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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[monitor Annual report under Section 13 of 15(d) of the Securities Exchange
symbol] Act of 1934
For the fiscal year ended July 31, 2000
[mouse Transition report under Section 13 or 15(d) of the Securities
symbol] Exchange Act of 1934
For the transition period from ____________ to _____________
Commission File Number 0-10061
AMERICAN VANTAGE COMPANIES
(Name of Small Business Issuer in its charter)
Nevada 04-2709807
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6787 West Tropicana, Suite 200, Las Vegas, Nevada 89103
(Address of principal executive offices) (zip code)
(702) 227-9800
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $589,000
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant computed by reference to the closing sale price
of $2.00 for the Company's Common Stock, as reported by NASDAQ for October 17,
2000, was $7,957,453 (assuming for purposes of such calculation that all
officers and directors of the Issuer are affiliates).
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The number of shares outstanding of the Registrant's Common Stock at
October 17, 2000 was 4,858,256.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [ X ]
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PART I
Item 1. Description of Business
Development of Business
American Vantage Companies (the "Company") presently intends to sell
certain of its principal assets in order to provide cash resources sufficient to
acquire, merge into or make an investment in an existing business or businesses.
The Company is currently reviewing opportunities in order to maximize its
resources.
The Company had been engaged in providing gaming consulting services to
Table Mountain Casino & Bingo, a tribal gaming enterprise on a Federal Indian
Rancheria in Friant, California (the "Table Mountain Casino") until May 1999
when its contract to provide consulting services to the Table Mountain Casino
was prematurely terminated by the Table Mountain Band of Indians (the "Table
Mountain Tribe"). See "Item 1. Description of Business - Table Mountain Casino."
In May 1997, the Company acquired approximately 40 acres of undeveloped
land in North Las Vegas, Nevada which the Company had initially intended to
develop as a funeral home and cemetery (the "40 Acre Parcel"). However,
development was delayed while the Clark County, Nevada government finalizes its
plan for construction of a flood control project for the area. In the event the
flood control project had been built as intended, the Company would not have had
to build major water control culverts on the cemetery project. Because of the
delay, the Company has decided not to develop the 40 Acre Parcel for funeral
home or cemetery purposes. The Company will either sell the 40 Acre Parcel or
hold it for future development.
In February 1998, the Company acquired 20 acres of undeveloped land in
North Las Vegas, Nevada near the location of the 40 Acre Parcel which is being
held for future development or sale (the "20 Acre Parcel").
In May 1999, Sitka Restaurant Group, Inc. ("Sitka"), a majority-owned
subsidiary of the Company, opened the WCW Nitro Grill (the "Nitro Grill"), a
themed restaurant, in the Excalibur Hotel and Casino (the "Excalibur") in Las
Vegas, Nevada. The Company closed the Nitro Grill in September 2000. See "Item
1. Description of Business - WCW Nitro Grill."
In February 1999, Vantage Bay Group, Inc. ("Vantage Bay"), a majority-owned
subsidiary of the Company, purchased a 49% interest in the Border Grill (the
"Border Grill"), a restaurant to be located in the Mandalay Bay Hotel and Casino
in Las Vegas, Nevada. The Border Grill opened in June 1999.
In December 1999, the Company purchased an 80% interest in Placement
2000.Com, Inc. ("Placement 2000"). Located in New York City, Placement 2000 is a
privately held recruiting company for information technology ("IT")
professionals and companies which is developing Web-based products and services
to enhance its traditional IT recruiting business.
The Company was incorporated in Nevada in 1979, under the name Western
Casinos, Inc. The Company changed its name to American Casino Enterprises, Inc.
in 1979 and then changed its name to American Vantage Companies in March 1997.
The Company was originally formed to engage in the business of recreational and
leisure time activities, including casino gaming. In January 1991, the Company
completed the purchase of all of the capital stock of Millerton Games, Inc.,
which held a management consulting contract for the Table Mountain Casino.
All references herein to the Company refer to the Company and its
subsidiaries unless the context otherwise requires. The Company's principal
executive offices are located at 6787 West Tropicana, Suite 200, Las Vegas,
Nevada 89103, and its telephone number is (702)227-9800.
