ANGELO & MAXIES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 29, 2003

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		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)

Delaware		33-0147725
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

2 North Riverside, Seventh Floor, Chicago, IL 60606

(Address of principal executive offices, including zip code)

(312) 466-3950

(registrant’s telephone number, including area code)

Indicate by check mark whether the 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 periods 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 whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes o

No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 13, 2003:

Common Stock ($.01 par value) 1,998,295

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 29, 2003			December 30, 2002
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,730		$	7,651
Accounts receivable, net	590			541
Inventories	365			416
Prepaid expenses and other current assets	492			974
Total current assets	7,177			9,582
Equipment and improvements (held for sale)¹:
Equipment	3,830			3,708
Leasehold interests and improvements	8,422			12,554
	12,252			16,262
Less: Accumulated depreciation and amortization	3,326			2,934
Equipment and improvements, net	8,926			13,328
Other non-current assets:
Restricted cash	2,627			2,702
Leased property under capital leases, net	1,092			1,136
Intangibles, net (held for sale)¹	3,670			4,278
Other non-current assets	497			542
Total other non-current assets	7,886			8,658
Total assets	23,989			31,568

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of non-current liabilities	30			124
Accounts payable	1,366			1,679
Accrued liabilities	3,473			4,322
Deferred gain	967			—
Liabilities of discontinued operations	—			170
Total current liabilities	5,836			6,295
Non-current liabilities (excluding current portion):
Deferred gain	—			967
Long-term portion of landlord note	—			407
Long-term portion of capital lease obligation	1,855			1,877
Other long-term obligations	705			921
Total non-current liabilities (excluding current portion)	2,560			4,172

Stockholders’ equity:
Preferred stock, $1.00 par value, 10,000,000 shares authorized; 4,134,736 shares issued and outstanding at September 29, 2003 and December 30, 2002	4,135			4,135
Common stock, $0.01 par value, 30,000,000 shares authorized; 1,998,295 and 1,987,733 shares issued and outstanding at September 29, 2003 and December 30, 2002, respectively	20			20
Additional paid-in capital	65,442			65,416
Retained deficit	(54,004		)	(48,470		)
Total stockholders’ equity	15,593			21,101
Total liabilities and stockholders’ equity	$	23,989		$	31,568

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

(1) See Note 2 "Sale of the Angelo and Maxie's Brand and Related Operating Assets".

ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Quarterly periods ended						Nine month periods ended
	September 29, 2003			September 30, 2002			September 29, 2003			September 30, 2002

Revenues	$	5,722		$	5,634		$	18,945		$	19,690
Operating costs and expenses:
Cost of sales	2,080			2,041			6,797			7,044
Restaurant labor	1,429			1,442			4,478			4,802
Other operating costs	1,117			1,077			3,478			3,851
Rent	601			585			1,802			1,763
Total restaurant costs	5,227			5,145			16,555			17,460
General and administrative expenses	568			597			1,927			915
Depreciation and amortization	149			278			763			1,037
Impairment of assets and restructuring charges	15			497			4,428			7,558
(Gain) loss on disposal of assets	(15		)	—			(6		)	2
Total restaurant and operating costs	5,944			6,517			23,667			26,972
Loss from operations	(222		)	(883		)	(4,722		)	(7,282		)
Interest expense, net	30			580			82			2,617
Other income	(51		)	(51		)	(153		)	(151		)
Loss from continuing operations before income taxes	(201		)	(1,412		)	(4,651		)	(9,748		)
Provision for income taxes	—			—			—			—
Loss from continuing operations	(201		)	(1,412		)	(4,651		)	(9,748		)
Discontinued operations:
Income (loss) from operations	—			(805		)	—			146
Income (loss) on sale	(201		)	1,248			(188		)	(2,433		)
Income (loss) from discontinued operations	(201		)	443			(188		)	(2,287		)
Net loss	$	(402	)	$	(969	)	$	(4,839	)	$	(12,035	)
Preferred dividends	232			234			696			681
Net loss applicable to common shares	$	(634	)	$	(1,203	)	$	(5,535	)	$	(12,716	)
Net income (loss) per common share - basic and diluted:
Continuing operations	$	(0.22	)	$	(0.83	)	$	(2.68	)	$	(5.27	)
Discontinued operations	(0.10		)	0.22			(0.10		)	(1.15		)
	$	(0.32	)	$	(0.61	)	$	(2.78	)	$	(6.42	)

