<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
(Exact name of small business issuer as specified in its charter)
Nevada 04-2709807
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
6787 W. Tropicana, Ste 200, Las Vegas, Nevada 89103
(Address of Principal Executive Offices) (Zip Code)
(702) 227-9800
(Registrant's Telephone Number, including Area Code)
N/A
(Former Name, Former Address & Former Fiscal Year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
-------- -----------
State the number of shares outstanding of each of the issuer"s classes of common
equity, as of the latest practicable date: Common Stock, $.01 Par Value,
4,887,000 shares at March 10, 2000.
Transitional Small Business Disclosure Format Yes No X
------- -------
<PAGE> 2
PART 1
FINANCIAL INFORMATION
AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
January 31, 2000 and July 31, 1999
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,600,000 $12,626,000
Accounts receivable 141,000 191,000
Mortgage notes receivable and accrued interest 3,006,000 1,500,000
Refundable income taxes 1,098,000 219,000
Deferred income tax asset 76,000 135,000
Inventories 181,000 153,000
Prepaid expenses 188,000 376,000
----------- -----------
Total current assets 12,290,000 15,200,000
----------- -----------
Property and equipment, net 1,995,000 2,029,000
Land held for investment or development 4,894,000 5,105,000
Investment in unconsolidated subsidiary 1,775,000 592,000
Deferred income tax asset 133,000 191,000
Goodwill, net 256,000 --
Other assets - deposits and other 585,000 89,000
----------- -----------
$21,928,000 $23,206,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 417,000 $ 558,000
Accrued expenses 145,000 166,000
Current portion of capitalized lease obligations 28,000 --
----------- -----------
Total current liabilities 590,000 724,000
----------- -----------
Long-term liabilities:
Capitalized lease obligations, less current portion 16,000 --
----------- -----------
Minority interest in consolidated subsidiary 194,000 --
----------- -----------
Commitments and contingency -- --
Stockholders' equity:
Common stock, $.01 par; 30,000,000 shares authorized;
4,887,000 shares issued and outstanding 49,000 49,000
Preferred stock, $.01 par; 10,000,000 shares authorized;
shares issued and outstanding - none -- --
Capital in excess of par 2,974,000 2,974,000
Capital in excess of par - stock options 264,000 --
Retained earnings 17,841,000 19,459,000
----------- -----------
21,128,000 22,482,000
----------- -----------
$21,928,000 $23,206,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ -- $ 2,040,000
Restaurant sales 702,000 --
Fees and commissions - recruitment and Internet 137,000 --
----------- -----------
839,000 2,040,000
----------- -----------
Costs and expenses:
Casino consulting 216,000 512,000
Restaurant operations 1,115,000 121,000
Death care operations 220,000 --
Recruitment and Internet operations 226,000 --
General and administrative 705,000 338,000
Amortization and depreciation 76,000 8,000
Minority interest in consolidated subsidiary (16,000) --
Loss of unconsolidated subsidiary 91,000 --
----------- -----------
2,633,000 979,000
----------- -----------
Income (loss) from operations (1,794,000) 1,061,000
----------- -----------
Other income:
Interest income 215,000 267,000
Miscellaneous 1,000 --
----------- -----------
216,000 267,000
----------- -----------
Income (loss) before income taxes (1,578,000) 1,328,000
----------- -----------
Income tax benefit (expense):
Current:
State 6,000 (45,000)
Federal 639,000 (441,000)
Deferred:
State (48,000) --
Federal (100,000) --
----------- -----------
497,000 (486,000)
----------- -----------
Net income (loss) $(1,081,000) $ 842,000
=========== ===========
Earnings (loss) per common share:
Basic $ (0.22) $ 0.17
=========== ===========
Diluted $ (0.22) $ 0.16
=========== ===========
Weighted average number of common shares
and common share equivalents:
Basic 4,887,000 5,040,000
Stock options and warrants 58,000 288,000
----------- -----------
Diluted 4,945,000 5,328,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Six Months Ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ -- $ 4,170,000
Restaurant sales 1,793,000 --
Fees and commissions - recruitment and Internet 137,000 --
----------- -----------
1,930,000 4,170,000
----------- -----------
Costs and expenses:
Casino consulting 340,000 964,000
Restaurant operations 2,485,000 121,000
Death care operations 278,000 31,000
Recruitment and Internet operations 226,000 --
General and administrative 1,129,000 726,000
Amortization and depreciation 144,000 16,000
Minority interest in consolidated subsidiary (16,000) --
Loss of unconsolidated subsidiary 192,000 --
----------- -----------
4,778,000 1,858,000
----------- -----------
Income (loss) from operations (2,848,000) 2,312,000
----------- -----------
Other income:
