<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 APRIL 30, 2000
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
(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 June 12, 2000.
Transitional Small Business Disclosure Format Yes _______ No ___X___
<PAGE> 2
PART 1
FINANCIAL INFORMATION
American Vantage Companies
Consolidated Balance Sheets
April 30, 2000 and July 31, 1999
<TABLE>
<CAPTION>
April 30, July 31,
2000 1999
---------- ----------
Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,462,000 $12,626,000
Accounts receivable 149,000 191,000
Mortgage notes receivable and accrued interest 3,183,000 1,500,000
Refundable income taxes 1,410,000 219,000
Deferred income tax asset 75,000 135,000
Inventories 214,000 153,000
Prepaid expenses 49,000 376,000
----------- -----------
Total current assets 11,542,000 15,200,000
----------- -----------
Property and equipment, net 1,976,000 2,029,000
Land held for investment or development 4,894,000 5,105,000
Investment in unconsolidated subsidiary 1,907,000 592,000
Deferred income tax asset 123,000 191,000
Goodwill, net 277,000 36,000
Other assets - principally restricted cash in 2000 561,000 53,000
------------ ------------
$ 21,280,000 $ 23,206,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 317,000 $ 558,000
Accrued expenses 239,000 166,000
Current portion of capitalized lease obligations 27,000 -
----------- -----------
Total current liabilities 583,000 724,000
----------- -----------
Long-term liabilities:
Capitalized lease obligations, less current portion 13,000 -
----------- -----------
Minority interest in consolidated subsidiary 153,000 -
----------- -----------
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 277,000 -
Retained earnings 17,231,000 19,459,000
------------ ------------
20,531,000 22,482,000
------------ ------------
$ 21,280,000 $ 23,206,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
American Vantage Companies
Consolidated Statements of Income (Loss)
Three Months Ended April 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Casino consulting fees $ -- $ 2,490,000
Restaurant sales 744,000 --
Fees and commissions - recruitment and Internet 145,000 --
----------- -----------
889,000 2,490,000
----------- -----------
Costs and expenses:
Casino consulting 130,000 438,000
Restaurant operations 987,000 86,000
Death care operations 15,000 --
Recruitment and Internet operations 343,000 --
General and administrative 488,000 265,000
Amortization and depreciation 78,000 9,000
Minority interest in consolidated subsidiary (40,000) --
Loss of unconsolidated subsidiary 43,000 --
----------- -----------
2,044,000 798,000
----------- -----------
Income (loss) from operations (1,155,000) 1,692,000
----------- -----------
Other income (expense):
Interest income 251,000 252,000
Interest expense (2,000) (44,000)
Miscellaneous 8,000 10,000
----------- -----------
257,000 218,000
----------- -----------
Income (loss) before income taxes (898,000) 1,910,000
----------- -----------
Income tax benefit (expense):
Current:
State (9,000) (81,000)
Federal 308,000 (625,000)
Deferred:
State (1,000) --
Federal (10,000) --
----------- -----------
288,000 (706,000)
----------- -----------
Net income (loss) $ (610,000) $ 1,204,000
=========== ===========
Earnings (loss) per common share:
Basic $ (0.12) $ 0.24
=========== ===========
Diluted $ (0.12) $ 0.23
=========== ===========
Weighted average number of common shares
and common share equivalents:
Basic 4,887,000 5,019,000
Stock options and warrants 101,000 239,000
----------- -----------
Diluted 4,988,000 5,258,000
=========== ===========
</TABLE>
3
See Notes to Consolidated Financial Statements.
