**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  June 28, 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**

 

**ANGELO ANDMAXIE’S, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

**2 North Riverside, Seventh Floor, Chicago, IL60606**

(Address of principal executive offices,including zip code)

 

**(312) 466-3966**

(Registrant’s telephone number, includingarea code)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter periods that theregistrant was required to file such reports), and (2) has been subject to suchfiling 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’sclasses of common stock, as of August 12, 2004:

 

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

 

 

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**PART I - FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

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

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands, except share data)**

 
|                                                                                                                                                                                |   | **June 28,  2004** |   | **December 29,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                |   | **(Unaudited)**         |   |                        |   |
| **ASSETS**                                                                                                                                                                          |   |                    |   |                        |   |
| Current assets:                                                                                                                                                                     |   |                    |   |                        |   |
| Cash and cash equivalents                                                                                                                                                           |   | $                       | 8,017  |                        | $      | 4,551 |   |
| Accounts receivable, net                                                                                                                                                            |   | 192                     |   | 600                         |   |
| Inventories                                                                                                                                                                         |   | 137                     |   | 370                         |   |
| Prepaid expenses and other current assets                                                                                                                                           |   | 663                     |   | 1,024                       |   |
| Total current assets                                                                                                                                                                |   | 9,009                   |   | 6,545                       |   |
| Equipment and improvements (held for sale,  see Note 2):                                                                                                                            |   |                    |   |                        |   |
| Equipment                                                                                                                                                                           |   | 1,430                   |   | 3,830                       |   |
| Leasehold interests and improvements                                                                                                                                                |   | 2,944                   |   | 8,422                       |   |
|                                                                                                                                                                                |   | 4,374                   |   | 12,252                      |   |
| Less: Accumulated depreciation and  amortization                                                                                                                                    |   | 1,440                   |   | 3,340                       |   |
| Equipment and improvements, net                                                                                                                                                     |   | 2,934                   |   | 8,912                       |   |
| Other non-current assets:                                                                                                                                                           |   |                    |   |                        |   |
| Restricted cash                                                                                                                                                                     |   | 2,302                   |   | 2,627                       |   |
| Leased property under capital leases, net                                                                                                                                           |   | 1,047                   |   | 1,077                       |   |
| Intangibles, net (held for sale, see Note  2)                                                                                                                                       |   | 1,558                   |   | 2,370                       |   |
| Other non-current assets                                                                                                                                                            |   | 112                     |   | 497                         |   |
| Total other non-current assets                                                                                                                                                      |   | 5,019                   |   | 6,571                       |   |
| Total assets                                                                                                                                                                        |   | 16,962                  |   | 22,028                      |   |
|                                                                                                                                                                                |   |                    |   |                        |   |
| **LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                      |   |                    |   |                        |   |
| Current liabilities:                                                                                                                                                                |   |                    |   |                        |   |
| Current portion of non-current liabilities                                                                                                                                          |   | 32                      |   | 30                          |   |
| Accounts payable                                                                                                                                                                    |   | 882                     |   | 1,289                       |   |
| Accrued liabilities                                                                                                                                                                 |   | 1,585                   |   | 2,859                       |   |
| Deferred gain                                                                                                                                                                       |   | —                  |   | 967                         |   |
| Total current liabilities                                                                                                                                                           |   | 2,499                   |   | 5,145                       |   |
| Non-current liabilities (excluding current  portion):                                                                                                                               |   |                    |   |                        |   |
| Long-term portion of capital lease  obligation                                                                                                                                      |   | 1,828                   |   | 1,848                       |   |
| Other long-term obligations                                                                                                                                                         |   | 97                      |   | 752                         |   |
| Total non-current liabilities (excluding  current portion)                                                                                                                          |   | 1,925                   |   | 2,600                       |   |
| Stockholders’ equity:                                                                                                                                                          |   |                    |   |                        |   |
| Preferred stock, $1.00 par value,  10,000,000 shares authorized; 4,134,736 shares issued and outstanding at  June 28, 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  June 28, 2004 and December 29, 2003, respectively |   | 20                      |   | 20                          |   |
| Additional paid-in capital                                                                                                                                                          |   | 65,460                  |   | 65,451                      |   |
| Retained deficit                                                                                                                                                                    |   | (57,077                 | )      | (55,323                     | )      |
| Total stockholders’ equity                                                                                                                                                     |   | 12,538                  |   | 14,283                      |   |
| Total liabilities and stockholders’ equity                                                                                                                                     |   | $                       | 16,962 |                        | $      | 22,028 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