Weighted-average shares outstanding	1,996			1,982			1,993			1,980

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

ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine month periods ended
	September 29, 2003			September 30, 2002
Cash flows from operating activities:
Net loss	$	(4,839	)	$	(12,035	)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation and amortization	763			3,238
(Gain) loss on disposal of assets	(6		)	2
Loss provision for impairment of assets and restructuring charges	4,399			5,575
Provision for estimated loss on disposal	—			2,433
Common stock issued in lieu of compensation	27			79
Amortization of debt issuance costs, included in interest expense	—			443
Changes in working capital:
Decrease (increase) in accounts receivable	(49		)	2,372
Decrease in inventories	51			227
Decrease (increase) in prepaid expenses and other current assets	482			(404		)
Decrease (increase) in other non-current assets	8			(501		)
Decrease in accounts payable	(313		)	(7,552		)
Decrease in accrued liabilities	(1,081		)	(1,286		)
Increase (decrease) in liabilities of discontinued operations	(170		)	1,455
Increase (decrease) in other non-current obligations (excluding current portion)	(216		)	442
Cash used in operating activities	(944		)	(5,512		)
Cash flows from investing activities:
Proceeds from sale of Chart House Business, net of transaction costs	—			50,001
Proceeds from sale of other assets	15			—
Cash in escrow	—			(2,000		)
Expenditures for equipment and improvements	(80		)	(913		)
Cash provided by (used in) investing activities	(65		)	47,088
Cash flows from financing activities:
Debt issuance costs	—			(400		)
Decrease (increase) in restricted cash for letters of credit	75			(2,748		)
Net payments under revolving credit agreement	—			(14,395		)
Preferred dividends	(464		)	—
Payments of long-term debt	(501		)	(10,883		)
Payments from borrowings from related parties	—			(5,000		)
Payments on acquisition indebtedness	—			(125		)
Reduction of obligations under capital leases	(22		)	(162		)
Cash used in financing activities	(912		)	(33,713		)
(Decrease) increase in cash	(1,921		)	7,863
Cash and cash equivalents, beginning of period	7,651			260
Cash and cash equivalents, end of period	$	5,730		$	8,123

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

ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 29, 2003

(Unaudited)

(1) BASIS OF PRESENTATION

The accompanying consolidated financial statements of Angelo and Maxie’s, Inc. and its wholly-owned subsidiaries (the “Company”) for the quarterly periods ended September 29, 2003 and September 30, 2002, and the nine month periods ended September 29, 2003 and September 30, 2002, have been prepared in accordance with generally accepted accounting principles, and with the instructions to Form 10-Q. These financial statements have not been audited by independent public accountants, but include all adjustments (consisting of a normal and recurring nature) that are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations, and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate, but should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2002.

Certain prior period balances have been reclassified to conform to the current period presentation.

(2) SALE OF THE ANGELO AND MAXIE’S BRAND AND RELATED OPERATING ASSETS

In August 2003, the Board of Directors approved the sale of three of the Company's five steakhouses which are located in Midtown Manhattan, New York, Reston, Virginia, and Washington, D.C. The purchaser, McCormick and Schmick Restaurant Corp. ("M&S"), intends to convert all three steakhouses to another restaurant concept. On October 31, 2003, the Company entered into a definitive agreement to sell the three steakhouses to M&S for $5.35 million in cash, subject to certain adjustments for current assets and liabilities. See Note 9 “Subsequent Events”. The transaction, which is expected to close in January 2004, is subject to satisfaction of certain conditions. No assurances can be given that the sale will be consummated.

In September 2003, the Board of Directors approved a proposal to sell the Company's remaining two steakhouses which are the flagship location on Park Avenue in New York City and its steakhouse in West Palm Beach, Florida, and certain Angelo and Maxie's intellectual property. No assurances can be provided as to whether or when a transaction will be consummated.

In connection with the two proposed sales of the Company’s five steakhouses and related intellectual property, the assets of the Angelo and Maxie’s restaurants are considered to be held for sale as of September 29, 2003 in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). However, the assets of the Angelo and Maxie’s restaurants are not presented as held for sale on the Consolidated Balance Sheet as of September 29, 2003 and the operations of the restaurants are not presented as discontinued on the Statements of Operations for the quarterly and nine month periods ended September 29, 2003 because the Company believes such a presentation would not be meaningful to the reader.

(3) SALE OF THE CHART HOUSE BUSINESS

In May 2002, the Board of Directors of the Company authorized the sale of the 38 Chart House restaurants and 1 Peohe’s restaurant (the “Chart House Business”). The sale was completed as of July 30, 2002, for consideration of approximately $55.3 million, consisting of cash and the assumption of approximately $3.1 million of certain current liabilities then outstanding. The Company used a portion of the proceeds to repay all amounts outstanding on its senior, secured debt and a subordinated note owed to a related party. See Note 5 “Debt”. The Company recorded a provision for estimated loss on sale of discontinued operations of $3.7 million in second quarter of 2002, which was revised to $2.4 million in the third quarter of 2002, primarily as a result of the elimination of net liabilities to landlords following the receipt of the landlords’ consent to assign certain leases to the purchaser. In the

quarterly period ended September 29, 2003, the Company further adjusted its liabilities associated with the sale resulting in a $0.2 million loss for the quarterly and nine month periods ended September 29, 2003. At September 29, 2003, the purchaser had not yet paid approximately $0.2 million of the purchase price provided for in the asset purchase agreement. The Company has taken legal action to collect these funds. See “Part II, Item 1. Legal Proceedings.”