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Table Mountain Casino
On February 1, 1996, the Company entered into a termination agreement (the
"Termination Agreement") with the Table Mountain Tribe which terminated the
Company's 1993 consulting agreement (the "1993 Agreement") and simultaneously
entered into a new consulting agreement (the "1996 Agreement"). Under the
conditions of the Termination Agreement, commencing February 1, 1996, the Table
Mountain Tribe was required to pay the Company 48 monthly installments of
$350,000 in consideration for termination of the 1993 Agreement. However, no
payment was required for any month in which the net income of the casino does
not equal or exceed $1 Million. The term of the Termination Agreement was to be
automatically extended by one month for each month that no payment is required
thereunder, up to a maximum of 12 months.
The 1996 Agreement required that the Company consult and provide technical
assistance, training and advice to the Table Mountain Tribe concerning all
matters relating to the operation and business activities of the casino,
including but not limited to organization and administration, planning and
development, gaming activities, internal controls and accounting procedures,
cage operations, engineering and maintenance, housekeeping, human resources,
management information services, marketing and advertising, purchasing,
surveillance, security and food and beverage operations. The 1996 Agreement was
amended in both June 1997 and October 1997. The term of the 1996 Agreement, as
amended, expired on June 30, 2000. For its services under the 1996 Agreement, as
amended, the Company was to receive minimum monthly payments of $50,000. The
Table Mountain Tribe was also required to pay the Company additional monies for
certain increments of monthly casino net income in excess of the first $1.5
million of net revenue from casino operations.
On May 20, 1999, the Company received formal written notice from the legal
counsel of the Table Mountain Tribe that the General Council of the Table
Mountain Tribe voted to terminate the Company's contract to provide consulting
services to the Table Mountain Casino. In June 1999, the Company brought a civil
action in the United States District Court, Eastern District of California,
Fresno Division (the "District Court") against the Table Mountain Tribe for
breach of the Company's contract with the Table Mountain Tribe for, among other
things, payments due under the 1996 Agreement and the Termination Agreement. The
Table Mountain Tribe filed a counterclaim 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. In February 2000, an order (the "Prior Order") was filed by Judge
Anthony W. Ishii ("Ishii") with the District Court dismissing the Company's
claims against the Table Mountain Tribe due to the District Court's lack of
subject matter jurisdiction. The Prior Order similarly dismissed the Table
Mountain Tribe's counterclaim against the Company. Pursuant to the Prior Order,
either the Company or the Table Mountain Tribe could file a motion to amend its
pleading to remain in District Court or, in the alternative, pursue the matter
in state court. The Company filed a motion to amend its pleading to remain in
District Court. On September 27, 2000, an order (the "Order") was filed by Ishii
with the District Court dismissing, with prejudice, the Company's claims against
the Table Mountain Tribe due to the District Court's lack of subject matter
jurisdiction and not based on the merits of the case. The Company plans to
vigorously pursue the matter in state court.
Acquisition of North Las Vegas, Nevada Property
In May 1997, the Company bought the 40 Acre Parcel for approximately
$3,500,000 in cash. The Company initially intended to develop the 40 Acre Parcel
as a funeral home and cemetery. However, development was delayed while the Clark
County, Nevada government finalizes its plan for construction of a flood control
project for the area. In the event the flood control project had been built as
intended, the Company would not have had to build major water control culverts
on the cemetery project. Because of the delay, the Company has decided not to
develop the 40 Acre Parcel for funeral home or cemetery purposes. The Company
will either sell the 40 Acre Parcel or hold it for future development. In
February 1998, the Company brought the 20 Acre Parcel for $1,375,000 in cash
which will be held for future development or sale.
WCW Nitro Grill
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On November 12, 1998, Sitka entered into a license agreement (the "License
Agreement") with World Championship Wresting, Inc. ("WCW") to develop one or
more themed restaurants to be named the WCW Nitro Grill. The Company agreed to
guarantee all payments due from Sitka to WCW.
The License Agreement commenced on May 1, 1999 and was to remain in effect
so long as Sitka continued to open a minimum number of restaurants or, in the
alternative, met certain minimum royalties. The License Agreement provided for
Sitka to make certain minimum guaranteed payments upon the opening of each
restaurant and annually thereafter to WCW against royalties payable to WCW based
on gross sales of food and beverages, merchandise and fee-based attractions
and/or promotions. The License Agreement was terminable by either party upon 120
days written notice to the other party.