1

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

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

**(Unaudited)**

 
|                                                 |   | **Quarterly  periods ended** |   | **Six month  periods ended** |   |
|------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                 |   | **June 28,  2004**      |   | **June 30,  2003**      |   | **June 28,  2004** |   | **June 30,  2003** |   |
|                                                 |   |                         |   |                         |   |   |   |   |   |
| Revenues                                             |   | $                            | 2,865  |                         | $      | 2,777 |   | $ | 5,910 |   | $ | 6,057 |   |
| Operating costs and expenses:                        |   |                         |   |                         |   |   |   |   |   |
| Cost of sales                                        |   | 1,089                        |   | 986                          |   | 2,224 |   | 2,146 |   |
| Restaurant labor                                     |   | 600                          |   | 566                          |   | 1,227 |   | 1,237 |   |
| Other operating costs                                |   | 489                          |   | 506                          |   | 1,101 |   | 978 |   |
| Rent                                                 |   | 244                          |   | 244                          |   | 487 |   | 486 |   |
| Total restaurant costs                               |   | 2,422                        |   | 2,302                        |   | 5,039 |   | 4,847 |   |
| General and administrative expenses                  |   | 450                          |   | 691                          |   | 916 |   | 1,359 |   |
| Depreciation and amortization                        |   | 27                           |   | 113                          |   | 55 |   | 254 |   |
| Impairment of assets and restructuring  charges      |   | 946                          |   | 4,413                        |   | 946 |   | 4,413 |   |
| (Gain) loss on disposal of assets                    |   | —                       |   | (2                           | )      | — |   | 9 |   |
| Total restaurant and operating costs                 |   | 3,845                        |   | 7,517                        |   | 6,956 |   | 10,882 |   |
| Loss from operations                                 |   | (980                         | )      | (4,740                       | )      | (1,046 | ) | (4,825 | ) |
| Interest expense, net                                |   | 22                           |   | 22                           |   | 45 |   | 52 |   |
| Other income                                         |   | (51                          | )      | (51                          | )      | (102 | ) | (102 | ) |
| Loss from continuing operations before  income taxes |   | (951                         | )      | (4,711                       | )      | (989 | ) | (4,775 | ) |
| Provision for income taxes                           |   | —                       |   | —                       |   | — |   | — |   |
| Loss from continuing operations                      |   | (951                         | )      | (4,711                       | )      | (989 | ) | (4,775 | ) |
| Discontinued operations:                             |   |                         |   |                         |   |   |   |   |   |
| Income (loss) from operations                        |   | —                       |   | 204                          |   | (107 | ) | 325 |   |
| Gain (loss) on sale                                  |   | (910                         | )      | 13                           |   | (1,163 | ) | 13 |   |
| Recognition of deferred gain on sale                 |   | —                       |   | —                       |   | 967 |   | — |   |
| Income (loss) from discontinued operations           |   | (910                         | )      | 217                          |   | (303 | ) | 338 |   |
| Net loss                                             |   | $                            | (1,861 | )                            | $      | (4,494 | ) | $ | (1,292 | ) | $ | (4,437 | ) |
| Preferred dividends                                  |   | 232                          |   | 232                          |   | 464 |   | 464 |   |
| Net loss applicable to common shares                 |   | $                            | (2,093 | )                            | $      | (4,726 | ) | $ | (1,756 | ) | $ | (4,901 | ) |
|                                                 |   |                         |   |                         |   |   |   |   |   |   |
| Net loss per common share - Basic and  diluted:      |   |                         |   |                         |   |   |   |   |   |
| Continuing operations                                |   | $                            | (0.59  | )                            | $      | (2.48 | ) | $ | (0.73 | ) | $ | (2.63 | ) |
| Discontinued operations                              |   | (0.45                        | )      | 0.11                         |   | (0.15 | ) | 0.17 |   |
|                                                 |   | $                            | (1.04  | )                            | $      | (2.37 | ) | $ | (0.88 | ) | $ | (2.46 | ) |
|                                                 |   |                         |   |                         |   |   |   |   |   |
| Weighted-average shares outstanding                  |   | 2,005                        |   | 1,993                        |   | 2,004 |   | 1,991 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Inthousands, unaudited)**

 
|                                                                                                  |   | **Six month  periods ended** |     |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                                  |   | **June 28,  2004**      |     | **June 30,  2003** |   |
| Cash flows from operating activities:                                                                 |   |                         | * * |   | * * |
| Net income (loss)                                                                                     |   | $                            | (1,292   | ) | $ | (4,437 | ) |
| Adjustments to reconcile net income (loss)  to cash flows (used in) provided by operating activities: |   |                         |     |   |   |
| Depreciation and amortization                                                                         |   | 55                           |     | 614 |   |
| Loss on disposal of assets                                                                            |   | —                       |     | 9 |   |
| Loss provision for impairment of assets and  restruction charges                                      |   | 946                          |     | 4,399 |   |
| Common stock issued in lieu of compensation                                                           |   | 9                            |     | 18 |   |
| Recognition of deferred gain on sale                                                                  |   | (967                         | )        | — |   |
| Changes in working capital:                                                                           |   |                         |     |   |   |
| Decrease in accounts receivable                                                                       |   | 408                          |     | 22 |   |
| Decrease in inventories                                                                               |   | 233                          |     | 34 |   |
| Decrease in prepaid expenses and other  current assets                                                |   | 361                          |     | 266 |   |
| Decrease in assets held for disposal                                                                  |   | —                       |     | — |   |
| Decrease in other non-current assets                                                                  |   | 385                          |     | 8 |   |
| Decrease in accounts payable                                                                          |   | (407                         | )        | (519 | ) |
| Decrease in accrued liabilities                                                                       |   | (1,042                       | )        | (628 | ) |
| Decrease in liabilities of discontinued  operations                                                   |   | —                       |     | (170 | ) |
| Decrease in other non-current obligations  (excluding current portion)                                |   | (655                         | )        | (116 | ) |
| Cash used in operating activities                                                                     |   | (1,966                       | )        | (500 | ) |
| Cash flows from investing activities:                                                                 |   |                         |     |   |   |
| Expenditures for equipment and improvements                                                           |   | (5                           | )        | (27 | ) |
| Proceeds from sale of restaurant assets                                                               |   | 5,594                        |     | — |   |
| Cash provided by (used in) investing  activities                                                      |   | 5,589                        |     | (27 | ) |
| Cash flows from financing activities:                                                                 |   |                         |     |   |   |
| Restricted cash for letters of credit                                                                 |   | 325                          |     | — |   |
| Preferred dividends                                                                                   |   | (464                         | )        | (464 | ) |
| Payments on landloard notes                                                                           |   | —                       |     | (501 | ) |
| Reduction of obligations under capital  leases                                                        |   | (18                          | )        | (15 | ) |
| Cash used in financing activities                                                                     |   | (157                         | )        | (980 | ) |
| Increase (Decrease) in cash                                                                           |   | 3,466                        |     | (1,507 | ) |
| Cash and cash equivalents, beginning of  period                                                       |   | 4,551                        |     | 7,651 |   |
| Cash and cash equivalents, end of period                                                              |   | $                            | 8,017    |   | $ | 6,144 |   |

