          | 3,679 |   |
| Accrued interest                        |       | 4,254      |       | 4,279      |       |
| Unredeemed gift certificates            |       | 3,857      |       | 2,973      |       |
| Other accrued liabilities               |       | 1,904      |       | 1,466      |       |
| Accrued occupancy costs                 |       | 1,034      |       | 522        |       |
| Store closing reserves, current portion |       | 484        |       | 615        |       |
| Accrued advertising                     |       | 72         |       | 36         |       |
| Income taxes payable                    |       | 42         |       | 456        |       |
|                                    |       |       |       |       |       |
| TOTAL                                   |       | $          | 16,457     |       | $          | 14,026 |   |

 

*Goodwill*

 

The Company tests goodwill for impairment annually on the first dayafter the fiscal year end. This same impairment test is performed at othertimes during the course of the year should an event occur that indicatesgoodwill may be impaired. There was no impairment of goodwill at December 29,2004 and December 31, 2003.

 

*DeferredFinance Costs*

* *

Underwriting, legal and other direct costs incurred inconnection with the issuance of the Senior Notes and the completion of thesale-leaseback transactions discussed in Note 7 have been capitalized and arebeing amortized into interest expense over the life of the related borrowingsand underlying leases, respectively.

 

*LiquorLicenses*

* *

Transferable liquor licenses are accounted for at thelower of cost or market and are not amortized. Annual renewal fees are expensedas incurred. Non-transferable liquor licenses are amortized on a straight-linebasis over the contractual life of the license. The carrying value oftransferable liquor licenses was $2.0 million at each of December 29, 2004and December 31, 2003. Amortization expense for non-transferable liquorlicenses was $82,000 in fiscal 2004, $58,000 in fiscal 2003, and for existinglicenses is expected to be $56,000 per year for each of the next five fiscalyears.

 

*FairValue of Financial Instruments*

* *

The Company’s financial instruments mainly consist ofcash and cash equivalents, restricted cash, accounts receivable, accountspayable and long-term debt. The carrying amounts of the Company’s cash and cashequivalents, restricted cash, accounts receivable and accounts payableapproximate fair value due to the short-term nature of these instruments.                The fair value of the Company’s long term debt,consisting of the Senior Notes, is based on the present value of remainingprincipal and interest payments discounted at a comparable borrowing rate eachfiscal year (see Note 6 of Notes to Consolidated Financial Statements).

 

*ComprehensiveIncome*

* *

*Comprehensive income is equal tonet income as reported for all three fiscal years reported herein.*

* *

*PreopeningExpenses*

* *

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

 

24

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*Advertising*

* *

Advertising costs are expensed as incurred. Advertising costs were $6.6million, $5.5 million and $5.5 million in fiscal 2004, 2003, and 2002,respectively, and are included in operating expenses in the consolidatedstatements of operations.

 

*EarningsPer Share*

* *

Basic earnings per share is computed by dividing netloss by the weighted average number of common shares outstanding for thereporting period. Diluted earnings per share reflects the potential dilutionthat could occur if options or other contracts to issue common stock wereexercised or converted into common stock. For the fiscal years ended December 29,2004, December 31, 2003, and January 1, 2003 options representing548,171, 594,396, and 652,549 shares of common stock, respectively, wereexcluded from the calculation of diluted loss per share because of theiranti-dilutive effect.

 

*Stock-BasedCompensation*

 

As allowed by SFAS No. 123, *Accountingfor Stock-Based Compensation* (“SFAS No. 123”), the Company haselected to account for stock-based compensation under the intrinsic valuemethod with disclosure of the effects of fair value accounting on net incomeand earnings per share on a pro forma basis. The Company’s stock-basedcompensation plan is described more fully in Note 10. The Company accounts forthis plan under the recognition and measurement principles of APB Opinion No. *25, Accounting for Stock Issued to Employees,*and related interpretations.With the exception of one modification to a grant during 2003, no stock-basedemployee compensation cost related to stock options is reflected in net loss,as all options granted had an exercise price equal to, or in excess of, themarket value of the underlying common stock on the date of grant. The followingtable illustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123 (inthousands, except per share data):

 
| ** **                                                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                                    |       |     |       |     |       |     |       |
| Net loss, as reported                                                                                                   |       | $        | (13,963    | )        | $          | (8,914   | )          | $ | (8,266 | ) |
| Add:  Stock-based employee compensation expense included in reported net loss.                                          |       | —   |       | 31       |       | —   |       |
| Deduct: Net  stock-based employee compensation expense/income determined under fair value  based method for all awards. |       | (77      | )          | (580     | )          | (144     | )          |
| Pro forma net loss                                                                                                      |       | $        | (14,040    | )        | $          | (9,463   | )          | $ | (8,410 | ) |
|                                                                                                                    |       |     |       |     |       |     |       |
| Basic and diluted loss per share                                                                                        |       |     |       |     |       |     |       |
| As reported                                                                                                             |       | $        | (4.74      | )        | $          | (3.00    | )          | $ | (2.77 | ) |
| Pro forma                                                                                                               |       | $        | (4.77      | )        | $          | (3.19    | )          | $ | (2.82 | ) |

* *

*Recent Accounting Pronouncements*

* *

In December 2004, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 123R, *Share-BasedPayment* (“SFAS No. 123R”). This Statement is a revision of SFASNo. 123, *Accounting for Stock-BasedCompensation,* and supersedes Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees,*and its related implementation guidance. SFAS No. 123R focuses primarilyon accounting for transactions in which an entity obtains employee services inshare-based payment transactions. The Statement requires entities to recognizestock compensation expense for awards of equity instruments to employees basedon the grant-date fair value of those awards (with limited exceptions). SFAS No. 123Ris effective for the first annual reporting period that begins after June 15,2005. The Company is evaluating the two methods of adoption allowed by SFAS No. 123R;the modified-prospective transition method and the modified-retrospectivetransition method.

 

*Useof Management Estimates*

* *

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of

 

25

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revenues and expenses during the reporting period.Significant estimates include the reserve for closed restaurant locations,impairment analysis on closed locations, and insurance reserves. Actual resultscould differ from those estimates.

 

(3)                                RESTATEMENTOF FINANCIAL STATEMENTS

 

Initial Restatement

 

Subsequent to the issuance of its financialstatements for the year ended December 31, 2003, as a result of viewsexpressed in a letter issued February 7, 2005 by the office of the ChiefAccountant of the Securities and Exchange Commission (“SEC”) to the AICPAregarding certain operating lease-related accounting issues, the Companyreviewed its lease accounting, including leased liquor licenses and leasehold depreciationpractices.  As a result, in its AnnualReport on Form 10-K for the fiscal year ended December 29, 2004,which was originally filed with the SEC on April 13, 2005 (the “Original2004 10-K”), the Company corrected its accounting for leases and restated itshistorical financial statements and certain financial information for allperiods prior to September 29, 2004 to correct errors in lease accountingpolicies (the “Initial Restatement”). The Company historically accounted fortenant improvement allowances as reductions to the related leaseholdimprovement asset on the consolidated balance sheets and capital expendituresin investing activities on the consolidated statements of cash flows.  Also, the Company historically recognizedrent on a straight-line basis over a lease term commencing with the initialoccupancy date, or Company-operated retail store opening date.  In addition, the depreciable lives of certainleasehold improvements and other long-lived assets on those properties were notaligned with the non-cancelable lease term.

