** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| x      |   | QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  |
|--------|--------|-------------------------------------------------------------------------------------------|
|   |   | For  the quarterly period ended September 27, 2004                                        |
|  ̈ |   | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

**For the transition period from                      to**

** **

**CommissionFile Number 1-9684**

** **

**ANGELOAND MAXIE’S, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

**2 North Riverside, SeventhFloor, Chicago, IL 60606**

(Address of principal executive offices, including zip code)

 

**(312) 466-3966**

(Registrant’s telephone number, including area code)

 

                Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter periods that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

| Yes |  ý | No | o |
|-----|--------------|----|---|

 

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2 of theExchange Act).

 

| Yes |  o | No | ý |
|-----|---------|----|--------|

 

                Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of November 12, 2004:

 

Common Stock ($.01 par value) 2,005,131

 

 

 

 

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**PART I- FINANCIAL INFORMATION**

 

**ITEM1.   FINANCIAL STATEMENTS.**

 

**ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except share data)**

 
| ** **                                                                                                                                                                     | ** **   | **September 27, 2004** | ** **   | **December 29, 2003** | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------|--------------|-----------------------|--------------|
| ** **                                                                                                                                                                     | *** *** | (Unaudited)            | *** *** | *** ***          | *** *** |
| **ASSETS**                                                                                                                                                                     |         |                   |         |                  |         |
| Current assets:                                                                                                                                                                |         |                   |         |                  |         |
| Cash and cash equivalents                                                                                                                                                      |         | $                      | 7,140        |                  | $            | 4,551 |   |
| Accounts receivable, net                                                                                                                                                       |         | 99                     |         | 600                   |         |
| Inventories                                                                                                                                                                    |         | 115                    |         | 370                   |         |
| Prepaid expenses and other current assets                                                                                                                                      |         | 744                    |         | 1,024                 |         |
| Total current assets                                                                                                                                                           |         | 8,098                  |         | 6,545                 |         |
| Equipment and improvements (held for sale, see Note 2):                                                                                                                        |         |                   |         |                  |         |
| Equipment                                                                                                                                                                      |         | 540                    |         | 3,830                 |         |
| Leasehold interests and improvements                                                                                                                                           |         | 915                    |         | 8,422                 |         |
|                                                                                                                                                                           |         | 1,455                  |         | 12,252                |         |
| Less: Accumulated depreciation and amortization                                                                                                                                |         | 785                    |         | 3,340                 |         |
| Equipment and improvements, net                                                                                                                                                |         | 670                    |         | 8,912                 |         |
| Other non-current assets:                                                                                                                                                      |         |                   |         |                  |         |
| Restricted cash                                                                                                                                                                |         | 2,302                  |         | 2,627                 |         |
| Leased property under capital leases, net                                                                                                                                      |         | 1,032                  |         | 1,077                 |         |
| Intangibles, net (held for sale, see Note 2)                                                                                                                                   |         | 1,543                  |         | 2,370                 |         |
| Other non-current assets                                                                                                                                                       |         | 112                    |         | 497                   |         |
| Total other non-current assets                                                                                                                                                 |         | 4,989                  |         | 6,571                 |         |
| Total assets                                                                                                                                                                   |         | 13,757                 |         | 22,028                |         |
|                                                                                                                                                                           |         |                   |         |                  |         |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                  |         |                   |         |                  |         |
| Current liabilities:                                                                                                                                                           |         |                   |         |                  |         |
| Current portion of non-current liabilities                                                                                                                                     |         | 33                     |         | 30                    |         |
| Accounts payable                                                                                                                                                               |         | 884                    |         | 1,289                 |         |
| Accrued liabilities                                                                                                                                                            |         | 1,501                  |         | 2,859                 |         |
| Deferred gain                                                                                                                                                                  |         | —                 |         | 967                   |         |
| Total current liabilities                                                                                                                                                      |         | 2,418                  |         | 5,145                 |         |
| Non-current liabilities (excluding current portion):                                                                                                                           |         |                   |         |                  |         |
| Long-term portion of capital lease obligation                                                                                                                                  |         | 1,820                  |         | 1,848                 |         |
| Other long-term obligations                                                                                                                                                    |         | 96                     |         | 752                   |         |
| Total non-current liabilities (excluding current portion)                                                                                                                      |         | 1,916                  |         | 2,600                 |         |
| Stockholders’ equity:                                                                                                                                                     |         |                   |         |                  |         |
| Preferred stock, $1.00 par value, 10,000,000 shares authorized;  4,134,736 shares issued and outstanding at September 27, 2004 and December  29, 2003                          |         | 4,135                  |         | 4,135                 |         |
| Common stock, $0.01 par value, 30,000,000 shares authorized;  2,005,131 and 2,001,713 shares issued and outstanding at September 27, 2004  and December 29, 2003, respectively |         | 20                     |         | 20                    |         |
| Additional paid-in capital                                                                                                                                                     |         | 65,460                 |         | 65,451                |         |
| Retained deficit                                                                                                                                                               |         | (60,192                | )            | (55,323               | )            |
| Total stockholders’ equity                                                                                                                                                |         | 9,423                  |         | 14,283                |         |
| Total liabilities and stockholders’ equity                                                                                                                                |         | $                      | 13,757       |                  | $            | 22,028 |   |
|                                                                                                                                                                           |         |                   |         |                  |         |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Inthousands, except per share data)**

