**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

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

 

**For thefiscal year ended December 28, 2005**

**OR**

**o****  TRANSITION REPORTPURSUANT 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          |       | (I.R.S.  Employer    |
| incorporation  or organization)           |       | Identification  No.) |
|                                      |       |                 |
| **155 Otis Street, Northborough,  MA**    | ** ** | **01532**            |
| (Address of  principal executive offices) |       | (Zip Code)           |

 

**(508)351-2500**

(Registrant’s 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 if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the ExchangeAct.

Yes  ý  No  o

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 periodthe 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 anyamendment to this Form 10-K. ý

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-accelerated filer.See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act.:

Large accelerated filer    o                                                                                                    Acceleratedfiler    o                                                                                 Non-acceleratedfiler    ý

 

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

Yes  o  No  ý

 

3,012,982 shares of the registrant’s CommonStock, $0.01 par value per share, were outstanding on March 28, 2006.

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

 

 

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

 

All statementsother than statements of historical facts included in this Annual Report on Form 10-K,including, without limitation, statements set forth under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”regarding Bertucci’s future financial position, business strategy, budgets,projected costs, plans, and objectives of management for future operations, areforward-looking statements. These statements involve known and unknown risks,uncertainties and other factors which may cause our or the foodserviceindustry’s actual results, performance or achievements to be materiallydifferent from any expected results, performance or achievements.Forward-looking statements include, but are not limited to statementsregarding:

 

•        *Our highlycompetitive business environment;*

•        *Exposure to food prices;*

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

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

•        *Government regulations;*

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

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

•        *The number of expected restaurant openings, including the appropriateconditions needed to meet new opening targets;*

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

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

•        *Matters relating to litigation.*

 

Forward-looking statements generally canbe identified by the use of forward-looking terminology such as “may,”  “will,” “expect,” “intend,” “estimate,” “anticipate”or “believe” or the negative thereof or variations thereon or similarterminology. These statements are only predictions and involve known andunknown risks, uncertainties, and other factors that may cause actual results,levels of activity, performance, or achievements to be materially differentfrom any expected results, levels of activity, performance, or achievementsexpressed or implied by such forward-looking statements. Although we believethe expectations reflected in such forward-looking statements will prove to becorrect, we can give no assurance such expectations will prove to be correct.You are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date hereof. We undertake no obligationto publicly release any revisions to these forward-looking statements toreflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events. Factors causing or contributing to such differencesinclude those discussed in the risk factors set forth in Item 1A below (the “RiskFactors”) as well as those discussed elsewhere herein.

 

Unlessthe context indicates otherwise, references herein to “we”, “us”, “our,” “Bertucci’s”or the “Company” refer to Bertucci’s Corporation, its predecessors and itsconsolidated subsidiaries.

 

**PART I**

 

**ITEM1. BUSINESS**

 

**Overview**

 

We are a Delawarecorporation which owns and operates a chain of full-service casual dining,Italian-style restaurants under the names of Bertucci’s Brick Oven Pizzeria®and Bertucci’s Brick Oven Ristorante®. We incorporated in 1994 as NE RestaurantCompany, Inc. and formally changed our name to Bertucci’s Corporation on August 16,2001. As of December 28, 2005, we operated 92 restaurants locatedprimarily in the northeastern United States.

 

In July 1998, wecompleted our acquisition of Bertucci’s Restaurant Corp.’s parent entity,Bertucci’s, Inc., for a purchase price, net of cash received, ofapproximately $89.4 million (the “Acquisition”). We financed the Acquisitionprimarily through the issuance of $100 million of 103⁄4% senior notes due 2008(the “Senior Notes”). $85.3 million in principal of the Senior Notes are stilloutstanding.

 

**Concept**

 

Our restaurants are full-service, casual diningrestaurants offering high quality, moderately priced Italian food. We are openseven days a week for lunch and dinner, appealing to both families and the adultmarket. We differentiate ourselves from other

 

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restaurants by offering a variety of distinctive and freshly preparedfoods using high quality ingredients, brick oven baking techniques and anopen-kitchen design. Our first restaurant opened in Somerville, Massachusettsin 1981.

 

**Restaurant Overview and Menu**

 

Our restaurants offer a distinctive menu and a classic Tuscan-styledesign providing a unique dining experience at a reasonable price. We specialize in a wide assortment of Italianregional pasta, chicken, veal and seafood dishes, salads, and premium brickoven pizzas. Our signature pizzas are prepared in brick ovens baking atunusually high temperatures, enabling the production of a light crust andpreservation of natural flavors and moisture of toppings. Natural freshingredients are used to ensure high quality and freshness. We make our owndough, sauces and toppings in each restaurant and prepare our menu fresh eachday. In addition, our menu features a variety of appetizers, soups,calzones, and desserts. We believe our original recipes and brick oven bakingtechniques combine to produce superior products difficult to duplicate. Wineand beer are available at all of our locations and full bar service isavailable at most of our restaurants. Our price points generally range from$7.50 to $9.99 for lunch entrees and $9.25 to $15.99 for dinner entrees. Mostitems on our menu may be purchased for take-out service or delivery, whichtogether accounted for approximately 21.6% of our net sales in fiscal 2005.

 

**RestaurantDesign**

 

Our restaurants are freestanding or in-line buildings averagingapproximately 6,000 square feet in size with an average seating capacity ofapproximately 170 people. Each restaurant features a classic Tuscan-style,open-kitchen design centered around brick ovens. Ingredients are displayed andfood is prepared on polished granite counters located in front of the brickovens, in plain view of our guests. We have historically built our restaurantsin varying sizes and designs, with no two interior decors exactly alike. Becausewe believe unit economics benefit from a standardized design, in 2000 wedeveloped a prototype design. The first restaurant with this prototypicaldesign opened in January 2001. We have since modified the prototype designwhich currently envisions approximately 5,800 square feet and 200 seats perlocation. The first restaurant with the modified prototypical design opened in December 2003and as of December 31, 2005 this prototypical design was in place at four ofour restaurants. Key features of the current prototype design are a separatecarryout designation, a bar/waiting area and modification of interior elements,including new floor and ceiling materials and new furniture. In order to remaindistinctive**,**we are currently developing thedesign for the next generation prototype.

 

**Restaurant Development**

 

*Expansion.*We expect togrow through the opening of new Bertucci’s restaurants over the next severalyears, although it is anticipated there will be only one opening in fiscal 2006.We expect to finance the development of Bertucci’s restaurants through acombination of cash on hand and cash from operations. See Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources.

 

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

 

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

 

**Quality Control**

 

Each of our restaurants typically has ageneral manager and two or three assistant managers who are responsible forassuring compliance with our operating procedures and for the training andsupervision of restaurant employees. The general managers report to areadirectors who oversee, on average, between six and nine of our restaurants. Webelieve our quality control operations are enhanced by the work of regionalchefs who provide support to restaurant management and ensure quality of foodpreparation.

 

**Training**

 

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

 

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

 

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Wealso require new managers to complete our Company-developed comprehensivemanagement training program. There are two major components comprising thiseight week program. Restaurant specific training is conducted in one of our certifiedtraining restaurants and classroom training is conducted at Bertucci’sUniversity located at our corporate office. In the certified training restaurantthe new manager spends seven weeks learning detailed, concept-specific foodpreparation standards and procedures as well as administrative and humanresource functions, including sanitation, safety, and hospitality. The programalso uses position specific training manuals and other written guides. At theBertucci’s University component of management training, the new manager spendsone week immersed in training at our headquarters where we also teachhospitality, human resource processes, leadership training, computer andinformation systems, responsible alcohol service and applied foodservicesanitation. At the end of the process, we test our trainee’s skills by avariety of means including a full-day written examination. We believe therigorous training and testing during these sessions assures graduating managersare better prepared for running our restaurants. This management training programis typically followed up by periodic supplemental training modules such as situationalleadership or time management skills.

 

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

 

**Advertising and Marketing**

 

Our marketing objective is to increasethe frequency of guest visits in primary markets and grow brand awareness inless penetrated markets, thereby increasing revenues, profitability and marketshare. Key strategies include limited time only seasonal offerings, local storemarketing, direct marketing initiatives, frequency driven promotions, andadvertising. We have designed our advertising plan to differentiate our brandfrom our competitors’ and increase our market share through media coverage inkey markets. We use radio, which affords continuity at competitive levels, asour primary advertising vehicle in all key markets and intend to supplement theimportant Boston market with television in 2006.

 

**Purchasing**

 

We negotiate directly with suppliers offood and beverage products and other restaurant supplies to ensure consistentquality and freshness of products and to obtain competitive prices. Although webelieve essential restaurant supplies and products are available on shortnotice from several sources, we use one full-service distributor for asubstantial portion of our restaurant supplies and product requirements, withsuch distributor charging us fixed mark-ups over prevailing wholesale****prices. We have a contract with our full-servicedistributor which terminates in 2011. There are no required quantity purchasesunder this agreement. We also have arrangements with several smaller regionaldistributors for the balance of our purchases. These distribution arrangementshave allowed us to benefit from economies of scale and have resulted in lowercommodity costs. Smaller day-to-day purchasing decisions are made at theindividual restaurant level. We have not experienced any significant delays inreceiving food and beverage inventories or restaurant supplies.

 

**Information Systems and Restaurant Reporting**

 

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

 

*Point of Sale (“POS”).*All of our restaurants use the Micros 3700 POS system. Webelieve the consistency and reliability of the POS system is the backbone ofour technical infrastructure. The consistency between restaurants provides uswith efficiencies for multi-restaurant operations, training and support. Weretrieve our POS data from each restaurant daily and process this data at ourheadquarters.

 

*DataWarehouse.*We manage a data warehouse, trackinginformation as minute as guest check detail. We believe the data warehouseprovides multiple views of operational data which enables us to identifytrends, evaluate price sensitivity and track new menu items/combinations.

 

## **Trademarks,Service Marks and Other Intellectual Property**

 

We have registered, among others, thenames “Bertucci’s®”, “Bertucci’s Brick Oven Pizzeria®”,  “Bertucci’s Brick Oven Ristorante®”, and “What’sNot to Love SM” as service marks and trademarks with the UnitedStates Patent and Trademark Office.

 

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We are aware of names similar to Bertucci’sused by third parties in certain limited geographical areas. Such third-partyuse may prevent us from licensing the use of the Bertucci’s mark forrestaurants in such areas. Except for these areas, we are not aware of anyinfringing uses materially affecting our business.

 

## **Competition**

 

Our business, and the restaurant industryin general, is highly competitive and is often affected by changes in consumertastes and dining preferences, by local and national economic conditions and bypopulation and traffic patterns. We compete directly or indirectly with allrestaurants, from national and regional chains to local establishments, as wellas with other foodservice providers. Many of our competitors are significantlylarger than us and have substantially greater resources.

 

**Employees**

 

At December 28, 2005, we hadapproximately 1,778 full-time employees (of whom 70 are based at ourheadquarters) and approximately 4,768 part-time employees.****Noneof our employees are covered by a collective bargaining agreement. We believeour relations with our employees are good.

 

We anticipate our continued success willdepend to a large degree on our ability to attract and retain high qualitymanagement employees. While we expect to continually address the high level ofemployee attrition normal in the food-service industry, we have taken steps toattract and keep qualified management personnel through the implementation of avariety of employee benefit plans, including a management incentive plan, a401(k) plan, and an equity incentive plan under which we grant equity awards toour management employees.

 

**Government Regulations**

 

Each of our restaurants is subject tolicensing and regulation by a number of governmental authorities on matterswhich include, among other things, health, safety, fire and alcoholic beveragecontrol in the state or municipality in which the restaurant is located. Difficultiesor failures in obtaining required licenses or approvals could delay or preventthe opening of a new restaurant in a particular area. In addition, failure tomaintain a required license or approval could result in the temporary orpermanent closing of an existing restaurant.

 

Alcoholic beverage control regulationsrequire each of our restaurants to apply to a state authority and, in certainlocations, county or municipal authorities for a license or permit to sellalcoholic beverages on the premises and to provide service for extended hoursand on Sundays. Typically, licenses or permits must be renewed annually and may berevoked or suspended for cause at any time. Alcoholic beverage controlregulations involve numerous aspects of the daily operations of ourrestaurants, including minimum age of patrons and employees, hours ofoperation, advertising, wholesale purchasing, inventory control and handling,storage, and dispensing of alcoholic beverages.

 

We are also subject to various otherfederal, state and local laws relating to the development and operation of restaurants,including those concerning preparation and sale of food, relationships withemployees (including minimum wage requirements, overtime and working conditionsand citizenship requirements), land use, zoning and building codes, as well asother health, sanitation, safety and environmental matters.

 

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**ITEM1A. RISK FACTORS**

** **

# **Risk Factors**

 

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

 

***Our substantial debt could harmour business.***

 

We are highly leveraged. At the end offiscal 2005, our aggregate outstanding indebtedness was $92.2 million; total stockholders’deficit was $17.3 million and we had a working capital deficit of $1.1 million.

 

Our high degree of leverage could haveimportant consequences, including, but not limited to:

 

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

 

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

 

•             we may besubstantially more leveraged than certain of our competitors, which may placeus at a competitive disadvantage; and

 

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

 

***Our ability to service our debtwill depend on many factors that are not within our control.***

 

Our ability to repay or to refinance ourobligations with respect to our debt will depend on our future financial andoperating performance, which, in turn, will be subject to prevailing economicand competitive conditions and to certain financial, business, legislative,regulatory and other factors, many of which are beyond our control. Thesefactors could include:

 

•             operatingdifficulties;

 

•             increasedoperating costs;

 

•             productpricing pressures;

 

•             the responseof competitors;

 

•             regulatorydevelopments; and

 

•             delays inimplementing strategic projects.

 

Our ability to meet our debt service andother obligations may depend in significant part on the extent towhich we can successfully implement our business strategy. There can be noassurance, however, we will be able to implement our strategy fully or that theanticipated results of our strategy will be realized.

 

If our cash flow and capital resourcesare insufficient to fund our debt service obligations, we may be forced toreduce or delay capital expenditures, sell assets, seek to obtain additionalequity capital, or to refinance or restructure our debt. There can be noassurance our cash flow and capital resources will be sufficient for payment ofprincipal of, and premium, if any, and interest on, our debt in the future, orany such alternative measures would be successful or would permit us to meetour scheduled debt service obligations.

 

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***Covenants in ourIndenture currently restrict our discretion in operating our business andfailure to comply with these covenants could result in the acceleration of ourobligations under the Senior Notes.***

 

Our Indenture for the Senior Notesimposes significant operating and other restrictions on us. Such restrictionswill affect, and in many respects significantly limit or prohibit, among otherthings, our ability to:

 

•             incuradditional debt;

 

•             paydividends or make other distributions;

 

•             make certaininvestments;

 

•             createcertain liens;

 

•             sell certainassets;

 

•             enter intocertain transactions with affiliates; and

 

•             engage incertain mergers or consolidations.

 

A failure by us to comply with theserestrictions could lead to a default under the terms of the Indenture. In theevent of a default, all amounts borrowed pursuant thereto could be declaredimmediately due and payable, together with a premium and accrued and unpaidinterest. In such event, there can be no assurance that we would be able tomake such payments or borrow sufficient funds from alternative sources to makeany such payments. Even if we were able to obtain additional financing, therecan be no assurance such financing would be on terms favorable or acceptable tous.

 

***We may not be able to growat a rate necessary to achieve profitable future operating results.***

 

Our future operating results will dependlargely upon our ability to open and operate new restaurants successfully andto manage a growing business profitably. This will depend on a number offactors (some of which are beyond ourcontrol), including the:

 

•             selectionand availability of suitable restaurant locations;

 

•             negotiationof acceptable lease or financing terms;

 

•             securing ofrequired governmental permits and approvals;

 

•             timelycompletion of necessary construction or remodeling of restaurants;

 

•             hiring andtraining of skilled management and personnel;

 

•             successfulintegration of new or newly acquired restaurants into our existing operations;and

 

•             recognitionand response to regional differences in guest menu and concept preferences.

 

There can be no assurance that we canachieve our expansion plans on a timely and profitable basis, if at all, thatwe will be able to achieve results similar to those achieved in existinglocations in prior periods, or that such expansion will not result in reducedsales at existing restaurants. Any failure to successfully and profitablyexecute our expansion plans could have a material adverse effect on us.

 

***Our food costs and supplies couldbe adversely affected by many factors not under our control.***

 

Our profitability is dependent on, amongother things, our continuing ability to offer fresh, high quality food atmoderate prices. Various factors beyond our control, such as adverse weather,labor disputes, increased pricing or other unforeseen circumstances, may affectour food costs and supplies. While management has been able to anticipate andreact to changing food costs and supplies to date through our purchasingpractices and menu price adjustments, there can be no assurance we will be ableto do so in the future.

 

We also obtain approximately 75% to 80%of our supplies through a single vendor pursuant to a contract for delivery anddistribution, with the vendor charging fixed mark-ups over prevailing wholesaleprices. This contract expires in 2011. Although we believe that we would beable to replace any vendor if we were required to do so, any disruption insupply from vendors could result 

 

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in short-term supply shortages and wecould be required to purchase supplies at higher prices until we are able tosecure an alternative supply source. Any delay we experience in replacingvendors or distributors on acceptable terms could increase our food costs or,in extreme cases, require us to temporarily remove items from our menus.