<PAGE> 4
American Vantage Companies
Consolidated Statements of Income (Loss)
Nine Months Ended April 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Casino consulting fees $ -- $ 6,660,000
Restaurant sales 2,537,000 --
Fees and commissions - recruitment and Internet 282,000 --
----------- -----------
2,819,000 6,660,000
----------- -----------
Costs and expenses:
Casino consulting 470,000 1,402,000
Restaurant operations 3,472,000 207,000
Death care operations 293,000 31,000
Recruitment and Internet operations 569,000 --
General and administrative 1,617,000 991,000
Amortization and depreciation 222,000 25,000
Minority interest in consolidated subsidiary (56,000) --
Loss of unconsolidated subsidiary 235,000 --
----------- -----------
6,822,000 2,656,000
----------- -----------
Income (loss) from operations (4,003,000) 4,004,000
----------- -----------
Other income (expense):
Interest income 708,000 745,000
Interest expense (2,000) (44,000)
Miscellaneous 9,000 10,000
----------- -----------
715,000 711,000
----------- -----------
Income (loss) before income taxes (3,288,000) 4,715,000
----------- -----------
Income tax benefit (expense):
Current:
State (3,000) (222,000)
Federal 1,191,000 (1,572,000)
Deferred:
State (49,000) --
Federal (79,000) --
----------- -----------
1,060,000 (1,794,000)
----------- -----------
Net income (loss) $(2,228,000) $ 2,921,000
=========== ===========
Earnings (loss) per common share:
Basic $ (0.46) $ 0.58
=========== ===========
Diluted $ (0.46) $ 0.55
=========== ===========
Weighted average number of common shares
and common share equivalents:
Basic 4,887,000 5,030,000
Stock options and warrants 67,000 276,000
----------- -----------
Diluted 4,954,000 5,306,000
=========== ===========
</TABLE>
4
See Notes to Consolidated Financial Statements.
<PAGE> 5
American Vantage Companies
Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,228,000) $ 2,921,000
------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Minority interest in consolidated subsidiary (56,000) --
Loss of unconsolidated subsidiary 235,000 --
Amortization and depreciation 222,000 25,000
Deferred income tax benefit 128,000 --
Write off of improvements to land held for
investment or development 211,000 --
Stock options issued for services 178,000 --
Changes in other assets and liabilities, net (1,417,000) (513,000)
------------ ------------
(499,000) (488,000)
------------ ------------
Net cash (used) provided by operating activities (2,727,000) 2,433,000
------------ ------------
Cash flows from investing activities:
Purchase of Placement 2000.Com, Inc. 22,000 --
Cash - restricted as to use (500,000) --
Mortgage note receivable (1,300,000) --
Investment in unconsolidated subsidiary (1,550,000) (500,000)
Note receivable from Table Mountain Tribe -- (2,087,000)
Purchase of land held for investment or development
and improvements -- (4,000)
Purchase of property and equipment, net (105,000) (470,000)
------------ ------------
Net cash used by investing activities (3,433,000) (3,061,000)
------------ ------------
Cash flows from financing activities:
Principal payments on capitalized leases (4,000) --
Proceeds from long-term debt -- 2,203,000
Repurchase of common stock -- (172,000)
Proceeds from issuance of common stock -- 20,000
------------ ------------
Net cash (used) provided by financing activities (4,000) 2,051,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (6,164,000) 1,423,000
Cash and cash equivalents, at beginning of period 12,626,000 15,371,000
------------ ------------
Cash and cash equivalents, at end of period $ 6,462,000 $ 16,794,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ -- $ 1,310,000
------------ ------------
Cash paid for interest $ 2,000 $ 44,000
============ ============
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 $ 178,000 $ --
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
American Vantage Companies
Consolidated Statements of Stockholders' Equity
Year Ended July 31, 1999 and Nine Months
Ended April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Capital
in excess
Common Stock 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 -- -- -- 178,000 --
Issuance of common stock options in
acquisition of Placement 2000.Com, Inc. -- -- -- 99,000 --
Net loss for the period -- -- -- -- (2,228,000)
------------ ------------ ------------ ------------ ------------
Balance, April 30, 2000 4,887,000 $ 49,000 $ 2,974,000 $ 277,000 $ 17,231,000
============ ============ ============ ============ ============
</TABLE>
6
See Notes to Consolidated Financial Statements.