**(Unaudited)**

 
| ** **                                          | ** ** | **Quarterly periods ended** | ** ** | **Nine month periods ended** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | **September 27, 2004**      | ** ** | **September 29, 2003**       | ** ** | **September 27, 2004** | ** ** | **September 29, 2003** | ** ** |
| Revenues                                            |       | $                           | 2,176      |                         | $          | 2,364 |   | $ | 8,086 |   | $ | 8,421 |   |
| Operating costs and expenses:                       |       |                        |       |                         |       |   |   |   |   |
| Cost of sales                                       |       | 865                         |       | 879                          |       | 3,089 |   | 3,025 |   |
| Restaurant labor                                    |       | 484                         |       | 610                          |       | 1,711 |   | 1,847 |   |
| Other operating costs                               |       | 531                         |       | 662                          |       | 1,632 |   | 1,640 |   |
| Rent                                                |       | 210                         |       | 210                          |       | 697 |   | 696 |   |
| Total restaurant costs                              |       | 2,090                       |       | 2,361                        |       | 7,129 |   | 7,208 |   |
| General and administrative expenses                 |       | 606                         |       | 479                          |       | 1,522 |   | 1,838 |   |
| Depreciation and amortization                       |       | 14                          |       | 125                          |       | 69 |   | 379 |   |
| Impairment of assets and restructuring charges      |       | 2,283                       |       | —                       |       | 3,229 |   | 4,384 |   |
| Loss on disposal of assets                          |       | —                      |       | —                       |       | — |   | 9 |   |
| Total restaurant and operating costs                |       | 4,993                       |       | 2,965                        |       | 11,949 |   | 13,818 |   |
| Loss from operations                                |       | (2,817                      | )          | (601                         | )          | (3,863 | ) | (5,397 | ) |
| Interest expense, net                               |       | 20                          |       | 30                           |       | 65 |   | 82 |   |
| Other income                                        |       | (18                         | )          | (18                          | )          | (120 | ) | (120 | ) |
| Loss from continuing operations before income taxes |       | (2,819                      | )          | (613                         | )          | (3,808 | ) | (5,359 | ) |
| Provision for income taxes                          |       | —                      |       | —                       |       | — |   | — |   |
| Loss from continuing operations                     |       | (2,819                      | )          | (613                         | )          | (3,808 | ) | (5,359 | ) |
| Discontinued operations:                            |       |                        |       |                         |       |   |   |   |   |
| Income (loss) from operations                       |       | —                      |       | 126                          |       | (107 | ) | 507 |   |
| Gain (loss) on sale                                 |       | (63                         | )          | 85                           |       | (1,226 | ) | 13 |   |
| Recognition of deferred gain on sale                |       | —                      |       | —                       |       | 967 |   | — |   |
| Income (loss) from discontinued operations          |       | (63                         | )          | 211                          |       | (366 | ) | 520 |   |
| Net loss                                            |       | $                           | (2,882     | )                            | $          | (402 | ) | $ | (4,174 | ) | $ | (4,839 | ) |
| Preferred dividends                                 |       | 232                         |       | 232                          |       | 696 |   | 696 |   |
| Net loss applicable to common shares                |       | $                           | (3,114     | )                            | $          | (634 | ) | $ | (4,870 | ) | $ | (5,535 | ) |
| Net loss per common share - Basic and diluted:      |       |                        |       |                         |       |   |   |   |   |
| Continuing operations                               |       | $                           | (1.52      | )                            | $          | (0.42 | ) | $ | (2.25 | ) | $ | (3.04 | ) |
| Discontinued operations                             |       | (0.03                       | )          | 0.11                         |       | (0.18 | ) | 0.26 |   |
|                                                |       | $                           | (1.55      | )                            | $          | (0.32 | ) | $ | (2.43 | ) | $ | (2.78 | )  |
|                                                |       |                        |       |                         |       |   |   |   |   |
| Weighted-average shares outstanding                 |       | 2,005                       |       | 1,996                        |       | 2,005 |   | 1,993 |   |

 

 

 

 

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

 

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** ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(In thousands, unaudited)**

 

 

 
| ** **                                                                     | ** ** | **Nine month periods ended** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                     | ** ** | **September 27, 2004**       | ** ** | **September 29, 2003** | ** ** |
| Cash flows from operating activities:                                          | * *   | * *                     | * *   | * * | * * |
| Net loss                                                                       |       | $                            | (4,174     | ) | $ | (4,839 | ) |
|                                                                           |       |                         |       |   |   |
| Adjustments to reconcile net loss to cash flows used in operating  activities: |       |                         |       |   |   |
| Depreciation and amortization                                                  |       | 69                           |       | 763 |   |
| Loss on disposal of assets                                                     |       | —                       |       | (6 | ) |
| Loss provision for impairment of assets and restructuring charges              |       | 3,229                        |       | 4,399 |   |
| Common stock issued in lieu of compensation                                    |       | 9                            |       | 27 |   |
| Recognition of deferred gain on sale                                           |       | (967                         | )          | — |   |
| Changes in working capital:                                                    |       |                         |       |   |   |
| Decrease (increase) in accounts receivable                                     |       | 486                          |       | (49 | ) |
| Decrease in inventories                                                        |       | 255                          |       | 51 |   |
| Decrease in prepaid expenses and other current assets                          |       | 280                          |       | 482 |   |
| Decrease in assets held for disposal                                           |       | —                       |       | — |   |
| Decrease in other non-current assets                                           |       | 385                          |       | 8 |   |
| Decrease in accounts payable                                                   |       | (405                         | )          | (313 | ) |
| Decrease in accrued liabilities                                                |       | (1,342                       | )          | (1,081 | ) |
| Decrease in liabilities of discontinued operations                             |       | —                       |       | (170 | ) |
| Decrease in other non-current obligations (excluding current portion)          |       | (656                         | )          | (216 | ) |
| Cash used in operating activities                                              |       | (2,831                       | )          | (944 | ) |
| Cash flows from investing activities:                                          |       |                         |       |   |   |
| Expenditures for equipment and improvements                                    |       | (9                           | )          | (80 | ) |
| Proceeds from sale of restaurant assets                                        |       | 5,594                        |       | 15 |   |
| Cash provided by (used in) investing activities                                |       | 5,585                        |       | (65 | ) |
| Cash flows from financing activities:                                          |       |                         |       |   |   |
| Restricted cash for letters of credit                                          |       | 325                          |       | 75 |   |
| Preferred dividends                                                            |       | (464                         | )          | (464 | ) |
| Payments on landlord notes                                                     |       | —                       |       | (501 | ) |
| Reduction of obligations under capital leases                                  |       | (26                          | )          | (22 | ) |
| Cash used in financing activities                                              |       | (165                         | )          | (912 | ) |
| Increase (Decrease) in cash                                                    |       | 2,589                        |       | (1,921 | ) |
| Cash and cash equivalents, beginning of period                                 |       | 4,551                        |       | 7,651 |   |
| Cash and cash equivalents, end of period                                       |       | $                            | 7,140      |   | $ | 5,730 |   |
|                                                                           |       |                         |       |   |   |

 

 

 

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

 

3

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**ANGELO AND MAXIE’S, INC. AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**September27, 2004**

**(Unaudited)**

 

**(1)           BASIS OF PRESENTATION**

 

The accompanyingconsolidated financial statements of Angelo and Maxie’s, Inc. and itswholly-owned subsidiaries (the “Company”) for the quarterly periods endedSeptember 27, 2004 and September 29, 2003,and the nine months periods endedSeptember 27, 2004 and September 29, 2003, have been prepared in accordancewith generally accepted accounting principles, and with the instructions toForm 10-Q.  These financial statementshave not been audited by independent public accountants, but include alladjustments (consisting of a normal and recurring nature) that are, in theopinion of management, necessary for a fair presentation of the financialcondition, results of operations, and cash flows for such periods. However,these results are not necessarily indicative of results for any other interimperiod or for the full fiscal year.

 

The Company consummated asale of three of its then-existing five steakhouses on January 7, 2004 and itsBoard of Directors approved a proposal in September 2003 to sell its remainingtwo steakhouses and related intellectual property.  See Note 2 “Sale of the Angelo and Maxie’sBrand and Related Operating Assets.”  TheCompany also consummated a sale of 39 of its then-existing 45 restaurants (“theChart House Business”) to a third party as of July 30, 2002.  See Note 3 “Sale of the Chart House Business.”  The operations of the sold restaurants havebeen presented as discontinued operations for the quarterly periods endedSeptember 27, 2004 and September 29, 2003 and the nine month periods endedSeptember 27, 2004 and September 29, 2003, and the Company has reclassified itsConsolidated Statements of Operations for the periods then ended in accordancewith Statement of Financial Accounting Standards No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“FAS 144”).  In connection with the proposed sale of itsPark Avenue, New York steakhouse and related intellectual property, the assetsare considered to be held for sale in accordance with FAS 144.  Furthermore, during November of 2004, the Companynegotiated a lease termination agreement with the landlord of the West PalmBeach, Florida restaurant.  As such, theCompany has recorded an impairment charge, as of September 27, 2004, related tothe assets associated with this steakhouse. However, the operations of the remaining two Angelo and Maxie’srestaurants are not presented as discontinued on the accompanying Statements ofOperations because the Company believes such a presentation would not bemeaningful to the reader.