 

The accompanying notes are an integral partof these consolidated financial statements

 

3

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

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**June 28,2004**

**(Unaudited)**

 

**(1)****                                 BASISOF PRESENTATION**

 

Theaccompanying consolidated financial statements of Angelo and Maxie’s, Inc. andits wholly-owned subsidiaries (the “Company”) for the quarterly periods endedJune 28, 2004 and June 30, 2003,and the six months periods endedJune 28, 2004 and June 30, 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 a sale of three of its then-existing fivesteakhouses on January 7, 2004 and its Board of Directors approved aproposal in September 2003 to sell its remaining two steakhouses andrelated intellectual property.  See Note2 “Sale of the Angelo and Maxie’s Brand and Related Operating 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 of the Chart House Business.”  Theoperations of the sold restaurants have been presented as discontinuedoperations for the quarterly periods ended June 28, 2004 and June 30,2003 and the six month periods ended June 28, 2004 and June 30, 2003,and the Company has reclassified its Consolidated Statements of Operations forthe periods then ended in accordance with Statement of Financial AccountingStandards No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets” (“FAS 144”).  In connection withthe proposed sale of its remaining two steakhouses and related intellectualproperty, the assets of the two remaining Angelo and Maxie’s restaurants areconsidered to be held for sale in accordance with FAS 144.  However, the operations of the remaining twoAngelo and Maxie’s restaurants are not presented as discontinued on theaccompanying Statements of Operations because the Company believes such apresentation would not be meaningful to the reader.

 

The preparation of financial statements in conformity with generallyaccepted accounting principles in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesas of the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.

 

Certain information and footnote disclosures normally included infinancial statements in accordance with generally accepted accountingprinciples in the United States of America have been omitted pursuant torequirements of the Securities and Exchange Commission.  Management believes that the disclosuresincluded in the accompanying interim financial statements and footnotes areadequate, but should be read in conjunction with the consolidated financialstatements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 29, 2003.

 

Certain prior period balances have been reclassified to conform to thecurrent period presentation.

 

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

 

On October 31, 2003, the Company entered into a definitiveagreement to sell three of its then-existing five steakhouses located inMidtown Manhattan, New York, Reston, Virginia, and Washington, D.C to McCormickand Schmick Restaurant Corp. (“M&S”) for $5.35 million in cash, subject tocertain adjustments for current assets and liabilities.  The transaction closed on January 7,2004 and M&S has since converted all three steakhouses to anotherrestaurant concept.

 

In September 2003, the Board of Directors approved a proposal tosell the Company’s remaining two steakhouses and certain Angelo and Maxie’sintellectual property.  Angelo andMaxie’s executed a definitive agreement with A & M Acquisitions, LLC onJune 22, 2004, for the sale of its remaining two steakhouses located onPark Avenue in New York City and in West Palm Beach, Florida, including all therights to the name “Angelo and Maxie’s.” The agreement provides, among otherthings, that the Company is to receive $4.5 million in cash in connection withthe sale, subject to certain adjustments for current assets and currentliabilities. The

 

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Company’s name will be changed on account of the sale of the rights tosuch name. The closing of the sale is subject to a number of conditions and isexpected to occur in September 2004. No assurances can be given that this sale will be consummated.

 

In connection with the proposed sale of the remaining two steakhousesand related intellectual property, the assets of the remaining two Angelo andMaxie’s restaurants are considered to be held for sale in accordance with FAS144.  However, the operations of theremaining two Angelo and Maxie’s restaurants are not presented as discontinuedon the accompanying Statements of Operations because the Company believes sucha presentation would not be meaningful to the reader.

 

Condensed financialinformation for the three locations sold on January 7, 2004 and presentedas discontinued operations for the six month periods ended June 28, 2004and June 30, 2003 is as follows (in thousands):

 
|                                       |   | **Six month  period ended  June 28, 2004** |   | **Six month  period ended  June 30, 2003** |   |
|--------------------------------------------|--------|-------------------------------------------------|--------|-------------------------------------------------|--------|
|                                       |   |                                            |   |                                            |   |
| Revenues                                   |   | $                                               | 258    |                                            | $      | 7,166 |   |
| Total restaurant costs                     |   | 365                                             |   | 6,481                                           |   |
| Depreciation and amortization              |   | —                                          |   | 360                                             |   |
| (Loss) income from discontinued operations |   | $                                               | (107   | )                                               | $      | 325 |   |

 

**(3)****                                ****SALE OF THE CHART HOUSEBUSINESS**

 

In May 2002, the Board of Directors of the Company authorized the saleof the Chart House Business.  The salewas completed as of July 30, 2002, for consideration of approximately$55.3 million, consisting of cash and the assumption of approximately $3.1million of certain current liabilities. The Company recorded a provision for an estimated loss on sale ofdiscontinued operations of $3.7 million in the second quarter of 2002, whichwas revised to $2.4 million in the third quarter of 2002, primarily as a resultof the elimination of net liabilities to landlords following the receipt of thelandlords’ consent to assign certain leases to the purchaser.  In the first quarter of 2004, the Companyfurther adjusted its liabilities associated with the sale resulting in therecognition of an additional $0.3 million loss on the sale.  The Company had previously taken legalaction against the buyer of the Chart House Business.  The Company now has reached a settlement with the buyer resultingin an additional $910,000 provision for loss, which is included in discontinuedoperations. See Note 6 “Commitments and Contingencies” for further discussion.

