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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

FOR THE FISCAL YEAR ENDED DECEMBER 30, 2002

OR

For the transition period from                                      to                                     

COMMISSION FILE NUMBER 1-9684

ANGELO AND MAXIE'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Registrant's telephone number including area code: (312) 266-1100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Series A Senior Convertible Redeemable Preferred Stock, par value $1.00 per share

        INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes ý    No o

        INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K ((S) 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. o

        INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE ACT). Yes o    No ý

        The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based upon the per share closing sale price of $3.05 on July 1, 2002, and for the purpose of this calculation only, the assumption that all of the registrant's directors and executive officers are affiliates) was approximately $3.9 million. The number of shares outstanding of common stock as of March 21, 2003 was 1,991,305.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

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PART I

        This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent the Company's expectations or beliefs concerning future events, including any statements regarding: future sales and gross profit percentages, the continuation of historical trends, the sufficiency of the Company's cash balances, and cash generated from operating, financing and/or investing activities for the Company's future liquidity and capital resource needs. Without limiting the foregoing, the words "believes," "intends," "projects," "plans," "expects," "anticipates," and similar expressions are intended to identify forward-looking statements. The Company cautions that these statements are further qualified by important economic and competitive factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, risks of the restaurant industry, an industry with many well-established competitors with greater financial and other resources than the Company, and the impact of changes in consumer trends, employee availability, and cost increases. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized.

ITEM 1.    BUSINESS.

GENERAL

        Angelo and Maxie's, Inc., formerly known as Chart House Enterprises, Inc. (the "Company"), operates five full-service steakhouse restaurants located in New York, Washington DC, Virginia, and Florida. The Company was incorporated in Delaware in 1985. The Company's headquarters are located in Chicago, Illinois.

SALE OF CHART HOUSE BUSINESS

        In 1961, operations commenced with the opening of the first Chart House restaurant in Aspen, Colorado by a predecessor of the Company. The Company was established in 1985 as a vehicle to acquire the 54 unit Chart House brand from a predecessor, as well as two other concepts subsequently disposed of by the Company. The Chart House brand grew to a peak of 63 domestic units located in 21 states as well as Puerto Rico and the U.S. Virgin Islands. The Company also opened its higher-priced Peohe's restaurant in January 1988, in Coronado, California. In early 1998, the Company began forming a new management team that developed and executed an operational strategy, which included: disposal of restaurants that did not meet sales and profitability standards, demographic requirements, or geographic fit; completion of a $31.0 million renovation program during 1998-2000 to remodel the remaining restaurants; re-engineering of the menu to a predominately fresh seafood focus; and enhanced information systems.

        In December 2001, the Board of Directors of the Company responded to the recessionary economic environment, the Company's limited access to capital, and the near-term maturity of the Company's senior, secured debt by retaining a financial advisor to initiate a review of strategic alternatives, including a possible sale of the Company.

        The Company attempted to pursue transactions involving the merger of the Company with a prospective purchaser or the sale of all of the Company's assets, including assets related to the Angelo and Maxie's Steakhouses, but did not receive acceptable offers for any such transactions. In May 2002, the Board of Directors of the Company authorized the sale of the remaining 38 Chart House restaurants and one Peohe's restaurant (the "Chart House Business") to, a subsidiary of a publicly-traded restaurant company (the "Purchaser"). The sale received the approval of the Company's stockholders at a special meeting held on July 30, 2002, and closed as of the same date. At the special meeting, the Company's stockholders also approved the change of the Company's name from Chart

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House Enterprises, Inc. to Angelo and Maxie's, Inc. The Company received consideration of approximately $55.3 million, consisting of cash and the assumption of approximately $3.1 million of certain current liabilities. The Company used a portion of the net proceeds to repay all amounts outstanding on its senior, secured Revolving Credit and Term Loan Agreement (the "Credit Agreement") and a subordinated note owed to a related party.

ANGELO AND MAXIE'S STEAKHOUSE

        In April 1999, the Company acquired the Angelo and Maxie's Steakhouse located at 233 Park Avenue South in New York, New York. The Company expanded the concept by opening four additional restaurants during 2000 located in New York (52nd Street), New York, Atlanta, Georgia (subsequently closed in 2001), Washington, DC, and Phoenix, Arizona (subsequently closed in December 2002). The Company opened two additional restaurants during 2001 located in West Palm Beach, Florida and Reston, Virginia. The Angelo and Maxie's concept offers steaks supported by a comprehensive selection of American fare, served in oversized portions at prices lower than competing upscale steakhouses. The Angelo and Maxie's concept appeals to a more diverse group of predominately younger men and women from multiple ethnic backgrounds who use the restaurant for a broader variety of occasions than typical steakhouse users. Each location offers a wide variety of premium cigars. The setting is designed to communicate an energetic, fun, and retro 1930's atmosphere that encourages a "see and be seen" environment. The Angelo and Maxie's concept combines the sophistication of the traditional steakhouse with the energy and openness of contemporary fine dining. The restaurants are designed in an art deco-style décor, with warm woodwork reminiscent of Frank Lloyd Wright, including glowing bronzes and contemporary Tiffany light fixtures. Giant murals on the walls, depicting dining and drinking cows, are present in all units and help to reinforce the whimsical, modern feel that the brand represents. Angelo and Maxie's energetic feel and lower price point lends itself to everyday dining in addition to special occasions and, as a result, the concept has a very broad customer base.

        The annual revenue for each Angelo and Maxie's Steakhouse in operation at December 30, 2002 ranged from $2.9 million to $9.1 million, with average annual revenues per restaurant of $5.2 million. The average dinner check at these restaurants was approximately $56 per person.

        The Company's business is seasonal in nature, with revenues and operating income for the first and fourth quarters greater than in the second and third quarters as the Company benefits from urban, holiday, and winter vacation dining which is greater than dining associated with leisure travel in the spring and summer quarters.

        Alcoholic beverages are available at all locations. The sale of alcoholic beverages accounted for approximately 29% of 2002 total revenues generated at the Angelo and Maxie's Steakhouses.

        The Company and its financial advisor continue the review of strategic alternatives, including a possible sale of the entire Company or sale of the Angelo and Maxie's Steakhouse concept and its five restaurants.