On November 19, 1998, Sitka entered into a ten-year lease for restaurant
space (the "Lease") with New Castle Corp. ("New Castle"), doing business as the
Excalibur Hotel and Casino, for the location of the first Nitro Grill. The Lease
was terminable by either party upon 120 days written notice to the other party.
On May 17, 1999, the first WCW Nitro Grill opened in the Excalibur in Las Vegas,
Nevada. The Company expended $1,915,000 for furniture, equipment and leasehold
improvements in developing the restaurant. On September 28, 2000, the Company
announced its closing of the Nitro Grill effective September 30, 2000 due to
historical operating results. See "Notes to Consolidated Financial Statements."
The Company is currently negotiating with both the WCW and New Castle regarding
any payments due the WCW and New Castle in connection with the closing of the
Nitro Grill and expects that such payments, if any, will not be significant.
Border Grill
On November 12, 1998, Vantage Bay entered into an operating agreement (the
"Operating Agreement") with TT&T, LLC ("TT&T") to develop a restaurant named the
Border Grill. The Operating Agreement provides that Vantage Bay, in exchange for
a 49% interest in the Border Grill, contribute $251,000 upon the execution of
the Operating Agreement and, thereafter, contribute further capital, up to an
aggregate of $2,750,000, all of which has been contributed by the Company
through the year ended July 31, 2000, to fund the development of the restaurant
subject to the terms and conditions of the Operating Agreement. Vantage Bay also
agreed to loan to TT&T up to $175,000 for development and operation of the
restaurant. The Company agreed to guarantee all payments due from Vantage Bay to
TT&T. The Border Grill opened in the Mandalay Bay Hotel and Casino in Las Vegas,
Nevada on June 17, 1999.
Placement 2000
On December 6, 1999, the Company entered into a stock purchase agreement,
dated as of December 1, 1999 (the "Stock Purchase Agreement"), to purchase 80%
of the capital stock of Placement 2000 for $1 million in cash and up to an
additional $2 million in cash based on certain benchmarks and future earnings,
to be used for Placement 2000's general corporate purposes. Located in New York,
New York, Placement 2000 is a privately held recruiting company for IT
professionals and companies. Placement 2000 is in the process of developing
three Web-based properties to enhance its traditional IT recruiting business.
However, the development of these Web-based properties has been delayed because
Placement 2000 is in need of additional working capital for its business
purposes. The Company is currently considering providing Placement 2000 its
working capital requirements prior to Placement 2000's attainment of established
benchmarks or, in the alternative, selling or discontinuing the operations of
Placement 2000. The flagship site is intended to be a resume and job posting
database with advanced search capabilities with 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 is also intended to provide links to other
career Web-based resources and strategic distribution partnerships with several
other 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 further believes that
these Web-based properties will generate a value stream for its traditional
recruiting operations. The three sites are intended to be operational in the
next fiscal year, provided financing is available.
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Competition
The Border Grill is subject to vigorous competition relating to restaurant
location and service, as well as quality, variety and value perception of the
food products offered. The Border Grill is in competition with other food
service operations, with locally-owned operations, as well as national or
regional chains that offer the same type of products or services as the Company.
With regard to the Web-based properties being developed by Placement 2000,
since the advent of commercial services on the Internet, the number of online
services competing for users' attention and spending has proliferated, and the
Company expects that competition will continue to intensify. Placement 2000 will
compete with online job boards such as Hotjobs.com, Headhunter.net and TMP
Worldwide (MONSTER.COM). Placement 2000's competitors have longer operating
histories, larger client bases, longer relationships with clients, greater brand
or name recognition and significantly greater financial, technical, marketing
and public relations resources than Placement 2000. As a result, they may be in
a position to respond more quickly to new or emerging technologies and changes
in customer requirements and to develop and promote their products and services
more effectively. Placement 2000 may not be able to compete successfully against
present or future competitors. There are relatively low barriers to entry in the
online services market. Placement 2000 does not own any patented technology that
precludes or inhibits competitors from entering the IT online market. Existing
or future competitors may develop or offer services that are comparable or
superior to Placement 2000's at a lower price, which could have a material
adverse effect on Placement 2000's business, results of operations and financial
condition.