 

**(4)****                                 DEBT**

 

During 2000, the Company entered into twonote agreements with one landlord for an aggregate amount of $0.7 million.  The notes amortized over seven year terms,bore interest at 9.0%, and were payable in monthly installments.  The Company made scheduled principalpayments on these notes totaling $23,000 during the first quarter of 2003.  Interest expense and cash paid for interestrelated to these notes amounted to $11,000 for the first quarter of 2003.  During the second quarter of2003, the Company prepaid, without penalty, the remaining balances on the twonotes.

 

**(5)****                                 RELATEDPARTY TRANSACTIONS**

 

During the first six months of 2004 and 2003, the Company recognized$125,000 of fees for financial advisory services provided to the Company by arelated party.

 

Payments to related parties for rent at one restaurant totaled $4,000and $204,000 in the first six months of 2004 and 2003, respectively.  Future rent liability with respect to thislocation was transferred to M&S on January 7, 2004 in connection withthe consummation of the sale of three of the Company’s then-existing fivesteakhouses as of that date.  See Note 2“Sale of the Angelo and Maxie’s Brand and Related Operating Assets”.

 

On December 11, 2003, the Company’s President and Chief ExecutiveOfficer became a full-time employee of Rewards Network, Inc. (“RNI”).  In connection with this change, the Companyentered into an agreement with RNI whereby services provided to the Company bythe Company’s President and Chief Executive Officer are billed to the Companyby RNI based on an agreed upon hourly rate. The Company made payments totaling $5,000 during the second quarter of2004 and $12,000 for the first six months of 2004 pursuant to this agreement.

 

5

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On June 26, 2003, the Company entered into an operating lease foroffice space with a related party.  Thisagreement provides, among other things, that the landlord provide office spacefor the Company’s corporate employees and certain office services.  This agreement is terminable by either partywith a thirty day notice.  The Companymade payments totaling $8,000 pursuant to this agreement during the secondquarter of 2004 and $26,000 for the first six months of 2004.

 

The relationships described above stem from one or more Companystockholders and/or members of the Company’s Board of Directors maintainingownership interest in and influential management positions at or with theserelated parties’ organizations.

 

**(6)****                                 COMMITMENTSAND CONTINGENCIES**

 

The Company periodically is a defendant in litigation incidental to itsbusiness activities.  While anylitigation or investigation has an element of uncertainty, the Company believesthat the outcome of any of these matters will not have a material adverseeffect on its financial condition or operations.

 

In connection with a 1997 sale of previously operated restaurants, theCompany agreed to guarantee up to $4.0 million of the buyer’s note obligationto its lender through January 2004. Subsequent to the release of this guarantee during the first quarter of2004, the Company recognized a $1.0 million deferred gain on the sale of theserestaurants.  This sale was notconnected to the sale of the Chart House Business or the sale of three of theCompany’s then-existing five steakhouses to M & S.

 

The Company maintains letters of credit primarily to coverself-insurance reserves and lease obligations. In connection with the sale of the Chart House Business, and in order tominimize costs associated with outstanding letters of credit, the Companyestablished a cash collateral account equal to the full balance of itsobligations under outstanding letters of credit, which totaled $2.3 million atJune 28, 2004.  Such funds arepresented on the consolidated balance sheets as restricted cash, a non-currentasset.

 

The Company was contingently liable, in certain circumstances, forlease obligations 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 fromLandry’s Restaurant’s, Inc. (“Landry’s”) with respect to 19 of theseproperties. On July 30, 2004, the Company reached a settlement withLandry’s on all pending litigation matters, including a default by a subsidiaryof Landry’s under of one of the Chart House leases.  In addition, the Company received an unconditional andirrevocable guarantee from Landry’s for the full and timely payment andperformance of all the leases included in the sale of the Chart House Businessto Landry’s. With respect to the property not covered by the Landry’sguarantee, the Company holds a standby letter of credit from the sublessee ofthis property equaling one year’s rent on the property.

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.**

 

*This Quarterly Report on Form 10-Q and the documents incorporatedherein by reference contain forward-looking statements that have been madepursuant to provisions of the Private Securities Litigation Reform Act of1995.  Forward-looking statementsrepresent 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 cashbalances, and cash generated from operating, financing and/or investingactivities for the Company’s future liquidity and capital resource needs.  Without limiting the foregoing, the words“believes,” “intends,” “projects,” “plans,” “expects,” “anticipates,” andsimilar expressions 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.*

 

**OVERVIEW**

 

The Company consummated a sale of three of its then-existing fivesteakhouses on January 7, 2004 and executed a definitive agreement on June 22,2004 to sell its remaining two steakhouses and related intellectualproperty.  See Note 2 “Sale of theAngelo and Maxie’s Brand and Related Assets.” The Company also consummated a sale of 39 of its then-existing 45restaurants (“the Chart House Business”) to a third party as of July 30,2002.  See Note 3 “Sale of the ChartHouse Business.”  The operations of thesold

 

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restaurants have been presented as discontinued operations for thequarters and six months ended June 28, 2004 and June 30, 2003, andthe Company has reclassified its Consolidated Statements of Operations for thequarters then ended in accordance with Statement of Financial AccountingStandards No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets” (“FAS 144”).  In connection withthe proposed sale of its remaining two steakhouses and related intellectualproperty, the assets of the two remaining Angelo and Maxie’s restaurants areconsidered to be held for sale in accordance with FAS 144.  However, the operations of the remaining twoAngelo and Maxie’s restaurants are not presented as discontinued on theaccompanying Statements of Operations because the Company believes such a presentationwould not be meaningful to the reader.