 

***Increasing labor costs could adversely affect our profitability.***

 

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

 

***Increasedenergy costs may adversely affect our profitability.***

 

Our success depends in part onour ability to absorb increases in energy costs. The northeastern United Stateshas recently experienced significant increases in energy prices. If theseincreases should recur on a regular basis or become permanent, they may havean adverse effect on our profitability.

 

***We are vulnerable to fluctuationsin economic conditions, particularly those in the New England and Mid-Atlanticregions of the United States.***

 

Our business is sensitive to our guests’spending patterns, which in turn are subject to prevailing regional andnational economic conditions such as unemployment, interest rates, taxation andconsumer confidence. In addition, most of our restaurants are located in thenortheastern United States, with a large concentration in New England. We alsoanticipate that substantially all restaurants we open in the future will be instates where we presently have operations or in contiguous states.

 

Consequently, any adverse changes ineconomic conditions, particularly in the New England or Mid-Atlantic regions ofthe country, may have a material adverse effect on us.

 

***We may not be able tocompete successfully with other restaurants and other “dining sources”, whichcould reduce our revenues.***

 

The restaurant industry is intenselycompetitive with respect to, among other things, price, service, location andfood quality. We compete with many well-established national, regional andlocally-owned foodservice companies with substantially greater financial andother resources and longer operating histories, which, among other things, may betterenable them to react to changes in the restaurant industry. With respect toquality and cost of food, size of food portions, decor and quality service, wecompete with casual dining, family-style restaurants offering eat-in andtake-out menus, including, but not limited to, Olive Garden, Romano’s MacaroniGrill, Carrabba’s, Applebee’s, TGI Friday’s, Ruby Tuesday, Pizzeria UnoRestaurants and Chili’s. Many of our restaurants are located in areas of highconcentration of such restaurants. We also vie with all competitors inattracting guests, in obtaining premium locations for restaurants (includingshopping malls and strip shopping centers) and in attracting and retainingemployees.

 

We also face growing competition from thesupermarket industry, which now offers “convenient meals” in the form ofimproved entrees and side dishes from the deli section. We expect intensecompetition to continue, and possibly increase, in this area.

 

***Regulations affecting theoperation of our restaurants, including “dram-shop” statutes could impair ourprofitability, increase our operating costs and/or restrict our growth.***

 

The restaurant industry is subject toextensive federal, state and local laws and regulations, including thoserelating to building and zoning requirements and those relating to thepreparation and sale of food. The development and operation of restaurantsdepend to a significant extent on the selection and acquisition of suitablesites, which are subject to zoning, land use, environmental, traffic and otherregulations and requirements. We are also subject to licensing and regulationby state and local authorities relating to health, sanitation, safety and firestandards and liquor licenses, federal and state laws governing ourrelationships with employees (including the Fair Labor Standards Act andapplicable minimum wage requirements, overtime, family leave, tip credits, working conditions, safety standards and citizenshiprequirements), federal and state laws which prohibit discrimination and otherlaws

 

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regulating the design and operation offacilities, such as the Americans With Disabilities Act of 1990. In addition,we are subject to a variety of federal, state and local laws and regulationsrelating to the use, storage, discharge, emission, and disposal of hazardousmaterials. The impact of current laws and regulations, the effect of futurechanges in laws or regulations that impose additional requirements and theconsequences of litigation relating to current or future laws and regulationscould increase our compliance and other costs of doing business and thereforehave an adverse effect on our results of operations.

 

Failure to comply with the laws andregulatory requirements of federal, state and local authorities could resultin, among other things, revocation of required licenses, administrativeenforcement actions, fines and civil and criminal liability.

 

In addition, we are subject in certainstates to “dram-shop” statutes; which generally provide a person injured by anintoxicated person the right to recover damages from an establishment thatwrongfully served alcoholic beverages to the intoxicated person. We carryliquor liability coverage as part of our existing comprehensive generalliability insurance. There can be no assurance, however, that this insurancewill pay for all liabilities arising from a “dram-shop” lawsuit. We may also,in certain jurisdictions, be required to comply with regulations limitingsmoking in restaurants.

 

***Our business may be harmed by highly publicized incidents at oneor more of our restaurants.***

 

Multi-unit food service businesses, such asours, can be materially and adversely harmed by publicity resulting from poorfood quality, illness, injury or other health concerns or employee relations orother operating issues stemming from one location or a limited number oflocations, whether or not the company is liable, or from consumer concerns withrespect to the nutritional value of certain food. In addition, we cannotguarantee that our internal controls and training will be fully effective inpreventing all food-borne illnesses. Some food-borne illness incidents could becaused by third party food suppliers and transporters outside of our control.Any outbreak of such illness attributed to one or more of our restaurants or toa similar multi-unit restaurant chain, or the perception of such an outbreak,could harm our business.

 

***We may not be able to satisfactorily resolve other litigationmatters.***

 

Our business is subject to the risk oflitigation by employees, consumers, suppliers, shareholders or others throughprivate actions, class actions, administrative proceedings, regulatoryactions or other litigation. The outcome of litigation, particularly class actionlawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffsin these types of lawsuits may seek recovery of very large orindeterminate amounts, and the magnitude of the potential loss relating to suchlawsuits may remain unknown for substantial periods of time. The cost todefend future litigation may be significant. There may also beadverse publicity associated with litigation that could decrease customeracceptance of our services, regardless of whether the allegations are valid orwhether we are ultimately found liable. As a result, litigation may adverselyaffect our business, financial condition and results of operations.

 

***Any failure of, or disruption to,our information systems, could adversely affect our operations.***

 

We rely on various information systems tomanage our operations and regularly make investments to upgrade, enhance orreplace such systems. Any failure of, or disruption to, our information systemscould adversely affect our operations and have a material adverse effect on us.

 

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

 

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

 

9

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***A failure to attract and retain qualified employees may adverselyaffect us.***

 

Our successand the success of our restaurants depend upon our ability to attract andretain a sufficient number of qualified employees, including skilledmanagement, customer service personnel and wait and kitchen staff. We facesignificant competition in the recruitment of qualified employees. Ourinability to recruit and retain qualified individuals may delay theplanned openings of new restaurants, result in higher employee turnover, and affectour ability to provide a high quality customer experience in restaurants orexert pressure on wages or other employee benefits to attract qualifiedpersonnel. Any of these consequences could have a material adverse effect onour business and results of operations.

 

***We may not be able to protect our trademarks and other proprietaryrights.***

 

We believe our trademarks and otherproprietary rights are important to our success and competitive position.Accordingly, we devote substantial resources to the establishment andprotection of our trademarks and proprietary rights. The actions we take toprotect our intellectual property, however, may be inadequate to preventimitation of our products and concepts by others.

 

**ITEM1B. UNRESOLVED STAFF COMMENTS**

** **

**None.**

 

**ITEM 2. PROPERTIES**

 

Our executive office is located inNorthborough, Massachusetts. The office is occupied under the terms of a leasecovering approximately 20,000 square feet scheduled to expire in 2006 but hastwo three-year options to renew. We have not yet determined whether we willexercise the three-year option for this office that matures in August 2006.A separate office leased by us in Westborough, Massachusetts is beingsub-leased to a third party.

 

**Restaurant Locations**

 

The table below identifies the location of therestaurants operated by us during fiscal 2005.

 
| **State**             | ** ** | **Open as of  12/29/2004** | ** ** | **Openings** | ** ** | **Closings** | ** ** | **Open as of  12/28/2005** | ** ** |
|-----------------------|------------|----------------------------|------------|--------------|------------|--------------|------------|----------------------------|------------|
| Connecticut           |       | 11                         |       | —       |       | —       | ** ** | **11**                     | ** ** |
| Delaware              |       | 2                          |       | —       |       | —       | ** ** | **2**                      | ** ** |
| District of  Columbia |       | 2                          |       | —       |       | —       | ** ** | **2**                      | ** ** |
| Maryland              |       | 6                          |       | —       |       | —       | ** ** | **6**                      | ** ** |
| Massachusetts         |       | 39                         |       | —       |       | —       | ** ** | **39**                     | ** ** |
| New  Hampshire        |       | 3                          |       | —       |       | —       | ** ** | **3**                      | ** ** |
| New Jersey            |       | 6                          |       | —       |       | —       | ** ** | **6**                      | ** ** |
| New York              |       | 3                          |       | —       |       | —       | ** ** | **3**                      | ** ** |
| North  Carolina       |       | 2                          |       | —       |       | —       | ** ** | **2**                      | ** ** |
| Pennsylvania          |       | 7                          |       | 1            |       | —       | ** ** | **8**                      | ** ** |
| Rhode Island          |       | 2                          |       | —       |       | —       | ** ** | **2**                      | ** ** |
| Virginia              |       | 8                          |       | —       |       | —       | ** ** | **8**                      | ** ** |
| Total                 | ** ** | **91**                     | ** ** | **1**        | ** ** | —       | ** ** | **92**                     | ** ** |

 

We lease all but one of the 92restaurants operated by us at December 28, 2005. We own one restaurant infee. Leases for existing restaurants are generally for terms of 15 to 20 yearsand provide for additional option terms ranging from five to 20 years and aspecified annual rental. Most of these leases provide for additional rent basedon sales volumes exceeding specified levels. Leases for future restaurants willlikely include similar rent provisions. Remaining restaurant lease terms rangefrom less than one year to 24 years.

 

**ITEM 3. LEGAL PROCEEDINGS**

 

We are involved in various legalproceedings from time to time incidental to the conduct of our business. In ouropinion, any ultimate liability arising out of such proceedings will not have amaterial adverse effect on our financial condition or the results of our operations.

 

10

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

 

None.

 

**PART II**

# ** **

# **ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

# ** **

# **Market Information**

 

As of March 28, 2006, there was noestablished public trading market for our common equity security.

 

# **Record Holders**

 

As of March 28, 2006, we had 94holders of our Common Stock, $.01 par value per share and we did not have anyother class of common equity security issued or outstanding.

 

# **Dividends**

 

We have not paid any dividends since 1998.Furthermore, we do not foresee declaring or paying any cash dividends in theimmediate future. Moreover, the indenture governing the Senior Notessignificantly limits, and in certain cases prohibits, payment of cash dividendswithout the indenture trustee’s approval.

 

# **Recent Sales of Unregistered Securities**

 

None.

 

11

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**ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA**

 

The data for fiscal years ended 2001 through2005 are derived from our audited financial statements. Selected consolidatedfinancial data should be read in conjunction with Management’s Discussion andAnalysis of Financial Condition and Results of Operations and the ConsolidatedFinancial Statements and the Notes thereto included elsewhere in this Form 10-K.Historical results are not necessarily indicative of results to be expected inthe future. The Brinker Sale in 2001 affects the comparability of results priorto 2002.

 
| ** **                                                         | ** ** | **Statement of Operations Data  (in thousands except share and per share amounts)** | ** **  |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|-------------|
| ** **                                                         | ** ** | **Fiscal Year Ended**                                                               | ** **  |
| ** **                                                         | ** ** | **December 28,**                                                               | ** **  | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** | **January 2,** | ** ** |
| ** **                                                         | ** ** | **2005**                                                                            | ** **  | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Net sales                                                          |       | $                                                                                   | 204,784     |   | $ | 200,408 |   | $ | 186,172 |   | $ | 162,319 |   | $ | 186,638 |   |
| Cost of  sales and expenses                                        |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Cost of  sales                                                     |       | 47,611                                                                              |        | 49,231 |   | 43,544 |   | 35,667 |   | 44,855 |   |
| Operating  expenses                                                |       | 123,253                                                                             |        | 122,056 |   | 113,036 |   | 96,413 |   | 111,795 |   |
| General and  administrative expenses                               |       | 14,442                                                                              |        | 13,065 |   | 11,320 |   | 12,124 |   | 12,548 |   |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 11,228                                                                              |        | 12,657 |   | 14,123 |   | 12,413 |   | 14,378 |   |
| Asset  impairment charge                                           |       | 982                                                                                 |        | 6,749 |   | 3,580 |   | — |   | 1,986 |   |
| Closed  restaurants charge                                         |       | —                                                                              |        | — |   | — |   | 236 |   | 3,654 |   |
| Cost of  sales and expenses                                        |       | 197,516                                                                             |        | 203,758 |   | 185,603 |   | 156,853 |   | 189,216 |   |
| Income  (loss) from operations                                     |       | 7,268                                                                               |        | (3,350 | ) | 569 |   | 5,466 |   | (2,578 | ) |
| Other  (expense) income                                            |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Gain on  Brinker Sale (b)                                          |       | —                                                                              |        | — |   | 650 |   | — |   | 36,932 |   |
| Gain on  retirement of Senior Notes                                |       | —                                                                              |        | — |   | — |   | — |   | 2,290 |   |
| Interest  expense, net                                             |       | (10,411                                                                             | )           | (10,613 | ) | (10,133 | ) | (9,587 | ) | (11,365 | ) |
| Other  (expense) income                                            |       | (10,411                                                                             | )           | (10,613 | ) | (9,483 | ) | (9,587 | ) | 27,857 |   |
| (Loss)  income before income tax provision                         |       | (3,143                                                                              | )           | (13,963 | ) | (8,914 | ) | (4,121 | ) | 25,279 |   |
| Income tax  provision                                              |       | —                                                                              |        | — |   | — |   | 4,145 |   | 10,854 |   |
| Net (loss)  income                                                 |       | $                                                                                   | (3,143      | ) | $ | (13,963 | ) | $ | (8,914 | ) | $ | (8,266 | ) | $ | 14,425 |   |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Basic (loss)  income per share                                     |       | $                                                                                   |  (1.06 | ) | $ |  (4.74 | ) | $ |  (3.00 | ) | $ |  (2.77 | ) | $ |  4.84 |   |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - basic                       |       | 2,960,025                                                                           |        | 2,943,841 |   | 2,970,403 |   | 2,978,955 |   | 2,978,955 |   |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Diluted  (loss) income per share                                   |       | $                                                                                   | (1.06       | ) | $ | (4.74 | ) | $ | (3.00 | ) | $ | (2.77 | ) | $ | 4.43 |   |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - diluted                     |       | 2,960,025                                                                           |        | 2,943,841 |   | 2,970,403 |   | 2,978,955 |   | 3,252,605 |   |
|                                                               |       |                                                                                |        |   |   |   |   |   |   |   |   |
| Comparable  restaurant sales (a)                                   |       | 0.2                                                                                 | %           | 1.4 | % | 4.1 | % | 5.8 | % | 2.2 | % |

 
|                                       |   | **Balance Sheet Data (in thousands)** |       |
|--------------------------------------------|--------|---------------------------------------|------------|
|                                       |   | **December 28,**                 | ** ** | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** | **January 2,** |   |
|                                       |   | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** | **2002** |   |
|                                       |   |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                               |   | $                                     | 112,545    |   | $ | 112,221 |   | $ | 124,416 |   | $ | 123,121 |   | $ | 131,961 |   |
| Long term  obligations                     |   | $                                     | 92,179     |   | $ | 92,307 |   | $ | 92,981 |   | $ | 87,167 |   | $ | 87,995 |   |
| Total  stockholders’ (deficit) equity |   | $                                     | (17,303    | ) | $ | (14,732 | ) | $ | (490 | ) | $ | 8,495 |   | $ | 16,761 |   |

 
|                                                   |   | **Cash Flow Data (in thousands)** |       |
|--------------------------------------------------------|--------|-----------------------------------|------------|
|                                                   |   | **December 28,**             | ** ** | **December 29,** | ** ** | **December 31,** | ** ** | **January 1,** | ** ** | **January 2,** |   |
|                                                   |   | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                   |   |                              |       |   |   |   |   |   |   |   |   |
| Cash flows  provided by operating activities           |   | $                                 | 12,927     |   | $ | 7,881 |   | $ | 9,071 |   | $ | 9,169 |   | $ | 4,326 |   |
| Cash flows  (used in) provided by investing activities |   | (4,108                            | )          | (7,872 | ) | (9,358 | ) | (19,271 | ) | 23,251 |   |
| Cash flows  provided by (used in) financing activities |   | 272                               |       | (365 | ) | (199 | ) | — |   | (11,944 | ) |
| Increase  (decrease) in cash                           |   | $                                 | 9,091      |   | $ | (356 | ) | $ | (486 | ) | $ | (10,102 | ) | $ | 15,633 |   |

 

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

 

(b)              In April 2001,we completed the sale of 40 Chili’s Grill and Bar (“Chili’s”) and seven On TheBorder Mexican Cantina (“OTB”) restaurants to Brinker International, Inc.(“Brinker”) for a total consideration of $93.5 million (the “Brinker Sale”). Brinkeracquired the inventory, facilities, equipment and management teams associatedwith these restaurants, as well as the four Chili’s restaurants underdevelopment by us. Further, Brinker assumed the mortgage debt on our Chili’sand OTB restaurants. We recorded a gain in 2001 on the Brinker Sale of $36.9million before income taxes. During fiscal 2003 we concluded certainliabilities recorded in connection with the Brinker Sale were no longerrequired and accordingly reversed $650,000 of accrued liabilities as anadditional gain on the Brinker Sale.