MENU

        Angelo and Maxie's is renowned for its thick, juicy steaks and has devised a menu which provides high-quality products served in portions that emphasize "American abundance" at reasonable prices. Angelo and Maxie's menu is split into two categories, "Meat and Not Meat," and offers a broad spectrum of oversized steaks, salads, fish, and chicken and a broad selection of á la carte side dishes. Diners can choose from a wide array of over 20 entrees offering a more diverse selection than many competing steakhouses. Signature items include the 26-ounce Ribeye Steak, 13-ounce Filet Mignon, Grilled 10-ounce Yellowfin Tuna, Two-pound Roasted Chicken Breast with Garlic Lemon Black Pepper Crust, and the White Chocolate Martini. Angelo and Maxie's also offers an extensive wine list. The menu also offers a wide selection of premium cigars, which can be purchased either from the menu or in a retail area at the front of the restaurant.

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RESTAURANT LOCATIONS

        The following table depicts existing restaurants as of December 30, 2002:

*

The Company acquired this location in April 1999.

COMPETITION

        The restaurant industry is highly competitive and menu, price, service, convenience, location, and ambience are all important factors that differentiate concepts for consumers. Angelo and Maxie's competes in the steakhouse segment and its primary competition comes from other national upscale steakhouses, as well as regional and independent steakhouses in selected markets. Angelo and Maxie's believes it offers a differentiated guest experience by providing unique, high-quality aged steaks in abundant portions, coupled with an energetic environment that provides broader occasion appeal than other traditional steakhouses.

OPERATIONS

        In order to maintain a consistently high level of food quality and service in all of its restaurants, the Company has established uniform operational standards which are implemented and executed by the managers of each restaurant. All restaurants are required to be operated in accordance with rigorous standards and specifications relating to the quality of ingredients, preparation of food, menu selection, maintenance of premises, and employee conduct. Corporate office personnel ensure standard menu offerings are adhered to with periodic revision to standard recipes and menus, and lists of approved ingredients and supplies based upon the quality, availability, cost, and customer acceptance of various menu items. The Company maintains centralized financial and accounting control for its restaurants. On a daily basis, restaurants report customer counts, sales, labor costs, and deposit information to Company headquarters. On a weekly basis, restaurant managers forward a summarized profit and loss statement, sales report, and supplier invoices.

MARKETING

        The Company's marketing strategy is designed to capitalize on the deep-brand penetration that Angelo and Maxie's has achieved in New York City, its core market. The Company's headline for Angelo and Maxie's is "I'm in the mood..." As the Company has developed Angelo and Maxie's outside of New York, marketing initiatives to build brand awareness have included a combination of local promotional efforts as well as radio and print advertising. The advertising focus for Angelo and Maxie's is centered around delivering an engaging and memorable tag line that appeals to the concept's younger, more energetic target market. The Company uses edgy advertising campaigns to differentiate the brand from its stuffier counterparts and deliver a fresh twist on an American classic, the steakhouse. Bold print ads, in eye-catching colors, feature the superlative steak and other fare offered at the restaurant. Bold radio spots reinforce the brand's younger consumer and fun feel.

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PURCHASING

        The Company's ability to maintain consistent quality throughout its system depends in large part upon its ability to acquire food products and related items from reliable sources in accordance with Company specifications. Suppliers are pre-approved by the Company and are required to adhere to strict product specifications to ensure that high-quality food and beverage products are served in the restaurants. The Company negotiates directly with the major suppliers to obtain competitive prices and uses purchase agreements to stabilize the potentially volatile pricing associated with certain commodities. Management believes that adequate alternative sources of quality food and supplies are readily available.

TRADEMARKS

        The "Angelo and Maxie's" servicemark was registered with the United States Patent and Trademark Office ("USPTO") in 1997. The "Angelo and Maxie's Steakhouse" and design servicemark was registered with the USPTO in April 2000. "Generation 2 Steakhouse," "Never 2 Hip," and "Get in the Mood" servicemarks have also been registered with the USPTO.

GOVERNMENT REGULATION

        Each of the Company's restaurants is subject to various federal, state, and local laws, regulations, and administrative practices affecting its business and must comply with provisions regulating, among other things, health and sanitation standards, equal employment, public accommodations for disabled patrons, minimum wages, worker safety and compensation, and licensing for the sale of food and alcoholic beverages. Difficulties or failures in maintaining required liquor licenses, or other required licenses, permits, or approvals, could adversely affect the operations of existing restaurants.

        Federal and state environmental regulations have not had a material effect on the Company's operations, but more stringent and varied requirements of local governmental bodies with respect to zoning, land use, and environmental factors could add to the Company's costs in the future.

        In December 2002, the City of New York legislated a ban on smoking that includes almost all restaurants and bars. This legislation, which becomes effective on March 30, 2003, could adversely affect the operations of the Company's two steakhouses located in New York, New York.

        The Company is also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions. A significant number of the Company's food service personnel are paid at rates related to federal and state minimum wage requirements and, accordingly, increases in the minimum wage or decreases in the allowable tip credit will increase the Company's labor cost. There can be no assurance that future legislation covering, among other matters, mandated health insurance and living wage increases, will not be enacted and subsequently have a significant effect on Company profitability.

        The Company believes it is operating in compliance with applicable laws, regulations, and administrative practices governing its operations.

EMPLOYEES AND RESTAURANT STAFFING

        Each restaurant is managed by a team consisting of one general manager and three to five assistant managers, depending on the operating characteristics and size of the restaurant. Each of the Company's general managers has primary responsibility for day-to-day operations in one of the Company's restaurants, including customer relations, food service, cost controls, restaurant maintenance, personnel relations, implementation of Company policies, and the restaurant's profitability. A portion of each general manager's and other restaurant manager's compensation depends directly on the restaurant's profitability.

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        At December 30, 2002, the Company employed approximately 485 persons, of whom six are corporate personnel located in Chicago, Illinois. Approximately 35 are restaurant management personnel and the remainder represents hourly restaurant personnel. None of the Company's employees are covered by a collective bargaining agreement. The Company has never experienced a work stoppage and considers its labor relations to be good.

ITEM 2.    PROPERTIES.