Through July 29, 2002, the Company owned the Chart House Business which consisted of 38 Chart House and one Peohe’s restaurants, the operations of which have been reported as discontinued. Condensed financial information for the results of operations for the discontinued operations is as follows (in thousands):

	Quarterly period ended September 30, 2002			Nine month period ended September 30, 2002

Revenues	$	9,676		$	68,859
Total restaurant costs	9,941			61,739
General and administrative expenses	326			4,713
Depreciation and amortization	154			2,201
Interest expense, related to capital lease	60			60
Income (loss) from discontinued operations	$	(805	)	$	146

(4) IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Accounting for Goodwill and Other Intangible Assets” (“FAS 142”), which requires, among other things, that effective January 1, 2002, goodwill and certain other intangible assets resulting from a business combination accounted for as a purchase no longer be amortized, but be subject to ongoing impairment review. In connection with the transitional goodwill and certain other intangible assets impairment evaluation, FAS 142 required the Company to perform an assessment of whether there was an indication that goodwill and certain other intangible assets were impaired as of the date of adoption. To accomplish this evaluation, the Company determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and certain other intangible assets, to those reporting units as of the date of adoption. During the second quarters of 2002 and 2003, the Company completed its required review by comparing its carrying value for the Angelo and Maxie’s restaurant business to estimated fair market value. In determining the estimated fair market value of its assets, management considers several factors requiring the exercise of its business judgment. Such business judgment includes 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 ratios 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 $0.7 million at the end of the second quarters of 2002 and 2003, respectively, and that the recorded value of the restaurant leasehold improvements were impaired by $3.6 million at the end of the second quarter of 2003. Previously, the Company had reported that the goodwill and trade name of Angelo and Maxie's was impaired by $4.3 million at the end of the second quarter of 2003. During the third quarter of 2003, based on the facts and circumstances from the proposed sales transactions (see Note 2 "Sale of the Angelo and Maxie's Brand and Related Operating Assets"), the Company concluded that the $4.3 million impairment from the second quarter of 2003 should have been allocated between the restaurant leasehold improvements and the goodwill and trade name. The Consolidated Balance Sheet as of September 29, 2003 has been reclassified to conform to this presentation. At the end of the third quarter of 2003, the Company concluded that there was no further impairment with respect to the goodwill and trade name and the restaurant operating assets.

During the third quarter of 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 recorded a $0.2 million charge to continuing operations to reflect these assets at fair value. 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. The unpaid balance of $1.5 million for accrued severance and excess corporate costs is presented in the September 30, 2002 balance sheet in accrued liabilities. On June 30, 2003 the Company’s lease on its Chicago corporate headquarters expired and the Company relocated to a space commensurate with its current needs. In connection therewith, the Company recorded a $0.1 million charge during the second quarter of 2003 resulting from the Company receiving lower than anticipated proceeds for the sale and disposal of its furniture and equipment located at the vacated facility.

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. The Company has adopted FAS 146 as of January 1, 2003 with no material impact.

(5) DEBT

The Company had a Revolving Credit and Term Loan Agreement (“Credit Agreement”) with a group of three banks. The Company made scheduled principal payments on the term loan portion of the Credit Agreement of $0.4 million and $0.5 million during the second and third quarters of 2002, respectively. On August 1, 2002, all outstanding amounts, including principal of $24.1 million and accrued interest of $0.2 million, were paid in full with proceeds from the sale of the Chart House Business. See Note 3 “Sale of the Chart House Business.” Interest under the Credit Agreement accrued at the prime interest rate, plus 2.75%. The balance outstanding under the Credit Agreement, prior to retirement, included $1.5 million funded by EGI-Fund (01) Investors, L.L.C. (“EGI-Fund (01)”), a related party, which accrued interest at LIBOR plus 14.0% due to the subordinate nature of the related party’s participation in the Credit Agreement. Cash paid for interest, net of amounts capitalized, was $1.7 million for the third quarter ended September 30, 2002. On May 1, 2002, the Credit Agreement was amended to provide for, among other things, an extension of the maturity date to August 30, 2002. In connection with this amendment, the Company paid fees of $0.4 million, which is included with interest expense in the statement of operations for the nine months ended September 30, 2002.