 

The Company operates two Angelo and Maxie’s Steakhouses, which arefull-service steakhouse restaurants located in New York, New York and West PalmBeach, Florida.  The Company operatedthe following number of restaurants at the end of the second quarters of 2004and 2003:

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

 

The Company acquired the Angelo and Maxie’s Steakhouse concept and onerestaurant during 1999 to diversify its then-seafood dominated portfolio.   The Company opened a total of sixadditional Angelo 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 intends to seek stockholder approval of the sale of the two remainingAngelo and Maxie’s restaurants and related intellectual property, as well asthe liquidation and dissolution of the Company.   No assurances can be given as to whether or when thesetransactions will be consummated.

 

7

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**RESULTS OF OPERATIONS**

 

The following table presents the results of operations for each of thequarterly and six month periods ended June 28, 2004 and June 30,2003.  Continuing operations relate tothe operations of the Company’s two remaining Angelo and Maxie’sSteakhouses.  The operations of thethree locations sold on January 7, 2004 and the Chart House Business arepresented as discontinued.

 
|                                                                |       | **Quarterly  periods ended** |   | **Six month  periods ended** |       |
|---------------------------------------------------------------------|------------|------------------------------|--------|------------------------------|------------|
| **(Unaudited, dollars in  thousands)**                              |       | **June 28,  2004**      |   | **June 30,  2003**      |       | **June 28,  2004** |   | **June 30,  2003** |   |
|                                                                | **Amount** |                         | **%**  |                         | **Amount** |   | **%** |   | **Amount** |   | **%** |   | **Amount** |   | **%** |   |
|                                                                |       |                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                            |       | $                            | 2,865  |                         | 100.0      |   | $ | 2,777 |   | 100.0 |   | $ | 5,910 |   | 100.0 |   | $ | 6,057 |   | 100.0 |   |
|                                                                |       |                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses:                                       |       |                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                       |       | 1,089                        |   | 38.0                         |       | 986 |   | 35.5 |   | 2,224 |   | 37.6 |   | 2,146 |   | 35.4 |   |
| Restaurant labor                                                    |       | 600                          |   | 20.9                         |       | 566 |   | 20.4 |   | 1,227 |   | 20.8 |   | 1,237 |   | 20.4 |   |
| Other operating costs                                               |       | 489                          |   | 17.1                         |       | 506 |   | 18.2 |   | 1,101 |   | 18.6 |   | 978 |   | 16.1 |   |
| Rent                                                                |       | 244                          |   | 8.5                          |       | 244 |   | 8.8 |   | 487 |   | 8.2 |   | 486 |   | 8.0 |   |
| Total restaurant costs                                              |       | 2,422                        |   | 84.5                         |       | 2,302 |   | 82.9 |   | 5,039 |   | 85.3 |   | 4,847 |   | 80.0 |   |
| Restaurant operating income (before  depreciation and amortization) |       | 443                          |   | 15.5                         |       | 475 |   | 17.1 |   | 871 |   | 14.7 |   | 1,210 |   | 20.0 |   |
| General and administrative expenses                                 |       | 450                          |   | 15.7                         |       | 691 |   | 24.9 |   | 916 |   | 15.5 |   | 1,359 |   | 22.4 |   |
| Depreciation and amortization                                       |       | 27                           |   | 0.9                          |       | 113 |   | 4.1 |   | 55 |   | 0.9 |   | 254 |   | 4.2 |   |
| Impairment of assets and restructuring  charges                     |       | 946                          |   | 33.0                         |       | 4,413 |   | 158.9 |   | 946 |   | 16.0 |   | 4,413 |   | 72.9 |   |
| Loss on sales of assets                                             |       |                         |   | —                       |       | (2 | ) | (0.1 | ) | — |   | — |   | 9 |   | — |   |
| Total restaurant and operating costs                                |       | 3,845                        |   | 134.2                        |       | 7,517 |   | 270.7 |   | 6,956 |   | 117.7 |   | 10,882 |   | 179.7 |   |
| Income (loss) from operations                                       |       | (980                         | )      | (34.2                        | )          | (4,740 | ) | (170.7 | ) | (1,046 | ) | (17.7 | ) | (4,825 | ) | (79.7 | ) |
| Interest expense, net                                               |       | 22                           |   | 0.8                          |       | 22 |   | 0.8 |   | 45 |   | 0.8 |   | 52 |   | 0.9 |   |
| Other income                                                        |       | (51                          | )      | (1.8                         | )          | (51 | ) | (1.8 | ) | (102 | ) | (1.7 | ) | (102 | ) | (1.7 | ) |
| Income (loss) from continuing operations  before income taxes       |       | (951                         | )      | (33.2                        | )          | (4,711 | ) | (169.6 | ) | (989 | ) | (16.7 | ) | (4,775 | ) | (78.8 | ) |
| Provision for income taxes                                          |       | —                       |   | —                       |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Net income (loss) from continuing  operations                       |       | (951                         | )      | (33.2                        | )          | (4,711 | ) | (169.6 | ) | (989 | ) | (16.7 | ) | (4,775 | ) | (78.8 | ) |
| Discontinued operations:                                            |       |                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations                                       |       | —                       |   | —                       |       | 204 |   | 7.3 |   | (107 | ) | (1.8 | ) | 325 |   | 5.4 |   |
| Recognition of deferred gain on sale                                |       | —                       |   | —                       |       |   |   |   |   | 967 |   | 16.4 |   | — |   | — |   |
| Gain (loss) on sale                                                 |       | (910                         | )      | (31.8                        | )          | 13 |   | 0.5 |   | (1,163 | ) | (19.7 | ) | 13 |   | 0.2 |   |
| Income (loss) from discontinued operations                          |       | (910                         | )      | (31.8                        | )          | 217 |   | 7.8 |   | (303 | ) | (5.1 | ) | 338 |   | 5.6 |   |
| Net loss applicable to common shares                                |       | $                            | (1,861 | )                            | (65.0      | ) | $ | (4,494 | ) | (161.8 | ) | $ | (1,292 | ) | (21.9 | ) | $ | (4,437 | ) | (73.3 | ) |
| Preferred stock dividends                                           |       | 232                          |   | 8.1                          |       | 232 |   | 8.4 |   | 464 |   | 7.9 |   | 464 |   | 7.7 |   |
| Net loss applicable to common shares                                |       | $                            | (2,093 | )                            | (73.1      | ) | $ | (4,726 | ) | (170.2 | ) | $ | (1,756 | ) | (29.7 | ) | $ | (4,901 | ) | (80.9 | ) |