        The Company currently leases all five of its Angelo and Maxie's restaurants. The average remaining lease term (including renewal options) for these five restaurants as of December 30, 2002, was 16.1 years.

        The amount of rent paid to lessors and the methods of computing rent vary considerably from lease to lease. All of the Company's restaurant property leases provide for a minimum annual rent, and some of the leases require payment of additional rent based on sales volume at the particular location over specified minimum levels.

        The Company's executive offices occupy approximately 13,200 square feet of leased office space in a building located in Chicago, Illinois. This lease expires in June 2003, with an option to extend the term to June 2006.

ITEM 3.    LEGAL PROCEEDINGS.

        On October 1, 2002, the Company filed a complaint in the Chancery Court for the State of Delaware against the Purchaser and escrow agent Fidelity National Title. This action alleges several breaches by the Purchaser of its contractual obligations under the asset purchase agreement related to the sale of the Chart House Business and under a related escrow agreement. Aggregate damages sought, without regard to interest or legal fees, were $1.8 million. The Company subsequently received $1.6 million through a release of escrowed funds and a payment made by the Purchaser during the fourth quarter of 2002. The Company has amended the complaint to release Fidelity National Title and continues to seek approximately $0.2 million, representing amounts that the Company believes the Purchaser wrongfully failed to pay under the asset purchase agreement, and also seeks related interest, costs, and attorneys' fees. The Purchaser has filed a counterclaim, seeking a purchase price adjustment of $0.15 million. The Company is unable to predict the outcome of this matter. The Company believes that the outcome of this matter will not have a material adverse effect on its financial condition or operations.

        The Company periodically is a defendant in litigation incidental to its business activities. While any litigation or investigation has an element of uncertainty, the Company believes that the outcome of any of these matters will not have a material adverse effect on its financial condition or operations.

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

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

        The Company's Common Stock, par value $0.01 per share (the "Common Stock") is quoted on the NASD OTC Bulletin Board under the trading symbol AGMX. On March 21, 2003, there were 663 holders of record of the Company's Common Stock. The Company has not paid any cash dividends on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future.

        On February 22, 2002, the Company effected a reverse split (the "Reverse Stock Split") of its Common Stock, pursuant to which each six shares of Common Stock issued and outstanding on such date were reclassified as and converted into one share of Common Stock immediately following the reverse split. See "Note 9 'Stockholders' Equity' of Item 8. 'Financial Statements and Supplementary Data."' The following table sets forth the quarterly high and low sales prices for a share of the Company's Common Stock for the two most recent fiscal years. The prices in the table below reflect the impact of the Reverse Stock Split.

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ITEM 6.    SELECTED FINANCIAL DATA.

        The Company consummated the sale of the Chart House Business as of July 30, 2002. The operations of these restaurants have been presented as discontinued operations for the fiscal year ended 2002, and the Company has reclassified its statements of operations data for the prior periods presented below, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). The statement of operations data set forth below relates to the operations of the Angelo and Maxie's Steakhouses and certain Chart House restaurants that were not part of the Chart House Business sold in 2002.

Selected Financial Data

(In thousands, except per share and number of restaurants data)

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

        The Company consummated the sale of the Chart House Business, comprised of 39 of its then-existing 45 restaurants, as of July 30, 2002. The operations of these restaurants have been presented as discontinued operations for the fiscal year ended 2002, and the Company has reclassified its statements of operations data for the prior periods presented below, in accordance with FAS 144. The sale was completed for consideration of approximately $55.3 million, consisting of cash and the assumption of approximately $3.1 million of certain current liabilities. The Company used a portion of the net proceeds from the sale to repay all amounts outstanding under its Credit Agreement and a subordinated note owed to a related party. See "Liquidity and capital resources." The Company recognized a $2.4 million loss on the sale, in addition to $2.2 million of restructuring costs related to the sale.

        The Company continues to operate Angelo and Maxie's Steakhouses, which are full-service steakhouse restaurants located in New York, Washington DC, Virginia, and Florida. The Company operated the following number of restaurants at the end of fiscal years 2002, 2001, and 2000:

*

Other restaurants represent Chart House seafood restaurants that were not sold as part of the Chart House Business, but were closed or sold during 2001.

        The Company acquired the Angelo and Maxie's Steakhouse concept and one restaurant during 1999 to diversify its seafood dominated portfolio. The Company opened a total of six additional Angelo and Maxie's restaurants over 2000 and 2001. One of these locations was closed during the fourth quarter of 2001 and another location was closed during the fourth quarter of 2002. During 2001, the Company canceled restaurant development plans for three locations, did not open any locations during 2002, and currently has no plans to open additional restaurants during 2003. The Company and its financial advisor continue the review of strategic alternatives, including a possible sale of the entire Company or the sale of the Angelo and Maxie's Steakhouse concept and its five restaurants.

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RESULTS OF OPERATIONS

        The Company reports fiscal years under a 52/53-week format. This reporting method is used by many companies in the hospitality industry and is meant to improve year-to-year comparisons of operating results. Under this method, certain years will contain 53 weeks. Fiscal 2002 and 2000 contain 52 weeks, while fiscal 2001 contains 53 weeks.

        The following table presents the results of operations for each of the fiscal years ended December 30, 2002, December 31, 2001, and December 25, 2000. Continuing operations relate to the operations of the Company's Angelo and Maxie's Steakhouses and certain Chart House restaurants that were not part of the Chart House Business sold in 2002. The operations of the Chart House Business are presented as discontinued.

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CONTINUING OPERATIONS

Fiscal 2002 Compared to Fiscal 2001

        Revenues decreased $2.4 million, or 8.0%, to $27.4 million in fiscal 2002, compared to $29.8 million in fiscal 2001. The decrease in revenues is primarily due to the disposal of two Chart House restaurants during 2001 that were not part of the sale of the Chart House Business ($2.6 million) and a 53^rd week of revenues in fiscal 2001 ($0.6 million). Comparable restaurant revenues for the three Angelo and Maxie's open for the entire current and prior fiscal years increased 2.9% ($0.5 million). The decline in revenues from Angelo and Maxie's Steakhouses closed during 2002 and 2001 ($1.8 million) were offset by increases in revenues from additional months of operations of Angelo and Maxie's Steakhouses opened during 2001 ($2.1 million).