During the period from November 2000 to January 2001, related parties made available to the Company an aggregate $11.0 million pursuant to unsecured notes. Amounts outstanding under the notes were subordinated to amounts owing under the Credit Agreement. The proceeds were used to fund working capital requirements as well as scheduled principal payments on the term loan. The terms of the notes were amended and restated in February 2001, increasing the availability of borrowing to $13.0 million. During June 2001, one note was repaid and availability under the second note agreement was reduced to $5.0 million in conjunction with the Company raising equity financing through the issuance of Series A preferred stock. The remaining note, owed to EGI-Fund (01), accrued interest at the applicable Eurodollar rate plus 16.0% and had a scheduled maturity of March 31, 2005. A fee of 12.0% per annum was charged on the unused portion of the availability of the borrowings under the note through June 2001. On August 1, 2002, all outstanding amounts were paid in full with proceeds from the sale of the Chart House Business. See Note 3 “Sale of the Chart House Business” and Note 7 “Related Party Transactions”.

During the second quarter of 2003, the Company prepaid, without penalty, two notes aggregating to $0.5 million that were held by one of its landlords. The notes originally were in the aggregate amount of $0.7 million, amortized over seven year terms, bore interest at 9.0%, and were payable in monthly installments. The Company made no principal payments on these notes during the third quarter of 2003, and $46,000 (prior to repayment) and $63,000 during the nine month periods ended September 29, 2003 and September 30, 2002, respectively. Interest expense and cash paid for interest related to these notes was zero and $12,000 for the third quarters of 2003 and 2002, respectively, and $18,000 and $38,000 for the nine month periods ended September 29, 2003 and September 30, 2002, respectively.

(6) STOCK-BASED COMPENSATION

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 Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“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 FAS 123 to require prominent disclosures regarding the accounting for stock-based employee compensation in both annual and interim financial statements. The Company has previously adopted this Standard.

The Company has elected to account for stock-based compensation under the intrinsic value method of accounting. This method measures compensation cost as the excess, if any, of the quoted market price of the Company’s common stock at the grant date over the amount the employee must pay for the stock. The Company’s policy is to grant stock options to purchase the Company’s stock at a price equal to fair market value at the date of grant. Had the Company elected to recognize compensation expense determined under the fair value method of accounting for stock-based compensation as prescribed by FAS 123 and FAS 148, the Company’s net loss applicable to common shares and per share amounts would reflect the following pro forma amounts (in thousands, except for per share data):

	Quarterly periods ended						Nine month periods ended
	September 29, 2003			September 30, 2002			September 29, 2003			September 30, 2002
Net loss applicable to common shares:
As reported	$	(634	)	$	(1,203	)	$	(5,535	)	$	(12,716	)
Pro forma	(634		)	(1,816		)	(5,535		)	(13,405		)
Net loss per common shares - Basic and diluted
As reported	$	(0.32	)	$	(0.61	)	$	(2.78	)	$	(6.42	)
Pro forma	(0.32		)	(0.92		)	(2.78		)	(6.77		)

(7) RELATED PARTY TRANSACTIONS

Payments to related parties for rent at one restaurant approximated $0.1 million in both the third quarters of 2003 and 2002, and approximated $0.3 million in both the nine month periods ended September 29, 2003 and September 30, 2002. Other payments to related parties totaled $8.0 million in the third quarter of 2002, including payments related to debt repayments of $6.5 million, plus interest of $1.2 million (see Note 5 “Debt”). The remainder of the other payments to related parties made in the third quarter of 2002 related to consulting fees.

During 2001 and 2002, the Company was party to a marketing agreement with iDine Rewards Network, Inc. (“iDine”), a related party and owner of the iDine frequent diner program. In connection with the advance sale of discounted food and beverage credits, the Company received advertising in iDine publications and through the relationships iDine had established with major airlines to feature the Company’s restaurants as preferred dining choices. iDine provided web and print promotional services that were designed to create incentives for members to dine at the Company’s restaurants, especially during the Company’s restaurants’ non-peak days. The Company received from iDine $1.0 million in the three month period ended April 1, 2002. Pursuant to the agreement, the Company paid $0.1 million and $2.6 million during the quarterly and nine month periods ended September 30, 2002, respectively, to iDine for its marketing services during those periods and for advances, including those received in the second half of 2001. This agreement was terminated as of July 29, 2002, in conjunction with the sale of the Chart House Business. See Note 3 “Sale of the Chart House Business”. The Company has no further obligations under this agreement.

In the second quarter of 2003, the Company entered into a loaned employee agreement with iDine, which provided for, among other things, that the Company’s President and Chief Executive Officer provide advisory services to iDine’s Executive Management Team for up to sixteen hours per week, in exchange for a fixed amount to be paid to the Company. The original agreement commenced May 19, 2003 and expired June 30, 2003. Subsequently, the agreement was amended by the Company and iDine to, among other things, extend the termination date from June 30, 2003 to August 8, 2003. During the quarterly period ended September 29, 2003 the Company recognized $19,000 of service revenues in connection with this agreement. The $19,000 of service revenues for the third quarter of 2003 due to the Company was outstanding as of September 29, 2003. For the nine month period ended September 29, 2003, the Company recognized $32,000 of service revenues pursuant to this agreement.