 

Following a review of its lease accountingtreatment and relevant accounting literature, the Company determined itshould:  (a) report tenantimprovement allowances as deferred liabilities in the consolidated balancesheets and initiate the amortization of those liabilities at the relevantinitial occupancy date;  (b) classifythe change in the deferred liability related to the tenant allowances in theoperating activities in the Consolidated Statements of Cash Flows; (c) conformthe depreciable lives for buildings on leased land and other leaseholdimprovements to the shorter of the economic life of the asset or the lease termused for determining the capital versus operating lease classification andcalculating straight-line rent; and (d) include option periods in thedepreciable lives assigned to leased buildings and leasehold improvements andin the calculation of straight-line rent expense only in instances in which theexercise of the option period can be reasonably assured and failure to exercisesuch options would result in an economic penalty.

 

The restatement for leaseholds also resultedin restatements of amounts previously reported for asset impairments.

 

The Initial Restatement did not have anyimpact on the Company’s previously reported net sales or compliance with anycovenant under its debt instruments. The cumulative effect of the accountingcorrection reported in the April 2005 Initial Restatement resulted in adecrease in accumulated deficit of $285,000 as of the beginning of fiscal 2002.

 

Current Restatement

 

In connection with the preparation ofthe Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28,2005, the Company discovered errors in its detailed property and equipmentrecords adjusted during the Initial Restatement.  Management then conducted an investigationinto the extent and magnitude of these errors, which involved the calculationof depreciation expense on multiple property records and the related impact onincome taxes for the fiscal years 1998 through 2004, inclusive, and the firsttwo fiscal quarters of 2005 (the “Current Restatement Subject Periods”), todetermine if a restatement of its financial statements was necessary.  Based upon this investigation, in January 2006the Company determined aggregateadditional depreciation expense of approximately $3.5 million needed to berecorded in its financial statements for the Current Restatement SubjectPeriods and income tax expense was not properly adjusted in the InitialRestatement.  As a result, the Companyfurther determined (1) a restatement of its financial statements in the Current Restatement Subject Periods wasrequired (the “Current Restatement”) and together with the Initial Restatement,the “Restatements”); and (2) the Company needed to amend its: (a) Original2004 10-K; (b) Quarterly Report onForm 10-Q for the fiscal quarter ended March 30, 2005, which theCompany filed with the SEC on May 11, 2005 (the “Original 2005 FirstQuarter 10-Q”); and (c) Quarterly Report on Form 10-Q for the fiscalquarter ended June 29, 2005, which was filed with the SEC on August 12,2005 (the “Original 2005 Second Quarter 10-Q”), to restate the financialstatements contained therein and reflect the proper recording of depreciationand income tax expense for the periods reported therein.

 

In addition to the restatement in the Initial Restatement to classify the change in the deferred liability related to tenant allowances in operating activities, the cash flow activity below reflects changes in restricted cash balances as an investing

 

26

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activity (such changes were previously presented as a financing activity), and the proceeds from sale leaseback transactions in 2003 as an investing activity (the proceeds were previously presented as a financing activity).

 

The following is a summary of the significanteffects of the Restatements on the Company’s consolidated financial statements(in thousands, except per share data):

 

 
| ** **                                       | ** ** | **As of December 29, 2004** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **As Previously  Reported**      | ** ** | **As Restated** | ** ** |
| Net property and equipment                       |       | $                                | 66,055     |   | $ | 62,355 |   |
| Total assets                                     |       | 115,921                          |       | 112,221 |   |
|                                             |       |                             |       |   |   |
| Accumulated deficit                              |       | (31,635                          | )          | (35,335 | ) |
| Total liabilities and stockholders’ deficit |       | 115,921                          |       | 112,221 |   |
|                                                  |            |                                  |            |  |  |  |  |

 
| ** **                                         | ** ** | **As of December 31, 2003** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **As Previously  Reported**      | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Net property and equipment                         |       | $                                | 73,611     |   | $ | 76,117 |   | $ | 71,858 |   |
| Liquor licenses, net                               |       | 2,555                            |       | 2,838 |   | 2,838 |   |
| Total assets                                       |       | 125,886                          |       | 128,675 |   | 124,416 |   |
|                                               |       |                             |       |   |   |   |   |
| Total current liabilities                          |       | 22,539                           |       | 22,522 |   | 22,522 |   |
| Capital lease obligations, net of current  portion |       | 5,724                            |       | 6,017 |   | 6,017 |   |
| Other long-term liabilities                        |       | 4,164                            |       | 8,124 |   | 8,124 |   |
| Accumulated deficit                                |       | (15,666                          | )          | (17,113 | ) | (21,372 | ) |
| Total liabilities and stockholders’ deficit   |       | 125,886                          |       | 128,675 |   | 124,416 |   |
|                                                    |            |                                  |            |  |  |  |  |  |  |  |

 

27

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| ** **                                                         | ** ** | **For the year ended December 29,  2004** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                         | ** ** | **As Previously  Reported**                    | ** ** | **As Restated** | ** ** |
| Deferred rent, depreciation, amortization  and preopening expenses |       | $                                              | 13,216     |   | $ | 12,657 |   |
| Loss from operations                                               |       | (3,909                                         | )          | (3,350 | ) |
| Net loss                                                           |       | (14,522                                        | )          | (13,963 | ) |
|                                                               |       |                                           |       |   |   |
| Basic and diluted loss per share                                   |       | (4.93                                          | )          | (4.74 | ) |
|                                                                    |            |                                                |            |  |  |  |  |

 
| ** **                                                         | ** ** | **For the year ended December 31,  2003** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                         | ** ** | **As Previously  Reported**                    | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Operating expenses                                                 |       | $                                              | 113,076    |   | $ | 113,036 |   | $ | 113,036 |   |
| Deferred rent, depreciation, amortization  and preopening expenses |       | 12,700                                         |       | 14,115 |   | 14,123 |   |
| Asset impairment charge                                            |       | 4,682                                          |       | 3,580 |   | 3,580 |   |
| Income from operations                                             |       | 850                                            |       | 577 |   | 569 |   |
| Interest expense, net                                              |       | (10,101                                        | )          | (10,133 | ) | (10,133 | ) |
| Net loss                                                           |       | (8,601                                         | )          | (8,906 | ) | (8,914 | ) |
|                                                               |       |                                           |       |   |   |   |   |
| Basic and diluted loss per share                                   |       | (2.90                                          | )          | (3.00 | ) | (3.00 | ) |
|                                                                    |            |                                                |            |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **For the year ended January 1,  2003** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                         | ** ** | **As Previously  Reported**                  | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Deferred rent, depreciation, amortization  and preopening expenses |       | $                                            | 10,733     |   | $ | 12,160 |   | $ | 12,413 |   |
| Income from operations                                             |       | 7,146                                        |       | 5,719 |   | 5,466 |   |
| Loss before income tax provision                                   |       | (2,441                                       | )          | (3,868 | ) | (4,121 | ) |
| Income tax provision                                               |       | 2,697                                        |       | 2,697 |   | 4,145 |   |
| Net loss                                                           |       | (5,138                                       | )          | (6,565 | ) | (8,266 | ) |
|                                                               |       |                                         |       |   |   |   |   |
| Basic and diluted loss per share                                   |       | (1.72                                        | )          | (2.20 | ) | (2.77 | ) |
|                                                                    |            |                                              |            |  |  |  |  |  |  |  |

 