        Cost of sales as a percentage of restaurant revenues decreased by 1.4 percentage points to 35.6% in fiscal 2002, compared with 37.0% in fiscal 2001. This improvement was primarily the result of the restaurants opened during 2001 and 2000 gaining operational efficiencies, favorable prices for certain food products, and the closure of underperforming restaurants during 2001. Assuming that weather or other market conditions outside the Company's control do not adversely affect the current favorable food cost environment, the Company expects to maintain its cost of sales percentage in 2003 at the level achieved in 2002.

        Restaurant labor as a percentage of restaurant revenues decreased by 3.5 percentage points to 24.0% in fiscal 2002, compared with 27.5% in fiscal 2001. This improvement was primarily the result of the exit from underperforming restaurants during 2001, the restaurants opened during 2001 and 2000 gaining operational efficiencies, and a reduction in the size of the restaurant management teams in October 2001. For new restaurants, labor expense is typically higher than normal during the first 120-180 days until the restaurant's management team becomes accustomed to predicting and scheduling adequate labor hours to service customer volumes.

        Other operating costs as a percentage of restaurant revenues decreased by 0.2 percentage points to 18.9% in fiscal 2002, compared with 19.1% in fiscal 2001, primarily as a result of the exit from underperforming restaurants during 2001.

        Rent as a percentage of restaurant revenues decreased by 1.3 percentage points to 8.4% in fiscal 2002, compared with 9.7% in fiscal 2001, primarily as the result of the exit from underperforming restaurants during 2001, which had higher rent structures than the remainder of the Company's restaurants, coupled with rent relief from the landlord of one of the underperforming restaurants.

        General and administrative expenses increased $0.6 million, or 62.0%, to $1.6 million in fiscal 2002, compared to $1.0 million in fiscal 2001. The increase is the result of the fixed general overhead costs being allocated entirely to five operating restaurants following the sale of the Chart House Business rather than being allocated both to continuing and discontinued operations. The Company believes that the general and administrative expenses incurred in the fourth quarter of 2002, which approximated $0.7 million, reflects a normal quarterly run-rate for these expenses.

        Depreciation and amortization decreased $1.1 million, or 44.6%, to $1.4 million in fiscal 2002, compared to $2.5 million in fiscal 2001, primarily as the result of the cessation of amortization of goodwill and trade name intangible assets as set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). In addition, the number of operating restaurants in fiscal 2002 decreased from fiscal 2001.

        Pre-opening costs were $0.6 million in fiscal 2001. Pre-opening costs primarily reflect salaries and benefits and training costs for new employees, including crew practice and rehearsal of service activities. The Company opened two new Angelo and Maxie's restaurants in the first half of 2001; no

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restaurants were opened during the second half of 2001 or during fiscal 2002. The Company has no plans to fund the opening of any new restaurants during 2003.

        Impairment of assets and restructuring charges were $7.6 million in fiscal 2002 and $5.7 million in fiscal 2001. These charges are due to the following:

•

During the second quarter of 2002, the Company completed its review as required by FAS 142 by comparing its carrying value for the Angelo and Maxie's Steakhouse business to fair market value. In determining the fair market value of its assets, management considers several factors requiring the exercise of business judgment. Such judgments include developing valuation multiples, such as the ratio of total capitalized value to restaurant earnings before interest, taxes, depreciation, and amortization for an industry peer group of publicly traded companies, and applying those multiples to the Company's historical and projected operating performance. Such evaluation indicated that the recorded value of goodwill and trade name of Angelo and Maxie's was impaired by $5.4 million, and a related charge to continuing operations was recorded in the second quarter of 2002.



•

During the third quarter 2002, the Company determined that corporate leasehold improvements had been impaired due to the significant reduction in corporate staff utilizing the assets subsequent to the sale of the Chart House Business. The Company wrote down the assets to fair value, resulting in a third quarter charge to continuing operations of $0.2 million.



•

The Company also recorded in the second quarter of 2002 a $1.7 million charge for severance due to the corporate work force reduction associated with the sale of the Chart House Business. In the third quarter of 2002, the Company recorded a $0.3 million charge for excess corporate costs related to the reduction in staffing requirements as a result of the sale of the Chart House Business for which the Company will not receive future economic benefit. Such costs primarily include excess corporate office lease payments for the Company's Chicago headquarters.



•

The Company incurred impairment of assets and restructuring charges totaling $5.7 million during the third and fourth quarters of fiscal 2001, primarily for impairment of assets and exit costs related to the termination of leases for five restaurants. The impairment charges and a portion of the exit costs relate to two Angelo and Maxie's Steakhouses, one of which closed in the fourth quarter of 2001 and the second of which closed in the fourth quarter of 2002. The balance of the exit costs relate to three locations with respect to which restaurant development plans were canceled.

        There were no material asset disposals during fiscal 2002 other than the sale of the Chart House Business. During fiscal 2001, there were several asset disposals that resulted in a $1.1 million loss, primarily related to former Chart House restaurants that the Company ceased to operate.

        Interest expense decreased $2.2 million, or 45.2%, to $2.6 million in fiscal 2002, compared to $4.8 million in fiscal 2001. The Company used a portion of the net proceeds from the sale of the Chart House Business to repay all amounts outstanding under its Credit Agreement and a subordinated note owed to a related party. The decrease from 2001 also reflects more favorable interest rates during 2002, the elimination of fees charged to the Company in 2001 for unused portions of available borrowings under the related party debt, and the favorable impact of interest earned on the net cash and cash equivalent balances resulting from the sale of the Chart House Business. See "Liquidity and Capital Resources."

        Other income decreased $0.9 million, or 81.3%, to $0.2 million in fiscal 2002, compared to $1.1 million in fiscal 2001. The fiscal 2001 amount includes $0.9 million related to proceeds received from the sale of rights to a ground lease for one restaurant that had been previously closed. In addition, the Company is committed under a long-term capital lease agreement at a location it has subleased to a third party. This capital lease continues to be reported on the balance sheet in

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accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("FAS 13"), and non-cash reductions to the liability and related non-cash recognition of interest expense aggregating $0.2 million per annum are reflected in other income.