On June 26, 2003, the Company entered into an operating lease for office space with a related party. This agreement provides for, among other things, that the landlord provide office space for the Company’s six corporate employees and certain office services. This agreement is terminable by either party with a thirty day notice. The Company made payments of $5,000 pursuant to this agreement in the quarterly and nine month periods ended September 29, 2003.

The relationships stem from one or more Company stockholders and/or members of the Company’s Board of Directors maintaining ownership interest in and influential management positions at or with these organizations.

(8) COMMITMENTS AND CONTINGENCIES

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.

The Company maintains letters of credit primarily to cover self-insurance reserves and lease obligations. 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 $2.6 million at September 29, 2003. Such funds are presented on the consolidated balance sheets as restricted cash, a non-current asset.

The Company is contingently liable, in certain circumstances, for lease obligations of 23 properties subleased or assigned to third parties in the event of a default by the third party. In connection with the sale of the Chart House Business, the Company received the guarantee of the ultimate parent of the purchaser with respect to 22 of these properties.

(9) SUBSEQUENT EVENTS

On October 31, 2003, the Company entered into a definitive agreement to sell the three steakhouses to M&S for $5.35 million in cash, subject to certain adjustments for current assets and liabilities. See Note 2 “Sale of the Angelo and Maxie's Brand and Related Operating Assets”. The transaction, which is expected to close in January 2004, is subject to satisfaction of certain conditions. No assurances can be given that the sale will be consummated.

The Company declared a dividend on each share of the Company’s Series A Preferred Stock outstanding on November 14, 2003. Holders of record on that date will receive a cash dividend of $0.1125 per share on December 1, 2003.

(10) 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, which 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. 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 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 therein. 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 Company currently has no contractual relationships or other business relationships with a variable interest entity and therefore the adoption of FIN 46 did not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows for the current periods presented.

In May 2003, the Financial Accounting Standards Board issued Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted this Standard on July 1, 2003, with no material impact.

This Quarterly Report on Form 10-Q 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 2. 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 third quarter and nine month periods ended September 30, 2002, 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.

The Company continues to operate five Angelo and Maxie’s Steakhouses, which are full-service steakhouse restaurants located in New York, Washington D.C., Virginia, and Florida. The Company operated the following number of restaurants at the following period ends:

	Angelo and Maxie’s Steakhouses	Discontinued operations	Total
Third quarter 2003	5	—	5
Third quarter 2002	6	—	6

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.

In August 2003, the Board of Directors approved the sale of three of the Company's five steakhouses which are located in Midtown Manhattan, New York, Reston, Virginia, and Washington, D.C. The purchaser, McCormick and Schmick Restaurant Corp. ("M&S"), intends to convert all three steakhouses to another restaurant concept. On October 31, 2003, the Company entered into a definitive agreement to sell the three steakhouses to M&S for $5.35 million in cash, subject to certain adjustments for current assets and liabilities. The transaction, which is expected to close in January 2004, is subject to satisfaction of certain conditions. No assurances can be given that the sale will be consummated.

RESULTS OF OPERATIONS

The following table presents the results of operations for each of the quarterly and nine month periods ended September 29, 2003 and September 30, 2002. Continuing operations relate to the operations of the Company’s Angelo and Maxie’s Steakhouses. The operations of the Chart House Business are presented as discontinued. In connection with the proposed sale of the Company’s Angelo and Maxie’s Steakhouses and related intellectual property, the assets of the Angelo and Maxie’s restaurants are considered to be held for sale as of September 29, 2003 in accordance with FAS 144. However, the operations of the Angelo and Maxie’s restaurants are not presented as discontinued for the quarterly and nine month periods ended September 29, 2003 because the Company believes such a presentation would not be meaningful to the reader.

	Quarterly periods ended										Nine month periods ended
(Unaudited, dollars in	September 29, 2003					September 30, 2002					September 29, 2003					September 30, 2002
thousands)	Amount			%		Amount			%		Amount			%		Amount			%