 

                Thepreparation of financial statements in conformity with generally acceptedaccounting principles in the United States of America requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities as of the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

                Certaininformation and footnote disclosures normally included in financial statementsin accordance with generally accepted accounting principles in the UnitedStates of America have been omitted pursuant to requirements of the Securitiesand Exchange Commission.  Managementbelieves that the disclosures included in the accompanying interim financialstatements and footnotes are adequate, but should be read in conjunction withthe consolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 29, 2003.

 

                Certainprior period balances have been reclassified to conform to the current periodpresentation.

 

**(2)           SALEOF THE ANGELO AND MAXIE’S BRAND AND RELATED OPERATING ASSETS**

 

On October 31, 2003, theCompany entered into a definitive agreement to sell three of its then-existingfive steakhouses located in Midtown Manhattan, New York, Reston, Virginia, andWashington, D.C to McCormick and Schmick Restaurant Corp. (“M&S”) for $5.35million in cash, subject to certain adjustments for current assets andliabilities.  The transaction closed onJanuary 7, 2004 and M&S has since converted all three steakhouses toanother restaurant concept.

 

In September 2003, the Boardof Directors approved a proposal to sell the Company’s remaining twosteakhouses and certain Angelo and Maxie’s intellectual property.  Angelo and Maxie’s executed a definitiveagreement with A & M Acquisitions, LLC on June 22, 2004, for the sale ofits remaining two steakhouses located on Park Avenue in New York City and inWest Palm Beach, Florida, including all the rights to the name “Angelo andMaxie’s.” The agreement provided, among other things, that the Company was toreceive $4.5 million in cash in connection with the sale, subject to certainadjustments for current assets and current liabilities. The Company’s name willbe changed on account of the sale of the rights to such name. In November of2004, the Company executed 

 

 

4

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a termination agreement with City Place, thelandlord of the West Palm Beach restaurant. The termination agreement releases the company of all future obligationsrelated to the West Palm Beach lease. Under the terms of the agreement the lease will terminate on November15, 2004.  As a result of executing thetermination agreement, the definitive agreement with A&M Acquisitions, LLCis expected to be amended to exclude the sale of the West Palm Beach, Floridarestaurant  The closing of the sale issubject to a number of conditions and is expected to occur in November orDecember of 2004.  No assurances can begiven that this sale will be consummated.

 

                Inconnection with the proposed sale of the Park Avenue, New York steakhouse andrelated intellectual property, the assets are considered to be held for sale,as of September 27, 2004 in accordance with FAS 144.  However, the operations of the Park Avenue,New York Angelo and Maxie’s restaurant is not presented as discontinued on theaccompanying Statements of Operations because the Company believes such apresentation would not be meaningful to the reader.

 

                TheCompany has recorded a provision for the impairment of assets and restructuringin the amount of $2.3 million due to the execution of a lease terminationagreement related to the West Palm Beach restaurant.

 

Condensed financialinformation for the three locations sold on January 7, 2004 and presented asdiscontinued operations for the nine month periods ended September 27, 2004 andSeptember 29, 2003 is as follows (in thousands):

 

 

| ** **                                 | ** ** | **Nine month period ended September 27, 2004** | ** ** | **Nine month period ended September 29, 2003** | ** ** |
|--------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| Revenues                                   |       | $                                              | 258        |                                           | $          | 10,524 |   |
| Total restaurant costs                     |       | 365                                            |       | 9,604                                          |       |
| Depreciation and amortization              |       | —                                         |       | 413                                            |       |
| (Loss) income from discontinued operations |       | $                                              | (107       | )                                              | $          | 507 |   |

 

 

 

**(3)           SALEOF THE CHART HOUSE BUSINESS**

 

InMay 2002, the Board of Directors of the Company authorized the sale of theChart House Business.  The sale wascompleted as of July 30, 2002, for consideration of approximately $55.3million, consisting of cash and the assumption of approximately $3.1 million ofcertain current liabilities.  The Companyrecorded a provision for an estimated loss on sale of discontinued operationsof $3.7 million in the second quarter of 2002, which was revised to $2.4million in the third quarter of 2002, primarily as a result of the eliminationof net liabilities to landlords following the receipt of the landlords’ consentto assign certain leases to the purchaser. In the first quarter of 2004, the Company further adjusted itsliabilities associated with the sale resulting in the recognition of anadditional $0.3 million loss on the sale. The Company had previously taken legal action against the buyer of theChart House Business.  The Company hadreached a settlement with the buyer resulting in an additional $910,000 loss,which is included in discontinued operations. See Note 6 “Commitments andContingencies” for further discussion.

 

**(4)           DEBT**

 

During2000, the Company entered into two note agreements with one landlord for anaggregate amount of $0.7 million.  Thenotes amortized over seven year terms, bore interest at 9.0%, and were payablein monthly installments.  The Companymade scheduled principal payments on these notes totaling $23,000 during thefirst quarter of 2003.  Interest expenseand cash paid for interest related to these notes amounted to $11,000 for thefirst quarter of 2003.  During thesecond quarter of 2003, the Company prepaid, without penalty, the remainingbalances on the two notes.

 

**(5)           RELATED PARTY TRANSACTIONS**

 

During the first nine monthsof 2004 and 2003, the Company recognized $187,500 of fees for financialadvisory services provided to the Company by a related party.

 

Paymentsto related parties for rent at one restaurant totaled $4,000 and $301,000 inthe first nine months of 2004 and 2003, respectively.  Future rent liability with respect to thislocation was transferred to M&S on January 7, 2004 in connection with theconsummation of the sale of three of the Company’s then-existing fivesteakhouses as of that date.  See Note 2 “Saleof the Angelo and Maxie’s Brand and Related Operating Assets”.

 

 

5

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On December 11, 2003, theCompany’s President and Chief Executive Officer became a full-time employee ofRewards Network, Inc. (“RNI”).  Inconnection with this change, the Company entered into an agreement with RNIwhereby services provided to the Company by the Company’s President and ChiefExecutive Officer are billed to the Company by RNI based on an agreed uponhourly rate.  The Company made paymentstotaling $8,000 during the third quarter of 2004 and $20,000 for the first ninemonths of 2004 pursuant to this agreement.