        The Company determined during the third quarter of 2001 that, more likely than not, it would be unable to utilize the benefits of its deferred tax asset that existed at the beginning of 2001 and, as a result, increased its valuation allowance by $5.4 million in the third quarter of 2001, which eliminated in full the deferred tax asset balance.

        The Company amended its Credit Agreement during October 2001, materially modifying its terms. Accordingly, the Company expensed $0.9 million of unamortized deferred financing costs related to the Credit Agreement during the third quarter of 2001. See "Liquidity and Capital Resources."

        The Company issued Series A convertible preferred stock, par value $1.00 per share ("Series A Preferred Stock"), during June 2001. The Series A Preferred Stock is entitled to dividends at the rate of 10.0% per annum, based on the original issue price of $2.25 per share. The Company accrued dividends on the Series A Preferred Stock aggregating $0.9 million during 2002 and $0.4 million during 2001. The Company settled the first two semi-annual dividend obligations through the issuance of additional shares of Series A Preferred Stock; subsequent to the retirement of the Credit Agreement, which restricted the payment of cash dividends, the Company began paying these dividends in cash. The Company expects to satisfy future dividend obligations in cash. See "Liquidity and Capital Resources."

Fiscal 2001 Compared to Fiscal 2000

        Revenues increased $6.3 million, or 26.6%, to $29.8 million in fiscal 2001, compared to $23.5 million in fiscal 2000. The increase in revenues is primarily due to two new Angelo and Maxie's Steakhouses opened during 2001 ($4.8 million), additional months of operations of four Angelo and Maxie's Steakhouses opened during 2000 ($7.7 million), and a 53^rd week of revenues ($0.6 million), offset by a decline in comparable store sales at the Company's original New York City Angelo and Maxie's Steakhouse ($1.1 million) and a reduction in revenues from Chart House restaurants that were disposed of during 2001 and 2000 ($5.7 million).

        Cost of sales as a percentage of restaurant revenues decreased by 1.0 percentage point to 37.0% in fiscal 2001, compared with 38.0% in fiscal 2000. This improvement was primarily the result of the restaurants opened during 2000 gaining operational efficiencies and the closure of underperforming restaurants.

        Restaurant labor as a percentage of restaurant revenues decreased by 1.1 percentage points to 27.5% in fiscal 2001, compared with 28.6% in fiscal 2000. This improvement was primarily the result of the exit from underperforming restaurants, the restaurants opened during 2000 gaining operational efficiencies, and a reduction of the restaurant management teams in October 2001.

        Other operating costs as a percentage of restaurant revenues increased by 6.1 percentage points to 19.1% in fiscal 2001, compared with 13.0% in fiscal 2000. The increase is primarily due to the addition of lower volume restaurants outside New York City where fixed costs as a percentage of sales are much higher than in the New York locations. In addition, the Company experienced higher insurance and utilities costs over the prior year.

        Rent as a percentage of restaurant revenues increased by 0.8 percentage points to 9.7% in fiscal 2001, compared with 8.9% in fiscal 2000. The increase relates to restaurants opened during 2000 that have subsequently been closed due to underperformance.

        General and administrative expenses decreased $0.8 million, or 44.6%, to $1.0 million in fiscal 2001, compared to $1.8 million in fiscal 2000. The 2000 general and administrative expenses reflect the

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Company's strategy to expand its restaurant base and build a corporate infrastructure to support the growth of the Angelo and Maxie's concept. During 2001, the Company reevaluated this expansion plan, and lowered headcount and tightened control over related discretionary spending.

        Depreciation and amortization increased $0.4 million, or 20.0%, to $2.5 million in fiscal 2001, compared to $2.1 million in fiscal 2000. Depreciation and amortization decreased as a percentage of sales primarily due to the write-off of certain restaurant assets in the third quarter of 2001.

        Pre-opening costs were $0.6 million in fiscal 2001, compared to $4.1 million in fiscal 2000. These costs primarily reflect salaries and benefits and training costs for new employees. The Company opened two new Angelo and Maxie's Steakhouses during 2001 and four new Angelo and Maxie's Steakhouses during 2000.

        Impairment of assets and restructuring charges were $5.7 million in fiscal 2001 and $3.8 million in fiscal 2000. These charges are due to the following:

•

The Company incurred impairment of assets and restructuring charges totaling $5.7 million during the third and fourth quarters of fiscal 2001, primarily for impairment of assets and exit costs related to the termination of leases for five restaurants. The impairment charges and a portion of the exit costs relate to two Angelo and Maxie's Steakhouses, one of which closed in the fourth quarter of 2001 and the second of which closed in the fourth quarter of 2002. The balance of the exit costs relate to three locations where restaurant development plans were canceled.



•

During 1999, the Company committed to a plan that identified eleven Chart House restaurants for disposal. These restaurants were not part of the Chart House Business sold in 2002. In 2000, the Company recorded a restructuring charge related to the closing of these restaurants. The charge included a net asset impairment write-down totaling $1.0 million. The Company also recorded a restructuring charge of $2.8 million for incremental exit costs, consisting primarily of severance and run-off occupancy costs.

        Several asset disposals resulted in a net loss of $1.1 million during fiscal 2001. Assets disposals during fiscal 2000 resulted in a $0.3 million net loss.

        Interest expense increased $1.9 million, or 64.5%, to $4.8 million in fiscal 2001, compared to $2.9 million in fiscal 2000. This increase relates to higher debt balances, including related party debt which accrued interest at a higher rate than the debt under the Credit Agreement, offset in part by lower interest rates on the amounts outstanding under the Credit Agreement. See "Liquidity and Capital Resources."

        Other income increased $1.0 million, to $1.1 million in fiscal 2001, compared to $0.1 million in fiscal 2000. The fiscal 2001 amount includes $0.9 million related to proceeds received from the sale of rights to a ground lease for one restaurant that had been previously closed. In addition, the Company is committed under a long-term capital lease agreement at a location it has subleased to a third party. This capital lease is reported in the balance sheet in accordance with FAS 13, and non-cash reductions to the liability and related non-cash recognition of interest expense aggregating $0.2 million in fiscal 2001 and $0.1 million in fiscal 2000 are reflected in other income.