Revenues	$	5,722		100.0		$	5,634		100.0		$	18,945		100.0		$	19,690		100.0

Operating costs and expenses:
Cost of sales	2,080			36.4		2,041			36.2		6,797			35.9		7,044			35.8
Restaurant labor	1,429			25.0		1,442			25.6		4,478			23.6		4,802			24.4
Other operating costs	1,117			19.5		1,077			19.1		3,478			18.4		3,851			19.6
Rent	601			10.5		585			10.4		1,802			9.5		1,763			9.0
Total restaurant costs	5,227			91.3		5,145			91.3		16,555			87.4		17,460			88.7
Restaurant operating income (before depreciation and amortization)	495			8.7		489			8.7		2,390			12.6		2,230			11.3
General and administrative expenses	568			9.9		597			10.6		1,927			10.2		915			4.6
Depreciation and amortization	149			2.6		278			4.9		763			4.0		1,037			5.3
Impairment of assets and restructuring charges	15			0.3		497			8.8		4,428			23.4		7,558			38.4
(Gain) loss on sales of assets	(15		)	(0.3	)	—			—		(6		)	(0.0	)	2			—
Total restaurant and operating costs	5,944			103.9		6,517			115.7		23,667			124.9		26,972			137.0
Loss from operations	(222		)	(3.9	)	(883		)	(15.7	)	(4,722		)	(24.9	)	(7,282		)	(37.0	)
Interest expense, net	30			0.5		580			10.3		82			0.4		2,617			13.3
Other income	(51		)	(0.9	)	(51		)	(0.9	)	(153		)	(0.8	)	(151		)	(0.8	)
Loss from continuing operations before income taxes	(201		)	(3.5	)	(1,412		)	(25.1	)	(4,651		)	(24.5	)	(9,748		)	(49.5	)
Provision for income taxes	—			—		—			—		—			—		—			—
Loss from continuing operations	(201		)	(3.5	)	(1,412		)	(25.1	)	(4,651		)	(24.5	)	(9,748		)	(49.5	)

Discontinued operations:
Income (loss) from operations	—			—		(805		)	(14.3	)	—			—		146			0.7
Income (loss) on sale	(201		)	(3.5	)	1,248			22.2		(188		)	(1.0	)	(2,433		)	(12.4	)
Income (loss) from discontinued operations	(201		)	(3.5	)	443			7.9		(188		)	(1.0	)	(2,287		)	(11.6	)
Net loss	$	(402	)	(7.0	)	$	(969	)	(17.2	)	$	(4,839	)	(25.5	)	$	(12,035	)	(61.1	)
Preferred stock dividends	232			4.1		234			4.2		696			3.7		681			3.5
Net loss applicable to common shares	$	(634	)	(11.1	)	$	(1,203	)	(21.4	)	$	(5,535	)	(29.2	)	$	(12,716	)	(64.6	)

Angelo and Maxie’s revenues are derived primarily from food and beverage sales. Revenues increased $0.1 million, or 1.6%, to $5.7 million in the third quarter of 2003, compared to $5.6 million in the third quarter of 2002. The increase in revenues is due to the Company’s 4.9% increase in comparable sales partly offset by the Company’s exit from one restaurant during the fourth quarter of 2002.

Revenues decreased $0.7 million, or 3.8%, to $18.9 million for the nine months ended September 29, 2003, compared to $19.7 million for the nine months ended September 30, 2002. The decrease in revenues is due to the Company’s exit from one restaurant during the fourth quarter of 2002. Comparable sales for the nine month period increased 1.6%.

Cost of sales is composed of the cost of food and beverages. Cost of sales as a percentage of revenues increased by 0.2 percentage points to 36.4% in the third quarter of 2003, compared with 36.2% in the third quarter of 2002. This increase was primarily the result of cost increases to certain products coupled with the discounting of food items during happy hours at several of the Company’s locations. For the nine months ended September 29, 2003, cost of sales as a percentage of revenues increased 0.1 percentage points to 35.9%, compared with 35.8% for the nine months ended September 30, 2002, driven primarily by the same factors that impacted the quarterly results.

Restaurant labor consists of restaurant management salaries, hourly staff payroll costs, and other payroll-related items. Restaurant labor as a percentage of revenues decreased by 0.6 percentage points to 25.0% in the third quarter of 2003, compared with 25.6% in the third quarter of 2002. This improvement was primarily the result of the elimination of an underperforming restaurant in December 2002 that incurred higher labor costs than the Company’s other restaurants coupled with productivity improvements at a majority of the remaining restaurant locations. For the nine months ended September 29, 2003 restaurant labor as a percentage of revenues decreased 0.8 percentage points to 23.6%, compared with 24.4% for the nine months ended September 30, 2002, driven primarily by the same factors that impacted the quarterly results.

Other operating expenses consist primarily of various restaurant-level costs, which are generally variable and are expected to fluctuate with revenues. Other operating costs as a percentage of restaurant revenues increased by 0.4 percentage points to 19.5% in the third quarter of 2003, compared with 19.1% in the third quarter of 2002, primarily as a result of higher utility and insurance costs. For the nine months ended September 29, 2003, other operating costs as a percentage of revenues decreased 1.2 percentage points to 18.4%, compared with 19.6% for the nine months ended September 30, 2002, primarily due to lower marketing spending in the current year and partly offset by higher utility and insurance costs.

Rent includes both fixed and variable portions of rent. Rent as a percentage of revenues increased by 0.1 percentage points to 10.5% in the third quarter of 2003, compared with 10.4% in the third quarter of 2002, primarily as a result of rent relief in the 2002 quarter related to an underperforming restaurant that was subsequently closed. The Company did not incur variable rent costs for any of its locations in either period. For the nine months ended September 29, 2003, rent as a percentage of revenues increased 0.5 percentage points to 9.5%, compared with 9.0% for the nine months ended September 30, 2002, primarily due to the higher total revenues for the comparative nine month period in 2002 coupled by rent relief in the 2002 related to an underperforming restaurant that was subsequently closed.