28

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| ** **                                      | ** ** | **For the year ended December 29,  2004** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **As Previously  Reported**                    | ** ** | **As Restated** | ** ** |
| Cash flows used in investing activities         |       | $                                              | (8,598     | ) | $ | (7,872 | ) |
| Cash flows from (used in) financing  activities |       | 361                                            |       | (365 | ) |
|                                                 |            |                                                |            |  |  |  |  |

 
| ** **                                      | ** ** | **For the year ended December 31,  2003** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **As Previously  Reported**                    | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Cash flows from operating activities            |       | $                                              | 8,408      |   | $ | 9,071 |   | $ | 9,071 |   |
| Cash flows used in investing activities         |       | (17,016                                        | )          | (17,674 | ) | (9,358 | ) |
| Cash flows from (used in) financing  activities |       | 8,122                                          |       | 8,117 |   | (199 | ) |
|                                                 |            |                                                |            |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **For the year ended January 1,  2003** | ** ** |
|-----------------------------------------|------------|----------------------------------------------|------------|
| ** **                              | ** ** | **As Previously  Reported**                  | ** ** | **As Originally  Restated** | ** ** | **As Restated** | ** ** |
| Cash flows from operating activities    |       | $                                            | 8,172      |   | $ | 9,169 |   | $ | 9,169 |   |
| Cash flows used in investing activities |       | (16,819                                      | )          | (17,816 | ) | (19,271 | ) |
| Cash flows used in financing activities |       | (1,455                                       | )          | (1,455 | ) | — |   |
|                                         |            |                                              |            |  |  |  |  |  |  |  |

 

(4)                                  RESTAURANTSALES AND CLOSURES

 

*BrinkerSale*

 

In April 2001, the Company completed thesale of a number of non-Bertucci’s brand restaurants (the “Brinker Sale”) andrecorded a gain of $36.9 million before income taxes. During 2003 the Companyconcluded certain liabilities recorded in connection with the Brinker Sale wereno longer required as part of the final settlement and accordingly reversed$650,000 of accrued liabilities as an additional gain on the Brinker Sale.

 

*ClosedRestaurants Reserve*

* *

Prior to fiscal 2002, the Company had recordedreserves relating to lease commitments at certain closed locations, includingother exit costs for which the Company was still primarily liable.  It was originally expected the Company wouldbe able to exit these locations, sublease the locations or otherwise bereleased from the related leases.  However, due to market conditions, theCompany was unable to sell, sublease or exit certain of these leases asoriginally anticipated.  Additionally, in 2002, the Company closed onerestaurant and recorded a charge of $236,000 primarily related to estimatedlease termination costs.

 

During 2003, the Company terminated a leasefor one of its closed locations in exchange for issuing a promissory note of$0.4 million, payable in varying installments through 2010. The note does notbear interest, and accordingly the Company has recorded imputed interest on thenote. The obligation was reclassified from the closed restaurants reserve toother long-term obligations in the accompanying balance sheet.

 

29

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Activity within the Company’s closed restaurantsreserve was as follows (dollars in thousands):

 
| ** **                                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance, beginning of year                  |       | $        | 1,449      |     | $          | 2,499    |       | $ | 3,352 |   |
| Additonal  reserves charged to operations   |       | —   |       | —   |       | 236      |       |
| Promissory note issued                      |       | —   |       | (386     | )          | —   |       |
| Lease and  related costs charged to reserve |       | (790     | )          | (664     | )          | (1,089   | )          |
| Balance, end of year                        |       | $        | 659        |     | $          | 1,449    |       | $ | 2,499 |   |
|                                        |       |     |       |     |       |     |       |
| Current portion                             |       | $        | 484        |     | $          | 615      |       | $ | 642 |   |
| Noncurrent portion                          |       | 175      |       | 834      |       | 1,857    |       |
|                                        |       | $        | 659        |     | $          | 1,449    |       | $ | 2,499 |   |

 

The closed restaurant reserve was calculatednet of sublease income at 11 locations that are partially or fully subleased asof December 29, 2004. The Company remains primarily liable for theremaining lease obligations should the sublessor default. Total sublease incomeexcluded from the reserve is approximately $7.2 million for subleases expiringat various dates through 2017. There have been no defaults by sublessors todate.

 

(5)                                  INCOMETAXES

 

The components of the provision for income taxes forthe years ended December 29, 2004, December 31, 2003 and January 1,2003 are as follows (dollars in thousands):

 
| ** **                       | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |     |       |
| Current:                         |       |     |       |     |       |     |       |
| Federal                          |       | $        | —     |     | $          | —   |       | $ | (5,000 | ) |
| State                            |       | —   |       | —   |       | —   |       |
|                             |       | —   |       | —   |       | (5,000   | )          |
| Deferred:                        |       |     |       |     |       |     |       |
| Federal                          |       | (5,669   | )          | (3,752   | )          | 2,115    |       |
| State                            |       | (413     | )          | (270     | )          | 856      |       |
|                             |       | (6,082   | )          | (4,022   | )          | 2,971    |       |
|                             |       |     |       |     |       |     |       |
| Valuation allowance              |       | 6,082    |       | 4,022    |       | 6,174    |       |
|                             |       |     |       |     |       |     |       |
| Total provision for income taxes |       | $        | —     |     | $          | —   |       | $ | 4,145 |   |

 

A reconciliation of the amount computed by applyingthe statutory federal income tax rate of 35% to the loss before income taxprovision for the years ended December 29, 2004, December 31, 2003,and January 1, 2003, respectively, is as follows (dollars in thousands):

 
| ** **                                                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income tax benefit computed at federal  statutory rate                 |       | $        | (4,887     | )        | $          | (3,120   | )          | $ | (1,442 | ) |
| State taxes, including expired state  benefits, net of federal benefit |       | (413     | )          | (270     | )          | (190     | )          |
| FICA tax credit                                                        |       | (782     | )          | (632     | )          | (397     | )          |
| Valuation allowance                                                    |       | 6,082    |       | 4,022    |       | 6,174    |       |
| Income tax  provision                                                  |       | $        | —     |     | $          | —   |       | $ | 4,145 |   |

 

30

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Significant items giving rise to deferred tax assetsand deferred tax liabilities at December 29, 2004 and December 31,2003 are as follows (dollars in thousands):

 

| ** **                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets–                             |       |     |       |     |       |
|                                                  |       |     |       |     |       |
| Property and  equipment, including impairment charges |       | $        | 6,086      |     | $          | 2,058 |   |
| Net  operating loss and tax credit carryforwards      |       | 4,356    |       | 2,701    |       |
| Deferred  rent                                        |       | 3,195    |       | 2,770    |       |
| Store  closing write downs and liabilities            |       | 1,694    |       | 2,265    |       |
| Accrued  expenses and other                           |       | 1,042    |       | 550      |       |
| Deferred and  accrued compensation                    |       | 201      |       | 200      |       |
|                                                  |       | 16,574   |       | 10,544   |       |
| Deferred tax liabilities–                        |       |     |       |     |       |
| Liquor  licenses                                      |       | (296     | )          | (348     | )          |
|                                                  |       | (296     | )          | (348     | )          |
|                                                  |       |     |       |     |       |
| Total net deferred tax assets                         |       | 16,278   |       | 10,196   |       |
| Valuation allowance                                   |       | (16,278  | )          | (10,196  | )          |
|                                                  |       |     |       |     |       |
| Carrying value of net deferred tax assets             |       | $        | —     |     | $          | — |   |

 

The future tax benefits which give rise to thedeferred tax asset remain statutorily available to the Company. The Companyconsiders both negative and positive evidence in determining if a valuationallowance is appropriate. The Company had net operating losses and tax creditcarryforwards of $7.8 million as of December 29, 2004 which expire atvarious dates through 2019. The Company has an historical trend of recurringpre-tax losses. Based on the recent losses and the historical trend of losses,the Company concluded a valuation allowance for the net deferred tax assetremains appropriate.  Actual amountsrealized will be dependent on generating future taxable income.