 

12

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**ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

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

 

# **General**

 

We are a Delawarecorporation and the owner and operator of a chain of full-service casualdining, Italian-style restaurants under the names Bertucci’s Brick OvenPizzeria® and Bertucci’s Brick Oven Ristorante®. We incorporated in 1994 as NERestaurant Company, Inc. and formally changed our name to Bertucci’sCorporation on August 16, 2001. As of December 28, 2005, we operated92 restaurants located primarily in the northeastern United States.

 

In July 1998, wecompleted our acquisition of Bertucci’s Restaurant Corp.’s parent entity,Bertucci’s, Inc., for a purchase price, net of cash received, ofapproximately $89.4 million (the “Acquisition”). We financed the Acquisitionprimarily through the issuance of $100 million of 103⁄4% senior notes due 2008 (the“Senior Notes”). $85.3 million in principal of the Senior Notes are still  outstanding.

 

**Results ofOperations**

 

For all our restaurants,net sales consist of food, beverage and alcohol sales. Cost of sales consistsof food, beverage and alcohol costs as well as supplies used in carry-out anddelivery sales. Total operating expenses consist of five primarycategories:  (i) labor expenses; (ii) restaurantoperations; (iii) facility costs; (iv) office expenses; and (v) otherexpenses, which include such items as advertising expenses, rent and insurance.General and administrative expenses include costs associated with our departmentsassisting in restaurant operations and management of the business, includingmulti-unit supervision, accounting, management information systems, training,executive management, purchasing and construction.

 

The following table setsforth the percentage-relationship to net sales, unless otherwise indicated, ofcertain items included in our consolidated statements of operations, for theperiods indicated:

 

**STATEMENTOF OPERATIONS DATA**

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

 
| ** **                                                         | ** ** | **December 28,** | ** ** | **December 29,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003**              | ** ** |
|                                                               |       |                  |       |                  |       |                  |       |
| Net sales                                                          |       | 100.0                 |       | 100.0                 |       | 100.0                 |       |
|                                                               |       |                  |       |                  |       |                  |       |
| Cost of  sales and expenses:                                       |       |                  |       |                  |       |                  |       |
| Cost of  sales                                                     |       | 23.2                  |       | 24.6                  |       | 23.4                  |       |
| Operating  expenses                                                |       | 60.2                  |       | 60.9                  |       | 60.7                  |       |
| General and  administrative expenses                               |       | 7.1                   |       | 6.5                   |       | 6.1                   |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 5.5                   |       | 6.3                   |       | 7.6                   |       |
| Asset  impairment charge                                           |       | 0.5                   |       | 3.4                   |       | 1.9                   |       |
| Total cost  of sales and expenses                                  |       | 96.5                  |       | 101.7                 |       | 99.7                  |       |
|                                                               |       |                  |       |                  |       |                  |       |
| Income  (loss) from operations                                     |       | 3.5                   |       | (1.7                  | )          | 0.3                   |       |
|                                                               |       |                  |       |                  |       |                  |       |
| Other  expense:                                                    |       |                  |       |                  |       |                  |       |
| Adjustment  of gain on Brinker Sale                                |       | —                |       | —                |       | 0.3                   |       |
| Interest  expense, net                                             |       | (5.0                  | )          | (5.3                  | )          | (5.4                  | )          |
| Other  expense                                                     |       | (5.0                  | )          | (5.3                  | )          | (5.1                  | )          |
|                                                               |       |                  |       |                  |       |                  |       |
| Loss before  income tax provision                                  |       | (1.5                  | )          | (7.0                  | )          | (4.8                  | )          |
|                                                               |       |                  |       |                  |       |                  |       |
| Income tax  provision                                              |       | —                |       | —                |       | —                |       |
|                                                               |       |                  |       |                  |       |                  |       |
| Net loss                                                           |       | (1.5                  | )          | (7.0                  | )          | (4.8                  | )          |

 

13

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**Year Ended December 28, 2005 Compared toYear Ended December 29, 2004**

 

*Net Sales*.Total net sales increased by $4.4 million, or 2.2%, to $204.8 million duringfiscal 2005 from $200.4 million during fiscal 2004. The increase was due to a 0.2%increase in our 89 comparable Bertucci’s restaurants, the incremental 49restaurant weeks resulting from full year operations of two new restaurants openedduring 2004 and the addition of one new restaurant opening in 2005 (anincremental 47 restaurant weeks). Our comparable restaurant dine-in sales decreased0.5% while our comparable restaurant carry-out and delivery sales increased 2.9%in fiscal 2005. The comparable guest counts, measured on dine-in business only,were essentially flat in 2005 versus 2004. The 89 comparable restaurants’ salesaverage during 2005 was $2.2 million per restaurant while the sales average forthe two restaurants opened during 2004 was $1.9 million. The average weeklysales for the one restaurant opened during 2005 was $43,500 during the 47 weeksit was opened in 2005.

 

*Cost of Sales*.Cost of sales as a percentage of net sales decreased to 23.2% during fiscal 2005from 24.6% during fiscal 2004. The decrease was primarily attributable to a decrease in certain ingredient costs,primarily cheese and oil, increased inventory controls, as well as a menu mixshift to lower cost items introduced during 2005.

 

*Operating Expenses.*Operating expenses increased by $1.2 million, or 1.0%, to $123.3 million duringfiscal 2005 from $122.1 million during fiscal 2004. Expressed as a percentageof net sales, operating expenses decreased to 60.2% in 2005 from 60.9% in 2004.The key components of operating expenses are payroll (including relatedemployer taxes), utilities, restaurant facilities maintenance, rent andadvertising. The dollar increase in these expenses is primarily attributable toincreased occupancy and general facility expenses ($1.7 million) and utilitycosts (primarily natural gas) ($1.4 million); offset by reduced payroll and benefits($0.8 million), advertising ($0.8 million), and property and liabilityinsurance premiums ($0.3 million).

 

*General andAdministrative Expenses.* General and administrativeexpenses increased by $1.3 million, or 9.9%, to $14.4 million during fiscal 2005from $13.1 million during fiscal 2004. Expressed as a percentage of net sales,general and administrative expenses increased to 7.1% in fiscal 2005 from 6.5%during fiscal 2004. The dollar and percentage increases were primarily due to higher incentive compensation expense ($1.5million) as our internal earningstarget was achieved and this triggered additional compensation obligations.

 

*Deferred Rent,**Depreciation, Amortization and PreopeningExpenses*. Deferred rent, depreciation, amortization and preopeningexpenses decreased by approximately $1.5 million, or 11.8%, to $11.2 millionduring fiscal 2005 from $12.7 million during fiscal 2004. As we only opened onerestaurant in 2005, preopening expenses totaled only $185,000, a $300,000 decreasefrom 2004 during which there were two restaurant openings. Deferred rentdecreased by approximately $500,000 as many leases with step rent provisionsnow require cash payments in excess of the calculated pro-rata rent expense. Depreciationdecreased by approximately $800,000 in 2005 as prior period impairment charges havereduced the cost basis of certain assets and the associated depreciationexpense. Additionally, equipment acquired in the Acquisition has become fullydepreciated during 2005. These items more than offset incremental depreciationfrom fiscal 2005 and 2004 restaurant openings of approximately $273,000.

 

*Asset Impairment Charge.*In 2005, we assessed certain non-performingrestaurants for recoverability of recorded amounts. As a result of our evaluation,we determined an impairment of fixed assets existed at six restaurant locationsduring 2005. We estimated the fair value of these assets based on the netpresent value of the expected cash flows from the restaurants and determinedthe carrying amount of the assets exceeded their fair value by approximately$982,000. We recorded an impairment charge in that amount to reflect the writedown of the affected assets to fair value.

 

*Interest Expense,net.*Interest expense decreased by approximately $200,000to $10.4 million during fiscal 2005 from $10.6 million during fiscal 2004. Interestexpense in 2005 was primarily comprised of $9.2 million paid on the SeniorNotes in semi-annual installments and was consistent with interest expenserecorded in fiscal 2004. Interest income increased by $232,000 primarily due toincreased overnight investment funds resulting from reduced capitalexpenditures and higher short term interest rates in 2005. A reduction ininterest capitalized of $60,000 partially offset the increased interest income.

 

*Income Taxes.*Wehave an historical trend of recurring pre-tax losses. During the fourth quarterof 2002 we recorded a full valuation allowance for our net deferred tax asset. Wealso provided a full valuation allowance relating to the tax benefits generatedsince 2002 (primarily from our operating losses). As of December 28, 2005,we had net operating loss and tax credit carryforwards totaling $13.1 million.

 

**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 duringfiscal 2004 from $186.2 million during fiscal 2003. The increase was due to a1.4% increase in the 79 comparable Bertucci’s restaurants, the incremental264.7 restaurant weeks resulting from full year operations of ten newrestaurants built during 2003 and the addition of two new restaurant openingsin 2004 which contributed an incremental 54.9 restaurant weeks. Our comparablerestaurant dine-in sales increased 1.7% 

 

14

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while our comparable restaurant carry-out and delivery sales increased0.6% for fiscal 2004. The comparable guest counts, measured on dine-in businessonly, decreased by 4.3% in 2004 versus 2003. We believe the majority of thecomparable sales increases were the result of a shift in menu mix and anapproximate 3.6% price increase in January 2004. The aforementionedcombined price increase and shift in menu mix combined to drive a 6.5% increasein dine-in revenue per person in 2004 versus 2003. The 79 comparablerestaurants’ sales average during 2004 was $2.2 million while the sales averagefor the ten restaurants opened during 2003 and were opened for the full year of2004 was also $2.2 million. The average weekly sales for the two restaurantsopened during 2004 were $36,500.

 

*Cost of Sales*.Cost of sales as a percentage of net sales increased to 24.6% during fiscal2004 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 ofoperating expenses were payroll (including related employer taxes), utilities,restaurant facilities maintenance, rent and advertising. The dollar increase inthese expenses was primarily attributable to the additional restaurants beingoperated and a $1.0 million increase in advertising expense which totaled $6.6million in 2004. The increase as a percentage of net sales to 60.9% in fiscal2004 from 60.7% in fiscal 2003 resulted primarily from the advertising expenseincrease.

 

*General andAdministrative Expenses.* General and administrativeexpenses increased by $1.8 million, or 15.9%, to $13.1 million during fiscal2004 from $11.3 million during fiscal 2003. Expressed as a percentage of netsales, general and administrative expenses increased to 6.5% in fiscal 2004from 6.1% during fiscal 2003. The dollar and percentage increases wereprimarily due to higher benefitexpenses and higher professional fees.

 

*Deferred Rent,**Depreciation, Amortization and PreopeningExpenses*. Deferred rent, depreciation, amortization and preopeningexpenses decreased by approximately $1.4 million, or 9.9%, to $12.7 millionduring fiscal 2004 from $14.1 million during fiscal 2003. Due to only tworestaurant openings in 2004, preopening expenses totaled $519,000, a $1.6million decrease over 2003 during which there were ten restaurant openings.Deferred rent decreased by approximately $300,000 as many leases with step rentprovisions now require cash payments in excess of the calculated pro-rata rentexpense. The additional restaurant openings in both fiscal 2004 and 2003resulted in an incremental $800,000 of depreciation expense in fiscal 2004.

 

*AssetImpairment Charge.*We assessed certain non-performing restaurants for recoverability ofrecorded amounts in 2004 and determined an impairment of fixed assets existedat twelve restaurant locations. We estimated the fair value of these assetsbased on the net present value of the expected cash flows from the restaurantsand determined that the carrying amount of the assets exceeded their fair valueby approximately $6.7 million. We recorded an impairment charge in that amountto reflect the write down of the affected assets to fair value.

 

*Interest Expense,net.*Interest expense increased by approximately$500,000 to $10.6 million during fiscal 2004 from $10.1 million during fiscal2003. Interest expense was primarily comprised of $9.2 million paid on theSenior Notes in semi-annual installments. In fiscal 2004, $539,000 of interestwas incurred on capital lease obligations, $229,000 higher than in 2003 whencertain underlying sale leaseback transactions were recorded (See Note 6 ofNotes to Consolidated Financial Statements). Interest capitalized toconstruction decreased $161,000 in 2004 from 2003 due to fewer restaurantopenings. Additionally, interest income decreased by $41,000 in 2004 primarilydue to lower interest rates. Lastly, deferred finance costs amortizationincreased approximately $40,000 in conjunction with the sale leasebacktransactions consummated in 2003.

 

*Income Taxes.*Wehave an historical trend of recurring pre-tax losses. During the fourth quarterof 2002 we recorded a full valuation allowance for our net deferred tax asset. Wealso provided a full valuation allowance relating to the tax benefits generatedsince 2002 (primarily from its operating losses). As of December 29, 2004,we had net operating loss and tax credit carryforwards totaling $7.8 million.

 

**Liquidity and Capital Resources**

 
| ** **                                             | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows  provided by operating activities           |       | $        | 12,927     |     | $          | 7,881    |       | $ | 9,071 |   |
| Cash flows  used in investing activities               |       | (4,108   | )          | (7,872   | )          | (9,358   | )          |
| Cash flows  provided by (used in) financing activities |       | 272      |       | (365     | )          | (199     | )          |
| Net increase  (decrease) in cash                       |       | $        | 9,091      |     | $          | (356     | )          | $ | (486 | ) |

 

15

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We have historically met our capitalexpenditures and working capital needs through a combination of operating cashflow, bank and mortgage borrowings, the sale of the Senior Notes, the sale ofCommon Stock, and, in fiscal 2003, two sale leaseback transactions. We expectour future capital and working capital needs will be funded from operating cashflow and cash on hand.

 

Net cash flows from operating activitieswere $12.9 million for fiscal 2005 as compared to $7.9 million for fiscal 2004.While the fiscal 2005 net loss decreased $10.8 million from fiscal 2004,included in the net loss in 2004 was a $6.7 million non-cash asset impairmentcharge compared to an asset impairment charge of $1.0 million in 2005. As of December 28,2005, we had $21.4 million in cash and cash equivalents.

 

Our capital expenditures were $4.3million, $8.6 million, and $17.4 million, for fiscal 2005, 2004, and 2003,respectively. In fiscal 2005, $3.9 million of our capital spending wasattributable to remodeling and upgrading facilities in our existing restaurantsand $400,000 was used for new restaurant development. We anticipate fiscal 2006capital expenditures will be approximately $6.5 million.

 

As of December 28, 2005, we had $92.2million in consolidated indebtedness, $85.3 million pursuant to the Senior Notes,$6.1 million of capital lease obligations, and $0.8 million of promissory notes.The Senior Notes contain no financial covenants and we are in compliance withall non-financial covenants as of March 28, 2006. The Senior Notes bearinterest at the rate of 10 3⁄4% per annum, payable semi-annually on January 15and July 15. The Senior Notes are due in full on July 15, 2008. ThroughJuly 15, 2006, we may, at our option, redeem any or all of the SeniorNotes at face value, plus a declining premium, which is 1.79% through July 15,2006. After July 15, 2006, the Senior Notes may be redeemed at facevalue. Additionally, under certain circumstances, including a change of controlor following certain asset sales, the holders of the Senior Notes may requireus to repurchase the Senior Notes at a redemption price of 101% of face value. SeeNote 5 of Notes to Consolidated Financial Statements.

 

We are operating without a line of creditand are funding all of our growth, debt reductions and operating needs out ofcash flows from operations and cash on hand.

 

We have established a $4.0 million(maximum) letter of credit (expiring in December 2006) as collateral withthird party administrators for self insurance reserves. As of December 28,2005, this facility is collateralized with $2.2 million of cash restricted fromgeneral use. Letters of Credit totaling $2.2 million were outstanding on December 28,2005, a $200,000 decrease from the fiscal 2004 ending balance.

 

Our future operating performance andability to service or refinance the Senior Notes will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond our control. Significant liquidity demands will arise from debtservice on the Senior Notes.

 

 

## **Thetable below depicts our future contractual obligations committed as of December 28,2005:**

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

 

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| (a) | – | See Note 6 of Notes to Consolidated Financial  Statements                  |
|-----|--------|----------------------------------------------------------------------------|
| (b) | – | including interest at 10 3⁄4% per annum to  maturity in July 2008. |
| (c) | – | including interest at a weighted average  rate of 7.35% per annum.         |

 

We believe the cash flow generated from ouroperations and cash on hand should be sufficient to fund our debt servicerequirements, lease obligations, expected capital expenditures and otheroperating expenses through 2006. Beyond 2006 and up to the 2008 maturity of ourSenior Notes, we expect to be able to service our debt, but the lack of shortterm borrowing availability may impede our growth. We are evaluatingvarious refinancing alternatives for our Senior Notes upon their maturity in2008.

 

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## ** **

## **Impactof Inflation**

 

Inflationary factors such as increases inlabor, food or other operating costs could adversely affect our operations. Wedo not believe inflation has had a material impact on our financial position orresults of operations for the periods discussed above. We believe through theproper leveraging of purchasing size, labor scheduling, and restaurantdevelopment analysis, inflation will not have a material adverse effect on our incomeduring the foreseeable future. There can be no assurance inflation will notmaterially adversely affect us.