 

On June 26, 2003, theCompany entered into an operating lease for office space with a relatedparty.  This agreement provides, amongother things, that the landlord provide office space for the Company’scorporate employees and certain office services.  This agreement is terminable by either partywith a thirty day notice.  The Companymade payments totaling $12,000 pursuant to this agreement during the thirdquarter of 2004 and $40,000 for the first nine months of 2004.  Payments totaling $15,000 were made during2003 relating to the office space.

 

The relationships describedabove stem from one or more Company stockholders and/or members of the Company’sBoard of Directors maintaining ownership interest in and influential managementpositions at or with these related parties’ organizations.

 

**(6)****                                      ****COMMITMENTS AND CONTINGENCIES**

 

TheCompany periodically is a defendant in litigation incidental to its businessactivities.  While any litigation orinvestigation has an element of uncertainty, the Company believes that theoutcome of any of these matters will not have a material adverse effect on itsfinancial condition or operations.

 

Inconnection with a 1997 sale of previously operated restaurants, the Companyagreed to guarantee up to $4.0 million of the buyer’s note obligation to itslender through January 2004.  Subsequentto the release of this guarantee during the first quarter of 2004, the Companyrecognized a $1.0 million deferred gain on the sale of these restaurants.  This sale was not connected to the sale ofthe Chart House Business or the sale of three of the Company’s then-existingfive steakhouses to M & S.

 

TheCompany maintains letters of credit primarily to cover self-insurance reservesand lease obligations.  In connectionwith the sale of the Chart House Business, and in order to minimize costsassociated with outstanding letters of credit, the Company established a cashcollateral account equal to the full balance of its obligations underoutstanding letters of credit, which totaled $2.3 million at September 27,2004.  Such funds are presented on theconsolidated balance sheets as restricted cash, a non-current asset.

 

TheCompany was contingently liable, in certain circumstances, for leaseobligations with respect to 20 properties subleased or assigned to thirdparties in the event of a default by the third party. In connection with thesale of the Chart House Business, the Company received a guarantee from Landry’sRestaurant’s, Inc. (“Landry’s”) with respect to 19 of these properties. On July30, 2004, the Company reached a settlement with Landry’s on all pendinglitigation matters, including a default by a subsidiary of Landry’s under ofone of the Chart House leases.  Inaddition, the Company received an unconditional and irrevocable guarantee fromLandry’s for the full and timely payment and performance of all the leasesincluded in the sale of the Chart House Business to Landry’s. With respect tothe property not covered by the Landry’s guarantee, the Company holds a standbyletter of credit from the sublessee of this property equaling one year’s renton the property.

 

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

*This Quarterly Report onForm 10-Q and the documents incorporated herein by reference containforward-looking statements that have been made pursuant to provisions of thePrivate Securities Litigation Reform Act of 1995.  Forward-looking statements represent theCompany’s expectations or beliefs concerning future events, including anystatements regarding: future sales and gross profit percentages, thecontinuation of historical trends, the sufficiency of the Company’s cash balances,and cash generated from operating, financing and/or investing activities forthe Company’s future liquidity and capital resource needs.  Without limiting the foregoing, the words “believes,”“intends,” “projects,” “plans,” “expects,” “anticipates,” and similarexpressions are intended to identify forward-looking statements.  The Company cautions that these statementsare further qualified by important economic and competitive factors that couldcause actual results to differ materially from those in the forward-lookingstatements.  These factors include,without limitation, risks of the restaurant industry, an industry with manywell-established competitors with greater financial and other resources thanthe Company, and the impact of changes in consumer trends, employeeavailability, and cost increases. Accordingly, such forward-looking statements do not purport to bepredictions of future events or circumstances and may not be realized.*

 

 

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**OVERVIEW**

 

The Company consummated asale of three of its then-existing five steakhouses on January 7, 2004 andexecuted a definitive agreement on June 22, 2004 to sell its remaining twosteakhouses and related intellectual property. The Company subsequently entered into a lease termination agreement withthe landlord of the West Palm Beach restaurant and, in connection herewithexpects to enter into an amendment to the purchase agreement to exclude thesale of such restaurant.  See Note 2 “Saleof the Angelo and Maxie’s Brand and Related Assets.”  The Company also consummated a sale of 39 ofits then-existing 45 restaurants (“the Chart House Business”) to a third partyas of July 30, 2002.  See Note 3 “Sale ofthe Chart House Business.”  Theoperations of the sold restaurants have been presented as discontinuedoperations for the quarters and nine months ended September 27, 2004 andSeptember 29, 2003, and the Company has reclassified its ConsolidatedStatements of Operations for the quarters then ended in accordance withStatement of Financial Accounting Standards No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“FAS 144”).  In connection with the proposed sale of thePark Avenue, New York steakhouse and related intellectual property, the assetsare considered to be held for sale as of September 27, 2004 in accordance withFAS 144.  As stated earlier, in November,2004 the Company entered into a lease termination agreement with the landlordof the West Palm Beach, Florida restaurant. The Company has recorded an impairment to assets related to the WestPalm Beach, Florida property.  However,the operations of the remaining two Angelo and Maxie’s restaurants are notpresented as discontinued on the accompanying Statements of Operations becausethe Company believes such a presentation would not be meaningful to the reader.

 

The Company operates twoAngelo and Maxie’s Steakhouses, which are full-service steakhouse restaurantslocated in New York, New York and West Palm Beach, Florida.  The Company operated the following number ofrestaurants at the end of the second quarters of 2004 and 2003:

 

| ** **         | ** ** | **Angelo and Maxie’s Steakhouses** | ** ** | **Discontinued operations** | ** ** | **Total** | ** ** |
|--------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-----------|------------|
| Third quarter 2004 |       | 2                                       |       | —                      |       | 2         |       |
| Third quarter 2003 |       | 2                                       |       | 3                           |       | 5         |       |
|               |       |                                    |       |                        |       |      |       |

 

 

The Company acquired theAngelo and Maxie’s Steakhouse concept and one restaurant during 1999 todiversify its then-seafood dominated portfolio.   The Company opened a total of six additionalAngelo and Maxie’s restaurants over 2000 and 2001.  One of these locations was closed during thefourth quarter of 2001 and another location was closed during the fourthquarter of 2002.  During 2001, theCompany canceled restaurant development plans for three locations, did not openany locations during 2002 and 2003, and currently has no plans to openadditional restaurants during 2004.  TheCompany received stockholder approval of the sale of the two remaining Angeloand Maxie’s restaurants and related intellectual property, the liquidation anddissolution of the Company as well as approval for a name change to AM-CH,Inc..   No assurances can be given as towhether or when these transactions will be consummated.