Interest income 457,000 493,000
Miscellaneous 1,000 --
----------- -----------
458,000 493,000
----------- -----------
Income (loss) before income taxes (2,390,000) 2,805,000
----------- -----------
Income tax benefit (expense):
Current:
State 6,000 (141,000)
Federal 883,000 (947,000)
Deferred:
State (48,000) --
Federal (69,000) --
----------- -----------
772,000 (1,088,000)
----------- -----------
Net income (loss) $(1,618,000) $ 1,717,000
=========== ===========
Earnings (loss) per common share:
Basic $ (0.33) $ 0.34
=========== ===========
Diluted $ (0.33) $ 0.32
=========== ===========
Weighted average number of common shares and common share
equivalents:
Basic 4,887,000 5,036,000
Stock options and warrants 58,000 294,000
----------- -----------
Diluted 4,945,000 5,330,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,618,000) $ 1,717,000
------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Loss of unconsolidated subsidiary 192,000 --
Minority interest in consolidated subsidiary (16,000) --
Amortization and depreciation 144,000 16,000
Deferred income tax benefit 117,000 --
Write off of improvements to land held for
investment or development 211,000 --
Stock options issued for services 165,000 --
Changes in other assets and liabilities, net (1,511,000) 318,000
------------ ------------
(698,000) 334,000
------------ ------------
Net cash provided (used) by operating activities (2,316,000) 2,051,000
------------ ------------
Cash flows from investing activities:
Purchase of Placement 2000.Com, Inc. 22,000 --
Mortgage note receivable (1,300,000) --
Additional investment in unconsolidated subsidiary (1,375,000) --
Note receivable from Table Mountain Tribe -- (1,318,000)
Purchase of land held for investment or development
and improvements -- (4,000)
Purchase of property and equipment, net (57,000) (36,000)
------------ ------------
Net cash used by investing activities (2,710,000) (1,358,000)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt -- 1,318,000
Proceeds from issuance of common stock -- 20,000
------------ ------------
Net cash provided by financing activities -- 1,338,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,026,000) 2,031,000
Cash and cash equivalents, at beginning of period 12,626,000 15,371,000
------------ ------------
Cash and cash equivalents, at end of period $ 7,600,000 $ 17,402,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ -- $ 425,000
============ ============
Non-cash investing and financing activities:
Acquisition of Placement 2000.Com, Inc.:
Fair value of tangible assets $ (133,000) $ --
Goodwill (262,000) --
Liabilities assumed 109,000 --
Minority interest 209,000 --
Stock options issued 99,000 --
============ ============
Net $ 22,000 $ --
============ ============
Purchase of equipment under capital leases $ 44,000 $ --
============ ============
Common stock options issued for services $ 165,000 $ --
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended July 31, 1999 and Six Months
Ended January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS
-------------------------- CAPITAL OF PAR -
IN EXCESS STOCK RETAINED
SHARES DOLLARS OF PAR OPTIONS EARNINGS
---------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1998 5,029,350 $ 51,000 $ 3,424,000 $ -- $ 17,433,000
Issuance of shares 10,833 -- 20,000 -- --
Shares repurchased and retired (153,183) (2,000) (470,000) -- --
Net income for the year -- -- -- -- 2,026,000
---------- -------- ----------- -------- ------------
Balance, July 31, 1999 4,887,000 49,000 2,974,000 -- 19,459,000
Issuance of common stock options
for services -- -- -- 165,000 --
Issuance of common stock options
in acquisition of
Placement 2000.Com, Inc. -- -- -- 99,000 --
Net loss for the period -- -- -- -- (1,618,000)
---------- -------- ----------- -------- ------------
Balance, January 31, 2000 4,887,000 $ 49,000 $ 2,974,000 $264,000 $ 17,841,000
========== ======== =========== ======== ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
As permitted by the Securities and Exchange Commission under Rule 10-01 of
Regulation S-X, the accompanying consolidated financial statements and notes
have been condensed and, therefore, do not contain all disclosures required by
generally accepted accounting principles. The consolidated financial statements
include the accounts of American Vantage Companies and its majority owned
subsidiaries ("the Company"). A 49% owned subsidiary is reported in the
consolidated balance sheet at the Company's equity in net assets of the
subsidiary. The Company has reported all (100%) of the loss of the
unconsolidated subsidiary in the accompanying consolidated statements of income
(loss) for the three and six month periods ended January 31, 2000. For
additional disclosures, refer to the Annual Report on Form 10-KSB of the Company
for the year ended July 31, 1999 ("Fiscal 1999").