 

(6)                                  SENIORNOTES PAYABLE

 

The Company has outstanding 10 3/4% Senior Noteswith a face value of $85.3 million due 2008 (the “Senior Notes”). Interest onthe Senior Notes is payable semi-annually on January 15 and July 15.Through July 15, 2006, the Company may, at its option, redeem any or allof the Senior Notes at face value, plus a declining premium, which is 3.58%through July 14, 2005 and 1.79% from July 15, 2005 through July 15,2006. After July 15, 2006, the Senior Notes may be redeemed at face value.Under certain circumstances, including a change of control or following certainasset sales, the holders of the Senior Notes may require the Company torepurchase the Senior Notes, at a redemption price of 101%. The Senior Notesare fully and unconditionally guaranteed, on a joint and several basis, on anunsecured senior basis, by all of the Company’s subsidiaries. The Company’sparent company has no independent assets or operations. The Senior Notescontain no financial covenants and the Company is in compliance with allnon-financial covenants as of December 29, 2004.

 

Thefair values of the Company’s long-term debt, including current portion at December 29,2004 and December 31, 2003 were as follows (dollars in thousands):

 
| ** **       | ** ** | **2004**             | ** ** | **2003**       | ** ** |
|------------------|------------|----------------------|------------|----------------|------------|
| ** **       | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| Senior Notes     |       | $                    | 85,310     |           | $          | 86,556 |   | $ | 85,310 |   | $ | 86,806 |   |
| Promissory Notes |       | 821                  |       | 737            |       | 860 |   | 760 |   |
|             |       | $                    | 86,131     |           | $          | 87,293 |   | $ | 86,170 |   | $ | 87,566 |   |

 

The fair values of the long term obligations abovewere determined based on the present value of remaining principal and interestpayments discounted at the rate of 10.0%, the Company’s estimate of acomparable borrowing rate as of December 29, 2004 and December 31,2003, respectively.

 

31

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(7)                                  COMMITMENTSAND CONTINGENCIES

 

*Letterof Credit Facility*

* *

The Company has a $4.0 million (maximum) letter ofcredit facility.  As of December 29, 2004, this facility iscollateralized with $2.4 million of cash restricted from general use. Lettersof credit totaling $2.2 million were outstanding pursuant to this facility on December 29,2004 and expire in December 2005. Restricted cash is presented as currentbased on the December 2005 letter of credit expiration date.

 

*OperatingLeases*

* *

The Company has entered into numerous leasearrangements, primarily for restaurant land, equipment and buildings, which arenon-cancelable and expire on various dates through 2027.

 

Some operating leases contain rent escalation clauseswhereby the rent payments increase over the term of the lease. Rent expenseincludes base rent amounts, percentage rent payable periodically, as defined ineach lease, and rent expense accrued to recognize lease escalation provisionson a straight-line basis over the lease term. Rent expense recognized inoperating expenses in the accompanying consolidated statements of income wasapproximately $14.8 million, $13.4 million and $11.4 million for the yearsended December 29, 2004, December 31, 2003 and January 1, 2003respectively. The annual difference of accrued rent versus amounts paid isclassified as deferred rent in the accompanying consolidated statements ofoperations and the cumulative difference is included in other long-termliabilities in the accompanying consolidated balance sheets. Certain leasesrequire the payment of an additional amount, calculated as a percentage ofannual sales, as defined in the lease agreement, which exceeds annual minimumrentals. Such percentage rent expense was $154,600, $264,000 and $260,000, forfiscal 2004, 2003, and 2002, respectively.

 

Future minimum rental payments due under allnon-cancelable operating leases as of December 29, 2004 were as follows(dollars in thousands):

 

| **Year-**  | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|
| 2005       |       | $          | 15,655     |   |
| 2006       |       | 15,645     |       |
| 2007       |       | 14,211     |       |
| 2008       |       | 12,474     |       |
| 2009       |       | 11,303     |       |
| Thereafter |       | 50,705     |       |
|       |       | $          | 119,993    |   |

 

In addition to the leases summarized above, the Companyis primarily liable on 13 locations for approximately $7.8 million in grosslease commitments over the remaining terms of the leases. Eleven of thoselocations are subleased to tenants under sublease obligations aggregating $7.2million. The difference of $649,000 represents the Company’s closed restaurantreserve at December 29, 2004.

 

*CapitalLeases*

* *

During2003, the Company completed two sale-leaseback transactions on four restaurantproperties. In the first transaction, the Company sold three properties for$7.2 million in cash (net of fees of approximately $300,000), resulting in again of $2.2 million. The gain has been deferred and will be amortized intoincome over the lease term. The properties sold included land and buildings ateach location which the Company agreed to lease back for a 20-year period. Theportion of the contractual obligation relating to the buildings is recorded atits net present value of $3.8 million (at inception) as an obligation under acapital lease. The land portion of the obligation is classified as an operatinglease, requiring future payments to be classified as operating expenses. In thesecond transaction, the Company sold a property consisting of land and abuilding for $1.8 million in cash (net of fees of approximately $210,000). Inconnection with this transaction the Company recorded a charge of $59,000representing the excess of the property’s carrying value over its fair marketvalue. The fair value of the land is less than 25% of the transaction value andtherefore the entire contractual obligation is recorded

 

32

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atits net present value of $1.9 million (at inception) as a capital leaseobligation. The Company agreed to lease back the property for a 20-year period.Both leases include two five-year renewal terms, which the Company may exerciseat its option. The Company is required to maintain the properties for the termof the leases and to pay all taxes, insurance, utilities and other costsassociated with those properties. Under the leases, the Company agreed tocustomary indemnities and, in the event the Company defaults on any lease, thelandlord may terminate the lease, accelerate rental payments and collectliquidated damages.

 

Payments under capital lease commitments for theserestaurants are as follows (dollars in thousands):

* *

| **Year**                          | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2005                              |       | $          | 679        |   |
| 2006                              |       | 693        |       |
| 2007                              |       | 704        |       |
| 2008                              |       | 715        |       |
| 2009                              |       | 724        |       |
| Thereafter                        |       | 9,913      |       |
|                              |       | 13,428     |       |
| Less amount representing interest |       | 7,252      |       |
| Present value of minimum payments |       | $          | 6,176      |   |
| Current portion                   |       | 74         |       |
| Long-term portion                 |       | 6,102      |       |
|                              |       | $          | 6,176      |   |

 

*Contingencies*

 

The Company is subject to various legal proceedingsthat arise in the ordinary course of business. Based on consultation with theCompany’s legal counsel, management believes that 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.

 

(8)                                  RELATEDPARTIES

 

Under the terms of the Company’s agreements,the stockholders have consented to the payment of an ongoing financialconsulting fee to Jacobson Partners, a stockholder of the Company. Fees of$250,000 were paid to Jacobson Partners for each of the fiscal years ended December 29,2004, December 31, 2003 and January 1, 2003, respectively.Additionally, the Board of Directors approved an additional fee of $175,000paid in fiscal 2004. All fees are included in general and administrativeexpenses in the accompanying consolidated statements of operations.