## ** **

## **Seasonality**

 

Our quarterly results of operations havefluctuated and are expected to continue to fluctuate depending on a variety offactors, including the timing of new restaurant openings and related preopeningand other startup expenses, net sales contributed by new restaurants, increasesor decreases in comparable restaurant sales, competition and overall economicconditions. Our business is also subject to seasonal influences of consumerspending, dining out patterns and weather. As is the case with many restaurantcompanies, we typically experience lower net sales and net income during thefirst 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 will be achieved for the full year or any futurequarter.

 

**Critical Accounting Policies and Estimates**

 

The discussion and analysis of ourfinancial condition and results of operations are based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America. The preparationof these financial statements requires us to make estimates and judgmentsaffecting the reported amounts of assets, liabilities, revenues and expenses,and related disclosure of contingent assets and liabilities. On an on-goingbasis, estimates are evaluated, including those related to the impairment oflong-lived assets, self-insurance, and closed restaurants reserve. Estimates arebased on historical experience and on various other assumptions believed to bereasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

We believe the following criticalaccounting policies affect the more significant judgments and estimates used inour preparation of our consolidated financial statements.

 

*Impairment of Long-Lived Assets*

 

We evaluate property and equipment heldand used in the business for impairment whenever events or changes incircumstances indicate the carrying amount of a restaurant’s assets may notbe recoverable. An impairment is determined to exist if the estimatedundiscounted future operating cash flows (which we estimate using historicalcash flows and other relevant facts and circumstances) for a restaurant exceedsthe carrying amount of its assets. If an impairment exists, the amount ofimpairment is measured as the excess of the carrying amount over the estimateddiscounted future operating cash flows of the asset and the expected proceedsupon sale of the asset. The estimates and assumptions used during this processare subject to a high degree of judgment.

 

During 2005 we assessed certain non-performing restaurants forrecoverability of recorded amounts and determined an impairment of fixed assetsexisted at six restaurant locations. We estimated the fair value of theseassets based on the net present value of the expected cash flows from therestaurants and determined the carrying amount of the assets exceeded theirfair value by approximately $982,000. We recorded an impairment charge in thatamount to reflect the write down of the affected assets to fair value.

 

During 2004, we assessed certainnon-performing restaurants for recoverability and determined an impairment offixed assets existed at twelve restaurant locations. We estimated the fairvalue of these assets based on the net present value of the expected cash flowsof the restaurants and determined that the carrying amount of the assetsexceeded their fair value by approximately $6.7 million. Consequently, werecorded an impairment charge in this amount to reflect the write down of theaffected assets to their fair value in 2004.

 

Our similar analysis in 2003 determinedthe carrying amount of the assets in four restaurants exceeded their fair valueby approximately $3.6 million. Accordingly, we recorded an impairment charge toreflect the write down of the affected assets to fair value in 2003.

 

In addition, at least annually, we assessthe recoverability of goodwill and other intangible assets related to ourrestaurant concept. These impairment tests require us to estimate fair valuesof our restaurant concept by making assumptions regarding future cash flows andother factors. If these assumptions change in the future, we may berequired to record impairment charges for these assets. To date, such analysishas indicated no impairment of goodwill and other intangible assets hasoccurred.

 

17

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*Income Tax Valuation Allowances*

 

The future tax benefits which give riseto the deferred tax asset remain statutorily available to us. We consider bothnegative and positive evidence in determining if a valuation allowance isappropriate. We had net operating losses and tax credit carry forwards of $6.0million as of December 28, 2005 which expire at various dates through 2019.We have an historical trend of recurring pre-tax losses. Based on the recentlosses and the historical trend of losses, we concluded a valuation allowancefor the net deferred tax asset remains appropriate. Actual amounts realizedwill be dependent on generating future taxable income.

 

*Self-Insurance*

 

We are self-insured for certain lossesrelated to general liability, group health insurance, and workers’ compensation.We maintain stop loss coverage with third party insurers to limit our totalexposure. The self-insurance liability represents an estimate of the ultimatecost of claims incurred as of the balance sheet date. The estimated liabilityis not discounted and is established based upon analysis of historical data andestimates of the ultimate costs of claims incurred, and are reviewed by us on aquarterly basis to ensure the liability is appropriate. If actual trends,including the severity or frequency of claims, differ from our estimates, our financialresults could be impacted. To date we are not aware of any activity requiringsignificant adjustments to these reserves.

 

*ClosedRestaurants Reserve*

 

We remainprimarily liable on leases for 11 closed locations. We review the specifics ofeach site on a quarterly basis to estimate our net remaining liability over theremaining lease term. Certain locations have subtenants in place while othersremain vacant. Estimates must be made of future sublease income or leaseassignment possibilities. If subtenants default on their subleases or projectedfuture subtenants are not obtained, actual results could differ from ourestimates, thereby impacting our financial results. Such a review resulted in acharge of $236,000 in 2002 when a restaurant was closed prior to its leasetermination. All other activity in fiscal 2002 through 2005 has been consistentwith reserves and no additional increases in the reserve were necessary.

* *

***RecentAccounting Pronouncements***

 

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

 

InDecember 2004, the FASB issued SFAS No. 123R which requires allshare-based payments to employees to be recognized in the financial statementsbased on their fair values. SFAS No. 123R replaces SFAS No. 123,*Accounting for Stock-Based Compensation*,and supersedes Accounting Principles Board Opinion No. 25, or APB Opinion No. 25,*Accounting for Stock Issued to Employees*.Effective December 29, 2005, we will adopt the provisions of SFAS No. 123Rusing the modified prospective method. Under this method, compensation expenseis recorded for all unvested options over the related vesting period beginningin the quarter of adoption. We currently apply the intrinsic value based methodprescribed in APB Opinion No. 25 in accounting for employee stock-basedcompensation. Upon adoption of SFAS No. 123R, we will recognizestock-based compensation costs rateably over the service period. This statementalso amends SFAS No. 95,*Statement ofCash Flows*, to require that excess tax benefits be reflected asfinancing cash inflows rather than operating cash inflows. In March 2005,the SEC issued Staff Accounting Bulletin, or SAB No. 107 regarding theStaff’s interpretation of SFAS No. 123R. This interpretation provides theStaff’s views regarding interactions between SFAS No. 123R and certain SECrules and regulations and provides interpretations of the valuation ofshare-based payments for public companies. The interpretive guidance isintended to assist companies in applying the provisions of SFAS No. 123Rand investors and users of the financial statements in analyzing theinformation provided. We will follow the guidance prescribed in SAB No. 107in connection with our adoption of SFAS No. 123R. The impact of theadoption of SFAS No. 123R and SAB No. 107 is estimated to result in acompensation charge for fiscal year 2006 of approximately $100,000.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISKS.**

 

We have no exposure to specific risksrelated to derivatives or other “hedging” types of financial instruments.  In addition, we do not have operations outsideof the United States of America which expose us to foreign currency risk andsubstantially all of our outstanding debt has fixed interest rates.

 

18

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**ITEM 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

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

 

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

*Disclosure Controls andProcedures*. We maintain disclosurecontrols and procedures designed to ensure that information required to bedisclosed in our reports under the Securities Exchange Act of 1934, as amended(the “Exchange Act”), is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the Securities andExchange Commission (the “SEC”), and such information is accumulated andcommunicated to management, including our Chief Executive Officer (the “CEO”)and Chief Financial Officer (the “CFO”), as appropriate, to allow timelydecisions regarding required disclosure. In designing and evaluating ourdisclosure controls and procedures, we recognized that controls and procedures,no matter how well designed and operated, can provide only reasonable assuranceof achieving the desired control objectives, as ours are designed to do, and wenecessarily were required to apply our judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

During the fourth quarter of fiscal 2005, weperformed an evaluation under the supervision and with the participation of ourmanagement, including our CEO and CFO, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act). In performing this evaluation, we became aware of errors inour detailed property and equipment records. These errors involved thecalculation of depreciation expense on multiple property records and therelated impact on income taxes during the period of 1998 through 2004,inclusive, and the first two fiscal quarters of 2005 (the “Relevant Period”).

 

Management then conducted an investigationconcerning the extent and magnitude of these errors. As a result of thisinquiry, on January 12, 2006 the Audit Committee and management concluded,among other things, that: (1) our depreciation and income tax expenseaccounting practices were not appropriate as of December 28, 2005; (2) anaggregate additional depreciation expense of approximately $3.5 million neededto be recorded in our financial statements for the Relevant Period; and (3) incometax expense was not properly adjusted in connection with the restatement of ourfinancial statements in April 2005. In connection with these conclusions,we determined our financial statements relating to the Relevant Period wererequired to be restated (the “Restatement”). Based on the determination ourdepreciation and income tax expense accounting practices were not appropriateas of December 28, 2005, our CEO and CFO concluded our disclosure controlsand procedures were not effective as of that date.

 

*Internal Control Over FinancialReporting*. Basedon 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*), the Restatementwas a strong indicator of the existence of a “material weakness” in the designor operation of internal control over financial reporting. Based on theevaluation of our controls and procedures, we concluded a material weaknessexisted in our internal control over financial reporting as it related to ourdepreciation expense accounting practices, and disclosed this to the AuditCommittee and to the Company’s independent registered public accounting firm.

 

*Remediation Steps to AddressMaterial Weakness*.To remediate this material weakness in our internal control over financialreporting, in the first quarter of 2006 the Company re-performed all of thenecessary calculations and added sufficient review and approval procedures toassure management the material weakness has been corrected.

 

*Change in Internal Control OverFinancial Reporting*.There were no significant changes in our internal control over financialreporting that occurred during our fourth fiscal quarter of 2005 thatmaterially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting. We did, however, make changes to ourinternal control over financial reporting in the first quarter of fiscal 2006,by making the changes to our depreciation and income tax expense accountingpractices set forth above.

 

**ITEM 9B. OTHER INFORMATION**

 

None.

 

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**PART III**

 

**ITEM 10. DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The following table setsforth certain information with respect to our executive officers and directorsat the time of this filing:

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                                      |
|-----------------------|------------|---------|------------|-------------------------------------------------------------------|
| Stephen V.  Clark     |       | 52      |       | Vice Chairman of the Board of Directors,  Chief Executive Officer |
| David G.  Lloyd       |       | 42      |       | President, Chief Financial Officer and  Director                  |
| Benjamin R.  Jacobson |       | 61      |       | Chairman of the Board of Directors and  Treasurer                 |
| Sally M.  Dungan      |       | 52      |       | Director *                                                        |
| James J.  Morgan .    |       | 63      |       | Director #                                                        |
| James N.  Moriarty    |       | 39      |       | Director *                                                        |
| Heywood  Wilansky     |       | 58      |       | Director * #                                                      |
| James R.  Parish.     |       | 59      |       | Director                                                          |

 

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*                 Member of AuditCommittee

#                 Member ofCompensation Committee

 

**Stephen V. Clark.**Mr. Clarkbecame Chief Executive Officer in August 2004 and was named Vice Chairmanof the Board of Directors in August 2005. He was President from October 2004through August 2005, and has served as a director since April 2002. Mr. Clarkwas the President and Chief Executive Officer of Taco Bueno, a quick serviceMexican restaurant chain of over 120 stores, from June 2001 through August 2005(during which time he was also our Chief Executive Officer beginning in August 2004and our President beginning in October 2004). He previously served as TacoCabana Inc.’s Chief Executive Officer from November 1996 through April 2001and was previously the President, Chief Operating Officer, and Director at TacoCabana from April 1995 through November 1996. Prior to that, Mr. Clarkheld various positions with Church’s Chicken, a division of America’s FavoriteChicken, over seventeen years, the last having been Senior Vice President andConcept General Manager.

 

**David G. Lloyd.** Mr. Lloydbecame our Chief Financial Officer in November 2004, assumed the role ofPresident in August 2005 and became a director in September 2005. Mr. Lloydwas the Chief Financial Officer of Taco Bueno, a quick service Mexicanrestaurant chain of over 120 stores, from June 2001 through August 2005(during which time he was also our Chief Financial Officer beginning in November 2004). Hepreviously served as Taco Cabana Inc.’s Chief Financial Officer from November 1994through February 2001. Prior to that, Mr. Lloyd, a Certified PublicAccountant, was with Deloitte & Touche LLP from 1985 through 1994.

 

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

 

**Sally M.Dungan.**Ms. Dungan became a director and memberof our audit committee in February 2004. She is the Chief InvestmentOfficer (“CIO”) of Tufts University where she is responsible for the investmentpolicy and total fund structure of Tufts’ ****$1.0 billion in endowment and long term fundsportfolio.****Prior to assuming the CIO position in September of2002, Ms. Dungan was the Director of Pension Fund Management for SiemensCorporation. Ms. Dungan is a Chartered Financial Analyst.

 

**James J.Morgan.**Mr. Morgan became a director in December 1997.From 1963 until his retirement in 1997, Mr. Morgan was employed by PhilipMorris U.S.A. where he served as President and Chief Executive Officer from1994 until his retirement in 1997. Prior to 1994, Mr. Morgan served invarious capacities at Philip Morris including Senior Vice President ofMarketing, and Corporate Vice President of Marketing Planning of the PhilipMorris Companies Inc. Mr. Morganis a Partner in Jacobson Partners.

 

**James N.Moriarty.**Mr. Moriarty became a director andchairman of our audit committee in February 2004. He has been a partner inthe accounting firm of Vitale, Caturano & Company, P.C., a fullservice CPA and business advisory firm, since 2002. He is head of the firm’sRestaurant practice. Prior to that, Mr. Moriarty was with Arthur AndersenLLP for 14 years, the last four years as a partner in that firm. He is a memberof the AICPA and the Massachusetts Society of CPA’s.

 

**James R.Parish.**Mr. Parishwas named a director in September 2005. He has been a principal of ParishPartners, Inc., an investment, advisory and consulting firm, since 1991.Parish Partners, Inc. provides executive-level strategic advice and counselingto a wide range of restaurant industry executive teams. Mr. Parish alsoserves on the board of directors of Spirit Finance Corporation (NYSE: SFC) andas a member of their audit committee. Mr. Parish previously served on ourBoard of Directors from July 1998 through August 2003. Prior toforming Parish Partners in 1991, Mr. Parish was Executive Vice President,Chief Financial Officer, and member of the executive committee and Board ofDirectors of Chili’s, Inc., the predecessor company to Brinker International(NYSE: EAT), now one of the largest multi-concept companies in the restaurantindustry.

 

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**Heywood Wilansky.**Mr. Wilanskybecame a director and member of our audit committee in May 2004. He becamea member of the compensation committee in November 2004. Mr. Wilanskyhas been the President and Chief Executive Officer of Retail Ventures, Inc.(NYSE:RVI) (“RVI”) since November 2004, and was named a director of DSWShoe Warehouse (NYSE: DSW) (“DSW”) in March, 2005. RVI owns a controllinginterest in DSW. From February 2003 through November 2004, he was thePresident and Chief Executive Officer of Filene’s Basement, Inc. Prior tothat, he was a Professor at the University of Maryland, Smith School of Businessfrom August 2002 through January 2003. He was the President and CEOof Strategic Management Resources, LLC, a management consulting service, from July 2000through January 2003 and was the President and CEO of Bon-Ton Stores, Inc.from 1995 through 2000.

 

**Term of Directors**

 

Our directors serve in such capacityuntil the next annual meeting of our shareholders or until their successors areduly elected and qualified.

 

**Audit Committee**

 

We have an AuditCommittee, which consists of Sally M. Dungan, Heywood Wilansky, and James N.Moriarty (Chairman). The Board of Directors has reviewed the qualifications of Ms. Dungan,Mr. Wilansky and Mr. Moriarty and have determined they are “independent”under the applicable definition contained in Rule 4200(a)(15) of the NASD’slisting standards. Mr. Moriarty was formerly a partner with ArthurAndersen LLP which audited the Company’s financial statements prior to fiscal2002 and he was involved in the audit of those financial statements. Mr. Moriartyhas no relationship with Deloitte & Touche LLP, our current auditor. TheBoard of Directors appointed Mr. Moriarty to the Audit Committee becauseof his auditing and accounting expertise. Our Board of Directors has determinedMr. Moriarty qualifies as an Audit Committee Financial Expert, as definedin Item 401(h) of Regulation S-K.

 

**Code of Ethics**

 

We have adopted a Code of Ethics forSenior Financial Officers including our principal executive officer, principalfinancial officer, principal accounting officer and controller, and otherpersons performing similar functions. If we make any substantive amendments tothe Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics to any of our principal executive officer,principal financial officer, principal accounting officer, controller or otherpersons performing similar functions, we must disclose the nature of suchamendment or waiver, the name of the person to whom the waiver was granted andthe date of the amendment or waiver. A copy of our Code of Ethics for SeniorFinancial Officers is filed as Exhibit 14.1 to our Annual Report for thefiscal year ended December 31, 2003. In addition, we will provide anyperson, without charge, a copy of the Code of Ethics for Senior FinancialOfficers, if such person delivers a written request to us at Bertucci’sCorporation, 155 Otis Street, Northborough, MA 01532, Attn: Compliance Officer.