 

8

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Angelo and Maxie’s revenues are derived entirely from food and beveragesales.  Revenues increased $88,000 or3.2%, to $2.9 million in the second quarter of 2004, compared to $2.8 millionin the second quarter of 2003.  Theincrease in revenues is due to a general increase in food and beverage sales.

 

Revenues decreased $147,000, or 2.4%, to $5.9 million for the sixmonths ended June 28, 2004, compared to $6.1 million for the six monthsended June 30, 2003. The decrease in revenues is due in part to the severelycold weather experienced in the New York area during the first half of thefirst quarter of 2004.

 

Cost of sales is composedof the cost of food and beverages.  Costof sales as a percentage of revenues increased by 2.5 percentage points to38.0% in the second quarter of 2004, compared with 35.5% in the second quarterof 2003.  This increase is primarily theresult of price increases of certain beef and dairy products that occurredduring the fourth quarter of 2003 and continued into the first half of 2004.The Company expects that comparative trend to continue for the next quarter.For the six months ended June 28, 2004, cost of sales as a percentage ofrevenues increased 2.2 percentage points to 37.6%, compared with 35.4% for thesix months ended June 30, 2003, driven primarily by the same factors thatimpacted the quarterly results.

 

Restaurant labor consistsof restaurant management salaries, hourly staff payroll costs, and otherpayroll-related items.  Restaurant laboras a percentage of revenues increased by 0.5 percentage points to 20.9% in thesecond quarter of 2004, compared with 20.4% in the second quarter of 2003.  This increase is due to normal annual meritincreases. For the six months ended June 28, 2004, restaurant labor as apercentage of revenues increased 0.4 percentage points to 20.8%, compared with20.4% for the six months ended June 30, 2003, primarily due to the samemerit increases that impacted the quarterly results.

 

Other operating expensesconsist primarily of various restaurant-level costs, which are generallyvariable and are expected to fluctuate with revenues.  Other operating costs as a percentage of restaurant revenuesdecreased by 1.1 percentage points to 17.1% in the second quarter of 2004,compared with 18.2% in the second quarter of 2003, primarily as a result oflower marketing costs. For the six months ended June 28, 2004, otheroperating costs as a percentage of revenues increased 2.5 percentage points to18.6%, compared with 16.1% for the six months ended June 30, 2003,primarily as a result of providing certain additional services and amenities atone of the locations.

 

Rent includes both fixedand variable portions of rent.  Rent asa percentage of revenues decreased by 0.3 percentage points to 8.5% in thesecond quarter of 2004, compared with 8.8% in the second quarter of 2003,primarily as a result of increased revenues during the second quarter of 2004,thereby causing rent to comprise a smaller percentage of revenues. For the sixmonths ended June 28, 2004, rent as a percentage of revenues increased by0.2 percentage points to 8.2%, compared with 8.0% for the six months endedJune 30, 2003, primarily due to lower revenues for the six month periodending June 28, 2004, thereby causing rent to comprise a larger percentageof revenues.

 

General andadministrative expenses are composed of expenses associated with corporate andadministrative functions that support restaurant operations, includingmanagement and staff salaries, employee benefits, travel, legal and professionalfees, technology, and market research. General and administrative expenses decreased $241,000 to $450,000 inthe second quarter of 2004, compared to $691,000 in the second quarter of 2003.  The decrease is primarily the result of areduction in the size of the corporate management and staff that occurredduring the fourth quarter of 2003 and the first quarter of 2004.  The Company believes that the general andadministrative expenses incurred in the second quarter of 2004 reflect anexpected and continued decrease of these expenses.  For the six months ended June 28, 2004, general andadministrative expenses decreased by $443,000 to $916,000, compared with$1,359,000 for the six months ended June 30, 2003, primarily due to thesame corporate staff reductions that impacted the quarterly results.

 

Depreciation andamortization expense includes the depreciation of fixed assets and theamortization of leasehold improvements at both the restaurants and corporatelocations.  Depreciation andamortization decreased $86,000 to $27,000 in the second quarter of 2004,compared to $113,000 in the second quarter of 2003.  The decrease is due to the cessation of depreciation on therestaurant fixed assets and leasehold improvements in connection with theassets being classified as held for sale during the third quarter of 2003 inaccordance with FAS 144. .  For the sixmonths ended June 28, 2004, depreciation and amortization expensesdecreased by $199,000 to $55,000, compared with $254,000 for the six monthsended June 30, 2003, primarily due to the same factor that impacted thequarterly results.