 

J.P. Acquisition Fund II, L.P., a Delawarelimited partnership (“JPAF II”), owns a controlling interest in the Company. JPAF,Limited Partnership, a Delaware limited partnership (“JPAF LP”) is the GeneralPartner of JPAF II.  The General Partner of JPAF LP is JPAF, Inc., aDelaware corporation. Benjamin R. Jacobson, Chairman of the Company, is thepresident and majority shareholder of JPAF, Inc.  J.P. AcquisitionFund III, L.P., a Delaware limited partnership (“JPAF III”), owns a controllinginterest in Taco Bueno. The General Partner of JPAF III is JPAF III, LLC, aDelaware limited liability company (“JPAF III, LLC”).  Jacobson Partnersis the sole shareholder of JPAF III, LLC. Mr. Jacobson is the ManagingGeneral Partner of Jacobson Partners. Stephen V. Clark, President and ChiefExecutive Officer of the Company, and David G. Lloyd, Chief Financial Officerof the Company, hold similar positions with Taco Bueno. No agreement exists,however, between the two entities as to the allocation of services by Mr. Clarkor Mr. Lloyd.  Effective December 30, 2004 compensationarrangements for these individuals will be borne equally by both companies, anarrangement approved by each company’s Board of Directors.

 

In February 2002, the Company extendedloans to 14 members of management (including eight officers). The demand notesaccrued interest at 8%, payable quarterly. The demand notes totaled $157,000 atJanuary 1, 2003 and were paid in full with accrued interest as of February 13,2003.

 

(9)                                  401(k)PROFIT SHARING PLAN AND DEFERRED COMPENSATION PLAN

 

The Company maintains a defined contribution planknown as the Bertucci’s 401(k) Plan. Under the Bertucci’s 401(k) Plan,substantially all salaried employees of the Company may defer a portion oftheir current salary, on a pretax basis. The Company makes a matchingcontribution to the Bertucci’s 401(k) Plan that is allocated, based on aformula as defined by

 

33

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the Bertucci’s 401(k) Plan, to Plan participants.Matching contributions made by the Company for the years ended December 29,2004, December 31, 2003 and January 1, 2003 were approximately$98,000, $81,000 and $27,000 respectively.

 

In 1999, the Company established the Bertucci’sCorporation Executive Savings and Investment Plan, a non-qualified compensationplan, to which highly compensated executives of the Company may elect to defera portion of their salary and/or earned bonus. The Company replaced theoriginal trustee of the Executive Savings and Investment Plan, Scudder, in December 2004with Reliance pursuant to a new Trust Agreement. The Trust Agreementbetween the Company and Reliance is for the purpose of paying benefits underExecutive Savings and Investment Plan and its terms are substantially similarto the trust agreement that the Company entered into with Scudder in 1999. Anirrevocable grantor trust has been established under the Trust Agreement withthe Company as grantor.

 

The trust assets are held separately fromother funds of the Company, but remain subject to claims of the Company’sgeneral creditors in the event of the Company’s insolvency. As of December 29,2004, there were 14 participants in the plan with assets in the trust with anaggregate market value of approximately $378,000. The assets of the trust areincluded in other assets in the consolidated balance sheet. A correspondingliability is included in other long term liabilities.

 

(10)                            COMMONSTOCK AND STOCK OPTION PLAN

 

On September 15, 1997, the Board of Directors ofthe Company established the 1997 Equity Incentive Plan, which included anonqualified stock option plan (the “Option Plan”), for certain key employeesand directors. The Option Plan is administered by the Board of Directors of theCompany and may be modified or amended by the Board of Directors in anyrespect. As of December 29, 2004 there were 201,829 authorized sharesremaining for issuance under the Option Plan.

 

The options granted under the Option Plan areexercisable as follows:

 

| Two years  beyond option grant date  |   | 25  | % |
|--------------------------------------|--------|-----|---|
| Three years beyond option grant date |   | 50  | % |
| Four years beyond option grant date  |   | 75  | % |
| Five years beyond option grant date  |   | 100 | % |

 

A summary of the Option Plan activity for the yearsended December 29, 2004, December 31, 2003 and January 1, 2003is presented in the table and narrative below.

 
| ** **                                          | ** ** | **2004**   | ** ** | **2003**                              | ** ** | **2002**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  at beginning of year                   |       | 594,396    |       | $                                     | 15.42      |       | 652,549    |   | $ | 15.44 |   | 713,973 |   | $ | 15.19 |   |
| Granted                                             |       | 111,000    |       | $                                     | 17.51      |       | 40,079     |   | $ | 14.48 |   | 26,000 |   | $ | 17.51 |   |
| Exercised                                           |       | (1,125     | )          | $                                     | (9.22      | )          | —     |   | $ | — |   | — |   | $ | — |   |
| Forfeited                                           |       | (156,100   | )          | $                                     | (16.80     | )          | (98,232    | ) | $ | (15.13 | ) | (87,424 | ) | $ | (13.38 | ) |
| Outstanding at end of year                          |       | 548,171    |       | $                                     | 15.47      |       | 594,396    |   | $ | 15.42 |   | 652,549 |   | $ | 15.44 |   |
|                                                |       |       |       |                                  |       |       |       |   |   |   |   |   |   |
| Exercisable at end of year                          |       | 256,377    |       | $                                     | 13.61      |       | 294,603    |   | $ | 14.12 |   | 322,714 |   | $ | 14.28 |   |
|                                                |       |       |       |                                  |       |       |       |   |   |   |   |   |   |
| Range of  Exercise Price per share                  |       |       |       | $9.22 -  $17.51                       |       |       |       | $9.22 -  $17.51 |   |   |   | $9.22 -  $17.51 |   |
| Weighted  average fair value of each option granted |       |       |       | $                                     | —     |       |       |   | $ | 2.83 |   |   |   | $ | 3.53 |   |

 

The 548,171 shares of Common Stock subject tooutstanding options at December 29, 2004 have a remaining weighted

 

34

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average contractual life of approximately 5.8 years.Options granted under the Stock Option Plan to date expire 90 days followingeither the fifth or the tenth anniversary of the date of the grant.

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option pricing model. Weightedaverage risk-free interest rates of 3.53%, 3.18% and 2.91% were used in 2004,2003 and 2002, respectively. Weighted average expected lives of five years andan expected volatility of 0% were used in all three years.