 

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**ITEM 11. EXECUTIVE COMPENSATION**

 

**Executive Compensation**

 

The following table summarizes thecompensation for the most current three fiscal years for our Chief ExecutiveOfficer and other most highly compensated executive officer (the ChiefExecutive Officer and such other officers, collectively, the “Named ExecutiveOfficers”):

 
| ** **                          | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long Term Compensation** | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------|------------|----------------------------|------------|
| **Name and Principal Position**     | ** ** | ** ** | ** ** | **Salary($)**           | ** ** | **Bonus($)**               | ** ** | **Other Annual Compensation ($)  (c)** | ** ** | **Securities Underlying Options  (#)** | ** ** |
|                                |       |       |       |                    |       |                       |       |   |   |   |   |
| Stephen V.  Clark (a)               |       | 2005       |       | 288,462                 |       | 259,615                    |       | — |   | 170,000 |   |
| Chief  Executive Officer, Vice      |       | 2004       |       | 61,731                  |       | 100,000                    |       | — |   | — |   |
| Chairman of  the Board of Directors |       | 2003       |       | —                  |       | —                     |       | — |   | — |   |
|                                |       |       |       |                    |       |                       |       |   |   |   |   |
| David G.  Lloyd (b)                 |       | 2005       |       | 237,692                 |       | 213,923                    |       | 85,971 |   | 170,000 |   |
| Chief  Financial Officer, President |       | 2004       |       | 41,154                  |       | 67,000                     |       | — |   | — |   |
|                                |       | 2003       |       | —                  |       | —                     |       | — |   | — |   |

 

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| (a) |   | Mr. Clark was named President and CEO  in August, 2004 and became Vice - Chairman in August 2005.                                 |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | Mr. Lloyd joined the Company in September 2004  and was named CFO in November 2004 and became President in August 2005. |
| (c) |   | Other compensation is primarily relocation  expenses.                                                                                       |

 

**Options Granted in Last Fiscal Year**

 

The following table sets forth the stock options granted to our NamedExecutive Officers during the fiscal year ended December 28, 2005.

 
| ** **        | ** ** | **Individual Grants**                                      | ** ** | ** **                                                   | ** ** |
|-------------------|------------|------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| **Name**          | ** ** | **Number of  Securities  Underlying Options  Granted (1)** | ** ** | **% of Total  Options Granted  to Employees in Fiscal Year** | ** ** | **Exercise Price ($/share)(2)** | ** ** | **Expiration  Date** | ** ** | **Potential Realizable Value at  Assumed Annual Rates of Stock Price Appreciation for Option Term (3)** | ** ** |
| **5% ($)**        | ** ** | **10% ($)**                                                |
| Stephen V.  Clark |       | 170,000                                                    |       | 28.2                                                         | %          | $ | 17.51 |   | 9/27/15 |   | $ | 4,156,450 |   | $ | 6,618,453 |   |
| David G.  Lloyd   |       | 170,000                                                    |       | 28.2                                                         | %          | $ | 17.51 |   | 9/27/15 |   | $ | 4,156,450 |   | $ | 6,618,453 |   |
|                   |            |                                                            |            |                                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| (1)    |   | We granted these options  under our Amended and Restated 1997 Equity Incentive Plan and the underlying  shares of Common Stock vest 25% annually beginning in 2007 through  2010.                                                                                                                                                                  |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                               |
| (2)    |   | Our Board of  Directors has determined the fair value of a share of Common Stock on December 28,  2005 was $15.01, based on a valuation model which assumes the sale of a  controlling interest in the Company.                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                               |
| (3)    |   | The 5% and  10% assumed rates of annual compounded stock price appreciation are set forth  in the rules of the Securities and Exchange Commission (the “SEC”) and  do not represent our estimate or projection of future Common Stock prices.  Note these amounts reflect exercise prices below those of the options listed  above. |

 

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**Aggregated Option Exercises inLast Fiscal Year and Fiscal Year-End Values**

 

Thefollowing table sets forth information concerning option exercises duringfiscal 2005 (none) and the fiscal year-end value of unexercised options foreach of the Named Executive Officers.

 
| **Name**         | ** ** | **Shares  Acquired on  Exercise** | ** ** | **Value  Realized** | ** ** | **Number Of  Securities  Underlying At  Fiscal Year-End  Exerciseable/Unexercisable** | ** ** | **Value Of  Unexercised  In-The-Money  Options At  Fiscal Year-End  Exerciseable/  Unexerciseable(a)** | ** ** |
|------------------|------------|-----------------------------------|------------|---------------------|------------|---------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| Stephen V. Clark |       | —                            |       | $                   | —     |                                                                                  | —     | ** **                                                                                             | 170,000    |   | $ | — | ** ** | $ | — |   |
| David G. Lloyd   |       | —                            |       | $                   | —     |                                                                                  | —     | ** **                                                                                             | 170,000    |   | $ | — | ** ** | $ | — |   |

 

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(a)               Basedupon a stock price of $15.01.

 

**Employment Agreements**

 

Our Board of Directors elects our executiveofficers and such officers serve at the discretion of the Board. At the date ofthis filing, we have not entered into any employment agreements with any of ourexecutive officers.

 

**Equity Incentive and Other Plans forEmployees**

 

*Equity Incentive Plan.*OurAmended and Restated 1997 Equity Incentive Plan (“Equity Incentive Plan”),which provides for the issuance of nonqualified stock options, among otherkinds of awards, allows us to provide equity incentives to our key employeesand directors. On September 27,2005, the Company’s Board of Directors approved the amendment and restatementof the Equity Incentive Plan which increased the number of shares of CommonStock that are available for issuance under the Equity Incentive Plan from750,000 to 1,100,000. The Board of Directors administers the EquityIncentive Plan and may modify or amend it in any respect.

 

Generally, options granted to employees under theEquity Incentive Plan are exercisable either: (a) cumulatively at therate of 25% on or after each of the second, third, fourth and fifthanniversaries of the date of grant; or (b) only upon the fifth anniversaryof the date of grant. Options granted to non-employee directors under theEquity Incentive Plan are generally exercisable immediately upon grant. Optionsgranted under the Equity Incentive Plan to date expire 90 days following eitherthe fifth or the tenth anniversary of the date of the grant. In addition,unvested options generally vest immediately and in full upon a transaction thatconstitutes a “change of control” of the Company.

 

The following table summarizes optionactivity since September 15, 1997 through December 28, 2005:

 
| **Year of  Original Issue** | ** ** | **Average Original Issue Price** | ** ** | **Originally Granted** | ** ** | **Since Forfeited** | ** ** | **Exercised** | ** ** | **Outstanding at December 28,  2005** | ** ** |
|-----------------------------|------------|----------------------------------|------------|------------------------|------------|---------------------|------------|---------------|------------|--------------------------------------------|------------|
| 1997                        |       | $                                | 11.63      |                   | 331,123    |                | (245,692   | )             | (11,020    | )                                          | 74,411     |   |
| 1998                        |       | $                                | 17.51      |                   | 58,429     |                | (58,429    | )             | —     |                                       | —     |   |
| 1999                        |       | $                                | 15.00      |                   | 23,541     |                | (15,541    | )             | —     |                                       | 8,000      |   |
| 2000                        |       | $                                | 13.37      |                   | 199,750    |                | (84,750    | )             | (1,125     | )                                          | 113,875    |   |
| 2001                        |       | $                                | 17.51      |                   | 332,500    |                | (289,800   | )             | —     |                                       | 42,700     |   |
| 2002                        |       | $                                | 17.51      |                   | 26,000     |                | (20,000    | )             | —     |                                       | 6,000      |   |
| 2003                        |       | $                                | 14.48      |                   | 40,079     |                | (3,636     | )             | —     |                                       | 36,443     |   |
| 2004                        |       | $                                | 17.51      |                   | 111,000    |                | (23,000    | )             | —     |                                       | 88,000     |   |
| 2005                        |       | $                                | 17.51      |                   | 602,500    |                | (1,000     | )             | —     |                                       | 601,500    |   |
|                        |       |                             |       |                   |       |                |       |          |       |                                       |       |
|                        |       |                             |       | 1,724,922              |       | (741,848            | )          | (12,145       | )          | 970,929                                    |       |
|                             |            |                                  |            |                        |            |                     |            |               |            |                                            |            |  |  |

 

On December 28, 2005, 129,071 shares of Common Stock wereavailable for grants under the Equity Incentive Plan.

 

*Executive Savings and InvestmentPlan.* In 1999,we established the Bertucci’s Corporation Executive Savings and InvestmentPlan, a non-qualified compensation plan, to which our highly compensatedexecutives may elect to defer a portion of their salary and/or earnedbonus. We replaced the original trustee of the Executive Savings and InvestmentPlan, Scudder Kemper Investments 

 

23

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(“Scudder”), in December 2004 with Reliance Trust Company (“Reliance”)pursuant to a new Trust Agreement. The Trust Agreement between us andReliance is for the purpose of paying benefits under Executive Savings andInvestment Plan and its terms are substantially similar to the trust agreementthe Company entered into with Scudder in 1999. We have established anirrevocable grantor trust under the Trust Agreement and we are the grantor.

 

The trustassets are held separately from our other funds, but remain subject to claimsof our general creditors in the event of our insolvency. As of December 28,2005, there were 21 participants in the plan with assets in the trust having anaggregate market value of approximately $565,000.

 

*401(k*) *Plan*. We maintain the Bertucci’s 401(k) Plan, a definedcontribution plan. Under the Bertucci’s 401(k) Plan, substantially all of ourexempt and non-exempt corporate office employees may defer a portion oftheir current salary, on a pretax basis, to the 401(k) Plan. We make a matchingcontribution to the Bertucci’s 401(k) Plan. The matching contribution isallocated to the participants based on a formula as defined by the Bertucci’s401(k) Plan. Matching contributions made by us under the 401(k) Plan for theyears ended December 28, 2005, December 29, 2004, and December 31,2003, were approximately $130,000, $98,000, and $81,000 respectively.

 

**Compensationof Directors**

 

We reimburse our directors for anyexpenses incurred by them in connection with their attendance at meetings ofthe Board of Directors, or any committee thereof. In addition, all directorsare eligible to receive options under our equity incentive plans.

 

Independent directors are paid: (1) aquarterly stipend of $2,500 for serving on the Board of Directors; (2) apayment of $2,500 for each Board of Directors meeting they attend (either inperson or telephonically); and (3) if they are a member of the AuditCommittee, a payment of $1,000 for each Audit Committee meeting they attend(either in person or telephonically).

 

Directors receive no other compensationfrom us for serving on the Board of Directors or a committee of the Board ofDirectors.

 

**Compensation Committee Interlocksand Insider Participation**

 

Effective as of January 1, 1998, theBoard of Directors appointed a Compensation Committee. During fiscal 2005, Mr. Morganand Mr. Wilansky were the only members of the Compensation Committee.Mr. Morgan has been a Partner with Jacobson Partners since 2001. Weentered into a financial advisory services agreement with Jacobson Partners in1998 pursuant to which we have been paying Jacobson Partners consulting feesand reimbursing Jacobson Partners for certain travel and other incidentalexpenses. We paid Jacobson Partners $250,000 in fiscal 2005 and $425,000 infiscal 2004 for its services under this agreement. See “Item 13. CertainRelationships And Related Transactions.”

 

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

 

The following table provides information at March 28,2006, with respect to ownership of our Common Stock, $0.01 par value per share,by (i) each beneficial owner of five percent or more of our Common Stock, (ii) eachof our directors who beneficially owns shares of Common Stock, (iii) eachof the Named Executive Officers and (iv) all directors and executiveofficers as a group. For the purpose of computing the percentage of the sharesof Common Stock owned by each person or group listed in this table, shareswhich are subject to options exercisable within 60 days after March 28,2006 have been deemed to be outstanding and owned by such person or group, buthave not been deemed to be outstanding for the purpose of computing thepercentage of the shares of Common Stock owned by any other person. Except asindicated in the footnotes to this table, the persons named in the table havesole voting and investment power with respect to all shares of Common Stockshown as beneficially owned by them.

 

24

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| **Name and Address of Beneficial Owner**                         | ** ** | **Shares  Beneficially  Owned** | ** ** | **Percent  of Class** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | ** **                      | ** ** | ** **            | ** ** |
| Benjamin R.  Jacobson (1)                                        |       | 1,009,011                       |       | 31.9                  | %          |
| 595 Madison  Avenue                                              |       |                            |       |                  |       |
| New York,  New York 10022                                        |       |                            |       |                  |       |
|                                                             |       |                            |       |                  |       |
| Thomas R.  Devlin (2)                                            |       | 316,660                         |       | 10.3                  | %          |
| 1313 North  Webb Road                                            |       |                            |       |                  |       |
| P.O. Box  782170                                            |       |                            |       |                  |       |
| Wichita,  Kansas 67206                                           |       |                            |       |                  |       |
|                                                             |       |                            |       |                  |       |
| Dennis D.  Pedra (3)                                             |       | 230,605                         |       | 7.8                   | %          |
|                                                             |       |                            |       |                  |       |
| James J.  Morgan (4)                                             |       | 51,833                          |       | 1.7                   | %          |
|                                                             |       |                            |       |                  |       |
| Stephen V.  Clark                                                |       | 46,192                          |       | 1.5                   | %          |
|                                                             |       |                            |       |                  |       |
| David G.  Lloyd                                                  |       | 39,716                          |       | 1.3                   | %          |
|                                                             |       |                            |       |                  |       |
| James R.  Parish                                                 |       | 17,422                          |       | *                     |       |
|                                                             |       |                            |       |                  |       |
| Sally M.  Dungan                                                 |       | 4,000                           |       | *                     |       |
|                                                             |       |                            |       |                  |       |
| Heywood  Wilansky                                                |       | 4,000                           |       | *                     |       |
|                                                             |       |                            |       |                  |       |
| James N.  Moriarty                                               |       | 2,500                           |       | *                     |       |
|                                                             |       |                            |       |                  |       |
| All  directors and executive officers as a group (8 persons) (5) |       | 1,174,674                       |       | 36.9                  | %          |

 

----

* Less than 1%

 

(1)               Includes (a) 613,273 shares of CompanyCommon Stock held by J.P. Acquisition Fund II, L.P., a Delaware limitedpartnership (“JPAF II”), (b) 149,599 shares of Company Common Stock issuableupon exercise of outstanding stock options within the parameters describedabove, and (c) 21,217 shares of Company Common Stock held by trusts forthe benefit of Mr. Jacobson’s children, with respect to which a thirdparty is trustee and has voting control. JPAF, Limited Partnership, a Delawarelimited partnership (“JPAF LP”) is the General Partner of JPAF II. The GeneralPartner of JPAF LP is JPAF, Inc., a Delaware corporation. Mr. Jacobsonis the president and majority shareholder of JPAF, Inc. Mr. Jacobsondisclaims beneficial ownership of the shares described (i) in clause (a) above,except to the extent of his general partnership interest in JPAF II, and (ii) inclause (c) above.

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

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

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

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

 

**Shareholders Agreement**

 

We are a party to a shareholder agreementwith our current shareholders (collectively, the “Shareholder Agreement”).

 

The Shareholder Agreement provides, amongother things, that (i) a shareholder may not transfer his or itsshares in the Company, whether voluntarily or by operation of law, other thanin certain limited circumstances specified therein, including transfers througha right of first refusal procedure, distributions by certain legal entities tothe constituents of such entities (i.e. a partnership to its partners),transfers by will or intestate succession, transfers approved by the Board ofDirectors to an affiliate of a shareholder or to another shareholder, transfersto family members or trusts for their benefit, and any transfer unanimouslyapproved by the Board of Directors, (ii) we have the option to purchasethe shares of any shareholder who is an employee of ours following thetermination of such shareholder’s employment with us for any reason at apurchase price equal to the fair market value or original purchase price (plusaccrued interest in certain circumstances) depending upon the reason for suchtermination, (iii) we have the option to purchase the shares of anyshareholder who is an employee of ours following certain transfer events,including such shareholders’ bankruptcy or a court-ordered transfer of suchshareholder’s stock, (iv) if we fail to exercise our 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 our employment due to death, disability or hardshipor, with respect to certain shares, is terminated by us without cause, suchshareholder has a one-time option to require us to purchase such shareholder’sshares at the greater of fair market value or the original purchase price,subject to certain approval by the Board of Directors, excluding effectedemployees, (vi) no transfer of

 

25

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shares may occur unless the transferee thereof agrees to be boundby the terms of the Shareholders Agreement and (vii) all sharecertificates must bear customary legends and all share transfers must be incompliance with applicable securities laws.