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods.
Certain amounts in the interim period financial statements for Fiscal 1999 have
been reclassified for comparability with the current period presentation.
The computations of basic earnings per common share are based on the weighted
average number of common shares outstanding. The computations of diluted
earnings per share are based on the weighted average number of common shares and
common share equivalents outstanding. Stock purchase warrants and options
outstanding and exercisable at or below the market price are considered common
share equivalents. Common share equivalents are not included in the computation
of loss per share in the interim periods for the year ended July 31, 2000
("Fiscal 2000") because the effect would be antidilutive.
Results of the interim periods are not necessarily indicative of those to be
expected for the full year.
NOTE 2 - INDIAN GAMING OPERATIONS
TABLE MOUNTAIN CASINO & BINGO
In March 1993, the Company signed a consulting agreement with the Table Mountain
Rancheria Band of Indians (the "Table Mountain Tribe") for the Table Mountain
Casino & Bingo (the "Table Mountain Casino") in Friant, California. Effective
February 1, 1996, the Company and the Table Mountain Tribe signed a new
consulting agreement and a termination agreement of the March 1993 agreement.
The termination agreement provides that a monthly payment of $350,000 was to be
paid to the Company through January 2000, subject to meeting certain thresholds.
In June 1997, the consulting agreement was amended, and in November 1997, a
second amendment to the consulting agreement was signed. The consulting fee
schedule was adjusted, effective February 1, 1998, to provide for a base fee of
$50,000 and additional fees of $45,000 to $60,000 for increments of $250,000 to
$500,000 or portion thereof, of monthly casino net income in excess of $1.5
million of net income from casino operations. The term of the agreement was
extended to June 30, 2000.
7
<PAGE> 8
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company was to receive a monthly payment of $350,000 in accordance with
terms of the termination agreement signed in February 1996. These payments were
to continue through January 2000, subject to meeting certain thresholds.
Pursuant to the consulting agreement, the Company was obligated, under certain
circumstances, to loan the Table Mountain Tribe up to $4,000,000.
The Table Mountain Tribe prematurely terminated the contracts in May 1999. See
Note 6 - Litigation with the Table Mountain Tribe.
TRIBAL-STATE COMPACT
In the March 2000 California election, the voters approved Proposition 1A, which
related to gambling on tribal lands located in the state. The Proposition
amended the state constitution to authorize the Governor to negotiate compacts,
subject to ratification by the California Legislature, for the operation of slot
machines and for the conduct of lottery games and banking and percentage card
games by federally recognized Indian tribes on Indian lands in California in
accordance with federal law.
NOTE 3 - RESTAURANT OPERATIONS
WCW NITRO GRILL
The Company owns an 88% interest in a consolidated subsidiary, which operates
the WCW Nitro Grill restaurant in the Excalibur Hotel and Casino on the Las
Vegas Strip in Las Vegas, Nevada. The restaurant began operations on May 17,
1999. Startup costs associated with the restaurant were expensed in Fiscal 1999.
The Company has a non-exclusive worldwide licensing agreement with World
Championship Wrestling ("WCW"), a Time Warner Company, to develop wrestling
themed restaurants. Among other provisions of the licensing agreement, the
Company must designate the site for its second restaurant by July 1, 2000 and
open the restaurant by December 2000. The licensing agreement is renewable
annually and provides for annual minimum non-refundable licensing payments of
$250,000 plus percentage royalties on food, beverage and retail merchandise sold
in the restaurant. Percentage royalties are payable when, on an annual basis,
they exceed the non-refundable licensing fee. The Company also has an agreement
with another company requiring payment of 2% of gross sales of the restaurant as
consideration for finders' fees and consulting services.
The term of the restaurant space lease is 10 years beginning in May 1999. The
lease provides for minimum annual lease payments of $175,000 with percentage
rents based on gross sales of the restaurant when they exceed minimum monthly
rental payments. The lease also requires an annual payment of $65,000 for
utilities.
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The Company owns a 49% interest in Border Grill Las Vegas, LLC ("BGLV"), which
owns the Border Grill
8
<PAGE> 9
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
restaurant. The restaurant is located in the Mandalay Bay Resort & Casino on the
Las Vegas Strip in Las Vegas, Nevada. The Company is committed to invest up to
$2,750,000 in BGLV and loan up to $175,000 to BGLV for construction of and
initial working capital for the restaurant. As of January 31, 2000, the Company
had expended $2,575,000 of its commitment.