 

The Company’sshareholders are parties to various shareholder agreements which restrict theirability to transfer their shares without the approval of the Company’s Board ofDirectors. The Shareholder Agreements provide, among other things, that (i) ashareholder may not transfer his or its shares in the Company, whethervoluntarily or by operation of law, other than in certain limited circumstancesspecified therein, including transfers through a right of first refusalprocedure, distributions by certain legal entities to the constituents of suchentities (i.e. a partnership to its partners), transfers by will or intestatesuccession, transfers approved by the Board to an affiliate of a shareholder orto another shareholder, transfers to family members or trusts for theirbenefit, and any transfer unanimously approved by the Board, (ii) theCompany has the option to purchase the shares of any shareholder who is anemployee of the Company following the termination of such shareholder’semployment with the Company for any reason at a purchase price equal to thefair market value or original purchase price (plus accrued interest in certaincircumstances) depending upon the reason for such termination, (iii) theCompany has the option to purchase the shares of any shareholder who is anemployee of the Company following certain transfer events, including suchshareholders’ bankruptcy or a court-ordered transfer of such shareholder’sstock, (iv) if the Company fails to exercise its option to purchase asdescribed in the immediately preceding clause (iii), the remaining shareholdershave the option to purchase the applicable shares, (v) in the event anemployee shareholder leaves the Company due to death, disability or hardshipor, with respect to certain shares, is terminated by the Company without cause,such shareholder has a one-time option to require the Company to purchase suchshareholder’s shares at the greater of fair value or the original purchaseprice, subject to certain approval by the Board of Directors, excludingeffected employees, (vi) no transfer of shares may occur unless thetransferee thereof agrees to be bound by the terms of the ShareholdersAgreement and (vii) all share certificates must bear customary legends andall share transfers must be in compliance with applicable securities laws.

 

Additionally, the Companyhas the option to purchase shares held by employee stockholders (approximately70,629 shares at December 29, 2004) upon their termination at a purchaseprice equal to either fair market value or the original purchase price (plusaccrued interest in certain circumstances), depending on the reason fortermination. Employee shareholders, or their estate, may require the Company topurchase their shares upon their death or disability and with respect tocertain shares if they are terminated without cause, at the greater of fairvalue or the original purchase price, subject to certain approval by the Boardof Directors.

 

35

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(11)                            QUARTERLYRESULTS

 

The quarterly information depicted belowdetails results of operations for each of the fiscal quarters of 2004 and 2003.For each year, amounts detailed are:

 

1)                  “As PreviouslyReported” – amounts as initially reported in financial statements filed on Form 10-Qand Form 10-K prior to the adjustment in the Initial Restatement;

2)                  “As OriginallyRestated” – amounts as adjusted in the Initial Restatement as reported in theOriginal 2004 10-K, the Original 2005 First Quarter 10-Q, or the Original 2005Second Quarter 10-Q; and

3)                  “As Restated” –amounts as adjusted in the Current Restatement.

 

QUARTERLY STATEMENTS OFOPERATIONS (UNAUDITED)

BERTUCCI’S CORPORATION

(In thousands except share and per sharedata)

 
| ** **                                                         | ** ** | **Fiscal 2004**                     | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                         | ** ** | **Quarter 1  March 31,  2004** | ** ** | **Quarter 2  June 30,  2004** | ** ** | **Quarter 3  September 29,  2004** | ** ** | **Quarter 4  December 29,  2004** | ** ** | **Year  December 29,  2004** | ** ** |
| ** **                                                         | ** ** | **(As Previously  Reported)**       | ** ** | **(As Previously  Reported)** | ** ** | **(As Previously  Reported)** | ** ** | **(As Previously  Reported)** | ** ** | ** ** | ** ** |
| Net sales                                                          |       | $                                   | 49,426     |   | $ | 51,754 |   | $ | 49,260 |   | $ | 49,968 |   | $ | 200,408 |   |
|                                                               |       |                                |       |   |   |   |   |   |   |   |   |
| Cost of sales and expenses:                                        |       |                                |       |   |   |   |   |   |   |   |   |
| Cost of  sales                                                     |       | 11,556                              |       | 12,883 |   | 12,256 |   | 12,536 |   | 49,231 |   |
| Operating  expenses                                                |       | 29,639                              |       | 33,480 |   | 29,521 |   | 29,451 |   | 122,091 |   |
| General and  administrative expenses                               |       | 3,093                               |       | 3,478 |   | 2,655 |   | 3,839 |   | 13,065 |   |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,232                               |       | 3,112 |   | 3,111 |   | 3,267 |   | 12,722 |   |
| Asset  impairment charge                                           |       | —                              |       | 3,338 |   | — |   | 2,855 |   | 6,193 |   |
| Total cost of  sales and expenses                                  |       | 47,520                              |       | 56,291 |   | 47,543 |   | 51,948 |   | 203,302 |   |
|                                                               |       |                                |       |   |   |   |   |   |   |   |   |
| Income  (loss) from operations                                     |       | 1,906                               |       | (4,537 | ) | 1,717 |   | (1,980 | ) | (2,894 | ) |
| Other expense:                                                     |       |                                |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                             |       | (2,629                              | )          | (2,652 | ) | (2,654 | ) | (2,650 | ) | (10,585 | ) |
| Other  expense                                                     |       | (2,629                              | )          | (2,652 | ) | (2,654 | ) | (2,650 | ) | (10,585 | ) |
|                                                               |       |                                |       |   |   |   |   |   |   |   |   |
| Net loss                                                           |       | $                                   | (723       | ) | $ | (7,189 | ) | $ | (937 | ) | $ | (4,630 | ) | $ | (13,479 | ) |
|                                                               |       |                                |       |   |   |   |   |   |   |   |   |
| Basic and diluted loss per share                                   |       | $                                   | (0.24      | ) | $ | (2.44 | ) | $ | (0.32 | ) | $ | (1.58 | ) | $ | (4.58 | ) |
|                                                               |       |                                |       |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - basic and diluted           |       | 2,958,436                           |       | 2,945,040 |   | 2,944,337 |   | 2,928,740 |   | 2,943,841 |   |

 
| ** **                                                         | ** ** | **Quarter 1  March 31,  2004** | ** ** | **Quarter 2  June 30,  2004** | ** ** | **Quarter 3  September 29,  2004** | ** ** | **Quarter 4  December 29,  2004** | ** ** | **Year  December 29,  2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **(As Originally  Restated *)**     | ** ** | **(As Originally  Restated *)**    | ** ** | **(As Originally  Restated *)**         | ** ** | **(As Previously  Reported)**          | ** ** | ** **                        | ** ** |
| Net sales                                                          |       | $                                   | 49,426     |                               | $          | 51,754                                  |       | $                                      | 49,260     |                              | $          | 49,968 |   | $ | 200,408 |   |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of sales and expenses:                                        |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of  sales                                                     |       | 11,556                              |       | 12,883                             |       | 12,256                                  |       | 12,536                                 |       | 49,231                            |       |
| Operating  expenses                                                |       | 29,627                              |       | 33,469                             |       | 29,509                                  |       | 29,451                                 |       | 122,056                           |       |
| General and  administrative expenses                               |       | 3,093                               |       | 3,478                              |       | 2,655                                   |       | 3,839                                  |       | 13,065                            |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,309                               |       | 3,261                              |       | 3,379                                   |       | 3,267                                  |       | 13,216                            |       |
| Asset  impairment charge                                           |       | —                              |       | 3,894                              |       | —                                  |       | 2,855                                  |       | 6,749                             |       |
| Total cost  of sales and expenses                                  |       | 47,585                              |       | 56,985                             |       | 47,799                                  |       | 51,948                                 |       | 204,317                           |       |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Income  (loss) from operations                                     |       | 1,841                               |       | (5,231                             | )          | 1,461                                   |       | (1,980                                 | )          | (3,909                            | )          |
| Other expense:                                                     |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Interest  expense, net                                             |       | (2,638                              | )          | (2,661                             | )          | (2,664                                  | )          | (2,650                                 | )          | (10,613                           | )          |
| Other  expense                                                     |       | (2,638                              | )          | (2,661                             | )          | (2,664                                  | )          | (2,650                                 | )          | (10,613                           | )          |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Net loss                                                           |       | $                                   | (797       | )                                  | $          | (7,892                                  | )          | $                                      | (1,203     | )                                 | $          | (4,630 | ) | $ | (14,522 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Basic and diluted loss per share                                   |       | $                                   | (0.27      | )                                  | $          | (2.68                                   | )          | $                                      | (0.41      | )                                 | $          | (1.58 | ) | $ | (4.93 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Weighted  average shares outstanding - basic and diluted           |       | 2,958,436                           |       | 2,945,040                          |       | 2,944,337                               |       | 2,928,740                              |       | 2,943,841                         |       |