 

**Equity Compensation Plan Information**

 

We maintain equity compensation plans foremployees, officers, directors and others whose efforts contribute to oursuccess. The table below sets forth certain information as of our fiscal yearended December 28, 2005 regarding shares of our Common Stock available forgrant or granted under the equity compensation plans that (i) wereapproved by our stockholders; and (ii) were not approved by ourstockholders.

 
| **Plan Category**                                           | ** ** | **Number of securities to be  issued upon exercise of outstanding options, warrants and rights** | ** ** | **Weighted-average exercise price  of outstanding options, warrants and rights** | ** ** | **Number of securities remaining  available for future issuance under equity compensation plans (excluding  securities reflected in column (a))** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                          | ** ** | **(b)**                                                                          | ** ** | **(c)**                                                                                                                                           | ** ** |
| Equity  compensation plans approved by security holders     |       | 610,929                                                                                          |       | $                                                                                | 16.33      |                                                                                                                                              | —     |   |
| Equity  compensation plans not approved by security holders |       | 360,000                                                                                          |       | $                                                                                | 17.51      |                                                                                                                                              | 129,071    |   |
| Total                                                       |       | 970,929                                                                                          |       | $                                                                                | 16.77      |                                                                                                                                              | 129,071    |   |

 

In 1997, the Board ofDirectors adopted the Equity Incentive Plan, pursuant to which we authorized750,000 shares of Common Stock for issuance in connection with equity incentiveawards. Our shareholders originally approved the Equity Incentive Plan in 1997.In 2005, however, the Board of Directors increased the total number of sharesof Common Stock authorized for issuance under the Equity Incentive Plan to1,100,000 shares without seeking additional shareholder approval. Accordingly,in the foregoing chart, shares of Common Stock subject to awards under theEquity Incentive Plan are included in columns (a) and (c) under boththe “approved by security holders” and “not approved by security holders”categories. Shares of Common Stock covered by awards that expire or otherwiseterminate will again become available for grant. A copy of the Equity IncentivePlan is attached as Exhibit 10.22 to our Current Report on Form 8-Kfiled with the SEC on October 3, 2005.

 

**ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Benjamin R. Jacobson, our Chairman of the Board of Directors andTreasurer, is the Managing Partner of Jacobson Partners. In addition, JamesMorgan, one of our directors and a member of our compensation committee, is aPartner of Jacobson Partners. In connection with the Acquisition, in 1998 weentered into a financial advisory services agreement with Jacobson Partners. Underthis agreement (a) Jacobson Partners provides various financial advisoryservices to us, including, among other things, assistance in preparing internalbudgets, performing cash management activities, maintaining and improvingaccounting and other management information systems, negotiating financingarrangements, complying with public reporting and disclosure requirements andcommunicating with creditors and investors, and (b) we pay JacobsonPartners consulting fees and reimburse Jacobson Partners for certain travel andother incidental expenses. We paid Jacobson Partners $250,000 in fiscal 2005and $425,000 in fiscal 2004 for its services under this agreement. We believethe financial advisory services agreement was made on terms no less favorableto us than those obtainable from an unrelated party.

 

J.P. Acquisition Fund II, L.P., a Delaware limited partnership (“JPAFII”), owns approximately 20.8% (a controlling interest) of ouroutstanding Common Stock. JPAF, LimitedPartnership, a Delaware limited partnership (“JPAF LP”) is the General Partnerof JPAF II. The General Partner of JPAF LP is JPAF, Inc., a Delawarecorporation. Benjamin R. Jacobson, Chairman of our Board of Directors, is thepresident and majority shareholder of JPAF, Inc. J.P. Acquisition FundIII, L.P., a Delaware limited partnership (“JPAF III”), previously owned acontrolling interest in Taco Bueno (“Taco Bueno”). The General Partner of JPAFIII is JPAF III, LLC, a Delaware limited liability company (“JPAF III, LLC”). JacobsonPartners is the sole shareholder of JPAF III, LLC. Mr. Jacobson is theManaging General Partner of Jacobson Partners. Stephen V. Clark, our ChiefExecutive Officer and Vice Chairman of our Board of Directors, and David G.Lloyd, our President and Chief Financial Officer, were, respectively, the ChiefExecutive Officer and Chief Financial Officer of Taco Bueno until August 2005,when JPAF III sold its interest in Taco Bueno. After August 10, 2005,Messrs. Jacobson, Clark, and Lloyd have no financial interests in, or managementcommitments to, Taco Bueno.

 

During 1999, we established the Bertucci’s Corporation, Inc.Executive Savings and Investment Plan to which our highly compensatedexecutives may elect to defer a portion of their salary and (or) earnedbonus. We maintain an irrevocable grantor trust which has been established byus, as grantor, pursuant to a Trust Agreement with Reliance Trust Company,dated December 2004. The agreement is between us and Reliance TrustCompany, as trustee, is for the purpose of paying benefits under the Executive

 

26

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Savingsand Investment Plan. The trust assets are held separately from our other funds,but remain subject to claims of our general creditors in the event of ourinsolvency. As of December 28, 2005, there were 21 participants in the planwith assets in the trust with an aggregate market value of approximately$565,000.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 

Thefollowing is a summary of the fees billed to us by Deloitte & ToucheLLP (“Deloitte”) for professional services rendered for the fiscal years ended December 28,2005 (fiscal 2005) and December 29, 2004 (fiscal 2004):

 
| **Fee Category**   | ** ** | **Fiscal 2005 Fees** | ** ** | **Fiscal 2004 Fees** | ** ** |
|--------------------|------------|----------------------|------------|----------------------|------------|
| Audit Fees         |       | $                    | 228,750    |                 | $          | 184,070 |   |
| Audit-Related Fees |       | 7,950                |       | 15,500               |       |
| Tax Fees           |       | 51,000               |       | 102,726              |       |
| All Other Fees     |       | 99,007               |       | 84,500               |       |
| Total Fees         |       | $                    | 386,707    |                 | $          | 386,796 |   |

 

*Audit Fees.*The Audit Fees consist of aggregate feesbilled for professional services rendered for the audit of our consolidatedfinancial statements and review of the interim consolidated financialstatements included in quarterly reports.

 

*Audit-Related Fees.*The Audit-Related Fees consist ofaggregate fees billed for assurance and related services reasonably related tothe performance of the audit or review of our consolidated financial statementsand are not reported under “Audit Fees.” These services were primarily forbenefit compensation plan audits.

 

*Tax Fees*. The Tax Fees consist of aggregate feesbilled for professional services for tax compliance, tax advice and taxplanning. These services included assistance regarding federal and state taxcompliance, and tax audit defense.

 

*All Other Fees*. Fees billed for professional servicesrendered in connection with the restatements of our financial statements areincluded in All Other Fees.

 

**Audit Pre-Approval of Policies andProcedures**

 

We formed our Audit Committee in February 2004.The Audit Committee’s policy since February 2004 has been to pre-approveall audit and permissible non-audit services provided by our independentauditors. These services may include audit services, audit-relatedservices, tax services and other services. The Audit Committee may alsopre-approve particular services on a case-by-case basis.

 

**Audit Committee Approval of Fees**

 

Our Audit Committee approved allAudit-Related Fees, Tax Fees and All Other Fees listed above and provided byDeloitte to us during fiscal 2005.

 

27

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

# ** **

| (a)    | The following documents are filed as part of  this report: |
|--------|-----------------------------------------------------------------|
|   |                                                            |
|   | (1)                                                             | Financial Statements: |
|   |                                                            |   |
|   |                                                            | Report of Independent  Registered Public Accounting Firm |
|   |                                                            |   |
|   |                                                            | Consolidated Balance Sheets as of December 28,  2005 and December 29, 2004 |
|   |                                                            |   |
|   |                                                            | Consolidated Statements of Operations for  each of the years ended December 28, 2005, December 29, 2004, and December 31,  2003 |
|   |                                                            |   |
|   |                                                            | Consolidated Statements of Stockholders’  Equity for each of the years ended December 28, 2005, December 29,  2004, and December 31, 2003 |
|   |                                                            |   |
|   |                                                            | Consolidated Statements of Cash Flows for  each of the years ended December 28, 2005, December 29, 2004, and December 31,  2003 |
|   |                                                            |   |
|   |                                                            | Notes to Consolidated Financial Statements |
|   |                                                            |   |
|   | (2)                                                             | Exhibit Index |

 

28

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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  and Director |
|                        |   |
| Date: March 28, 2006   |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Company and in the capacities and on thedates indicated.

 
| **SIGNATURE**                   | ** ** | **TITLE**                                     | ** **                                                                                                   | **DATE**   |
|---------------------------------|------------|-----------------------------------------------|--------------------------------------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | ** **                                    | ** **                                                                                                   | ** ** |
|  /s/  Benjamin R. Jacobson |       |                                          | Chairman of the Board of Directors                                                                           |       | March 28, 2006 |
| Benjamin R. Jacobson            |       |                                          |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
|  /s/  Stephen V. Clark     |       |                                          | Vice Chairman of the Board of Directors,  Chief Executive Officer and Director (Principal Executive Officer) |       | March 28, 2006 |
| Stephen V. Clark                |
|                            |       |                                          |                                                                                                         |       |
|  /s/  David G. Lloyd       |       |                                          | President, Chief Financial Officer and  Director                                                             |       | March 28, 2006 |
| David G. Lloyd                  |       | (Principal Financial and Accounting  Officer) |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
|  /s/  James N. Moriarty    |       |                                          | Director                                                                                                     |       | March 28, 2006 |
| James N. Moriarty               |       |                                          |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
|  /s/  Sally M. Dungan      |       |                                          | Director                                                                                                     |       | March 28, 2006 |
| Sally M. Dungan                 |       |                                          |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
| /s/ James J. Morgan             |       |                                          | Director                                                                                                     |       | March 28, 2006 |
| James J. Morgan                 |       |                                          |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
| /s/ Heywood Wilansky            |       |                                          | Director                                                                                                     |       | March 28, 2006 |
| Heywood Wilansky                |       |                                          |                                                                                                         |       |
|                            |       |                                          |                                                                                                         |       |
| /s/ James R. Parish             |       |                                          | Director                                                                                                     |       | March 28, 2006 |
| James R. Parish                 |       |                                          |                                                                                                         |       |

 

29

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

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

Northborough, Massachusetts

 

We have audited the accompanying consolidated balance sheets ofBertucci’s Corporation and subsidiaries (the “Company”) as of December 28,2005 and December 29, 2004, and the related consolidated statements ofoperations, changes in stockholders’ equity (deficit) and cash flows for eachof the three years in the period ended December 28, 2005. 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 aboutwhether the financial statements are free of material misstatement. The Companyis not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. Our audits included consideration ofinternal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial 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 28,2005 and December 29, 2004, and the results of its operations and its cashflows for each of the three years in the period ended December 28, 2005 inconformity with accounting principles generally accepted in the United Statesof America.

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
| Boston, Massachusetts              |
| March 28, 2006                |

 

30

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| BERTUCCI’S CORPORATION                                 |
|-------------------------------------------------------------|
| CONSOLIDATED BALANCE  SHEETS                                |
| (In thousands except share  data)                           |
|                                                        |   |
| ** **                                                  | ** ** | **December 28,** | ** ** | **December 29,** | ** ** |
| ** **                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ASSETS                                                      |   |   |   |   |   |
| Current  Assets:                                            |   |   |   |   |   |
| Cash and  cash equivalents                                  |   | $ | 21,382 |   | $ | 12,291 |   |
| Restricted  cash                                            |   | 2,187 |   | 2,403 |   |
| Accounts  receivable                                        |   | 771 |   | 1,334 |   |
| Inventories                                                 |   | 1,534 |   | 1,388 |   |
| Prepaid  expenses and other current assets                  |   | 897 |   | 534 |   |
| Total  current assets                                       |   | 26,771 |   | 17,950 |   |
|                                                        |   |   |   |   |   |
| Property and  Equipment, at cost:                           |   |   |   |   |   |
| Land                                                        |   | 259 |   | 259 |   |
| Buildings                                                   |   | 697 |   | 697 |   |
| Capital  leases - land and buildings                        |   | 5,764 |   | 5,764 |   |
| Leasehold  improvements                                     |   | 68,433 |   | 66,632 |   |
| Furniture  and equipment                                    |   | 46,787 |   | 44,537 |   |
|                                                        |   | 121,940 |   | 117,889 |   |
| Less -  accumulated depreciation and amortization           |   | (67,509 | ) | (57,101 | ) |
|                                                        |   | 54,431 |   | 60,788 |   |
| Construction  work in process                               |   | — |   | 1,567 |   |
| Net property  and equipment                                 |   | 54,431 |   | 62,355 |   |
|                                                        |   |   |   |   |   |
| Goodwill                                                    |   | 26,127 |   | 26,127 |   |
| Deferred  finance costs, net                                |   | 2,165 |   | 2,862 |   |
| Liquor  licenses, net                                       |   | 2,358 |   | 2,414 |   |
| Other assets                                                |   | 693 |   | 513 |   |
| TOTAL ASSETS                                                |   | $ | 112,545 |   | $ | 112,221 |   |
|                                                        |   |   |   |   |   |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                 |   |   |   |   |   |
|                                                        |   |   |   |   |   |
| Current  Liabilities:                                       |   |   |   |   |   |
| Promissory  notes - current portion                         |   | $ | 42 |   | $ | 40 |   |
| Capital  lease obligations - current portion                |   | 107 |   | 74 |   |
| Accounts  payable                                           |   | 8,603 |   | 7,819 |   |
| Accrued  expenses                                           |   | 19,129 |   | 16,457 |   |
| Total  current liabilities                                  |   | 27,881 |   | 24,390 |   |
| Promissory  notes, net of current portion                   |   | 738 |   | 781 |   |
| Captial  lease obligations, net of current portion          |   | 5,982 |   | 6,102 |   |
| Senior Notes                                                |   | 85,310 |   | 85,310 |   |
| Deferred  gain on sale leaseback transaction                |   | 1,892 |   | 2,002 |   |
| Other  long-term liabilities                                |   | 8,045 |   | 8,368 |   |
| Total  liabilities                                          |   | 129,848 |   | 126,953 |   |
| Commitments  and Contingencies                              |   |   |   |   |   |
| Stockholders’  Deficit:                                |   |   |   |   |   |
| Common  stock, $.01 par value                               |   |   |   |   |   |
| Authorized -  8,000,000 shares                              |   |   |   |   |   |
| Issued -  3,764,995 and 3,667,495 shares, respectively;     |   |   |   |   |   |
| Outstanding  - 3,012,982 and 2,915,482 shares, respectively |   | 38 |   | 37 |   |
| Less 752,013  treasury shares at cost                       |   | (8,480 | ) | (8,480 | ) |
| Additional  paid-in capital                                 |   | 29,617 |   | 29,046 |   |
| Accumulated  deficit                                        |   | (38,478 | ) | (35,335 | ) |
| Total  stockholders’ deficit                           |   | (17,303 | ) | (14,732 | ) |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT           |   | $ | 112,545 |   | $ | 112,221 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

31

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| BERTUCCI’S CORPORATION                                        |
|--------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF  OPERATIONS                             |
| (In  thousands except share and per share data)                    |
|                                                               |   |   |   |   |   |   |   |
| ** **                                                         | ** ** | **December 28,** | ** ** | **December 29,** | ** ** | **December 31,** | ** ** |
| ** **                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales                                                          |   | $ | 204,784 |   | $ | 200,408 |   | $ | 186,172 |   |
|                                                               |   |   |   |   |   |   |   |
| Cost of  sales and expenses:                                       |   |   |   |   |   |   |   |
| Cost of  sales                                                     |   | 47,611 |   | 49,231 |   | 43,544 |   |
| Operating  expenses                                                |   | 123,253 |   | 122,056 |   | 113,036 |   |
| General and  administrative expenses                               |   | 14,442 |   | 13,065 |   | 11,320 |   |
| Deferred  rent, depreciation, amortization and preopening expenses |   | 11,228 |   | 12,657 |   | 14,123 |   |
| Asset  impairment charge                                           |   | 982 |   | 6,749 |   | 3,580 |   |
| Total cost  of sales and expenses                                  |   | 197,516 |   | 203,758 |   | 185,603 |   |
|                                                               |   |   |   |   |   |   |   |
| Income  (loss) from operations                                     |   | 7,268 |   | (3,350 | ) | 569 |   |
|                                                               |   |   |   |   |   |   |   |
| Other  expense:                                                    |   |   |   |   |   |   |   |
| Adjustment  of gain on Brinker Sale                                |   | — |   | — |   | 650 |   |
| Interest  expense, net                                             |   | (10,411 | ) | (10,613 | ) | (10,133 | ) |
| Other  expense                                                     |   | (10,411 | ) | (10,613 | ) | (9,483 | ) |
|                                                               |   |   |   |   |   |   |   |
| Loss before  income tax provision                                  |   | (3,143 | ) | (13,963 | ) | (8,914 | ) |
|                                                               |   |   |   |   |   |   |   |
| Income tax  provision                                              |   | — |   | — |   | — |   |
|                                                               |   |   |   |   |   |   |   |
| Net loss                                                           |   | $ | (3,143 | ) | $ | (13,963 | ) | $ | (8,914 | ) |
|                                                               |   |   |   |   |   |   |   |
| Basic and  diluted loss per share                                  |   | $ | (1.06 | ) | $ | (4.74 | ) | $ | (3.00 | ) |
|                                                               |   |   |   |   |   |   |   |
| Weighted  average shares outstanding - basic and diluted           |   | 2,960,025 |   | 2,943,841 |   | 2,970,403 |   |

 

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

 