Government Regulation
The Border Grill is subject to inspection and regulation by public health
authorities. Most leasehold improvements made to the Border Grill are subject to
local and state building code requirements. The Border Grill is subject to the
Fair Labor Standards Act which governs such matters as minimum age requirements,
overtime and other working conditions. The Company believes that its conduct of
business is in substantial compliance with these and other applicable government
regulations. However, the Company is unable to predict the scope or effect, if
any, of any future government regulation or legislation affecting the
restaurants.
A majority of the employees of the Border Grill are paid at levels based on
the federal minimum wage level. Accordingly, changes in such minimum wage levels
affect the Border Grill's labor costs. Some of the Border Grill employees are
not covered by health insurance. The Company is unable to predict the scope or
effect, if any, of future government regulation or legislation affecting
employee health care benefits.
With regard to the Web-based properties being developed by Placement 2000,
the United States Congress has recently passed legislation that regulates
certain aspects of the Internet, including online content, copyright
infringement, user privacy, taxation, access charges, liability for third-party
activities and jurisdiction. In addition, federal, state, local and foreign
governmental organizations have enacted and also are considering, and may
consider in the future, other legislative and regulatory proposals that would
regulate the Internet. Areas of potential regulation include, but are not
limited to, libel, electronic contracting, pricing, quality of products and
services and intellectual property ownership. The European Union also has
enacted several directives relating to the Internet. In order to safeguard
against the spread of certain illegal and socially harmful materials on the
Internet, the European Commission has drafted the "Action Plan on Promoting the
Safe Use of the Internet." Other European Commission directives address the
regulation of privacy, e-commerce, security, commercial piracy, consumer
protection and taxation of transactions completed over the Internet. It is not
known how courts and administrative agencies will interpret and apply both
existing and new laws. Therefore, the Company is uncertain as to how new laws or
the application of existing and new laws will affect Placement 2000's business.
In addition, Placement 2000's business may be indirectly affected by Placement
2000's vendors and customers who may be subject to such legislation. Increased
regulation of the Internet may decrease the growth in the use of the Internet,
which could decrease the demand for Placement 2000's services, increase
Placement 2000's cost of doing business or otherwise have a material adverse
effect on Placement 2000's business, results of operations and financial
condition.
Employees
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As of October 17, 2000, the Company employed six persons including a Chief
Executive Officer, an Executive Vice President and a Vice President--Chief
Financial Officer.
The Border Grill employs 9 managerial employees and 110 retail employees.
The employees of the Border Grill are not covered by collective bargaining
agreements or represented by a union. The Company considers its relationship
with the Border Grill employees to be good. Placement 2000 employs 5 managerial
employees and 15 employees in sales and marketing. Placement 2000's employees
are not represented by any union, and the Company considers its relationship
with Placement 2000's employees to be good.
Item 2. Description of Property
The Company's executive offices are located in approximately 5,116 square
feet of leased office space at 6787 West Tropicana, Suite 200, Las Vegas, Nevada
89103. The monthly rental is $8,724. The lease agreement commenced on June 1,
1996 and expires on June 1, 2001.
The Border Grill is located in leased restaurant space in the Mandalay Bay
Hotel and Casino in Las Vegas, Nevada. The monthly rental is $6,250 per month,
plus a percentage on gross sales of food and beverages. The lease agreement
commenced on May 15, 1998 and expires on May 15, 2008.
Placement 2000's offices are located in approximately 2,095 square feet of
leased office space at 116 John Street, Room 1705, New York, New York 10038. The
monthly rental is $3,666.25. The lease agreement commenced on September 1, 1998
and expires October 31, 2003.
See "Item 1. Description of Business - Acquisition of North Las Vegas,
Nevada Property" for a description of undeveloped real estate which the Company
acquired in May 1997 and February 1998.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any material
legal proceeding, nor to the knowledge of Management is any litigation
threatened against the Company or its subsidiaries, except as described
hereinafter.
In June 1999, the Company brought a civil action in the District Court for
breach of contract against the Table Mountain Tribe for terminating the
Company's contracts to provide consulting services to the Table Mountain Casino.
The lawsuit seeks to recover payments totaling $3,150,000 due under the
Termination Agreement and under the 1996 Agreement, the Company seeks an award
of $790,000, which represents only the base fees due under the 1996 Agreement.
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 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.