 

36

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| ** **                                                         | ** ** | **Quarter 1  March 31,  2004** | ** ** | **Quarter 2  June 30,  2004** | ** ** | **Quarter 3  September 29,  2004** | ** ** | **Quarter 4  December 29,  2004** | ** ** | **Year  December 29,  2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **(As Restated *)**                 | ** ** | **(As Restated *)**                | ** ** | **(As Restated *)**                     | ** ** | **(As Restated *)**                    | ** ** | **(As Restated *)**               | ** ** |
| Net sales                                                          |       | $                                   | 49,426     |                               | $          | 51,754                                  |       | $                                      | 49,260     |                              | $          | 49,968 |   | $ | 200,408 |   |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of sales and expenses:                                        |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of  sales                                                     |       | 11,556                              |       | 12,883                             |       | 12,256                                  |       | 12,536                                 |       | 49,231                            |       |
| Operating  expenses                                                |       | 29,627                              |       | 33,469                             |       | 29,509                                  |       | 29,451                                 |       | 122,056                           |       |
| General and  administrative expenses                               |       | 3,093                               |       | 3,478                              |       | 2,655                                   |       | 3,839                                  |       | 13,065                            |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,166                               |       | 3,108                              |       | 3,244                                   |       | 3,139                                  |       | 12,657                            |       |
| Asset  impairment charge                                           |       | —                              |       | 3,894                              |       | —                                  |       | 2,855                                  |       | 6,749                             |       |
| Total cost  of sales and expenses                                  |       | 47,442                              |       | 56,832                             |       | 47,664                                  |       | 51,820                                 |       | 203,758                           |       |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Income  (loss) from operations                                     |       | 1,984                               |       | (5,078                             | )          | 1,596                                   |       | (1,852                                 | )          | (3,350                            | )          |
| Other expense:                                                     |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Interest  expense, net                                             |       | (2,638                              | )          | (2,661                             | )          | (2,664                                  | )          | (2,650                                 | )          | (10,613                           | )          |
| Other  expense                                                     |       | (2,638                              | )          | (2,661                             | )          | (2,664                                  | )          | (2,650                                 | )          | (10,613                           | )          |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Net loss                                                           |       | $                                   | (654       | )                                  | $          | (7,739                                  | )          | $                                      | (1,068     | )                                 | $          | (4,502 | ) | $ | (13,963 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Basic and diluted loss per share                                   |       | $                                   | (0.22      | )                                  | $          | (2.63                                   | )          | $                                      | (0.36      | )                                 | $          | (1.54 | ) | $ | (4.74 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Weighted  average shares outstanding - basic and diluted           |       | 2,958,436                           |       | 2,945,040                          |       | 2,944,337                               |       | 2,928,740                              |       | 2,943,841                         |       |

 

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*                 Quarterlyfinancial information has been restated to reflect the correction of errorsrelated to lease accounting and depreciation expense, as discussed in Note 3.

 

37

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| ** **                                                         | ** ** | **Fiscal 2003**                    | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                         | ** ** | **Quarter 1  April 2,  2003** | ** ** | **Quarter 2  July 2,  2003** | ** ** | **Quarter 3  October 1,  2003** | ** ** | **Quarter 4  December 31,  2003** | ** ** | **Year  December 31,  2003** | ** ** |
| ** **                                                         | ** ** | **(As Previously  Reported)**      | ** ** | **(As Previously  Reported)** | ** ** | **(As Previously  Reported)** | ** ** | **(As Previously  Reported)** | ** ** | **(As Previously  Reported)** | ** ** |
| Net sales                                                          |       | $                                  | 42,674     |   | $ | 47,587 |   | $ | 47,381 |   | $ | 48,530 |   | $ | 186,172 |   |
|                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Cost of sales and expenses:                                        |       |                               |       |   |   |   |   |   |   |   |   |
| Cost of  sales                                                     |       | 9,461                              |       | 11,019 |   | 11,402 |   | 11,662 |   | 43,544 |   |
| Operating  expenses                                                |       | 26,475                             |       | 28,418 |   | 28,833 |   | 29,350 |   | 113,076 |   |
| General and  administrative expenses                               |       | 3,179                              |       | 2,856 |   | 2,554 |   | 2,731 |   | 11,320 |   |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 2,964                              |       | 3,272 |   | 3,184 |   | 3,280 |   | 12,700 |   |
| Asset  impairment charge                                           |       | —                             |       | — |   | 4,682 |   | — |   | 4,682 |   |
| Total cost  of sales and expenses                                  |       | 42,079                             |       | 45,565 |   | 50,655 |   | 47,023 |   | 185,322 |   |
|                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Income  (loss) from operations                                     |       | 595                                |       | 2,022 |   | (3,274 | ) | 1,507 |   | 850 |   |
| Other (expense) income:                                            |       |                               |       |   |   |   |   |   |   |   |   |
| Adjustment  of gain on Brinker Sale                                |       | —                             |       | — |   | — |   | 650 |   | 650 |   |
| Interest  expense, net                                             |       | (2,398                             | )          | (2,498 | ) | (2,615 | ) | (2,590 | ) | (10,101 | ) |
| Other  expense                                                     |       | (2,398                             | )          | (2,498 | ) | (2,615 | ) | (1,940 | ) | (9,451 | ) |
|                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Net loss                                                           |       | $                                  | (1,803     | ) | $ | (476 | ) | $ | (5,889 | ) | $ | (433 | ) | $ | (8,601 | ) |
|                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Basic and diluted loss per share                                   |       | $                                  | (0.61      | ) | $ | (0.16 | ) | $ | (1.99 | ) | $ | (0.15 | ) | $ | (2.90 | ) |
|                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - basic and diluted           |       | 2,978,855                          |       | 2,976,166 |   | 2,963,674 |   | 2,963,371 |   | 2,970,403 |   |