All (100%) of the loss from the operations for the restaurant is reported as
loss of unconsolidated subsidiary in the consolidated statements of income
(loss) for the three and six month periods ended January 31, 2000. Startup costs
were expensed in Fiscal 1999. In the future, if the restaurant has net income,
the Company will recognize all such income until prior losses have been offset
and thereafter net income will be split proportionate to ownership interests.
BGLV has an operating agreement with an entity owned by the majority owners
requiring payments equal to 5% of the gross sales of the restaurant.
NOTE 4 - ACQUISITION OF PLACEMENT 2000.COM, INC.
The Company completed the acquisition, effective December 1, 1999, of an 80%
interest in Placement 2000.Com, Inc. ("Placement 2000") for $1 million in cash
and up to an additional $2 million in cash, based on future events and earnings,
to be used for Placement 2000's general corporate purposes. The Company granted
options to Placement 2000's former principal, who is remaining with the company,
to purchase up to 333,334 shares of the Company's common stock. A portion of the
options (66,667) is exercisable as of the acquisition date, and the remainder
(266,667) is exercisable when certain profitability goals are met.
The $1,099,000 purchase price recorded at December 1, 1999 was comprised of
$1,000,000 in cash and the value of stock options, which were exercisable as of
the acquisition date. The acquisition was accounted for as a purchase. The
excess of the total acquisition price over the fair value of the net assets
acquired ("goodwill") totaled $262,000 and is being amortized on a straight line
basis over seven (7) years. Operations of Placement 2000 after December 1, 1999
are included in the accompanying consolidated financial statements.
The following summarizes the acquisition of Placement 2000:
<TABLE>
<S> <C>
Fair value of assets acquired,
including cash $1,155,000
Liabilities assumed (109,000)
Goodwill 262,000
Minority interest (209,000)
Stock options issued (99,000)
----------
Cash paid $1,000,000
----------
</TABLE>
Placement 2000 is a privately held Internet concern specializing in online
services for information technology (IT) professionals, companies, and
recruiters. Based in New York, Placement 2000 maintains three distinct web-based
properties that offer fully integrated online recruiting solutions for
information technology candidates, corporate hiring managers, and third party
recruiters. The flagship site is intended
9
<PAGE> 10
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
to be a resume and job-posting database with advanced search capabilities
containing many value-added features which Placement 2000 believes are not
already present in any of the existing career sites on the Internet today. The
site also is intended to provide dynamic content, helpful links to other
prominent career web-based resources, and strategic distribution partnerships
with several other well-known job sites. The two other sites are a resume
forwarding service and a site for facilitating relationships and sharing of
positions and candidates in the third party recruiting "split" market. Placement
2000's three web-properties additionally intend to generate a significant value
stream for its traditional recruiting operations. The resume and job-posting
database site and the "split" market site are intended to be fully operational
in the Spring of 2000.
NOTE 5 - DEATH CARE OPERATIONS
In December 1999 the Board of Directors developed a new corporate growth
strategy for the Company involving the acquisition and development of Internet
companies. In light of that strategy, the Board of Directors decided to cancel
its plans to develop the cemetery and funeral home project in North Las Vegas,
Nevada and consider opportunities for the most advantageous disposition of that
land. Proceeds from that sale would be allocated toward continued development of
the Company's new Internet plans. As a result of this decision, approximately
$211,000 of capitalized costs related to development of the cemetery/funeral
home project were written off as death care operations expense in the
accompanying consolidated statements of income (loss).
NOTE 6 - LITIGATION WITH THE TABLE MOUNTAIN TRIBE
In June 1999, the Company filed a lawsuit in the United States District Court,
Eastern District of California ("District Court") against the Table Mountain
Tribe. The Company has two contracts to provide gaming consulting services to
the Table Mountain Casino. In May 1999, the Table Mountain Tribe voted to
terminate both contracts with the Company. The first contract, entered into in
February 1996, was a buyout of an earlier contract and requires payments of
$350,000 per month for 48 months through January 2000. The second contract, also
entered into in February 1996 and subsequently amended, is a consulting
contract, which is to expire in June 2000. Since May 1999, the Table Mountain
Tribe has not honored the consulting and termination agreements the Company has
with the Table Mountain Tribe.
The lawsuit seeks to recover payments totaling $3,150,000 due under the first
contract and under the consulting contract, the Company seeks an award of
$790,000, which represents only the base fees due under the consulting contract.