In February 2000, the Prior Order was filed by Ishii with the District
Court dismissing the Company's claims against the Table Mountain Tribe due to
the District Court's lack of subject matter jurisdiction. The Prior Order
similarly dismissed the Table Mountain Tribe's counterclaims against the
Company. Pursuant to the Prior Order, either the Company or the Table Mountain
Tribe could file a motion to amend its pleading to remain in District Court or,
in the alternative, pursue the matter in state court. The Company filed an
amendment requesting that the case remain in District Court. On September 27,
2000, the Order was filed by Ishii with the District Court dismissing, with
prejudice, the Company's claims against the Table Mountain Tribe due to the
District Court's lack of subject matter jurisdiction and not based on the merits
of the case. The Company plans to vigorously pursue the matter in state court.
In June 2000, Michelle Gilbert (the "Employee"), a former employee of
Placement 2000, filed a complaint (the "Complaint") with the State of New York
Executive Department, Division of Human Rights (the "Human Rights Division")
alleging Placement 2000 engaged in an unlawful discriminatory practice,
specifically, unlawful
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termination based on race, color and sex in connection with the Employee's
termination. In July 2000, Placement 2000 filed a response with the Human Rights
Division denying all allegations of unlawful conduct in connection with the
Complaint. To date, the Human Rights Division has taken no action on the
Complaint.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter market and
quoted through the Nasdaq Stock Market under the symbol "AVCS".
The following table sets forth the range of high and low closing bid prices
of the Company's Common Stock for each quarterly period indicated, as reported
by Nasdaq. The prices represent inter-dealer quotations, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
Period High Bid Low Bid
------ -------- -------
<S> <C> <C>
Fiscal 2000
First Quarter (August 1, 1999- October 31, 1999) $2.81 $1.50
Second Quarter (November 1, 1999 - January 31, 2000) $2.50 $1.16
Third Quarter (February 1, 2000 - April 30, 2000) $2.63 $1.00
Fourth Quarter (May 1, 2000 - July 31, 2000) $1.88 $0.91
Fiscal 1999
First Quarter (August 1, 1998 - October 31, 1998) $4.41 $2.43
Second Quarter (November 1, 1998 - January 31, 1999) $4.20 $2.79
Third Quarter (February 1, 1999 - April 30, 1999) $3.39 $2.82
Fourth Quarter (May 1, 1999 - July 31, 1999) $3.18 $2.43
</TABLE>
On October 17, 2000, the closing sale price per share for the Company's
Common Stock was $2.00.
On October 17, 2000, there were 864 holders of record of the 4,858,256
shares of the Company's Common Stock outstanding.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock since its
incorporation. The Company anticipates that in the foreseeable future, earnings,
if any, will be retained for use in its business or for other corporate
purposes.
Item 6. 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 6, 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 dependence on existing management, government
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regulation of Internet activities, competition from larger Web-based information
technology service providers and in the restaurant industry Federal and state
regulation of the restaurant industry, 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
Until May 1999, the Company derived all of its revenues from providing
consulting services to the Table Mountain Casino. In May 1999, the Table
Mountain Tribe voted to prematurely terminate the contracts it has with the
Company and since then has not honored the consulting and termination
agreements. As a result, the Company's primary source of revenue has been
eliminated and it has had a significant negative impact on the Company's source
of funds. Also, the WCW Nitro Grill, the Border Grill and Placement 2000
operations were not generating positive cash flows as of July 31, 2000. If, and
until, they begin to provide cash flows, and/or the Company initiates or
acquires a business operation which is generating positive cash flow, the
Company will use existing working capital for operating purposes. The closure of
the WCW Nitro Grill in September 2000 will eliminate the negative cash flow that
operation created during its existence.
Placement 2000 operates in an extremely competitive industry. Due to the short
amount of time Placement 2000 has been in business and considering the
competition it faces, the Company cannot be certain Placement 2000 will ever be
profitable. Nor is it a certainty that the Company will continue to fund future
operations of Placement 2000 if it does not operate profitably. The Company is
currently evaluating its alternatives for this investment. It may seek other
investors to assist with funding the subsidiary's future operations; it may sell
the subsidiary or it may discontinue the operations of Placement 2000.