 
| ** **                                                         | ** ** | **Quarter 1  April 2,  2003** | ** ** | **Quarter 2  July 2,  2003** | ** ** | **Quarter 3  October 1,  2003** | ** ** | **Quarter 4  December 31,  2003** | ** ** | **Year  December 31,  2003** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **(As Originally  Restated *)**    | ** ** | **(As Originally  Restated *)**   | ** ** | **(As Originally  Restated *)**      | ** ** | **(As Originally  Restated *)**        | ** ** | **(As Originally  Restated *)**   | ** ** |
| Net sales                                                          |       | $                                  | 42,674     |                              | $          | 47,587                               |       | $                                      | 47,381     |                              | $          | 48,530 |   | $ | 186,172 |   |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Cost of sales and expenses:                                        |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Cost of  sales                                                     |       | 9,461                              |       | 11,019                            |       | 11,402                               |       | 11,662                                 |       | 43,544                            |       |
| Operating  expenses                                                |       | 26,471                             |       | 28,407                            |       | 28,821                               |       | 29,337                                 |       | 113,036                           |       |
| General and  administrative expenses                               |       | 3,179                              |       | 2,856                             |       | 2,554                                |       | 2,731                                  |       | 11,320                            |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,340                              |       | 3,774                             |       | 3,707                                |       | 3,294                                  |       | 14,115                            |       |
| Asset  impairment charge                                           |       | —                             |       | —                            |       | 3,580                                |       | —                                 |       | 3,580                             |       |
| Total cost  of sales and expenses                                  |       | 42,451                             |       | 46,056                            |       | 50,064                               |       | 47,024                                 |       | 185,595                           |       |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Income  (loss) from operations                                     |       | 223                                |       | 1,531                             |       | (2,683                               | )          | 1,506                                  |       | 577                               |       |
| Other (expense) income:                                            |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Adjustment  of gain on Brinker Sale                                |       | —                             |       | —                            |       | —                               |       | 650                                    |       | 650                               |       |
| Interest  expense, net                                             |       | (2,401                             | )          | (2,508                            | )          | (2,625                               | )          | (2,599                                 | )          | (10,133                           | )          |
| Other  expense                                                     |       | (2,401                             | )          | (2,508                            | )          | (2,625                               | )          | (1,949                                 | )          | (9,483                            | )          |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Net loss                                                           |       | $                                  | (2,178     | )                                 | $          | (977                                 | )          | $                                      | (5,308     | )                                 | $          | (443 | ) | $ | (8,906 | ) |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Basic and diluted loss per share                                   |       | $                                  | (0.73      | )                                 | $          | (0.33                                | )          | $                                      | (1.79      | )                                 | $          | (0.15 | ) | $ | (3.00 | ) |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Weighted  average shares outstanding - basic and diluted           |       | 2,978,855                          |       | 2,976,166                         |       | 2,963,674                            |       | 2,963,371                              |       | 2,970,403                         |       |

 

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| ** **                                                         | ** ** | **Quarter 1  April 2,  2003** | ** ** | **Quarter 2  July 2,  2003** | ** ** | **Quarter 3  October 1,  2003** | ** ** | **Quarter 4  December 31,  2003** | ** ** | **Year  December 31,  2003** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **(As Restated *)**                | ** ** | **(As Restated *)**               | ** ** | **(As Restated *)**                  | ** ** | **(As Restated *)**                    | ** ** | **(As Restated *)**               | ** ** |
| Net sales                                                          |       | $                                  | 42,674     |                              | $          | 47,587                               |       | $                                      | 47,381     |                              | $          | 48,530 |   | $ | 186,172 |   |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Cost of sales and expenses:                                        |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Cost of  sales                                                     |       | 9,461                              |       | 11,019                            |       | 11,402                               |       | 11,662                                 |       | 43,544                            |       |
| Operating  expenses                                                |       | 26,471                             |       | 28,407                            |       | 28,821                               |       | 29,337                                 |       | 113,036                           |       |
| General and  administrative expenses                               |       | 3,179                              |       | 2,856                             |       | 2,554                                |       | 2,731                                  |       | 11,320                            |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,321                              |       | 3,750                             |       | 3,684                                |       | 3,368                                  |       | 14,123                            |       |
| Asset  impairment charge                                           |       | —                             |       | —                            |       | 3,580                                |       | —                                 |       | 3,580                             |       |
| Total cost  of sales and expenses                                  |       | 42,432                             |       | 46,032                            |       | 50,041                               |       | 47,098                                 |       | 185,603                           |       |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Income  (loss) from operations                                     |       | 242                                |       | 1,555                             |       | (2,660                               | )          | 1,432                                  |       | 569                               |       |
| Other (expense) income:                                            |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Adjustment  of gain on Brinker Sale                                |       | —                             |       | —                            |       | —                               |       | 650                                    |       | 650                               |       |
| Interest  expense, net                                             |       | (2,401                             | )          | (2,508                            | )          | (2,625                               | )          | (2,599                                 | )          | (10,133                           | )          |
| Other  expense                                                     |       | (2,401                             | )          | (2,508                            | )          | (2,625                               | )          | (1,949                                 | )          | (9,483                            | )          |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Net loss                                                           |       | $                                  | (2,159     | )                                 | $          | (953                                 | )          | $                                      | (5,285     | )                                 | $          | (517 | ) | $ | (8,914 | ) |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Basic and diluted loss per share                                   |       | $                                  | (0.72      | )                                 | $          | (0.32                                | )          | $                                      | (1.78      | )                                 | $          | (0.17 | ) | $ | (3.00 | ) |
|                                                               |       |                               |       |                              |       |                                 |       |                                   |       |                              |       |
| Weighted  average shares outstanding - basic and diluted           |       | 2,978,855                          |       | 2,976,166                         |       | 2,963,674                            |       | 2,963,371                              |       | 2,970,403                         |       |

 

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*                 Quarterlyfinancial information has been restated to reflect the correction of errorsrelated to lease accounting and depreciation expense, as discussed in Note 3.

 

39

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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. |
| 4.7 (a)              |       |            | Form of Stockholders Agreement, dated  as of December 31, 1993 between the stockholders of NERCO and NERCO. |
| 4.8 (a)              |       |            | Form of Stockholders Agreement, dated September 15,  1997 by and among certain stockholders of NERCO and NERCO. |
| 4.9 (d)              |       |            | Form of Stockholders Agreement, dated March 14,  2000 by and among certain stockholders of NERCO and NERCO. |
| 10.1 (a)             |       |            | 1997 Equity Incentive Plan of NERCO, dated September 15,  1997 for certain key employees and directors of NERCO.* |
| 10.21 (a)            |       |            | Financial Advisory Services Agreement,  dated July 21, 1998 by and between the Company and Jacobson Partners. |
| 10.30 (b)            |       |            | NERCO Savings and Investment Plan dated as  of April 29, 1999 |
| 10.31 (b)            |       |            | NE Restaurant Company, Inc. Executive Savings  and Investment Plan dated September 2, 1999 |
| 10.32 (b)            |       |            | Primary Distribution Agreement dated as of May 13,  1999 by and between Maines Paper & Food Service, Inc. and  Bertucci’s Corporation |
| 14.1  (e)            |       |            | Code  of Ethics for Senior Financial Officers. |
| 21.1  (e)            |       |            | Subsidiaries  of Registrant. |
| 31.1  (f)            |       |            | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by  Stephen V. Clark. |
| 31.2  (f)            |       |            | 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. |

 

----

(a)          Filed as an Exhibit,with the same Exhibit number, to Amendment No. 3 to the Registrant’sregistration statement on Form S-4 filed with the Securities and ExchangeCommission on November 12, 1998.

(b)         Filed as an Exhibit, withthe same Exhibit number to Registrant’s quarterly report on form 10-Qfiled with the Securities and Exchange Commission on May 15, 2000.

(c)          Filed as an Exhibit, withthe same Exhibit number to Registrant’s quarterly report on form 10-Qfiled with the Securities and Exchange Commission on May 18, 2001.

(d)         Filed as an Exhibit, withthe same Exhibit number to Registrant’s annual report on form 10-K filedwith the Securities and Exchange Commission on April 1, 2002.

(e)          Filed as an Exhibit,with the same Exhibit number to Registrant’s annual report on form 10-Kfiled with the Securities and Exchange Commission on March 28, 2004.

(f)            Filed herewith.

*                 Management compensation plan orarrangement.

 

40

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