General and administrative expenses are composed of expenses associated with corporate and administrative functions that support restaurant operations, including management and staff salaries, employee benefits, travel, legal and professional fees, technology, and market research. General and administrative expenses for the third quarter of 2003 of $0.6 million were flat compared to the third quarter of 2002. For the nine months ended September 29, 2003, general and administrative expenses increased $1.0 million to $1.9 million from $0.9 million for the nine months ended September 30, 2002. This 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.

Depreciation and amortization expense includes the depreciation of fixed assets and the amortization of leasehold improvements at both the restaurants and corporate locations. For the quarterly period ended September 29, 2003, depreciation and amortization expense decreased $0.2 million to $0.1 million from $0.3 million for the quarterly period ended September 30, 2002. The decrease in the quarterly result is primarily due to the ceasing of depreciation on the restaurant fixed assets and leasehold improvements in connection with the assets being classified as held for sale during the third quarter of 2003 in accordance with FAS 144. For the nine months ended September 29, 2003, depreciation and amortization expense decreased $0.2 million to $0.8 million from $1.0 million for the nine months ended September 30, 2002. The decrease in the year-to-date result is primarily due to the same factors that influenced the decrease in the quarterly results as well as the prior period amount including the final amortization of a non-compete agreement related to a prior owner of the original Angelo and Maxie’s Steakhouse.

During the second quarter of 2003, the Company completed its required review by comparing its carrying value for the Angelo and Maxie’s restaurant business to estimated fair market value. In determining the estimated fair market value of its assets, management considers several factors requiring the exercise of its business judgment. Such business judgment includes 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 ratios to the Company’s historical and projected operating performance. Such evaluation indicated that the recorded value of the Angelo and Maxie’s trade name was impaired by $0.7 million and that the recorded value of the restaurant leasehold improvements were impaired by $3.6 million at the end of the second quarter of 2003. Previously, the Company had reported that the goodwill and trade name of Angelo and Maxie's was impaired by $4.3 million at the end of the second quarter of 2003. During the third quarter of 2003, based on the facts and circumstances from the proposed sale of the Angelo and Maxie's brand and related operating assets, the Company concluded that the $4.3 million impairment from the second quarter of 2003 should have been allocated between the restaurant leasehold improvements and the goodwill and trade name. At the end of the third quarter of 2003, the Company concluded that there was no further impairment with respect to the goodwill and trade name and the restaurant operating assets. In addition, on June 30, 2003 the Company’s lease on its Chicago corporate headquarters expired and the Company relocated to a space commensurate with its current needs. In connection therewith, the Company recorded a $0.1 million restructuring charge during the second quarter of 2003 resulting from the Company receiving lower than anticipated proceeds for the sale and disposal of its furniture and equipment located at the vacated facility.

Impairment of assets and restructuring charges were $0.5 million and $7.6 million for the third quarter and nine month periods ended September 30, 2002, respectively. During the third quarter of 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. In addition, 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. During the second quarter of 2002, the Company completed its required review by comparing its carrying value for the Angelo and Maxie’s Steakhouse business to fair market value. 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. 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.

Interest expense, net, decreased $550,000 to $30,000 in the third quarter of 2003, compared to $580,000 in the third quarter of 2002. Interest expense, net decreased $2.5 million to $0.1 million in the nine months ended September 29, 2003, compared to $2.6 million in the nine months ended September 30, 2002. The Company paid all outstanding bank and related party debt balances in full with the proceeds from the sale of the Chart House Business in the third quarter of 2002. The current quarter interest expense relates to non-cash interest expense related to a capital lease offset by interest income earned on the Company’s cash invested in overnight investment instruments. The interest expense for the nine months ended September 29, 2003 relates to interest on a landlord note retired and extinguished in the second quarter of 2003, coupled by non-cash interest expense related to a capital lease, offset by interest income earned on the Company’s cash invested in overnight investment instruments.

In 2002, 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 $0.4 million difference between the net book value of assets disposed and the consideration received. In the third quarter of 2003, the Company further adjusted its liabilities associated with the sale resulting in a $0.2 million loss for the quarterly and nine month periods ended September 29, 2003.

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 $0.2 million during each of the third quarters of 2003 and 2002.