The Company also seeks interest, court costs and additional unspecified and "to
be determined" consulting fees that would have been due during the remainder of
the consulting term.
The Table Mountain Tribe has filed a countersuit against the Company claiming
the consulting contracts are invalid, for several reasons, and requesting
restitution for all consulting fees paid to the Company during the period of the
contracts. Management strongly believes the contracts are valid, enforceable and
comply with all aspects of the Indian Gaming Regulatory Act and intends to
vigorously seek to enforce their provisions.
On February 28, 2000, an Order ("Order") was filed with the District Court by
Judge Anthony W. Ishii dismissing the Company's claims against the Table
Mountain Tribe due to the District Court's lack of
10
<PAGE> 11
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
subject matter jurisdiction. The Order also dismissed the Table Mountain Tribe's
counterclaim against the Company. Pursuant to the Order, either the Company or
the Tribe may, until March 20, 2000, file a motion to amend their pleading to
remain in District Court, or pursue the litigation in a California State Court.
The Company will vigorously pursue its litigation against the Table Mountain
Tribe in State or District Court.
The loss of casino consulting fees will have a material adverse effect on the
operations of the Company. Although the WCW Nitro Grill opened in May 1999 and
the Border Grill opened in June 1999, their contributions, if any, to income
from operations cannot be expected to reach the level generated by the Table
Mountain Casino contracts. Company management is continuing its diversification
efforts and is seeking other business opportunities to replace the consulting
revenue received from the Table Mountain Casino (see Note 4 - Acquisition of
Placement 2000.Com, Inc.). Until such time as, and if, these efforts are
successful; the Company will utilize accumulated cash reserves to provide
working capital for corporate operating expenses.
NOTE 7 - REVERSE STOCK SPLIT
Effective December 1, 1999, the Company's Board of Directors authorized a one
for three reverse split of the Company's issued and outstanding common stock. No
fractional shares were issued in connection with the reverse split. Stockholders
received one additional share for any fractional shares.
The accompanying consolidated financial statements for Fiscal 1999 have been
restated to adjust for the reverse split as though it occurred at the beginning
of Fiscal 1999.
11
<PAGE> 12
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Report.
STATEMENT ON FORWARD-LOOKING STATEMENTS
Included in this Item 2, and in the Notes to the Consolidated Financial
Statements are certain forward-looking statements reflecting the Company's
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance, or achievements of the Company, or
industry results, to be materially different from future results, performance,
or achievements expressed or implied by such forward-looking statements.
Numerous factors may affect the Company's actual results and may cause results
to differ materially from those expressed in forward-looking statements made by
or on behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to construction activities, dependence on existing
management, gaming regulation of casinos on Indian land by Federal, State and
Tribal governments, issues related to the Year 2000, domestic and global
economic conditions and changes in Federal and State tax laws or the
administration of such laws. The Company assumes no obligation to update or
revise any such forward-looking statements or the factors listed below to
reflect events or circumstances that may arise after this report is filed, and
that may have an effect on the Company's overall performance.
OVERVIEW - FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company until May 1999 derived nearly all of its revenues from providing
consulting services to the Table Mountain Casino. In May 1999, the Table
Mountain Tribe voted to terminate the contracts it has with the Company and
since May 1999 has not honored the consulting and termination agreements. As a
result, the Company's primary source of revenue for Fiscal 2000 has been
eliminated and it will have a significant negative impact on the Company's
source of funds. If, and until, the restaurant operations and Placement 2000
begin to provide cash flows, the Company will use existing working capital for
operating purposes.
The year 2000 presents a potential problem for businesses utilizing computers in
their operations since many computer programs are date sensitive and will only
recognize the last two digits of the year, thereby recognizing the year 2000 as
the year 1900 or not at all (the "Year 2000 Issue"). The Company has evaluated
its internal operating system and worked with companies with which it transacts
business to assess their efforts to comply with the Year 2000 Issue and the
Company's resulting exposure. Maintenance or modification costs of computer
programs associated with the Year 2000 Issue are expensed as incurred, while the
costs of any new software are capitalized and amortized over the software's
useful life. At this time, it appears the aggregate cost to the Company relating
to the Year 2000 Issue will not be material. The Company believes that its
software programs are year 2000 compliant, however, there can be no assurances
that the Year 2000 Issue will not adversely affect the Company.