 

 

7

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**RESULTS OF OPERATIONS**

 

                Thefollowing table presents the results of operations for each of the quarterlyand nine month periods ended September 27, 2004 and September 29, 2003.  Continuing operations relate to theoperations of the Company’s two remaining Angelo and Maxie’s Steakhouses.  The operations of the three locations sold onJanuary 7, 2004 and the Chart House Business are presented as discontinued.

 
| ** **                                                          | ** ** | **Quarterly  periods ended**           | ** ** | **Nine  month periods ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------|------------|
| ** **                                                          | ** ** | **September  27,2004**                 | ** ** | **September  29,2003**        | ** ** | **September  27,2004** | ** ** | **September  29,2003** | ** ** |
| *** ***                                                        | ** ** | **Amount**                             | ** ** | **%**                         | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
|                                                                |       | **(Unaudited,  dollars in thousands)** |       |                          |
| Revenues                                                            |       | $                                      | 2,176      |                          | 100.0      |   | $ | 2,364 |   | 100.0 |   | $ | 8,086 |   | 100.0 |   | $ | 8,421 |   | 100.0 |   |
|                                                                |       |                                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs  and expenses:                                      |       |                                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                       |       | 865                                    |       | 39.8                          |       | 879 |   | 37.2 |   | 3,089 |   | 38.2 |   | 3,025 |   | 35.9 |   |
| Restaurant labor                                                    |       | 484                                    |       | 22.2                          |       | 610 |   | 25.8 |   | 1,711 |   | 21.2 |   | 1,847 |   | 21.9 |   |
| Other operating  costs                                              |       | 531                                    |       | 24.4                          |       | 662 |   | 28.0 |   | 1,632 |   | 20.2 |   | 1,640 |   | 19.5 |   |
| Rent                                                                |       | 210                                    |       | 9.7                           |       | 210 |   | 8.9 |   | 697 |   | 8.6 |   | 696 |   | 8.3 |   |
| Total restaurant  costs                                             |       | 2,090                                  |       | 96.0                          |       | 2,361 |   | 99.9 |   | 7,129 |   | 88.2 |   | 7,208 |   | 85.6 |   |
| Restaurant  operating income (before depreciation and amortization) |       | 86                                     |       | 4.0                           |       | 3 |   | 0.1 |   | 957 |   | 11.8 |   | 1,213 |   | 14.4 |   |
| General and  administrative expenses                                |       | 606                                    |       | 27.8                          |       | 479 |   | 20.3 |   | 1,522 |   | 18.8 |   | 1,838 |   | 21.8 |   |
| Depreciation and  amortization                                      |       | 14                                     |       | 0.6                           |       | 125 |   | 5.3 |   | 69 |   | 0.9 |   | 379 |   | 4.5 |   |
| Impairment of  assets and restructuring charges                     |       | 2,283                                  |       | 104.9                         |       | — |   | — |   | 3,229 |   | 39.9 |   | 4,384 |   | 52.1 |   |
| Gain on sales of  assets                                            |       | —                                 |       | —                        |       |   |   |   |   | — |   | — |   | 9 |   | — |   |
| Total restaurant  and operating costs                               |       | 4,993                                  |       | 229.5                         |       | 2,965 |   | 125.4 |   | 11,949 |   | 147.8 |   | 13,818 |   | 164.1 |   |
| Loss from  operations                                               |       | (2,817                                 | )          | (129.5                        | )          | (601 | ) | (25.4 | ) | (3,863 | ) | (47.8 | ) | (5,397 | ) | (64.1 | ) |
| Interest expense,  net                                              |       | 20                                     |       | 0.9                           |       | 30 |   | 1.3 |   | 65 |   | 0.8 |   | 82 |   | 1.0 |   |
| Other income                                                        |       | (18                                    | )          | (0.8                          | )          | (18 | ) | (0.8 | ) | (120 | ) | (1.5 | ) | (120 | ) | (1.4 | ) |
| Loss from  continuing operations before income taxes                |       | (2,819                                 | )          | (129.5                        | )          | (613 | ) | (25.9 | ) | (3,808 | ) | (47.1 | ) | (5,359 | ) | (63.6 | ) |
| Provision for  income taxes                                         |       | —                                 |       | —                        |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Loss from  continuing operations                                    |       | (2,819                                 | )          | (129.5                        | )          | (613 | ) | (25.9 | ) | (3,808 | ) | (47.1 | ) | (5,359 | ) | (63.6 | ) |
| Discontinued  operations:                                           |       |                                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations                                      |       | —                                 |       | —                        |       | 126 |   | 5.3 |   | (107 | ) | (1.3 | ) | 507 |   | 6.0 |   |
| Recognition of  deferred gain on sale                               |       | —                                 |       | —                        |       | 967 |   | 12.0 |   | — |   | — |   |   |   |   |   |
| Gain (loss) on  sale                                                |       | (63                                    | )          | (2.9                          | )          | 85 |   | 3.6 |   | (1,226 | ) | (15.2 | ) | 13 |   | 0.2 |   |
| Income (loss)  from discontinued operations                         |       | (63                                    | )          | (2.9                          | )          | 211 |   | 8.9 |   | (366 | ) | (4.5 | ) | 520 |   | 6.2 |   |
| Net loss  applicable to common shares                               |       | $                                      | (2,882     | )                             | (132.4     | ) | $ | (402 | ) | (17.0 | ) | $ | (4,174 | ) | (51.6 | ) | $ | (4,839 | ) | (57.5 | ) |
| Preferred stock  dividends                                          |       | 232                                    |       | 10.7                          |       | 232 |   | 9.8 |   | 696 |   | 8.6 |   | 696 |   | 8.3 |   |
| Net loss  applicable to common shares                               |       | $                                      | (3,114     | )                             | (143.1     | ) | $ | (634 | ) | (26.8 | ) | $ | (4,870 | ) | (60.2 | ) | $ | (5,535 | ) | (65.7 | ) |
|                                                                |       |                                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |

 

 

Angeloand Maxie’s revenues are derived entirely from food and beverage sales.  Revenues decreased $188,000 or 8.0%, to $2.2million in the third quarter of 2004, compared to $2.4 million in the thirdquarter of 2003.  The decrease inrevenues is due primarily to the hurricanes experienced in the West Palm Beacharea.

 

                Revenuesdecreased $335,000, or 4.0%, to $8.1 million for the nine months endedSeptember 27, 2004, compared to $8.4 million for the nine months endedSeptember 29, 2003. The decrease in revenues is due in part to the severelycold weather 

 

 

8

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experienced in the New York area during thefirst half of the first quarter of 2004 and the hurricanes experienced in theWest Palm Beach area in the third quarter of 2004.

 

Cost of sales is composed of the cost of food andbeverages.  Cost of sales as a percentageof revenues increased by 2.6 percentage points to 39.8% in the third quarter of2004, compared with 37.2% in the third quarter of 2003.  This increase is primarily the result ofprice increases of certain beef and dairy products that occurred during thefourth quarter of 2003 and has continued into the third quarter of 2004. TheCompany expects that comparative trend to continue for the next quarter. Forthe nine months ended September 27, 2004, cost of sales as a percentage ofrevenues increased 2.3 percentage points to 38.2%, compared with 35.9% for thenine months ended September 29, 2003, driven primarily by the same factors thatimpacted the quarterly results.