32

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BERTUCCI’S CORPORATION

STATEMENTS OF CHANGES INSTOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands except sharedata)

 
| ** **                                         | ** ** | **Common Stock** | ** **            | **Treasury Stock** | ** ** | **Additional Paid  In Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total  Stockholder Equity (Deficit)** | ** ** |
|----------------------------------------------------|------------|------------------|-----------------------|--------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------------------|------------|
| **Number of  Shares**                              | ** ** | **Amount**       | **Number of  Shares** | ** **         | **Amount** |
| Balance January 1, 2003                       |       | 3,666,370        |                  | $                  | 37         |                            | (687,415   | )                        | $          | (8,088                                  | )          | $ | 29,004 |   | $ | (12,458 | )  | $ | 8,495 |   |
| Net loss                                           |       | —           |                  | —             |       | —                          |       | —                   |       | —                                  |       | (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                     |       | 3,666,370        |                  | $                  | 37         |                            | (704,818   | )                   | $          | (8,190                                  | )          | $ | 29,035 |   | $ | (21,372 | ) | $ | (490 | ) |
| Net loss                                           |       | —           |                  | —             |       | —                          |       | —                   |       | —                                  |       | (13,963 | ) | (13,963 | ) |
| Sale of common stock from exercise of options      |       | 1,125            |                  | —             |       | —                          |       | —                   |       | 11                                      |       | — |   | 11 |   |
| Purchase of common stock for treasury              |       | —           |                  | —             |       | (47,195                         | )          | (290                     | )          | —                                  |       |   |   | (290 | ) |
| Balance December 29, 2004                     |       | 3,667,495        |                  | $                  | 37         |                            | (752,013   | )                        | $          | (8,480                                  | )          | $ | 29,046 |   | $ | (35,335 | ) | $ | (14,732 | ) |
| Net loss                                           |       | —           |                  | —             |       | —                          |       | —                   |       | —                                  |       | (3,143 | ) | (3,143 | ) |
| Issuance of common stock                           |       | 37,500           |                  | —             |       | —                          |       | —                   |       | 172                                     |       | — |   | 172 |   |
| Sale of common stock                               |       | 60,000           |                  | 1                  |       | —                          |       | —                   |       | 399                                     |       | — |   | 400 |   |
| Balance December 28, 2005                     |       | 3,764,995        |                  | $                  | 38         |                            | (752,013   | )                        | $          | (8,480                                  | )          | $ | 29,617 |   | $ | (38,478 | ) | $ | (17,303 | ) |
|                                                    |            |                  |                       |                    |            |                                 |            |                          |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

33

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| BERTUCCI’S CORPORATION                                                      |
|----------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF  CASH FLOW                                            |
| (In thousands)                                                                   |
|                                                                             |
| ** **                                                                       | ** ** | **December 28, 2005** | ** ** | **December 29, 2004** | ** ** | **December 31, 2003** | ** ** |
| Cash flows from operating  activities                                            |   |   |   |   |   |   |   |
| Net loss                                                                         |   | $ | (3,143) |   | $ | (13,963) |   | $ | (8,914) |   |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |   |   |   |   |   |   |   |
| Adjustment  of gain on Brinker Sale                                              |   | — |   | — |   | (650 | ) |
| Loss on sale  leaseback transaction                                              |   | — |   | — |   | 59 |   |
| Non-cash  stock compensation expense                                             |   | 172 |   | — |   | 31 |   |
| Loss on  equipment disposals                                                     |   | 170 |   | — |   | — |   |
| Asset  impairment charge                                                         |   | 982 |   | 6,749 |   | 3,580 |   |
| Deferred  rent, depreciation, and amortization                                   |   | 11,568 |   | 12,863 |   | 12,658 |   |
| Changes in  operating assets and liabilities                                     |   |   |   |   |   |   |   |
| Inventories                                                                      |   | (146 | ) | (120 | ) | (368 | ) |
| Prepaid  expenses and receivables                                                |   | 200 |   | 643 |   | 1,217 |   |
| Other  accrued expenses                                                          |   | 2,270 |   | 2,186 |   | 106 |   |
| Income taxes  payable                                                            |   | — |   | (413 | ) | 409 |   |
| Accounts  payable                                                                |   | 784 |   | (607 | ) | 457 |   |
| Tenant  allowances received                                                      |   | 250 |   | 577 |   | 658 |   |
| Other  operating assets and liabilities                                          |   | (180 | ) | (34 | ) | (172 | ) |
| Total  adjustments                                                               |   | 16,070 |   | 21,844 |   | 17,985 |   |
| Net cash  provided by operating activities                                       |   | 12,927 |   | 7,881 |   | 9,071 |   |
|                                                                             |   |   |   |   |   |   |   |
| Cash flows  from investing activities                                            |   |   |   |   |   |   |   |
| Additions to  property and equipment                                             |   | (4,324 | ) | (8,598 | ) | (17,396 | ) |
| Net proceeds  from sale leaseback transactions                                   |   | — |   | — |   | 8,977 |   |
| Decrease  (increase) in restricted cash                                          |   | 216 |   | 726 |   | (661 | ) |
| Acquisition  of liquor licenses                                                  |   | — |   | — |   | (278 | ) |
| Net cash  used in investing activities                                           |   | (4,108 | ) | (7,872 | ) | (9,358 | ) |
|                                                                             |   |   |   |   |   |   |   |
| Cash flows  from financing activities                                            |   |   |   |   |   |   |   |
| Sale of  common stock from exercise of options                                   |   | 400 |   | 11 |   | — |   |
| Purchase of  treasury shares                                                     |   | — |   | (290 | ) | (102 | ) |
| Payment on  promissory note                                                      |   | (40 | ) | (39 | ) | (81 | ) |
| Principal  payments under capital lease obligations                              |   | (88 | ) | (47 | ) | (16 | ) |
| Net cash  provided by (used in) financing activities                             |   | 272 |   | (365 | ) | (199 | ) |
|                                                                             |   |   |   |   |   |   |   |
| Net incease  (decrease) in cash and cash equivalents                             |   | 9,091 |   | (356 | ) | (486 | ) |
| Cash and  cash equivalents, beginning of year                                    |   | 12,291 |   | 12,647 |   | 13,133 |   |
| Cash and  cash equivalents, end of year                                          |   | $ | 21,382 |   | $ | 12,291 |   | $ | 12,647 |   |
|                                                                             |   |   |   |   |   |   |   |
| Supplemental  Disclosure of Cash Flow Information:                               |   |   |   |   |   |   |   |
| Cash paid  for interest                                                          |   | $ | 10,096 |   | $ | 10,090 |   | $ | 9,804 |   |
| Cash paid  (refunded) for income taxes                                           |   | $ | — |   | $ | 377 |   | $ | (408 | ) |
| 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 |   |

 

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

 

34

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**BERTUCCI’SCORPORATION**

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

DECEMBER 28, 2005

 

(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 28, 2005, the Companyoperated 92 restaurants located primarily in the northeast United States.

 

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

 

*FiscalYear End*

* *

The Company’s fiscal year is the 52 or 53-week periodending 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 cash equivalents are comprised ofdemand and interest bearing accounts with original maturities of no more thansixty days. The Company utilizes zero balance disbursement accounts for cashmanagement purposes and maintains a cash balance sufficient to coverdisbursements from these accounts when checks are presented for payment.Outstanding checks written against the disbursement accounts of $0.9 million atDecember 28, 2005 are included in accounts payable in the accompanyingconsolidated balance sheets.

 

*Restricted Cash*

 

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

 

*Inventories*

* *

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

 
| ** **       | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------|------------|----------|------------|----------|------------|
|             |       |     |       |     |       |
| Food             |       | $        | 847        |     | $          | 750 |   |
| Liquor           |       | 578      |       | 542      |       |
| Supplies         |       | 109      |       | 96       |       |
| Total  inventory |       | $        | 1,534      |     | $          | 1,388 |   |
|                  |            |          |            |          |            |  |  |  |

 

35

----

 

*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 the carryingamount of a restaurant’s assets may not be recoverable. An impairment isdetermined by comparing estimated undiscounted future operating cash flows fora restaurant to the carrying amount of its assets. 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.

 

The Company regularly assesses restaurants’ performance forrecoverability to determine if an impairment of fixed assets exists at anylocation. The Company estimates the fair value of assets based on the netpresent value of the expected cash flows for each restaurant. If the carryingamount of the assets (including any nontransferable liquor licenses) exceedsthe fair value of the assets, the Company records an impairment charge toreflect the write down of the affected assets to fair value. Impairment chargeswere $1.0 million, $6.7 million, and $3.6 million in fiscal 2005, 2004, and2003, respectively.

 

*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):

 
| ** **                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |     |       |
| Total  interest expense    |       | $        | 10,425     |     | $          | 10,690   |       | $ | 10,371 |   |
| Less -  Amount capitalized |       | 14       |       | 77       |       | 238      |       |
| Interest expense,  net     |       | $        | 10,411     |     | $          | 10,613   |       | $ | 10,133 |   |

 

*Self-Insurance*

 

*The Company is self-insured forcertain losses related to general liability, group health insurance, and workers’compensation. The Company maintains stop loss coverage with third partyinsurers 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.*

* *

36

----

 

*AccruedExpenses*

* *

Accrued expenses consisted of the following as of December 28,2005 and December 29, 2004 (dollars in thousands):

 
| ** **                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
|                                     |       |     |       |     |       |
| Accrued  payroll and related benefits    |       | $        | 5,994      |     | $          | 4,810 |   |
| Unredeemed  gift cards                   |       | 4,392    |       | 3,857    |       |
| Accrued  interest                        |       | 4,228    |       | 4,254    |       |
| Other  accrued liabilities               |       | 2,669    |       | 2,018    |       |
| Accrued rent  and other occupancy costs  |       | 1,576    |       | 1,034    |       |
| Store  closing reserves, current portion |       | 270      |       | 484      |       |
|                                     |       |     |       |     |       |
| TOTAL                                    |       | $        | 19,129     |     | $          | 16,457 |   |
|                                          |            |          |            |          |            |  |  |  |

 

*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 indicating goodwill may beimpaired. There was no impairment of goodwill at December 28, 2005 or December 29,2004.

 

*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 6 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 28, 2005and December 29, 2004. Amortization expense for non-transferable liquorlicenses was $56,000, $82,000, and $58,000 in fiscal 2005, 2004, and 2003, respectively.For existing licenses, amortization expense is expected to be $56,000 per yearfor each of the next five fiscal years.

 

*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 5 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 allequipment, concept systems and recipes.

 

37

----

 

*Advertising*

* *

Advertising costs are expensed as incurred. Advertising costs were $5.8million, $6.6 million and $5.5 million in fiscal 2005, 2004, and 2003,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 28,2005, December 29, 2004, and December 31, 2003 options representing970,929, 548,171, and 594,396 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 9. The Company accounts forthis plan under the recognition and measurement principles of APB Opinion No. *25, Accounting for Stock Issued to Employees,*and relatedinterpretations. In 2005, stock based employee compensation expense resultedfrom the granting of shares to key employees and independent directors. In2003, such cost resulted from the modification of a stock option grant. Alloptions granted had an exercise price equal to, or in excess of, the marketvalue of the underlying common stock on the date of grant. The following tableillustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123 (inthousands, except per share data):

 

 
| ** **                                                                                                       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                             |       |     |       |     |       |     |       |
| Net loss, as  reported                                                                                           |       | $        | (3,143     | )        | $          | (13,963  | )          | $ | (8,914 | ) |
| Add:  Stock-based employee compensation expense included in reported net loss.                                   |       | 172      |       | —   |       | 31       |       |
| Deduct: Net  stock-based employee compensation expense determined under fair value based method  for all awards. |       | (116     | )          | (77      | )          | (580     | )          |
| Pro forma  net loss                                                                                              |       | $        | (3,087     | )        | $          | (14,040  | )          | $ | (9,463 | ) |
|                                                                                                             |       |     |       |     |       |     |       |
| Basic and  diluted loss per share                                                                                |       |     |       |     |       |     |       |
| As reported                                                                                                      |       | $        | (1.06      | )        | $          | (4.74    | )          | $ | (3.00 | ) |
| Pro forma                                                                                                        |       | $        | (1.04      | )        | $          | (4.77    | )          | $ | (3.19 | ) |
|                                                                                                                  |            |          |            |          |            |          |            |  |  |  |  |  |  |

 

*Recent Accounting Pronouncements*

* *

In June 2005, the Emerging IssuesTask Force of the Financial Accounting Standards Board (“FASB”) reached aconsensus on Issue No. 05-6, *Determining theAmortization Period for Leasehold Improvements* (“EITF 05-6”). Theguidance requires that leasehold improvements acquired in a businesscombination or purchased subsequent to the inception of a lease be amortizedover the lesser of the useful life of the assets or a term that includesrenewals that are reasonably assured at the date of the business combination orpurchase. The guidance is effective for periods beginning after June 29,2005. The adoption of EITF 05- 6 did not have a material effect on ourconsolidated financial position or results of operations.

 

InDecember 2004, the FASB issued SFAS No. 123R which requires allshare-based payments to employees to be recognized in the financial statementsbased on their fair values. SFAS No. 123R replaces SFAS No. 123,*Accounting for Stock-Based Compensation*,and supersedes Accounting Principles Board Opinion No. 25, or APB Opinion No. 25,*Accounting for Stock Issued to Employees*.Effective December 29, 2005, we will adopt the provisions of SFAS No. 123Rusing the modified prospective method. Under this method, compensation expenseis recorded for all unvested options over the related vesting period beginningin the quarter of adoption. We currently apply the intrinsic value based methodprescribed in APB Opinion No. 25 in accounting for employee stock-basedcompensation. Upon adoption of SFAS No.

 

38

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123R,we will recognize stock-based compensation costs rateably over the serviceperiod. This statement also amends SFAS No. 95,*Statement of Cash Flows*, to require that excess taxbenefits be reflected as financing cash inflows rather than operating cashinflows. In March 2005, the SEC issued Staff Accounting Bulletin, or SAB No. 107regarding the Staff’s interpretation of SFAS No. 123R. This interpretationprovides the Staff’s views regarding interactions between SFAS No. 123Rand certain SEC rules and regulations and provides interpretations of thevaluation of share-based payments for public companies. The interpretiveguidance is intended to assist companies in applying the provisions of SFAS No. 123Rand investors and users of the financial statements in analyzing theinformation provided. We will follow the guidance prescribed in SAB No. 107in connection with our adoption of SFAS No. 123R. The impact of theadoption of SFAS No. 123R and SAB No. 107 is estimated to result in acompensation charge for fiscal year 2006 of approximately $100,000.

 

*SegmentReporting*

* *

The Company’s operations have been aggregatedinto one single reporting segment, as permitted SFAS No. 131, *Disclosure about Segments of an Enterprise and Related Information*,since its operations have similar economic characteristics, products,production processes, types of customers and distribution methods.

 

*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 affecting the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Significant estimatesinclude the reserve for closed restaurant locations, impairment analysis onclosed locations, and insurance reserves. Actual results could differ fromthose estimates.

 

(3)                                  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 accordinglyreversed $650,000 of accrued liabilities as an additional gain on the BrinkerSale.

 

*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 wasoriginally expected the Company would be able to exit these locations, subleasethe locations or otherwise be released from the related leases. However, due tomarket conditions, the Company was unable to sell, sublease or exit certain ofthese leases as originally anticipated. Additionally, in 2002, the Companyclosed one restaurant and recorded a charge of $0.2 million primarily relatedto estimated lease 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.

 

39

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

 
| ** **                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of year                 |       | $        | 659        |     | $          | 1,449    |       | $ | 2,499 |   |
| Promissory  note issued                     |       | —   |       | —   |       | (386     | )          |
| Lease and  related costs charged to reserve |       | (287     | )          | (790     | )          | (664     | )          |
| Balance, end  of year                       |       | $        | 372        |     | $          | 659      |       | $ | 1,449 |   |
|                                        |       |     |       |     |       |     |       |
| Current  portion                            |       | $        | 270        |     | $          | 484      |       | $ | 615 |   |
| Noncurrent  portion                         |       | 102      |       | 175      |       | 834      |       |
|                                        |       | $        | 372        |     | $          | 659      |       | $ | 1,449 |   |

 

The closed restaurant reserve was calculatednet of sublease income at ten locations partially or fully subleased as of December 28,2005. The Company remains primarily liable for the remaining lease obligationsshould the sublessee default. Total sublease income excluded from the reserveis approximately $5.9 million for subleases expiring at various dates through2017. One tenant has defaulted under the terms of the Company’s sublease butthe net exposure to the Company has been provided for in the reserves above.