        The Company determined during the third quarter of 2001 that, more likely than not, it would be unable to utilize the benefits of its deferred tax asset that existed at the beginning of 2001 and, as a result, increased its valuation allowance by $5.4 million in the third quarter of 2001, which eliminated in full the deferred tax asset balance.

        The Company amended its Credit Agreement during October 2001, materially modifying its terms. Accordingly, the Company expensed $0.9 million of unamortized deferred financing costs related to the Credit Agreement during the third quarter of 2001. See "Liquidity and Capital Resources."

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        The Company issued Series A Preferred Stock during June 2001. The Company accrued dividends on the Series A Preferred Stock in the aggregate of $0.4 million during 2001 and satisfied its dividend payment obligation with additional shares of Series A Preferred Stock. See "Liquidity and Capital Resources."

DISCONTINUED OPERATIONS

        Discontinued operations represents the operations of the Chart House Business sold as of July 30, 2002. The following table presents the results of discontinued operations for each of the fiscal years ended December 30, 2002, December 31, 2001, and December 25, 2000 (dollars in thousands):

Fiscal 2002 Compared to Fiscal 2001

        Revenues decreased $52.2 million, or 43.1%, to $68.9 million in fiscal 2002, compared to $121.1 million in fiscal 2001. The decrease in revenues is due primarily to 30 weeks of operations in 2002 compared with 53 weeks of operations in 2001.

        Restaurant costs as a percentage of revenues increased by 1.8 percentage points to 89.7% in fiscal 2002, compared to 87.9% in fiscal 2001. The change primarily relates to increased marketing and insurance costs.

        General and administrative expenses decreased $5.6 million, or 54.1%, to $4.7 million in fiscal 2002, compared to $10.3 million in fiscal 2001. The decrease is due primarily to 30 weeks of operations in 2002 compared with 53 weeks of operations in 2001. In addition, these costs had been declining primarily as the result of several reductions in work force and tight control of discretionary spending, particularly salaries and wages, consulting, and legal fees.

        Depreciation and amortization decreased $3.0 million, or 57.9%, to $2.2 million in fiscal 2002, compared to $5.2 million in fiscal 2001, primarily as the result of the cessation of depreciation and amortization in June 2002 in accordance with FAS 144. In addition, goodwill was not amortized during the current period due to the implementation of FAS 142.

        The Company recognized a $2.4 million loss on the sale of the Chart House Business. The loss is comprised of $1.9 million in transaction costs, consisting primarily of investment banking and legal fees, and a $0.5 million difference between the net book value of assets disposed and the consideration received. In addition, $1.7 million of severance costs, $0.3 million of excess corporate costs, and a $0.2 million impairment of corporate assets were recognized in continuing operations related to the sale. See "Continuing Operations." The asset purchase agreement related to the sale of the Chart House Business provides, among other things, for post-closing adjustments to the consideration received to account for any differences between actual and estimated purchased current assets, assumed current liabilities, and certain prorated expenses. Any such post-closing adjustments will be treated, when made, as adjustments to the cash consideration received by the Company and will change the loss

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on sale at that time. At December 31, 2002, the Purchaser had not yet paid approximately $0.2 million of the purchase price that the Company believes it is owed under the asset purchase agreement. The Company has taken legal action to collect these funds. See "Part I, Item 3. Legal Proceedings."

Fiscal 2001 Compared to Fiscal 2000

        Revenues increased $2.9 million, or 2.5%, to $121.1 million in fiscal 2001, compared to $118.2 million in fiscal 2000. The increase is primarily due to full year performance of two Chart House restaurants reopened during 2000 ($4.4 million) and a 53^rd week of revenues ($3.1 million), offset by a 4.2% decrease in comparable store revenues ($4.6 million).

        Restaurant costs as a percentage of revenues increased by 3.5 percentage points to 88.0% in fiscal 2001, compared to 84.5% in fiscal 2000. The change primarily relates to increased marketing and insurance costs.

        General and administrative expenses decreased $0.2 million, or 1.9%, to $10.3 million in fiscal 2001, compared to $10.5 million in fiscal 2000. The decrease relates to lower salary and employment expenses as a result of lower headcount and tighter control of related discretionary spending.

        Depreciation and amortization increased $0.4 million, or 7.6%, to $5.2 million in fiscal 2001, compared to $4.8 million in fiscal 2000. The increase relates to capital expenditures for the Chart House restaurants included in the Chart House Business.

OPERATING OUTLOOK

        The Company's primary strategic objective in 2003 is to complete either a sale of the entire Company or a sale of the Angelo and Maxie's Steakhouse concept and its five restaurants. While the Company is entertaining offers, the Company will continue operating its restaurants until an acceptable offer is made. Accordingly, the Company has no present plans to expand the concept.

        While the Company focuses on the execution of its primary strategic objective, its primary operating objective in 2003 is to improve comparative restaurant revenues over the levels achieved in 2002. The following are key tactics the Company plans to use to reach this objective:

        Provide superior guest hospitality.    The Company's goal is to consistently meet or exceed the expectations of every restaurant guest in all facets of the dining experience. Management believes that the Company's restaurant-level employee recruitment, selection, training, and incentive programs allow it to attract and retain qualified employees who are motivated to provide consistent excellence in guest hospitality.

        Provide exceptional value.    Angelo and Maxie's offers steaks supported by a comprehensive selection of American fare, served in oversized portions at prices lower than competing upscale steakhouses. The concept combines the sophistication of the traditional steakhouse with the energy and openness of contemporary fine dining. Angelo and Maxie's energetic feel and lower price point lends itself to everyday dining, in addition to special occasions.

        Deliver high-quality, contemporary menu offerings.    Angelo and Maxie's is renowned for its thick, juicy steaks and has devised a menu which provides high-quality products served in portions that emphasize "American abundance." Diners can choose from a wide array of over 20 entrees offering a more diverse selection than many competing steakhouses.

        Execute the Company's commitment to selecting, training, rewarding, and retaining high-quality employees.    Management believes the Company's employee selection criteria are among the most comprehensive in the restaurant industry. By providing extensive training and innovative compensation programs, management believes the Company's employees develop a sense of personal commitment to

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the Company's core values and culture of excellence in restaurant operation and guest hospitality. Management believes these programs have resulted in employee turnover rates that are generally lower than the average for the restaurant industry.