 

Restaurant labor consists of restaurant managementsalaries, hourly staff payroll costs, and other payroll-related items.  Restaurant labor as a percentage of revenuesdecreased by 3.6 percentage points to 22.2% in the third quarter of 2004,compared with 25.8% in the third quarter of 2003.  This decrease is a result of reduced payrollduring the hurricanes when one of the restaurants was closed for business.  For the nine months ended September 27, 2004,restaurant labor as a percentage of revenues decreased  0.7 percentage points to 21.2%, compared with21.9% for the nine months ended September 29, 2003, primarily due to the samefactors that impacted the quarterly results.

 

Other operating costs consist primarily of variousrestaurant-level costs, which are generally variable and are expected tofluctuate with revenues.  Other operatingcosts as a percentage of restaurant revenues decreased by 1.5 percentage pointsto 26.5% in the third quarter of 2004, compared with 28.0% in the third quarterof 2003, primarily as a result of lower marketing costs. For the nine monthsended September 27, 2004, other operating costs as a percentage of revenuesincreased 1.3 percentage points to 20.8%, compared with 19.5% for the ninemonths ended September 29, 2003, primarily as a result of providing certainadditional services and amenities at one of the locations.

 

Rent includes both fixed and variable portions ofrent.  Rent as a percentage of revenuesincreased by 0.8 percentage points to 9.7% in the third quarter of 2004,compared with 8.9% in the third quarter of 2003, primarily as a result of lowerrevenues during the third quarter of 2004, thereby causing rent to comprise alarger percentage of revenues. For the nine months ended September 27, 2004,rent as a percentage of revenues increased by 0.3 percentage points to 8.6%,compared with 8.3% for the nine months ended September 29, 2003, primarily dueto lower revenues for the nine month period ending September 27, 2004, therebycausing rent to comprise a larger percentage of revenues.

 

General and administrative expenses are composed ofexpenses associated with corporate and administrative functions that supportrestaurant operations, including management and staff salaries, employeebenefits, travel, legal and professional fees, technology, and marketresearch.  General and administrativeexpenses increased $127,000 to $606,000 in the third quarter of 2004, comparedto $479,000 in the third quarter of 2003. The increase in quarterly periods is the result of the fixed generaloverhead costs being allocated entirely to two operating restaurants followingthe sale of the Chart House Business rather than being allocated both tocontinuing and discontinued operations. For the nine months ended September 27, 2004, general and administrativeexpenses decreased by $316,000 to $1,522,000, compared with $1,838,000 for thenine months ended September 29, 2003. The decrease is primarily the result of a reduction in the size of thecorporate management and staff that occurred during the fourth quarter of 2003and the first quarter of 2004.

 

Depreciation and amortization expense includes thedepreciation of fixed assets and the amortization of leasehold improvements atboth the restaurants and corporate locations. Depreciation and amortization decreased $111,000 to $14,000 in the thirdquarter of 2004, compared to $125,000 in the third quarter of 2003.  The decrease is due to the cessation ofdepreciation on the restaurant fixed assets and leasehold improvements inconnection with the assets being classified as held for sale during the thirdquarter of 2003 in accordance with FAS 144. . For the nine months ended September 27, 2004, depreciation and amortizationexpenses decreased by $310,000 to $69,000, compared with $379,000 for the ninemonths ended September 29, 2003, primarily due to the same factor that impactedthe quarterly results.

 

                During the third quarter of 2004 and the thirdquarter of 2003, the Company completed its required review by comparing itscarrying value for the Angelo and Maxie’s restaurant business to estimated fairmarket value. In determining the estimated fair market value of its assets,management considers several factors requiring the exercise of its businessjudgment.  Such business judgmentincludes developing valuation multiples such as the ratio of total capitalizedvalue to restaurant earnings before interest, taxes, depreciation andamortization for an industry peer group of publicly traded companies andapplying those ratios to the Company’s

historical and projectedoperating performance.  These continuedreviews resulted in the following during 2004 and 2003:

 

•                  As a result of executing a lease termination agreementat the West Palm Beach restaurant, the Company recorded a $2.3 millionimpairment charge during the third quarter of 2004.

 

 

9

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•                  Due to the pending sale of the then remaining tworestaurants in the second quarter 2004, the Company recorded a $797,000provision for loss relating to the sale and a $149,000 provision for loss oncorporate fixed assets.

 

•                  In the second quarter of 2003, such evaluationindicated that the recorded value of the Angelo and Maxie’s trade name wasimpaired by $4.3 million. In addition, the Company’s lease on its Chicagocorporate headquarters expired and the Company relocated to a spacecommensurate with its current needs. In connection therewith, the Companyrecorded a $0.1 million restructuring charge during the second quarter of 2003resulting from the Company receiving lower than anticipated proceeds from thesale and disposal of its furniture and equipment located at the vacatedfacility.

 

Net interest expense decreased to $20,000 in the thirdquarter of 2004 compared to $30,000 in the third quarter of 2003.  The current quarter interest expense includesnon-cash interest expense related to a capital lease (see discussion of otherincome in the following paragraph), offset by interest income earned on theCompany’s outstanding investable cash.  For the nine months ended September 27, 2004, net interest expensedecreased by $17,000 to $65,000, compared with $82,000 for the nine monthsended September 29, 2003. This decrease is primarily due to the prior ninemonth period including interest expense related to an outstanding term loanthat was retired at the beginning of the second quarter of 2003.

 

Otherincome remained flat at $18,000 in the third quarter of 2004, compared to thethird quarter of 2003 in addition, other income remained flat at $120,000 forthe nine months ended September 27, 2004, compared to the nine months endedSeptember 29, 2003.  The Company iscommitted to a capital lease at a location it has subleased to a third party.This capital lease is reported on the balance sheet in accordance withStatement of Financial Accounting Standards No. 13, “Accounting for Leases,”and non-cash reductions to the liability are reflected in other income.

 

Incomefrom discontinued operations decreased by $233,000 in the third quarter of2004, compared to the third quarter of 2003. The decrease is due to the following factors:

 

•                  The recognition of anadditional $17,000 loss on the sale of the Chart House Business. See Part I,Item 1, Note 3 “Sale of the Chart House Business.”

 

•                  A $204,000 decrease inincome from operations of the three steakhouses sold on January 7, 2004. SeePart I, Item 1, Note 2 “Sale of the Angelo and Maxie’s Brand and RelatedOperating Assets.” This decrease was due to the sale of the steakhouses in thefirst quarter of 2004.

 

Income from discontinuedoperations decreased $840,000 for the nine months ended September 27, 2004,compared to the nine months ended September 29, 2003. The decrease is due tothe following factors:

 

•                  The recognition of anadditional $1.2 million loss on the sale of the Chart House Business. See PartI, Item 1, Note 3

“Saleof the Chart House Business.”

 

•                  The recognition of a$967,000 deferred gain on the sale of previously disposed restaurants. See PartI, Item 1, Note 6 “Commitments and Contingencies.”