12
<PAGE> 13
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2000 VERSUS SIX MONTHS ENDED JANUARY 31, 1999
REVENUES
Casino consulting fees for the six months ended January 31, 2000 decreased as a
result of the premature termination of the consulting and termination agreements
between the Company and the Table Mountain Tribe as described below.
In June 1997, the consulting agreement was amended, and in November 1997, a
second amendment to the consulting agreement was signed. The consulting fee
schedule was adjusted, effective February 1, 1998, to provide for a base fee of
$50,000 and additional fees of $45,000 to $60,000 for increments of $250,000 to
$500,000 or portion thereof, of monthly casino net income in excess of $1.5
million of net income from casino operations. The term of the agreement was
extended to June 30, 2000.
Additionally, effective February 1, 1996, the Company and the Table Mountain
Tribe signed a termination agreement of a March 1993 consulting agreement under
which a monthly payment of $350,000 will be paid to the Company through January
2000, subject to meeting certain thresholds.
In May 1999, the Table Mountain Tribe voted to terminate both contracts with the
Company and since May 1999, the Tribe has not honored the consulting and
termination agreements the Company has with the Tribe. As a result of this
action, consulting fees for Fiscal 2000 have declined from those reported in
Fiscal 1999. See Notes to Consolidated Financial Statements, Note 6 - Litigation
with the Table Mountain Tribe.
Restaurant revenues were derived from the Company's new WCW Nitro Grill
restaurant, which began operations in May 1999.
Fees and commissions represent revenues from Placement 2000.Com, Inc.
("Placement 2000") an 80% owned subsidiary, for the period from December 1,
1999, the acquisition date, to January 31, 2000.
COSTS AND EXPENSES
When the Company was involved in casino consulting, the compensation and related
benefits and other expenses of key employees and some corporate overhead
expenses were allocated between casino consulting and general administrative
categories depending on the nature of the expenditures and time spent performing
the two functions. Because the Company is not presently providing casino
consulting services, some of these expenses are reported as solely general and
administrative expenses in Fiscal 2000. Therefore, it is more meaningful to
compare these two categories together in order to determine the amount such
expenditures have decreased in Fiscal 2000. Collectively, casino consulting and
general and administrative expenses in Fiscal 2000 decreased by $261,000 or
15.4% from $1,690,000 in Fiscal 1999 to $1,429,000 in Fiscal 2000. For the two
categories combined, employee compensation decreased $368,000 while legal fees
increased $361,000. The Company has gone through an extensive review of
corporate expenditures and has eliminated or reduced those expenses which were
related to the casino consulting operation and likewise has reviewed and reduced
general and administrative expenses.
Casino consulting expenses in the six months ended January 31, 2000 decreased to
$340,000, down $624,000 or 64.7%, from $964,000 in the comparable period in
Fiscal 1999. This is comprised principally of decreases in employee compensation
costs ($699,000), political contributions ($54,000) and consultants fees
($54,000), and increased legal fees principally related to the litigation with
the Table Mountain Tribe ($216,000).
13
<PAGE> 14
General and administrative expenses in the six months ended January 31, 2000
increased by $403,000 or 55.5% from the comparable period of Fiscal 1999. The
increase was principally comprised of employee compensation ($331,000) and legal
fees, principally related to corporate matters including the acquisition of
Placement 2000 ($145,000) and a decrease in political contributions ($54,000).
Legal fees in Fiscal 2000 included the value of stock options issued for legal
services.
Restaurant operations expenses are attributed to the WCW Nitro Grill restaurant,
which began operations in May 1999.
In December 1999 the Board of Directors developed a new corporate growth
strategy for the Company involving the acquisition and development of Internet
companies. In light of that strategy, the Board of Directors decided to cancel
its plans to develop the cemetery and funeral home project in North Las Vegas,
Nevada and consider opportunities for the most advantageous disposition of that
land. Proceeds from that sale would be allocated toward continued development of
the Company's new Internet plans. As a result of this decision, approximately
$211,000 of capitalized costs related to development of the cemetery/funeral
home project were written off as death care operations expense.
Recruitment and Internet operations expenses were incurred by Placement 2000 for
the period from December 1, 1999, the date it was acquired. The subsidiary
anticipates it will be fully operational in the Spring of 2000.
Amortization and depreciation was $144,000 and $16,000 in the six months ended
January 31, 2000 and 1999, respectively. Amortization is comprised of the
amortization of organizational costs of the restaurant and goodwill associated
with the Placement 2000 acquisition.