The Company completed its readiness work for the Year 2000 issue (the "Year
2000") during the year ended July 31, 2000 ("Fiscal 2000"). As of October 2000,
the Company has not experienced any problems related to the Year 2000 as some
people had anticipated. It is possible that the full impact of the date change
has not been fully recognized, however, the Company does not anticipate any
accounting or reporting problems to result from the Year 2000. The Company
incurred minimal costs (less than $2,000) in its efforts to assure compliance
with the Year 2000. Should any additional costs be required in the future, they
will be expensed as incurred and are not expected to be significant.
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 2000 COMPARED WITH THE YEAR ENDED JULY 31, 1999
REVENUES
Casino consulting fees of $6,660,000 for the year ended July 31, 1999 ("Fiscal
1999") were derived from the 1996 consulting agreement (the "1996 Agreement")
and the Termination Agreement between the Company and the Table Mountain Tribe
("the Tribe") for providing consulting services to the Table Mountain Casino.
The decrease in revenues was caused by the termination of the contracts by the
Tribe as described below.
The consulting fee schedule under the 1996 Agreement 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 1996 Agreement was extended to June 30, 2000.
Additionally, effective February 1, 1996, the Company and the Tribe signed the
Termination Agreement of a March 1993 consulting agreement under which a monthly
payment of $350,000 was to be paid to the Company through January 2000, subject
to meeting certain thresholds.
In May 1999, the 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. In June 1999, the Company filed a
lawsuit in the United States District Court, Eastern District of California
("District Court") against the Tribe.
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The lawsuit sought to recover payments totaling $3,150,000 due under the
Termination Agreement and under the 1996 Agreement, the Company seeks an award
of $790,000, which represents only the base fees due under the consulting
contract. The Company also seeks additional unspecified and "to be determined"
consulting fees that would have been due during the remainder of the term of the
1996 Agreement.
The Tribe filed a countersuit against the Company claiming the 1996 Agreement
and Termination Agreement are invalid, for several reasons, and requesting
restitution for all consulting fees paid to the Company during the period of the
agreements. See Item 3 - "Legal Proceedings".
In September 2000, an Order ("Order") was filed with the District Court by Judge
Anthony W. Ishii dismissing, with prejudice, 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. The Company intends to vigorously pursue its litigation
against the Table Mountain Tribe in the Superior Court of the State of
California.
The loss of casino consulting fees has had a material adverse effect on the
operations of the Company.
Fees and commissions - recruitment and Internet in Fiscal 2000 were generated by
Placement 2000 from December 1999, the date it was acquired, through July 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 and 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 solely as 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 $419,000 or
13.9% from $3,007,000 in the year ended July 31, 1999 ("Fiscal 1999") to
$2,588,000 in Fiscal 2000. For the two categories combined, employee
compensation decreased $505,000 while legal fees increased $436,000. The
increase in legal fees is mainly due to the prosecution of the Company's case
against the Tribe and the acquisition of Placement 2000. 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 Fiscal 2000 decreased to $485,000, from $1,828,000
in Fiscal 1999, a decrease of $1,343,000 or 73.5%. This is comprised of
decreases in employee compensation costs ($1,233,000), political contributions
($54,000) and consultants' fees ($64,000) and increased legal fees principally
related to the litigation with the Table Mountain Tribe ($277,000).
The Company incurred $301,000 in death care operating expenses in Fiscal 2000 as
compared to expenses of $47,000 in Fiscal 1999. In December 1999 the Board of
Directors decided to cancel its plans to develop the cemetery and funeral home
project on the 40 Acre Parcel and consider opportunities for the most
advantageous disposition of that land. If the 40 Acre Parcel is sold, the
proceeds from the sale will 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.
Recruitment and Internet operations expenses totaled $1,167,000 for Fiscal 2000.
This was principally made up of employee compensation including commissions
totaling approximately $851,000 and consultants' fees of $57,000.
General and administrative expenses in Fiscal 2000 increased by $924,000 or
78.4% from Fiscal 1999. The net increase was principally comprised of increased
employee compensation ($728,000), consultants' fees ($38,000) and legal fees,
principally related to corporate matters including the acquisition of Placement
2000 ($159,000) and a decrease in political contributions ($54,000). Legal fees
in Fiscal 2000 included the value of stock options issued for legal services.