 

During the second quarter of 2004 and the second quarter of 2003, theCompany completed its required review by comparing its carrying value for theAngelo and Maxie’s restaurant business to estimated fair market value. Indetermining the estimated fair market value of its assets, management considersseveral factors requiring the exercise of its business judgment.  Such business judgment includes developingvaluation multiples such as the ratio of total capitalized value to restaurantearnings before interest,

 

9

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taxes,depreciation and amortization for an industry peer group of publicly tradedcompanies and applying those ratios to the Company’s historical and projectedoperating performance.  These continuedreviews resulted in the following during 2004 and 2003:

 

•                  During the second quarter 2004 evaluation, the Companyrecorded a $797,000 provision for loss related to the pending sale of theremaining two steakhouses and the rights to the name “Angelo and Maxie’s” and a$149,000 provision for loss on corporate 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 expenseremained at $22,000 in the second quarters of 2004 and 2003.  The current quarter interest expenseincludes non-cash interest expense related to a capital lease (see discussionof other income in the following paragraph), offset by interest income earnedon the Company’s outstanding investable cash.  For the six months ended June 28, 2004, net interest expensedecreased by $7,000 to $45,000, compared with $52,000 for the six months endedJune 30, 2003. This decrease is primarily due to the prior six monthperiod including interest expense related to an outstanding term loan that wasretired at the beginning of the second quarter of 2003.

 

Other income remained flat at $51,000 in the second quarter of 2004,compared to the second quarter of 2003 in addition, other income remained flatat $102,000 for the six months ended June 28, 2004, compared to the sixmonths ended June 30, 2003.  TheCompany is committed to a capital lease at a location it has subleased to athird party. This capital lease is reported on the balance sheet in accordancewith Statement of Financial Accounting Standards No. 13, “Accounting forLeases,” and non-cash reductions to the liability are reflected in otherincome.

 

Income from discontinued operations decreased by $1.1 million in thesecond quarter of 2004, compared to the second quarter of 2003.  The decrease is due to the followingfactors:

 

•                  The recognitionof an additional $910,000 loss on the sale of the Chart House Business. SeePart I, Item 1, Note 3 “Sale of the Chart House Business.”

 

•                  A $204,000decrease in income from operations of the three steakhouses sold onJanuary 7, 2004. See Part I, Item 1, Note 2 “Sale of the Angelo andMaxie’s Brand and Related Operating Assets.” This decrease was due to the saleof the steakhouses in the first quarter of 2004.

 

Income from discontinued operations decreased $641,000 for the sixmonths ended June 28, 2004, compared to the six months ended June 30,2003. The decrease is due to the following factors:

 

•                  The recognitionof an additional $1.2 million loss on the sale of the Chart House Business. SeePart I, Item 1, Note 3 “Sale of the Chart House Business.”

 

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

 

•                  A $432,000decrease in income from operations of the three steakhouses sold onJanuary 7, 2004. See Part I, Item 1, Note 2 “Sale of the Angelo andMaxie’s Brand and Related Operating Assets.” This decrease was due to the saleof the steakhouses in the first quarter of 2004

 

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 todividends at the rate of 10.0% per annum, based on the original issue price of$2.25 per share.  The Company accrueddividends on the Series A Preferred Stock aggregating $0.2 million during eachof the second quarters of 2004 and 2003.

 

10

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**LIQUIDITY AND CAPITAL RESOURCES**

 
|                                        |   | **Six month periods ended** |   |
|---------------------------------------------|--------|-----------------------------|--------|
| **(Unaudited, dollars in thousands)**       |   | **June 28, 2004**      |   | **June 30, 2003** |   |
| Net cash used in operating activities       |   | $                           | (1,966 | ) | $ | (500 | ) |
| Expenditures for equipment and imrpovements |   | (5                          | )      | (27 | ) |
| Proceeds from sale of restaurant assets     |   | 5,594                       |   | — |   |
| Cash used in financing activities           |   | (157                        | )      | (980 | ) |
| Net increase (decrease) in cash             |   | $                           | 3,466  |   | $ | (1,507 | ) |

 

The Company had $8,017,000 in cash for general corporate purposes atJune 28, 2004. The Company believes that this remaining cash balance,together with net cash provided by the continuing operating activities of itsremaining two steakhouses will be sufficient to fund its operating expenses andcapital needs for at least the next twelve months.

 

Historically, the Company required significant capital principally forthe construction and opening expenses for new restaurants and for theremodeling and refurbishing of existing restaurants.  The Company has funded its capital requirements through debtfinancing, both with third party banks and related parties, tenant improvementmonies, equity financing, and cash flows from operations.  The Company does not intend to fund any newrestaurants or incur any major remodeling or refurbishing costs during fiscal2004.

 

Net cash used in operating activities was $1,966,000 in the first sixmonths of 2004, compared to net cash used in operating activities of $500,000in the first six months of 2003.  In2004, net cash used in operating activities includes an aggregate $1.0 millionrelated to payment of 2003 performance and stay bonuses and accrued vacationfor the employees terminated in conjunction with the sale of three of theCompany’s steakhouses, severance payments related to employees terminated inconjunction with the sale of the Chart House Business, and settlement of priorperiod insurance claims.   In 2003, netcash used in operating activities included an aggregate $0.8 million related topayment of 2002 bonuses, severance payments related to employees terminated inconjunction with the sale of the Chart House Business, and settlement of priorperiod insurance claims.

 

 Net cash provided by investingactivities in the first six months of 2004 included capital expenditures of$5,000 and the receipt of $5,594,000 in net proceeds from the sale of three ofthe Company’s steakhouses.  Net cashused in investing activities in the first six months of 2003 included capitalexpenditures of $27,000.