LIQUIDITY AND CAPITAL RESOURCES

(Unaudited, dollars in thousands)	Nine month periods ended
	September 29, 2003			September 30, 2002
Net cash used in operating activities	$	(944	)	$	(5,512	)
Expenditures for equipment and improvements	(80		)	(913		)
Proceeds from the sale of the Chart House Business	—			50,001
Proceeds from sale of other assets	15			—
Cash in escrow				(2,000		)
Cash used in financing activities	(912		)	(33,713		)
Net increase (decrease) in cash	$	(1,921	)	$	7,863

Net cash used in operating activities was $0.9 million in the first nine months of 2003, compared to net cash used by operating activities of $5.5 million in the first nine months of 2002. In 2003, net cash used in operating activities includes an aggregate $1.4 million related to payment of 2002 bonuses, severance payments related to employees terminated in conjunction with the sale of the Chart House Business, and settlement of previously reserved insurance claims. In 2002, the net cash used in operating activities was primarily due to the settlement of accounts payable and other liabilities of the Chart House Business. In connection with an agreement with iDine Rewards Network, Inc. (“iDine”), the Company received $1.0 million in the nine month period of 2002 for marketing activities and the advance sale of food and beverage credits. The Company in turn paid to iDine $2.6 million during the nine month period of 2002 related to this agreement including advances received in 2001. This agreement was terminated as of July 29, 2002, in conjunction with the sale of the Chart House Business. The Company has no further obligations under this agreement.

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 capital expenditures for the nine month periods ended September 29, 2003 and September 30, 2002 was $80,000 and $913,000, respectively, primarily for the replacement of restaurant equipment and leasehold improvements resulting from normal wear and tear.

Net cash used in financing activities was $0.9 million in the first nine months of 2003, including $0.5 million used to settle the payment of both scheduled payments and the early retirement and payoff of the landlord notes. There were no pre-payment fees or penalties associated with the early retirement of this debt obligation. 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. Subsequent to the retirement of amounts owing under the Credit Agreement, the Company began paying these dividends in cash. The Company paid in June 2003 its scheduled dividend of $0.5 million in cash. The Company expects to satisfy future dividend obligations in cash.

Net cash used in financing activities was $33.7 million in 2002, representing primarily the retirement of both bank and related party debt, primarily with the proceeds from the sale of the Chart House Business. The Company also used $2.7 million of the proceeds from the sale of the Chart House Business to collateralize outstanding letters of credit.

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. No material changes have occurred regarding these commitments and contingencies from the Company’s prior fiscal year ended December 30, 2002.

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 Company adopted this Standard as of January 1, 2003 with no material impact.

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 its business judgment. Such business judgment includes 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 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 was 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 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, which 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. 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 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 therein. 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 Company currently has no contractual relationships or other business relationships with a variable entity and therefore the adoption of FIN 46 did not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows for the quarterly period ended September 29, 2003.

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 3. 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 September 29, 2003, would not be material. The Company does not use derivative instruments to manage borrowing costs, reduce exposure to adverse fluctuations in the interest rate, nor 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.

ITEM 4. CONTROLS AND PROCEDURES

As of September 29, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be disclosed by the Company in its periodic Exchange Act reports. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

ITEM 1. 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 Chancery Court has ruled that the Company’s remaining claim should be transferred to the Superior Court for the State of Delaware and that the purchaser’s counterclaim should be resolved through the dispute resolution mechanism provided for in the asset purchase agreement.

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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)		Exhibits:

3.1		(1) Restated Certificate of Incorporation of the Company, as amended. (1)
		(2) Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2)
		(3) Certificate of Amendment of Restated Certificate of Incorporation of Chart House Enterprises, Inc. (4)
3.2		Amended and Restated Bylaws of the Company. (1)
3.3		Certificate of Designations of the Series A Preferred Stock. (3)
4.1		Specimen Common Stock Certificate. (2)
4.2		Specimen Series A Preferred Stock Certificate. (3)
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed as an exhibit to the Company’s Registration Statement on Form S-1 dated August 27, 1987, or amendments thereto dated October 6, 1987 and October 14, 1987 (Registration No. 33-16795).

(2) Filed as an exhibit to the Company’s Registration Statement on Form S-1 dated July 20, 1989, or amendment thereto dated August 25, 1989 (Registration No. 33-30089).

(3) Filed as an exhibit to the Company’s Registration Statement on Form S-2 dated March 27, 2001, or amendments thereto dated May 15, 2001, May 25, 2001, and May 31, 2001 (Registration No. 333-57674).

(4) Filed as an exhibit to the Company’s Current Report on Form 10-Q for the quarter ended July 1, 2002, dated August 15, 2002.

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K on August 15, 2003. Under Item 12, the Company reported it had issued a press release entitled “Angelo and Maxie's Reports Second Quarter Results, Announces Proposed Sale of Three Steakhouses and Provides Strategic Alternatives Review Update”, and such press release, which contained the Company's Consolidated Statements of Operations for the quarterly period ended June 30, 2003, was furnished as an exhibit thereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ANGELO AND MAXIE’S, INC.


Date:	November 13, 2003	By:	/s/ KENNETH R. POSNER
				Kenneth R. Posner
				President and Chief Executive Officer
				(principal executive officer)


Date:	November 13, 2003	By:	/s/ EMANUEL N. HILARIO
				Emanuel N. Hilario
				Vice President and Chief Financial Officer
				(principal financial and accounting officer)