        The Company believes that consistent execution of these key tactics will allow it to sustain operating margins at the levels attained in 2002. Management believes that an improving economic environment is, however, a critical element to its ability to generate additional revenues.

        Commodity price increases, particularly for beef products, will decrease profit margins to the extent such cost increases cannot be passed on to the Company's customers. To partially mitigate this risk, the Company has entered into purchase agreements for certain fresh beef items. Labor costs, the Company's second largest operating expense, would be adversely affected in the event of any minimum wage increases legislated by Federal or state authorities. Additionally, significant increases in utility costs arising from a shortage of supply and/or extreme weather will have an adverse effect on operating margins. The Company continues to evaluate operating efficiencies to improve margins and protect against significant operating cost increases that cannot be mitigated by price increases.

        The maturation of the Angelo and Maxie's Steakhouses should permit the Company to achieve and sustain appropriate operating margins. Restaurant profitability should be sufficient to cover the corporate overhead expenses. As the Company has no debt and has excess cash, the Company believes it has sufficient resources to execute its operating objectives.

LIQUIDITY AND CAPITAL RESOURCES

        The Company consummated the sale of the Chart House Business as of July 30, 2002. The total cash consideration received from this transaction is approximately $52.0 million, of which $33.5 million was used for the following financing and operating activities (in thousands):

(1)

Includes $1.5 million to a related party, which was a participant under the Credit Agreement.

        In connection with the termination of the Credit Agreement, and in order to minimize costs associated with outstanding letters of credit, the Company established a cash collateral account equal to the full balance of its obligations under outstanding letters of credit, which totaled $2.7 million. Such funds are disclosed on the Company's balance sheet as restricted cash, a non-current asset.

        The Company used the remaining net proceeds from the sale of the Chart House Business to settle $3.8 million in costs associated with the transaction and for general corporate purposes including,

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but not limited to, the settlement of short term liabilities, certain of which relate to the Chart House Business. The Company had $7.7 million in cash for general corporate purposes at December 30, 2002. The Company believes that the remaining sale net proceeds, together with net cash provided by continuing operating activities, will be sufficient to fund its operating expenses and capital needs for at least the next twelve months.

        Historically, the Company required significant capital principally for the construction and opening expenses for new restaurants and for the remodeling and refurbishing of existing restaurants. The Company has funded its capital requirements through debt financing, both with third party banks and related parties, tenant improvement monies, equity financing, and cash flows from operations. The Company does not intend to fund any new restaurants or incur any major remodeling or refurbishing costs during fiscal 2003.

        Net cash used in operating activities was $9.6 million in 2002, compared to net cash provided by operating activities of $0.3 million in 2001 and net cash used in operating activities of $2.0 million in 2000. In 2002, net cash used in operating activities primarily relates to the settlement of short-term liabilities related to the Chart House Business. In 2001, the Company received $0.9 million in proceeds upon the sale of a ground lease from a previously operated restaurant.

        In connection with an agreement with iDine Rewards Network, Inc. ("iDine"), the Company received $1.0 million in each of 2002 and 2001 and received $1.1 million during 2000 for marketing activities. The Company in turn paid to iDine $2.5 million and $3.1 million during 2002 and 2001, respectively, related to this agreement. No amounts were paid by the Company during 2000 related to this agreement. This activity is included in net cash used in/provided by operating activities.

        Net cash provided by investing activities in 2002 included $52.0 million received for the sale of the Chart House Business. Capital expenditures for 2002 were approximately $1.0 million, of which approximately $0.8 million related to the Chart House Business. Net cash used in investing activities in 2001 consisted of a net $9.8 million of capital expenditures primarily related to the opening of new Angelo and Maxie's Steakhouses. Net cash used in investing activities in 2000 consisted of $22.3 million of capital expenditures primarily related to the opening of new Angelo and Maxie's Steakhouses and remodeling of Chart House restaurants. Capital expenditures were partially funded with net proceeds of $17.8 million from the sale of certain Chart House restaurants, including a $15.0 million sale-leaseback transaction related to five Chart House restaurants, which were included in the sale of the Chart House Business during July 2002.

        Net cash used in financing activities was $34.1 million in 2002, representing the retirement of amounts owing under the Credit Agreement and a subordinated note to a related party, primarily with the net proceeds from the sale of the Chart House Business. The Company also used $2.7 million of the net proceeds from the sale of the Chart House Business to collateralize outstanding letters of credit. During 2001, net cash provided by financing activities was $9.4 million, including $3.0 million borrowed from a related party and the issuance of approximately 3.8 million shares of Series A Preferred Stock through a rights offering during the second quarter. Net proceeds from the Series A Preferred Stock issuance were approximately $7.1 million and were used to pay borrowings under the subordinated notes owed to related parties and other expenses. The remaining net proceeds were primarily used to pay outstanding liabilities to construction vendors of the Angelo and Maxie's Steakhouses opened during the fourth quarter of 2000 and the first half of 2001. Net cash provided by financing activities during 2000 was $6.9 million, and included $2.0 million borrowed from a related party. The remaining proceeds were primarily provided by borrowing under the Credit Agreement.

        The Series A Preferred Stock is entitled to dividends at the rate of 10.0% per annum, based on the original price of $2.25 per share. Dividends are payable semiannually on June 1 and December 1. Dividends paid through June 1, 2002 were in the form of additional shares of Series A Preferred Stock, in part, because the Company's Credit Agreement prohibited the payment of cash dividends.

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Subsequent to the retirement of amounts owing under the Credit Agreement, the Company began paying these dividends in cash. The Company expects to satisfy future dividend obligations in cash.

        The Company is liable under various capital and operating lease agreements, primarily related to restaurant locations. The Company is also contingently liable under letters of credit, primarily related to leasing obligations and self-insurance reserves, and guarantees on various third party leasing and debt agreements.

        The following table summarizes the scheduled expiration of the Company's contractual obligations as of December 30, 2002 (in thousands):

(1)

Includes interest.

(2)

Reflects minimum rental payments due through either primary lease term or current option period only.