 

Net cash used in financing activities was $157,000 in the first sixmonths of 2004, primarily related to reduction of restricted cash for lettersof credit related to a guarantee on one of the Company’s then-existing fivesteakhouses offset by non-cash reductions to a capital lease on a restaurantproperty that the Company has subleased to a third party. Preferred dividendsof $464,000 were paid in the second quarter of 2004. Net cash used in financingactivities was $980,000 in the first six months of 2003, including $500,000used to settle the payment of both scheduled payments and the early retirementand payoff of the landlord notes as well as scheduled non-cash reductions tothe capital lease on the subleased restaurant property. Preferred dividends of$464,000 were paid in the second quarter of 2003. There were no pre-paymentfees or penalties associated with the early retirement of the landlord noteobligations.

 

The Series A Preferred Stock is entitled to dividends at the rate of10.0% per annum, based on the original price of $2.25 per share.  Dividends are payable semiannually onJune 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 owing under the creditagreement, the Company began paying these dividends in cash.  The Company expects to satisfy futuredividend obligations in cash.

 

The Company was liable under various capital and operating leaseagreements, primarily related to restaurant locations.   The Company is also contingently liableunder letters of credit, primarily related to leasing obligations andself-insurance reserves, and guarantees on various third party leasing and debtagreements.  A $325,000 letter of creditrelated 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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**CRITICAL ACCOUNTING 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.

 

**Impairmentof Assets.**  TheCompany adopted Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets” and FAS 144, which require, among other things,that effective January 1, 2002, goodwill resulting from a businesscombination accounted for as a purchase no longer be amortized, but be subjectto ongoing impairment review.  On anongoing basis, the Company reviews its carrying value of restaurant assets andcompares them with fair market value. In determining the fair market value of its assets, management considersseveral factors requiring the exercise of its business judgment.  Such business judgment includes developingvaluation multiples, such as the ratio of total capitalized value to restaurantearnings before interest, taxes, depreciation, and amortization for an industrypeer group of publicly traded companies, and applying those multiples to theCompany’s historical and projected operating performance.   If management determines that the fairmarket value of its assets is materially below the current carrying cost of theassets, an impairment charge is recognized in operating income in the periodthe impairment is identified.

 

**CostCapitalization and Depreciation Policies.**  Costs for maintenance, repairs, andpurchases are either expensed as incurred or capitalized and amortized over thecost’s estimated useful life.  Thisrequires management to make business judgments regarding which costs should becapitalized and, if capitalized, the estimated useful life.  Management has established the Company’scost capitalization and depreciation policies based on historical experience inthe restaurant industry, industry guidelines regarding useful lives, andadherence 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 recordedfor financial reporting purposes using the straight-line method over the estimateduseful lives of the assets.  Equipmentis 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-InsuranceLiability.**  TheCompany is self-insured through October 2002 for its workers’ compensationand general liability insurance programs, and continues to be self-insured forits employee health insurance program. The Company maintains stop-loss coverage with third party insurers tolimit its total exposure.  The accruedliability associated with these programs is based on management’s estimate ofthe 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 anumber of assumptions and factors, including historical trends, actuarialassumptions, and economic conditions. If actual trends differ from our estimates, our financial results couldbe 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 QUALITATIVEDISCLOSURES 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 June 28, 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 may contain featuresthat fix the commodity price or define the price from an agreed upon formula.  The Company does not use financialinstruments to hedge commodity prices because these purchase arrangements helpcontrol the ultimate cost paid for any commodity price fluctuations, have nominimum purchase requirements, and are generally short term in nature.

 

12

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**ITEM4. CONTROLS AND PROCEDURES**

 

As of June 28, 2004, the Company carried out an evaluation, underthe supervision and with the participation of the Company’s President and ChiefExecutive Officer and the Company’s Chief Financial Officer, of the effectivenessof the Company’s disclosure controls and procedures pursuant to Rule 13a-15 ofthe Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Company’s President and ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective in timely alerting them tomaterial information relating to the Company (including its consolidatedsubsidiaries) required to be disclosed by the Company in its periodic ExchangeAct reports.  There were no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of the evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

13

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**PARTII - OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS.**

 

The Company was contingently liable, in certain circumstances, forlease obligations 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 fromLandry’s Restaurant’s, Inc. (“Landry’s”) with respect to 19 of these properties.On July 30, 2004, the Company reached a settlement with Landry’s on allpending litigation matters, including a default by a subsidiary of Landry’sunder of one of the Chart House leases. In addition, the Company received an unconditional and irrevocable guaranteefrom Landry’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.

 

The Company periodically is a defendant inlitigation incidental to its business activities. 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.

 

**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.

 

**ITEM6.  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 Incorporationof the Company. (2)

(3) Certificate of Amendment of Restated Certificate of Incorporationof Chart House Enterprises, Inc. (4)

3.2                                 Amended and RestatedBylaws of the Company. (1)

3.3                                 Certificate ofDesignations of the Series A Preferred Stock. (3)

4.1                                 Specimen Common StockCertificate. (2)

4.2                                 SpecimenSeries A Preferred Stock Certificate. (3)

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

31.1                           Certification of the ChiefExecutive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

31.2                           Certification of the ChiefFinancial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

32.1                           Certification of the ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.

32.2                           Certification of the ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.

 

14

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(1)          Filed as an exhibit to the Company’sRegistration Statement on Form S-1 dated August 27, 1987, or amendmentsthereto dated October 6, 1987 and October 14, 1987 (Registration No.33-16795) and incorporated herein by reference.

(2)          Filed as an exhibit to the Company’sRegistration 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 as Appendix A to the Company’sSchedule 14A dated August 11, 2004 and incorporated herein byreference

 

(b)                                 Reports on Form 8-K.

 

The Company filed a report on Form 8-K on March 30, 2004.  Under Item 12, the Company reported on itsfourth quarter results of operations and provided an update on its proposedsale of its two remaining steakhouses. A press release related to such matters was furnished as an exhibitthereto.

 

15

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**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 theundersigned thereunto duly authorized.

 

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

 

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