11
<PAGE> 12
Amortization and depreciation was $84,000 and $34,000 in Fiscal 2000 and Fiscal
1999, respectively. Amortization in Fiscal 2000 is comprised of goodwill
associated with the acquisition of Placement 2000, and is being amortized over a
seven year period. In Fiscal 1999, only depreciation expense was recorded in
this category.
Minority interest in consolidated subsidiary ($118,000) represents the minority
interest in Placement 2000's operations.
The loss of unconsolidated subsidiary represents 100% of the loss from
operations, including the expense of startup costs in Fiscal 1999, of the Border
Grill. The Border Grill began operations in June 1999. In the future, if the
Border Grill 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 ITEMS
Interest income from time deposits with financial institutions, totaled $954,000
and $941,000 in Fiscal 2000 and Fiscal 1999, respectively. In Fiscal 1999, the
Company incurred $42,000 of interest expense on a bank loan for funds, which
were loaned to the Table Mountain Tribe.
Deferred state income tax expense of $49,000 was recorded for Fiscal 2000. The
Company recorded a provision of $115,000 for State of California income taxes
currently payable for Fiscal 1999. A deferred state income tax benefit of
$48,000 was recorded for Fiscal 1999.
The deferred tax benefit was $962,000 for Fiscal 2000 and a deferred Federal
income tax expense of $96,000 was recorded for Fiscal 2000. A provision of
$1,526,000 was recorded for Federal income taxes currently payable for Fiscal
1999. The deferred Federal income tax benefit totaled $211,000 in Fiscal 1999.
The loss from the discontinued WCW Nitro Grill operation was $968,000, net of an
income tax benefit of $498,000 for Fiscal 2000, and $455,000, net of an income
tax benefit of $235,000 for Fiscal 1999. The estimated operating loss during the
phase-out period and the write-down of assets to their net realizable value was
$1,119,000, net of a deferred income tax benefit of $577,000 for Fiscal 2000.
Net loss from continuing operations was $1,765,000 ($0.36 basic and diluted
earnings per share) and net income from continuing operations was $2,481,000
($0.49 basic earnings per share and $0.47 diluted earnings per share) for Fiscal
2000 and Fiscal 1999, respectively.
Net loss was $3,852,000 ($0.79 basic and diluted earnings per share) and net
income was $2,026,000 ($0.40 basic earnings per share and $0.38 diluted earnings
per share) for Fiscal 2000 and Fiscal 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company had consolidated working capital of $10,690,000,
as compared with working capital of $13,970,000 at July 31, 1999.
OPERATING ACTIVITIES:
Operating activities used $3,357,000 in Fiscal 2000 as compared to operating
activities providing $2,294,000 in Fiscal 1999. The decrease was attributable to
the operating loss for Fiscal 2000 and the write-down of assets of the
discontinued operation.
INVESTING ACTIVITIES:
During Fiscal 2000, investing activities used $1,914,000 as compared to
$4,587,000 used by investing activities in Fiscal 1999.
In Fiscal 2000, the Company granted a one-year $1,300,000 mortgage note
receivable, which is collateralized by land.
12
<PAGE> 13
Property and office equipment ($86,000), principally for Placement 2000, was
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. Additionally, $500,000 (cash - restricted as to use) of the
contingent purchase price was placed into an escrow account and will be paid to
Placement 2000 if future events occur. The Company also granted stock options to
Placement 2000's former principal, who is remaining with Placement 2000, to
purchase up to 333,334 shares of the Company's common stock. 266,667 of the
options are only exercisable when Placement 2000 has met certain performance
objectives. 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 Fiscal 2000, the Company invested $1,550,000 in the unconsolidated
restaurant subsidiary bringing the total investment to $2,750,000.
The $1,500,000 one-year mortgage note receivable made in Fiscal 1999 was repaid
in Fiscal 2000
During Fiscal 1999, the Company made a $1,500,000 mortgage loan receivable.
During Fiscal 1999, $1,200,000 was invested in the unconsolidated restaurant
subsidiary. $1,867,000 was used in Fiscal 1999 to purchase furniture, equipment
and leasehold improvements for the WCW Nitro Grill restaurant. The Company
loaned $2,203,000 to the Tribe in Fiscal 1999. It was repaid in the same year.
FINANCING ACTIVITIES:
Financing activities in Fiscal 2000 resulted in a $48,000 use of funds as
compared to $452,000 being used by financing activities in Fiscal 1999.