<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 nine month periods ended April 30, 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 ending 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
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 provided 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.
The Company was to receive a monthly payment of $350,000 in accordance with
terms of the termination
7
<PAGE> 8
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 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 April 30,
2000, the Company had expended $2,750,000 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 nine month periods ended April 30, 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.
8
<PAGE> 9
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Additionally, $500,000 of the contingent purchase price
was placed into an escrow account and will be paid to Placement 2000 if future
events occur. 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>
<CAPTION>
<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 IT
candidates, corporate hiring managers, and third party recruiters. The flagship
site is intended 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 Fiscal 2000.
9
<PAGE> 10
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - DEATH CARE OPERATIONS
In December 1999 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 development of the Company's new corporate
growth 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 second quarter of
Fiscal 2000.
NOTE 6 - LITIGATION WITH THE TABLE MOUNTAIN TRIBE
Until May 1999, the Company had 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 required payments
of $350,000 per month for 48 months through January 2000. The second contract, a
consulting contract, also entered into in February 1996 and subsequently
amended, was to expire in June 2000. Since May 1999, the Table Mountain Tribe
has not honored the consulting and termination agreements with the Company.
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 lawsuit sought 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 sought 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 had 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 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 could file a
motion to amend its pleading to remain in U.S. District Court, or, in the
alternative, pursue the litigation in State Court. In March 2000, the Company
amended its pleading and filed a motion with the U.S. District Court to
reconsider its plea for the matter to be heard in District Court. Subsequently,
the Table Mountain Tribe filed a response with the U.S. District Court opposing
the Company's motion. A ruling on the matter is forthcoming. If the Court does
not uphold the Company's motion to remain in U.S. District Court, the Company
will vigorously pursue its litigation against the Table Mountain Tribe in the
Superior Court of the State of California.
The loss of casino consulting fees will have a material adverse effect on the
operations of the Company.
10
<PAGE> 11
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
NINE MONTHS ENDED APRIL 30, 2000 VERSUS NINE MONTHS ENDED APRIL 30, 1999
REVENUES
Casino consulting fees for the nine months ended April 30, 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 were to 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 April 30, 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 changed in Fiscal 2000. Collectively, casino consulting and
general and administrative expenses in Fiscal 2000 decreased by $306,000 or
12.8% from $2,393,000 in Fiscal 1999 to $2,087,000 in Fiscal 2000. For the two
categories combined, employee compensation decreased $519,000 while legal fees
increased $459,000. 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 nine months ended April 30, 2000 decreased to
$470,000, down $932,000 or 66.5%, from $1,402,000 in the comparable period in
Fiscal 1999. This is comprised principally of decreases in employee compensation
costs ($1,035,000), political contributions ($54,000) and consultants fees
($53,000), and increased legal fees principally related to the litigation with
the Table
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Mountain Tribe ($325,000).
General and administrative expenses in the nine months ended April 30, 2000
increased by $626,000 or 63.2% from the comparable period of Fiscal 1999. The
net increase was principally comprised of increased employee compensation
($516,000) and legal fees, principally related to corporate matters including
the acquisition of Placement 2000 ($134,000) 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 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
corporate growth 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 Fiscal 2000.
Amortization and depreciation was $222,000 and $25,000 in the nine months ended
April 30, 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
$708,000 and $745,000 in the nine months ended April 30, 2000 and 1999,
respectively.
The Company recorded current tax benefits (expense) of $(3,000) and $1,191,000
for state and Federal income taxes, respectively, for the nine months ended
April 30, 2000. Provisions of $222,000 and $1,572,000 were recorded for state
and Federal income taxes currently payable, respectively, for the nine months
ended April 30, 1999.
Deferred income tax expense of $49,000 and $79,000 was recorded for state and
Federal income taxes in the nine months ended April 30, 2000.