 

•                  A $614,000 decrease inincome from operations of the three steakhouses sold on January 7, 2004. SeePart I, Item 1, Note 2 “Sale of the Angelo and Maxie’s Brand and RelatedOperating Assets.” This decrease was due to the sale of the steakhouses in thefirst quarter of 2004

 

The Company issued Series Aconvertible preferred stock, par value $1.00 per share (“Series A PreferredStock”), during June 2001.  The Series APreferred Stock is entitled to dividends at the rate of 10.0% per annum, basedon the original issue price of $2.25 per share. The Company accrued dividends on the Series A Preferred Stockaggregating $0.2 million during each of the third quarters of 2004 and 2003.

 

 

10

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**LIQUIDITY AND CAPITAL RESOURCES**

** **
| *** ***                                | ** ** | **Nine month periods ended**          | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                  | ** ** | **September 27, 2004**                | ** ** | **September 29, 2003** | ** ** |
|                                        |       | **(Unaudited, dollars in thousands)** |       |
| Net cash used in operating activities       |       | $                                     | (2,831     | ) | $ | (944 | ) |
| Expenditures for equipment and imrpovements |       | (9                                    | )          | (80 | ) |
| Proceeds from sale of restaurant assets     |       | 5,594                                 |       | 15 |   |
| Cash used in financing activities           |       | (165                                  | )          | (912 | ) |
| Net increase (decrease) in cash             |       | $                                     | 2,589      |   | $ | (1,921 | ) |
|                                        |       |                                  |       |   |   |

 

 

                TheCompany had $7,140,000 in cash for general corporate purposes at September 27,2004. The Company believes that this remaining cash balance, together with netcash provided by the continuing operating activities of its remaining twosteakhouses will be sufficient to fund its operating expenses untildissolution.  No assurances can be giventhat the dissolution will occur.

 

Historically, the Companyrequired significant capital principally for the construction and openingexpenses for new restaurants and for the remodeling and refurbishing ofexisting restaurants.  The Company hasfunded its capital requirements through debt financing, both with third partybanks and related parties, tenant improvement monies, equity financing, andcash flows from operations.  The Companydoes not intend to fund any new restaurants or incur any major remodeling orrefurbishing costs during fiscal 2004.

 

Net cash used in operatingactivities was $2,831,000 in the first nine months of 2004, compared to netcash used in operating activities of $944,000 in the first nine months of2003.  In 2004, net cash used inoperating activities includes an aggregate $1.0 million related to payment of2003 performance and stay bonuses and accrued vacation for the employeesterminated in conjunction with the sale of three of the Company’s steakhouses,severance payments related to employees terminated in conjunction with the saleof the Chart House Business, and settlement of prior period insuranceclaims.   In 2003, net cash used inoperating activities included an aggregate $0.8 million related to payment of2002 bonuses, severance payments related to employees terminated in conjunctionwith the sale of the Chart House Business, and settlement of prior periodinsurance claims.

 

 Net cash provided by investing activities inthe first nine months of 2004 included capital expenditures of $9,000 and thereceipt of $5,594,000 in net proceeds from the sale of three of the Company’ssteakhouses.  Net cash used in investingactivities in the first nine months of 2003 included capital expenditures of$80,000.

 

Net cash used in financingactivities was $165,000 in the first nine months of 2004, primarily related toreduction of restricted cash for letters of credit related to a guarantee onone of the Company’s then-existing five steakhouses offset by non-cashreductions to a capital lease on a restaurant property that the Company hassubleased to a third party. Preferred dividends of $464,000 were paid in thesecond quarter of 2004. Net cash used in financing activities was $912,000 in thefirst nine months of 2003, including $500,000 used to settle the payment ofboth scheduled payments and the early retirement and payoff of the landlordnotes as well as scheduled non-cash reductions to the capital lease on thesubleased restaurant property. There were no pre-payment fees or penaltiesassociated with the early retirement of the landlord note obligations.  Preferred dividends of $464,000 were paid inthe second quarter of 2003.

 

The Series A Preferred Stockis entitled to dividends at the rate of 10.0% per annum, based on the originalprice of $2.25 per share.  Dividends arepayable semiannually on June 1 and December 1. Dividends paid through June 1, 2002 were in the form of additionalshares of Series A Preferred Stock, in part, because the Company’s creditagreement prohibited the payment of cash dividends.  Subsequent to the retirement of amounts owingunder the credit agreement, the Company began paying these dividends in cash.  The Company expects to satisfy futuredividend obligations in cash.

 

The Company was liable undervarious capital and operating lease agreements, primarily related to restaurantlocations.   The Company is alsocontingently liable under letters of credit, primarily related to leasing obligationsand self-insurance reserves, and guarantees on various third party leasing anddebt agreements.  A $325,000 letter ofcredit related to one of three restaurants sold in January to McCormick &Schmicks Restaurant Corporation was terminated. No other material changes haveoccurred regarding these commitments and contingencies from the Company’s priorfiscal year ended December 29, 2003.

 

 

11

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**CRITICALACCOUNTING POLICIES**

 

Acritical accounting policy is one that would materially affect the Company’soperations or financial condition, and requires management to make estimates orjudgments in certain circumstances.  Setforth below is a description of those accounting policies which the Companybelieves are most critical and could have the greatest impact on its operationsor financial condition.

 

**Impairment of Assets.**  The Company adopted Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets” and FAS144, which require, among other things, that effective January 1, 2002,goodwill resulting from a business combination accounted for as a purchase nolonger be amortized, but be subject to ongoing impairment review.  On an ongoing basis, the Company reviews itscarrying value of restaurant assets and compares them with fair marketvalue.  In determining the fair marketvalue of its assets, management considers several factors requiring theexercise of its business judgment.  Suchbusiness judgment includes developing valuation multiples, such as the ratio oftotal capitalized value to restaurant earnings before interest, taxes,depreciation, and amortization for an industry peer group of publicly tradedcompanies, and applying those multiples to the Company’s historical andprojected operating performance.   Ifmanagement determines that the fair market value of its assets is materiallybelow the current carrying cost of the assets, an impairment charge isrecognized in operating income in the period the impairment is identified.

 

**Cost Capitalization and Depreciation Policies.**  Costs for maintenance, repairs, and purchasesare either expensed as incurred or capitalized and amortized over the cost’sestimated useful life.  This requiresmanagement to make business judgments regarding which costs should becapitalized and, if capitalized, the estimated useful life.  Management has established the Company’s costcapitalization and depreciation policies based on historical experience in therestaurant industry, industry guidelines regarding useful lives, and adherenceto 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 recordedfor financial reporting purposes using the straight-line method over theestimated useful lives of the assets. Equipment is depreciated over lives ranging from three to eight years.  Leasehold interests and improvements areamortized over the shorter of the lease term, including planned extensions, orthe asset life, ranging up to 25 years.

 

**Self-Insurance Liability.**  The Company was self-insured through October2002 for its workers’ compensation and general liability insurance programs,and continues to be self-insured for its employee health insuranceprogram.  The Company maintains stop-losscoverage with third party insurers to limit its total exposure.  The accrued liability associated with theseprograms is based on management’s estimate of the ultimate costs to be incurredto settle known claims and claims incurred, but not reported, as of the balancesheet date.  Our estimated liability isnot discounted and is based on a number of assumptions and factors, includinghistorical trends, actuarial assumptions, and economic conditions.  If actual trends differ from our estimates,our financial results could be impacted.