The loss of unconsolidated subsidiary in Fiscal 2000 represents 100% of the loss
from operations of the 49% owned restaurant investment. The restaurant began
operations in June 1999. In the future, if the restaurant has net income, the
Company will recognize all such income until prior losses have been offset and
thereafter net income will be split proportionate to ownership interests.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions and mortgage notes receivable, in Fiscal 2000, totaled
$457,000 and $493,000 in the six months ended January 31, 2000 and 1999,
respectively.
The Company recorded current tax benefits of $6,000 and $883,000 for state and
Federal income taxes, respectively, for the six months ended January 31, 2000.
Provisions of $141,000 and $947,000 were recorded for state and Federal income
taxes currently payable, respectively, for the six months ended January 31,
1999.
Deferred income tax expense of $48,000 and $69,000 was recorded for state and
Federal income taxes in the six months ended January 31, 2000.
Net loss was $1,618,000 ($0.33 loss per share) and net income was $1,717,000
($0.34 basic earnings per share and $0.32 diluted earnings per share) for the
six months ended January 31, 2000 and 1999, respectively.
14
<PAGE> 15
THREE MONTHS ENDED JANUARY 31, 2000 VERSUS THREE MONTHS ENDED JANUARY 31, 1999
REVENUES
Casino consulting fees for the three months ended January 31, 2000 decreased as
a result of the premature termination of the consulting and termination
agreements between the Company and the Table Mountain Tribe as previously
described.
Restaurant revenues were derived from the Company's new WCW Nitro Grill
restaurant, which began operations in May 1999.
Fees and commissions represent revenues from Placement 2000 for the period from
December 1, 1999, the acquisition date, to January 31, 2000.
COSTS AND EXPENSES
When the Company was involved in casino consulting, the compensation and related
benefits and other expenses of key employees and some corporate overhead
expenses were allocated between casino consulting and general administrative
categories depending on the nature of the expenditures and time spent performing
the two functions. Because the Company is not presently providing casino
consulting services, some of these expenses are reported as solely general and
administrative expenses in Fiscal 2000. Therefore, it is more meaningful to
compare these two categories together in order to determine the amount such
expenditures have decreased in Fiscal 2000. Collectively, casino consulting and
general and administrative expenses in the three months ended January 31, 2000
increased by $71,000 or 8.4% from $850,000 in comparable period in Fiscal 1999
to $921,000 in the second quarter of Fiscal 2000. For the two categories
combined, employee compensation decreased $228,000 while legal fees increased
$340,000. The Company has gone through an extensive review of corporate
expenditures and has eliminated or reduced those expenses which were related to
the casino consulting operation and likewise has reviewed and reduced general
and administrative expenses.
Casino consulting expenses in the three months ended January 31, 2000 decreased
to $216,000, down $296,000 or 57.8%, from $512,000 in the comparable period in
Fiscal 1999. This is comprised principally of a decrease in employee
compensation costs ($410,000) offset by increased legal fees, principally
related to the litigation with the Table Mountain Tribe ($174,000)
General and administrative expenses in the three months ended January 31, 2000
increased by $367,000 or 108.6% from the comparable period of Fiscal 1999. The
increase was principally comprised of employee compensation ($182,000) and legal
fees related to corporate matters including the acquisition of Placement 2000
($166,000). Legal fees in Fiscal 2000 included the value of stock options issued
for legal services.
Restaurant operations expenses are attributed to the WCW Nitro Grill restaurant,
which began operations in May 1999.
As previously discussed in the operations for the six months ended January 31,
2000, approximately $211,000 of capitalized costs related to development of the
cemetery/funeral home project were written off as death care operations expense
in the second quarter of Fiscal 2000.
Recruitment and Internet operations expenses were incurred by Placement 2000 for
the period from December 1, 1999, the date it was acquired. The subsidiary
anticipates it will be fully operational in the Spring of 2000.
15
<PAGE> 16
Amortization and depreciation was $76,000 and $8,000 in the three months ended
January 31, 2000 and 1999, respectively. Amortization is comprised of the
amortization of organizational costs of the restaurant and goodwill associated
with the Placement 2000 acquisition.
The loss of unconsolidated subsidiary in the second quarter of Fiscal 2000
represents 100% of the loss from operations of the 49% owned restaurant
investment. The restaurant began operations in June 1999. In the future, if the
restaurant has net income, the Company will recognize all such income until
prior losses have been offset and thereafter net income will be split
proportionate to ownership interests.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions and mortgage notes receivable, in Fiscal 2000, totaled
$215,000 and $267,000 in the three months ended January 31, 2000 and 1999,
respectively.