        The following table summarizes the Company's contingent liabilities as of December 30, 2002 (in thousands):

(1)

In connection with the 1997 sale of previously operated restaurants, the Company agreed to guarantee up to $4.0 million of the buyer's note obligation to its lender through January 2004. The Company has not been advised of any monetary or material defaults under this arrangement.

(2)

Related to lease obligations and self-insurance reserves. The majority of these letters of credit automatically renew for one-year terms until the leases expire or the insurance claims are settled. These letters of credit are fully collateralized and the collateral is reflected on the balance sheet as restricted cash.

(3)

Represents the Company's exposure, in excess of amounts accrued in the financial statements as of December 30, 2002, under 26 leases for restaurants previously operated by the Company and assigned or subleased to third parties. The Company becomes obligated only in the event of an assignee or sublessee default. In connection with the sale of the Chart House Business, the Company received an irrevocable, unconditional guarantee of the ultimate parent of the Purchaser, a publicly-traded restaurant company, of the Purchaser's obligations with respect to 24 of these properties.

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CRITICAL ACCOUNTING POLICIES

        A critical accounting policy is one that would materially affect the Company's operations or financial condition, and requires management to make estimates or judgments in certain circumstances. Set forth below is a description of those accounting policies which the Company believes are most critical and could have the greatest impact on its operations or financial condition.

        Valuation of Exit Costs and Restructure Reserves.    On an as-needed basis and subject to approval of the Company's Board of Directors, the Company establishes reserves for unusual and non-recurring items associated with the activities of exiting restaurant locations and reorganizing support staff to address changes in the Company's operations. This requires that management make estimates for cash inflows and outflows based on judgment, market conditions, advice from counsel and consultants, and historical experience. These estimates include, but are not limited to, future payments of rents, severance, legal and consulting costs, consideration for contract modifications, and proceeds from the sale of disposed assets. Because of factors beyond management's control, actual results may be different from the estimates, which may cause the Company to record adjustments in future periods. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs from Exit or Disposal Activities" ("FAS 146"). FAS 146 requires, among other things, that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than at the time of commitment to a formal shutdown plan. The adoption of FAS 146 is effective for all exit or disposal activities initiated subsequent to December 31, 2002.

        Impairment of Assets.    On January 1, 2002, the Company adopted FAS 142, which requires, among other things, that effective January 1, 2002, goodwill resulting from a business combination accounted for as a purchase no longer be amortized, but be subject to ongoing impairment review. On an ongoing basis, the Company reviews its carrying value of restaurant assets and compares them with fair market value. In determining the fair market value of its assets, management considers several factors requiring the exercise of business judgment. Such judgments include developing valuation multiples, such as the ratio of total capitalized value to restaurant earnings before interest, taxes, depreciation, and amortization for an industry peer group of publicly traded companies, and applying those multiples to the Company's historical and projected operating performance. If management determines that the fair market value of its intangible assets is materially below the current carrying cost of the assets, an impairment charge is recognized in operating income in the period the impairment is identified.

        Cost Capitalization and Depreciation Policies.    Costs for maintenance, repairs, and purchases are either expensed as incurred or capitalized and amortized over the cost's estimated useful life. This requires management to make business judgments regarding which costs should be capitalized and, if capitalized, the estimated useful life. Management has established the Company's cost capitalization and deprecation policies based on historical experience in the restaurant industry, industry guidelines regarding useful lives, and adherence to applicable accounting standards. Maintenance, repairs, and minor purchases are expensed as incurred. Major purchases of equipment and facilities, and major replacements and improvements, are capitalized. Depreciation and amortization are recorded for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Equipment is depreciated over lives ranging from three to eight years. Leasehold interests and improvements are amortized over the shorter of the lease term, including planned extensions, or the asset life, ranging up to 25 years.

        Self-Insurance Liability.    The Company is self-insured through October 2002 for its workers' compensation and general liability insurance programs, and continues to be self-insured for its employee health insurance program. The Company maintains stop-loss coverage with third party insurers to limit its total exposure. The accrued liability associated with these programs is based on

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management's estimate of the ultimate costs to be incurred to settle known claims and claims incurred, but not reported, as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends differ from our estimates, our financial results could be impacted.

NEW ACCOUNTING PRONOUNCEMENTS

        In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. These disclosure requirements have been adopted by the Company. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into subsequent to January 1, 2003.

        FIN 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee, this is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payment will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple events.

        As noted above, the Company has adopted the disclosure requirements of FIN 45 and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002. The Company has not entered into or modified any guarantees subsequent to December 31, 2002.

        In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123" ("FAS 148"). This Statement amends FAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.

        In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of FIN 46 is not expected to have a material effect on the Company's financial statements.

EFFECT OF INFLATION

        Management does not believe inflation has had a significant effect on Company operations during the past several years. Although the Company generally has been able to substantially offset increases in its restaurant and operating costs resulting from inflation by increasing menu prices or making other adjustments, there can be no assurance that it will be able to do so in the future. Although management does not anticipate inflation having a material effect on restaurant operating income in 2003, future increases in labor cost, food cost, or other operating costs, including insurance and utilities, could adversely affect the Company's operating results.

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SEASONALITY

        The Company's business is seasonal in nature, with revenues and operating income for the first and fourth quarters greater than in the second and third quarters as the Company benefits from urban, holiday, and winter vacation dining which is greater than the benefits associated with dining during leisure travel in the spring and summer quarters.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        The Company is exposed to market risk from changes in market rates earned on cash equivalents and changes in commodity prices. The impact on the Company's results of operations of a one-point market rate change on its cash equivalent balance as of December 30, 2002, would not be material. The Company does not use derivative instruments to manage borrowing costs or reduce exposure to adverse fluctuations in the interest rate. The Company does not use derivative instruments for trading purposes.

        The Company purchases certain commodities such as beef, seafood, chicken, and cooking oil. These commodities are generally purchased based upon purchase agreements or arrangements with vendors. These purchase agreements or arrangements may contain features that fix the commodity price or define the price from an agreed upon formula. The Company does not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price fluctuations are generally short term in nature.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ANGELO AND MAXIE'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

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

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ANGELO AND MAXIE'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

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

25

ANGELO AND MAXIE'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

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

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ANGELO AND MAXIE'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)