Net loss was $2,228,000 ($0.46 loss per share) and net income was $2,921,000
($0.58 basic earnings per share and $0.55 diluted earnings per share) for the
nine months ended April 30, 2000 and 1999, respectively.
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THREE MONTHS ENDED APRIL 30, 2000 VERSUS THREE MONTHS ENDED APRIL 30, 1999
REVENUES
Casino consulting fees for the three months ended April 30, 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.
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 April 30, 2000
decreased by $85,000 or 12.1% from $703,000 in comparable period in Fiscal 1999
to $618,000 in the third quarter of Fiscal 2000. For the two categories
combined, employee compensation decreased $155,000 while legal fees increased
$99,000. 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 April 30, 2000 decreased to
$130,000, down $308,000 or 70.3%, from $438,000 in the comparable period in
Fiscal 1999. This is comprised principally of a decrease in employee
compensation costs ($336,000) offset by increased legal fees, principally
related to the litigation with the Table Mountain Tribe ($107,000). Most of the
other casino consulting expenses were reduced as a result of the premature
termination of the Table Mountain Tribe consulting contract.
General and administrative expenses in the three months ended April 30, 2000
increased by $223,000 or 84.2% from the comparable period of Fiscal 1999. The
increase was principally comprised of employee compensation ($181,000) and
outside consulting services expense ($48,000).
Restaurant operations expenses are attributed to the WCW Nitro Grill restaurant,
which began operations in May 1999.
Recruitment and Internet operations expenses were incurred by Placement 2000.
The subsidiary anticipates it will be fully operational in Fiscal 2000.
Amortization and depreciation was $78,000 and $9,000 in the three months ended
April 30, 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.
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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
$251,000 and $252,000 in the three months ended April 30, 2000 and 1999,
respectively.
The Company recorded current tax benefits (expense) of $(9,000) and $308,000 for
state and Federal income taxes, respectively, for the three months ended April
30, 2000. Provisions of $81,000 and $625,000 were recorded for state and Federal
income taxes currently payable, respectively, for the three months ended April
30, 1999.
Deferred income tax expense of $1,000 and $10,000 was recorded for state and
Federal income taxes in the three months ended April 30, 2000.
Net loss was $610,000 ($0.12 loss per share) and net income was $1,204,000
($0.24 basic earnings per share and $0.23 diluted earnings per share) for the
three months ended April 30, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES AT APRIL 30, 2000 AND THE NINE MONTHS THEN ENDED
At April 30, 2000, the Company had consolidated working capital of $10,967,000,
as compared with working capital of $14,476,000 at July 31, 1999.
INVESTING ACTIVITIES:
During the nine months ended April 30, 2000, investing activities used
$3,433,000 as compared to $3,061,000 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 $1,550,000 in the unconsolidated restaurant operation in the
nine months ended April 30, 2000. Property and office equipment ($105,000) 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. Additionally, $500,000 of the contingent purchase price was placed
into an escrow account and will be paid to Placement 2000 if future events
occur. 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.
During the nine months ended April 30, 1999, the Company invested $500,000 in
the unconsolidated subsidiary and loaned $2,087,000 to the Table Mountain Tribe.
Property and equipment ($470,000) was purchased for the Nitro Grill restaurant.
FINANCING ACTIVITIES:
Cash was used for lease principal payments ($4,000) in the nine months ended
April 30, 2000. Financing activities in the nine months ended April 30, 1999
were comprised of the proceeds from a bank loan ($2,203,000), the repurchase of
common stock ($172,000) and the issuance of common stock ($20,000).
Historically, the Company has provided funds for its operations from operating
activities, financing from financial institutions and stockholders, and issuance
of common stock, and it will likely continue to use
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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 will 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 and/or development of 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.
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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
(a) Exhibits
27.1 Financial Data Schedule
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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: June 12, 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)
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Exhibit Index
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Exhibit Number Description
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27.1 Financial data Schedule
20