 

**SEASONALITY**

 

The Company’s business is seasonal in nature, with revenues andoperating income for the first and fourth quarters greater than in the secondand third quarters as the Company benefits from urban, holiday, and wintervacation dining which is greater than the benefits associated with diningduring 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 ratesearned on cash equivalents and changes in commodity prices.   The impact on the Company’s results ofoperations of a one-point market rate change on its cash equivalent balance asof September 27, 2004, would not be material. The Company does not use derivative instruments to manage borrowingcosts, reduce exposure to adverse fluctuations in the interest rate, nor fortrading purposes.

 

The Company purchases certain commodities such as beef, seafood,chicken, and cooking oil. These commodities are generally purchased based uponpurchase agreements or arrangements with vendors.  These purchase agreements or arrangements maycontain features that fix the commodity price or define the price from anagreed upon formula.  The Company doesnot use financial instruments to hedge commodity prices because these purchasearrangements help control the ultimate cost paid for any commodity pricefluctuations, have no minimum purchase requirements, and are generally shortterm in nature.

 

 

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**ITEM 4.CONTROLS AND PROCEDURES**

 

Asof September 27, 2004, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s President and ChiefExecutive Officer and the Company’s Chief Financial Officer, of theeffectiveness of the Company’s disclosure controls and procedures pursuant toRule 13a-15 of the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Company’sPresident and Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company (including itsconsolidated subsidiaries) required to be disclosed by the Company in itsperiodic Exchange Act reports.  Therewere no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof the evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 

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**PART II - OTHER INFORMATION**

 

**ITEM 1.  LEGALPROCEEDINGS.**

 

The Company periodically is a defendant in litigation incidental to itsbusiness activities. While any litigation or investigation has an element ofuncertainty, the Company believes that the outcome of any of these matters willnot have a material adverse effect on its financial condition or operations.

 

**ITEM 2.  CHANGES INSECURITIES AND USE OF PROCEEDS.**

 

**               **None.

 

**ITEM 3.  DEFAULTS UPONSENIOR SECURITIES.**

 

**               **None.

 

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

 

A special meeting of the stockholders of theCompany was held on September 10, 2004. Proxies for the meeting were solicited pursuant to Section 14(a) of theSecurities Exchange Act of 1934 and Regulation 14A thereunder for the purposeof (i) approving and adopting the asset purchase agreement related to the saleof the Company’s two remaining restaurants located in New York, New York andWest Palm Beach, Florida, (ii) approving the dissolution of the Company and theadoption of the Plan of Dissolution of the Company, (iii) approving anamendment to the Company’s Restated Certificate of Incorporation, as amended,to change the Company’s corporate name form “Angelo and Maxie’s, Inc.” to “AM-CH,Inc.”, and (iv) electing three directors. All matters were approved at the meeting.

 

                Therewas no solicitation in opposition to management’s nominees for directors.

 

                Eachstockholder is entitled to one vote for each share of Common Stock and one votefor each six shares of Preferred Stock held. The tables below summarize the results of the stockholder vote:

 
| ** **                                          | ** ** | **Number of shares** | ** ** | **Percentage** | ** ** | **Representing number of votes** | ** ** | **Percentage** | ** ** |
|-----------------------------------------------------|------------|---------------------------|------------|----------------|------------|--------------------------------------------|------------|----------------|------------|
| Shares outstanding and entitled to vote             |       | 6,139,867                 |       | 100.0          |       | 2,693,978                                  |       | 100.0          |       |
| Shares represented in person or by proxy at meeting |       | 6,037,524                 |       | 98.3           |       | 2,600,019                                  |       | 96.5           |       |
| Shares not voted at meeting                         |       | 102,343                   |       | 1.7            |       | 93,960                                     |       | 3.5            |       |

 
| ** **                                                                                                  | ** ** | **Votes for** | ** ** | **Votes against/withheld** | ** ** | **Votes abstained/broker non-votes** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------------------|------------|--------------------------------------|------------|
| Proposal I (approve and adopt the asset purchase agreement):                                           |       | 1,598,106     |       | 19,639                     |       | 982,273                              |       |
| Proposal II (approve the dissolution of the Company and adopt  the plan of dissolution of the Company) |       | 1,598,061     |       | 19,790                     |       | 982,167                              |       |
| Proposal III (change corporate name to AM-CH, Inc.)                                                         |       | 2,580,353     |       | 19,307                     |       | 358                                  |       |
| Proposal IV (Election of Directors)                                                                         |       |          |       |                       |       |                                 |       |
| Linda Walker Bynoe                                                                                          |       | 2,581,536     |       | 18,482                     |       |                                 |       |
| Jeffrey D. Klein                                                                                            |       | 2,580,536     |       | 19,482                     |       |                                 |       |
| Stephen Ottmann                                                                                             |       | 2,580,536     |       | 18,482                     |       |                                 |       |

 

 

**ITEM 5.      OTHERINFORMATION.**

 

None.

 

**ITEM 6.      EXHIBITS.**

 

 

 

14

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| (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)                                                                                                                                      |
| 10.1   |   | Asset Purchase Agreement  dated as of June 22, 2004 by and among CH-AM Acquisition, Inc. the Company,  A&M Acquisitions, LLC and the other parties named therein. (5)                |
| 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.                                 |

 

 

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(1)          Filed as an exhibit to theCompany’s Registration Statement on Form S-1 dated August 27, 1987, oramendments thereto dated October 6, 1987 and October 14, 1987 (Registration No.33-16795) and incorporated herein by reference.

(2)          Filed as an exhibit to theCompany’s Registration Statement on Form S-1 dated July 20, 1989, or amendmentthereto dated August 25, 1989 (Registration No. 33-30089) and incorporatedherein by reference.

(3)          Filed as an exhibit tothe Company’s Registration Statement on Form S-2 dated March 27, 2001, oramendments thereto dated May 15, 2001, May 25, 2001, and May 31, 2001(Registration No. 333-57674) and incorporated herein by reference.

(4)          Filed as an exhibit tothe Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2002,dated August 15, 2002 and incorporated herein by reference.

(5)          Filed asAppendix A to the Company’s Schedule 14A dated August 11, 2004 and incorporatedherein by reference

 

 

15

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**SIGNATURES**

 

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

 

 
|                    |   | ANGELO  AND MAXIE’S, INC.                |
|-------------------------|--------|-----------------------------------------------|
|                    |   |                                          |
| Date: November 12, 2004 | By:    | /s/ KENNETH R. POSNER                         |
|                    |   | Kenneth R. Posner                             |
|                    |   | President and Chief  Executive Officer        |
|                    |   | (principal executive  officer)                |
|                    |   |                                          |
|                    |   |                                          |
| Date: November 12, 2004 | By:    | /s/ GREG GROSVENOR                            |
|                    |   | Greg Grosvenor                                |
|                    |   | Chief Financial Officer                       |
|                    |   | (principal financial and  accounting officer) |
|                    |   |                                          |

 

 

16

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