The Company recorded current tax benefits of $6,000 and $639,000 for state and
Federal income taxes, respectively, for the three months ended January 31, 2000.
Provisions of $45,000 and $441,000 were recorded for state and Federal income
taxes currently payable, respectively, for the three months ended January 31,
1999.
Deferred income tax expense of $48,000 and $100,000 was recorded for state and
Federal income taxes in the three months ended January 31, 2000.
Net loss was $1,081,000 ($0.22 loss per share) and net income was $842,000
($0.17 basic earnings per share and $0.16 diluted earnings per share) for the
three months ended January 31, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES AT JANUARY 31, 2000 AND THE SIX MONTHS THEN
ENDED
At January 31, 2000, the Company had consolidated working capital of
$11,700,000, as compared with working capital of $14,476,000 at July 31, 1999.
INVESTING ACTIVITIES:
During the six months ended January 31, 2000, investing activities used
$2,710,000 as compared to $1,358,000 used by investing activities in the same
period in Fiscal 1999. The cash used in investing activities in Fiscal 2000 was
for a one year mortgage note receivable ($1,300,000) collateralized by land. The
Company invested $1,375,000 in the unconsolidated restaurant operation in the
six months ended January 31, 2000. Office equipment ($57,000) was also acquired
in Fiscal 2000. In the second quarter of Fiscal 2000, the Company completed the
acquisition of an 80% interest in Placement 2000 for $1 million in cash and up
to an additional $2 million in cash, based on future events and earnings. The
cash was paid to Placement 2000 and will be used for general operating purposes.
The Company also granted stock options to Placement 2000's former principal, who
is remaining with the company, to purchase up to 333,334 shares of American
Vantage Companies common stock. Funds used for the acquisition came from the
Company's working capital. Additional payments, if they are required, will also
come from working capital.
FINANCING ACTIVITIES:
No funds were used in the six months ended January 31, 2000 for financing
activities. Financing activities in the six months ended January 31, 1999 were
comprised of the proceeds from a bank loan ($1,318,000) and the issuance of
common stock ($20,000).
Historically, the Company has provided funds for its operations from operating
activities, financing from
16
<PAGE> 17
financial institutions and stockholders, and issuance of common stock, and it
will likely continue to use these sources of liquidity in the future. The Table
Mountain Tribe's failure to honor the Company's consulting and termination
agreements will have a significant negative impact on the Company's source of
funds. If, and until, the restaurant operations begin to provide cash flows, the
Company will use existing working capital for operating purposes. The Company
will seek to acquire and develop companies which can become market leaders on
the Internet and enable the Company to realize a significant influence over the
management and policies of the companies and to realize a significant return to
compensate for its investment of management time and effort, as well as capital.
The Company intends to allocate capital to the acquisition of Internet companies
that meet its investment criteria should the proper opportunities arise.
Additionally, the Company will continue to pursue any business venture,
including those not previously described, which management believes afford an
opportunity to increase stockholder value. In the event any of these
opportunities come to fruition, management will consider satisfying financing
requirements from working capital, through borrowing or capital infusion through
the public or private placement of common stock of the Company or its
subsidiaries.
17
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. See Part I, Note 6 of Notes to Consolidated Financial Statements.
Item 2. See Part 1, Note 7 of Notes to Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 27, 2000, the Registrant filed a Report
on Form 8-K reporting the stock purchase agreement
for the acquisition of 80% of the capital stock of
Placement 2000.Com, Inc.
18
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN VANTAGE COMPANIES
Dated: March 14, 2000 By: /s/ Ronald J. Tassinari
------------------------
Las Vegas, Nevada Ronald J. Tassinari
President
(Principal Executive Officer)
By: /s/ Roy K. Keefer
------------------------
Roy K. Keefer
(Chief Financial Officer and
Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 7,600,000
<SECURITIES> 0
<RECEIVABLES> 4,245,000
<ALLOWANCES> 0
<INVENTORY> 181,000
<CURRENT-ASSETS> 12,290,000
<PP&E> 1,995,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,928,000
<CURRENT-LIABILITIES> 590,000
<BONDS> 0
0
0
<COMMON> 49,000
<OTHER-SE> 21,079,000
<TOTAL-LIABILITY-AND-EQUITY> 21,928,000
<SALES> 1,930,000
<TOTAL-REVENUES> 1,930,000
<CGS> 0
<TOTAL-COSTS> 4,778,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,390,000)
<INCOME-TAX> (772,000)
<INCOME-CONTINUING> (1,618,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