 

(4)                                  INCOMETAXES

 

The components of the provision for incometaxes for the years ended December 28, 2005, December 29, 2004, and December 31,2003 are as follows(dollars in thousands):

 
| ** **                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:                          |       |     |       |     |       |     |       |
| Federal                           |       | $        | —     |     | $          | —   |       | $ | — |   |
| State                             |       | —   |       | —   |       | —   |       |
|                              |       | —   |       | —   |       | —   |       |
| Deferred:                         |       |     |       |     |       |     |       |
| Federal                           |       | (1,473   | )          | (5,669   | )          | (3,752   | )          |
| State                             |       | (95      | )          | (413     | )          | (270     | )          |
|                              |       | (1,568   | )          | (6,082   | )          | (4,022   | )          |
|                              |       |     |       |     |       |     |       |
| Valuation  allowance              |       | 1,568    |       | 6,082    |       | 4,022    |       |
|                              |       |     |       |     |       |     |       |
| Total  provision for income taxes |       | $        | —     |     | $          | —   |       | $ | — |   |

 

A reconciliation of the amount computed byapplying the statutory federal income tax rate of 35% to the loss before incometax provision for the years ended December 28, 2005, December 29,2004, and December 31, 2003, respectively, is as follows (dollars inthousands):

 
| ** **                                             | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income tax  benefit computed at federal statutory rate |       | $        | (1,100     | )        | $          | (4,887   | )          | $ | (3,120 | ) |
| State taxes,  net of federal benefit                   |       | (95      | )          | (413     | )          | (270     | )          |
| Employment  related tax credits, net                   |       | (983     | )          | (782     | )          | (632     | )          |
| Net  operating loss carryforwards and other            |       | 610      |       | —   |       | —   |       |
| Valuation  allowance                                   |       | 1,568    |       | 6,082    |       | 4,022    |       |
| Income tax provision                                   |       | $        | —     |     | $          | —   |       | $ | — |   |
|                                                        |            |          |            |          |            |          |            |  |  |  |  |  |

 

40

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Significant items giving rise to deferred taxassets and deferred tax liabilities at December 28, 2005 and December 29,2004 are as follows (dollars in thousands):

 

 
| ** **                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets—                             |       |     |       |     |       |
| Net operating loss and tax  credit carryforwards      |       | $        | 6,418      |     | $          | 4,356 |   |
| Property and equipment,  including impairment charges |       |     | 5,931      |     |       | 6,086 |   |
| Deferred rent                                         |       | 3,226    |       | 3,195    |       |
| Accrued expenses and other                            |       | 1,946    |       | 1,042    |       |
| Deferred and accrued  compensation                    |       | 414      |       | 201      |       |
| Store closing write downs  and liabilities            |       | 145      |       | 1,694    |       |
|                                                  |       | 18,080   |       | 16,574   |       |
| Deferred tax liabilities—                        |       |     |       |     |       |
| Liquor licenses                                       |       | (234     | )          | (296     | )          |
|                                                  |       | (234     | )          | (296     | )          |
|                                                  |       |     |       |     |       |
| Total net deferred tax  assets                        |       | 17,846   |       | 16,278   |       |
| Valuation allowance                                   |       | (17,846  | )          | (16,278  | )          |
| 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 $13.1 million as of December 28, 2005 which expire atvarious dates through 2024. 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 amounts realized will be dependent on generatingfuture taxable income.

 

(5)                                  SENIORNOTES PAYABLE

 

The Company has outstanding 103⁄4% 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 1.79%through July 15, 2006. After July 15, 2006, the Senior Notes may beredeemed at face value. Under certain circumstances, including a change ofcontrol or following certain asset sales, the holders of the Senior Notes may requirethe Company to repurchase the Senior Notes, at a redemption price of 101%. TheSenior Notes are fully and unconditionally guaranteed, on a joint and severalbasis, on an unsecured senior basis, by all of the Company’s subsidiaries. TheCompany’s parent company has no independent assets or operations. The SeniorNotes contain no financial covenants and the Company is in compliance with allnon-financial covenants as of December 28, 2005.

 

The fair values of the Company’s long-term debt,including current portion at December 28, 2005 and December 29, 2004were as follows (dollars in thousands):

 
| ** **       | ** ** | **2005**             | ** ** | **2004**            | ** ** |
|------------------|------------|----------------------|------------|---------------------|------------|
| ** **       | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| Senior Notes     |       | $                    | 85,310     |                | $          | 85,268 |   | $ | 85,310 |   | $ | 86,556 |   |
| Promissory Notes |       | 781                  |       | 710                 |       | 821 |   | 737 |   |
|             |       | $                    | 86,091     |                | $          | 85,978 |   | $ | 86,131 |   | $ | 87,293 |   |

 

The fair values of the long term obligations abovewere determined based on the present value of remaining principal and interestpayments discounted at the Company’s estimates of comparable borrowing rates asof December 28, 2005 (10.5%) and December 29, 2004 (10.0%),respectively.

 

41

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(6)                                  COMMITMENTSAND CONTINGENCIES

 

*Letterof Credit Facility*

* *

The Company has a $4.0 million (maximum) letter of creditfacility. As of December 28, 2005, this facility was collateralized with$2.2 million of cash restricted from general use. Letters of credit totaling$2.2 million were outstanding pursuant to this facility as of December 28,2005 and December 29, 2004 and expire in December 2006. Restrictedcash is presented as current based on the December 2006 letter of creditexpiration 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 $15.5 million, $14.8 million, and $13.4 million for the yearsended December 28, 2005, December 29, 2004, and December 31,2003, respectively. The annual difference of accrued rent versus amounts paidis classified 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 $200,000, $154,000, and $264,000, forfiscal 2005, 2004, and 2003, respectively.

 

Future minimum rental payments due under all non-cancelableoperating leases as of December 28, 2005 were as follows (dollars inthousands):

 
| **Year-**  | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|
| 2006       |       | $          | 15,269     |   |
| 2007       |       | 13,834     |       |
| 2008       |       | 12,025     |       |
| 2009       |       | 10,709     |       |
| 2010       |       | 9,116      |       |
| Thereafter |       | 36,001     |       |
|       |       | $          | 96,954     |   |

 

In addition to the leases summarized above, theCompany is primarily liable on ten locations for approximately $6.3 million ingross lease commitments over the remaining terms of the leases. Nine of thoselocations are subleased to tenants under sublease obligations aggregating $5.9million. The difference of $372,000 represents the Company’s closed restaurantreserve at December 28, 2005.

 

*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 at its net presentvalue of $1.9 million (at inception) as a capital lease obligation. The Companyagreed to lease back the property for a 20-year period. Both leases include twofive-year renewal terms, which the Company may exercise at its option. TheCompany is required to maintain the properties for the term of the leases andto pay all taxes, insurance,

 

42

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utilitiesand other costs associated with those properties. Under the leases, the Companyagreed to customary indemnities and, in the event the Company defaults on anylease, the landlord may terminate the lease, accelerate rental paymentsand collect liquidated damages.

 

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

* *

 
| **Year**                           | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|
| 2006                               |       | $          | 693        |   |
| 2007                               |       | 704        |       |
| 2008                               |       | 715        |       |
| 2009                               |       | 725        |       |
| 2010                               |       | 691        |       |
| Thereafter                         |       | 9,221      |       |
|                               |       | 12,749     |       |
| Less amount  representing interest |       | 6,660      |       |
| Present  value of minimum payments |       | $          | 6,089      |   |
| Current  portion                   |       | 107        |       |
| Long-term  portion                 |       | 5,982      |       |
|                               |       | $          | 6,089      |   |
|                                    |            |            |            |  |  |  |

 

*Contingencies*

* *

The Company is subject to various legal proceedingsarising in the ordinary course of business. Based on consultation with theCompany’s legal counsel, management believes the amount of ultimate liabilitywith respect to these actions will not be material to the financial position,cash flows or results of operations of the Company.

 

(7)                                  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 28,2005, December 29, 2004, and December 31, 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 theGeneral Partner of JPAF II. The General Partner of JPAF LP is JPAF, Inc.,a Delaware corporation. Benjamin R. Jacobson, Chairman of the Company, is thepresident and majority shareholder of JPAF, Inc. J.P. Acquisition FundIII, L.P., a Delaware limited partnership (“JPAF III”), previously owned acontrolling interest in Taco Bueno. The General Partner of JPAF III isJPAF III, LLC, a Delaware limited liability company (“JPAF III, LLC”). JacobsonPartners is the sole shareholder of JPAF III, LLC. Mr. Jacobson is theManaging General Partner of Jacobson Partners. Stephen V. Clark, Vice Chairmanof the Board of Directors and Chief Executive Officer of the Company, and DavidG. Lloyd, President and Chief Financial Officer of the Company, held seniormanagement positions with Taco Bueno until August 2005, when JPAF IIIsold its interest in Taco Bueno.

 

(8)                                  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 allocated, based on a formula asdefined by the Bertucci’s 401(k) Plan, to Plan participants. Matchingcontributions made by the Company for the years ended December 28, 2005, December 29,2004, and December 31, 2003 were approximately $130,000, $98,000, and$81,000, 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 todefer a portion of their salary and/or earned bonus.

 

43

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The assets are held separately from otherfunds of the Company, but remain subject to claims of the Company’s generalcreditors in the event of the Company’s insolvency. As of December 28,2005, there were 21 participants in the plan with assets with an aggregatemarket value of approximately $565,000. The assets are included in other assetsin the consolidated balance sheet. A corresponding liability is included inother long term liabilities.

 

(9)                                  COMMONSTOCK AND EQUITY INCENTIVE PLAN

 

On September 15, 1997, the Board ofDirectors of the Company established the 1997 Equity Incentive Plan, whichincluded a nonqualified stock option plan, in order to provide equity incentiveawards for certain key employees and directors. On September 27,2005, the Company’s Board of Directors approved the adoption of the Amended andRestated 1997 Equity Incentive Plan (the “Equity Incentive Plan”) whichincreased the number of shares of Common Stock that are available for issuanceunder the Equity Incentive Plan from 750,000 to 1,100,000. The EquityIncentive Plan is administered by the Board of Directors of the Company and may bemodified or amended by the Board of Directors in any respect. As of December 28,2005 there were 129,071 authorized shares of Common Stock remaining forissuance under the Equity Incentive Plan.

 

The options granted under the Equity Incentive Planare generally exercisable 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 Equity Incentive Plan activity forthe years ended December 28, 2005, December 29, 2004, and December 31,2003 is presented in the table and narrative below.

 
| ** **                                          | ** ** | **2005**   | ** ** | **2004**                              | ** **     | **2003**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------------------------|----------------|------------|------------|
| ** **                                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** **     | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding at beginning  of year                   |       | 548,171    |       | $                                     | 15.47          |       | 594,396    |   | $ | 15.42 |   | 652,549 |   | $ | 15.44 |   |
| Granted                                             |       | 602,500    |       | $                                     | 17.51          |       | 111,000    |   | $ | 17.51 |   | 40,079 |   | $ | 14.48 |   |
| Exercised                                           |       | —     |       | $                                     | —         |       | (1,125     | ) | $ | (9.22 | ) | — |   | $ | — |   |
| Forfeited                                           |       | (179,742   | )          | $                                     | (15.30         | )          | (156,100   | ) | $ | (16.80 | ) | (98,232 | ) | $ | (15.13 | ) |
| Outstanding  at end of year                         |       | 970,929    |       | $                                     | 16.77          |       | 548,171    |   | $ | 15.47 |   | 594,396 |   | $ | 15.42 |   |
|                                                |       |       |       |                                  |           |       |       |   |   |   |   |   |   |
| Exercisable  at end of year                         |       | 285,179    |       | $                                     | 15.06          |       | 256,377    |   | $ | 13.61 |   | 294,603 |   | $ | 14.12 |   |
|                                                |       |       |       |                                  |           |       |       |   |   |   |   |   |   |
| 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 |   |

 

The 970,929 shares of Common Stock subject tooutstanding options at December 28, 2005 have a remaining weighted averagecontractual life of approximately 7.9 years. Options granted under the EquityIncentive Plan to date expire 90 days following either the fifth or the tenthanniversary 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 3.99%, 3.53%, and 3.18% were used in 2005,2004, and 2003, respectively. Weighted average expected lives of five years andan expected volatility of 0% were used in all three years.

 

The Company’s shareholders are parties to ashareholder agreement (the “Shareholder Agreement”) which restrict their 

 

44

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ability to transfer their shares without the approvalof the Company’s Board of Directors. The Shareholder Agreement provides, amongother things, that (i) a shareholder may not transfer his or itsshares in the Company, whether voluntarily or by operation of law, other thanin certain limited circumstances specified therein, including transfers througha right of first refusal procedure, distributions by certain legal entities tothe constituents of such entities (i.e. a partnership to its partners),transfers by will or intestate succession, transfers approved by the Board ofDirectors to an affiliate of a shareholder or to another shareholder, transfersto family members or trusts for their benefit, and any transfer unanimouslyapproved by the Board of Directors, (ii) the Company has the option topurchase the shares of any shareholder who is an employee of the Companyfollowing the termination of such shareholder’s employment with the Company forany reason at a purchase price equal to the fair market value or originalpurchase price (plus accrued interest in certain circumstances) depending uponthe reason for such termination, (iii) the Company has the option topurchase the shares of any shareholder who is an employee of the Companyfollowing certain transfer events, including such shareholders’ bankruptcy or acourt-ordered transfer of such shareholder’s stock, (iv) if the Companyfails to exercise its option to purchase as described in the immediatelypreceding clause (iii), the remaining shareholders have the option to purchasethe applicable shares, (v) in the event an employee shareholder leaves theCompany due to death, disability or hardship or, with respect to certain shares,is terminated by the Company without cause, such shareholder has a one-timeoption to require the Company to purchase such shareholder’s shares at thegreater of fair value or the original purchase price, subject to certainapproval by the Board of Directors, excluding effected employees, (vi) notransfer of shares may occur unless the transferee thereof agrees to bebound by the terms of the Shareholder Agreement, and (vii) all sharecertificates must bear customary legends and all share transfers must be incompliance with applicable securities laws.

 

Additionally, the Companyhas the option to purchase shares held by employee stockholders (approximately136,629 shares at December 28, 2005) 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 theCompany to purchase their shares upon their death or disability and withrespect to certain shares if they are terminated without cause, at the greaterof fair value or the original purchase price, subject to certain approval bythe Board of Directors.

 

45

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(10)                            QUARTERLYRESULTS

 

The unaudited quarterly information depictedbelow details results of operations for each of the fiscal quarters of 2005 and2004.

 

 
| ** **                                                         | ** ** | **Quarter 1  March 30,  2005** | ** ** | **Quarter 2  June 29,  2005** | ** ** | **Quarter 3  September 28,  2005** | ** ** | **Quarter 4  December 28,  2005** | ** ** | **Year  December 28,  2005** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| Net sales                                                          |       | $                                   | 49,952     |                               | $          | 52,580                                  |       | $                                      | 49,654     |                              | $          | 52,598 |   | $ | 204,784 |   |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of  sales and expenses:                                       |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Cost of  sales                                                     |       | 11,860                              |       | 12,322                             |       | 11,316                                  |       | 12,113                                 |       | 47,611                            |       |
| Operating  expenses                                                |       | 30,454                              |       | 31,391                             |       | 30,051                                  |       | 31,357                                 |       | 123,253                           |       |
| General and  administrative expenses                               |       | 3,499                               |       | 3,283                              |       | 3,740                                   |       | 3,920                                  |       | 14,442                            |       |
| Deferred  rent, depreciation, amortization and preopening expenses |       | 3,142                               |       | 3,029                              |       | 2,601                                   |       | 2,456                                  |       | 11,228                            |       |
| Asset  impairment charge                                           |       | —                              |       | 907                                |       | —                                  |       | 75                                     |       | 982                               |       |
| Total cost  of sales and expenses                                  |       | 48,955                              |       | 50,932                             |       | 47,708                                  |       | 49,921                                 |       | 197,516                           |       |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Income from  operations                                            |       | 997                                 |       | 1,648                              |       | 1,946                                   |       | 2,677                                  |       | 7,268                             |       |
| Other  expense:                                                    |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Interest  expense, net                                             |       | (2,650                              | )          | (2,621                             | )          | (2,613                                  | )          | (2,527                                 | )          | (10,411                           | )          |
| Other  expense                                                     |       | (2,650                              | )          | (2,621                             | )          | (2,613                                  | )          | (2,527                                 | )          | (10,411                           | )          |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Net loss                                                           |       | $                                   | (1,653     | )                                  | $          | (973                                    | )          | $                                      | (667       | )                                 | $          | 150 |   | $ | (3,143 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Basic and  diluted loss per share                                  |       | $                                   | (0.57      | )                                  | $          | (0.33                                   | )          | $                                      | (0.23      | )                                 | $          | 0.05 |   | $ | (1.06 | ) |
|                                                               |       |                                |       |                               |       |                                    |       |                                   |       |                              |       |
| Weighted  average shares outstanding - basic and diluted           |       | 2,925,520                           |       | 2,947,691                          |       | 2,953,864                               |       | 3,012,982                              |       | 2,960,025                         |       |

 
| ** **                                                         | ** ** | **Quarter 1  March 31,  2004** | ** ** | **Quarter 2  June 30,  2004** | ** ** | **Quarter 3  September 29,  2004** | ** ** | **Quarter 4  December 29,  2004** | ** ** | **Year  December 29,  2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|
| 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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**EXHIBIT LISTINGAND INDEX**

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

 

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(a)          Filed as an Exhibit,with the same Exhibit number, to Amendment No. 3 to the Company’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 the Company’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 the Company’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 the Company’s Annual Report on Form 10-Kfiled with the Securities and Exchange Commission on April 1, 2002.

(e)          Filed as an Exhibit,with the same Exhibit number, to the Company’s Annual Report on Form 10-Kfiled with the Securities and Exchange Commission on March 28, 2004.

(f)            Filed as Exhibit 10.22to the Company’s current report on Form 8-K filed with the Securities andExchange Commission on October 3, 2005.

(g)         Filed herewith.

*                 Management compensation plan orarrangement.

 

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