In Fiscal 2000, the Company repurchased Company common stock ($33,000) and made
payments on capitalized leases ($15,000). In Fiscal 1999, the Company borrowed
funds ($2,203,000), which were in turn loaned to the Tribe. Both loans were paid
off in Fiscal 1999.
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 these sources of liquidity
in the future. The Tribe's failure to honor the Termination Agreement and the
1996 Agreement had a significant negative impact on the Company's source of
funds. If, and until, the Company's other operations begin to provide cash
flows, the Company will use existing working capital for operating purposes. The
Company has always sought and will continue to seek other suitable consulting
contracts and/or ownership of casinos and other gaming opportunities on and off
Indian land, as well as recreational, leisure time and entertainment ventures.
During Fiscal 2000 the Company began a corporate restructuring to divest itself
of its non-core assets. Although the restructuring has not been finalized, it
likely will involve the sale of the land held for investment or development and
may include the acquisition of new subsidiaries and the disposition of other
existing operations/investments.
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.
Item 7. Financial Statements
The consolidated financial statements of the Company are set forth in a
separate section of this Report following Part III.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
13
<PAGE> 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Set forth below are the names of all the directors and executive officers
of the Company along with certain information relating to the business
experience of each of the listed officers and directors.
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Ronald J. Tassinari Chief Executive Officer, President and Director
Audrey K. Tassinari Executive Vice President and Director
Roy K. Keefer Chief Financial Officer, Vice President and
Secretary/Treasurer
Jeanne Hood Director
Steven G. Barringer Director
Boyad Tanner Director
James W. Davis Director
Gregory J. Woodland Director
</TABLE>
Directors are elected to serve for three years, or until their successors
are elected and qualified (except that at least twenty-five percent of all
Directors must be elected each year). Officers serve at the discretion of the
Board of Directors subject to any contracts of employment. The Board of
Directors has an Audit Committee and a Compensation Committee. The Audit
Committee is comprised of Gregory J. Woodland (chairman), James W. Davis, Jeanne
Hood and Boyad Tanner. The Compensation Committee is comprised of James W. Davis
(chairman) Gregory J. Woodland and Jeanne Hood. The Board of Directors does not
have a nominating committee. See "Item 10. Executive Compensation."
Ronald J. Tassinari has been Chief Executive Officer, President and a
Director of the Company since its inception in August 1979.
Audrey K. Tassinari has been a Director of the Company since March 1985 and
Vice President since April 1986. Mrs. Tassinari is the wife of Ronald J.
Tassinari, the Company's President.
Roy K. Keefer has been Chief Financial Officer, Vice President and
Secretary/Treasurer of the Company since April 1992. Mr. Keefer was a Director
of the Company from December 1992 to May 1999.
Jeanne Hood has been a Director of the Company since February 1994, and was
a gaming consultant to the Company from February 1994 until April 2000. See
"Item 12. Certain Relationships and Related Transactions." >From 1985 to 1993,
Ms. Hood served as President and Chief Executive Officer of Elsinore
Corporation, a publicly traded gaming company, and of Four Queens, Inc., a
majority-owned subsidiary of Elsinore Corporation, which subsidiary owns and
operates the Four Queens Hotel Casino in Las Vegas, Nevada.
Steven G. Barringer has been a Director since February 1998. He is a member
of the law firm of Dickstein Shapiro Morin & Oshinsky, LLP, Washington, D.C.,
practicing natural resources and environmental law. >From January 1996 to April
1999 he was is a member of the law firm of Singer, Brown and Barringer, Las
Vegas, Nevada, practicing natural resources and environmental law. Before
forming Singer, Brown and Barringer in January 1996, Mr. Barringer was a member
of the law firm of Holland & Hart, Washington D.C.
14
<PAGE> 15
Boyad Tanner has been a Director of the Company since May 1999. Mr.
Tanner had a varied business background, including owning and operating Indian
Trading Posts in Utah and New Mexico. He owned and operated an automobile agency
in Farmington, New Mexico, and was also a licensed real estate agent, having his
own agency. Mr. Tanner was the Executive Director for Urban Renewal and
Development both in Indio, California as well as in North Las Vegas, Nevada. His
most recent appointments in Las Vegas include a partnership at Harrington Horsey
Insurance Agency, serving on the Board of the Clark County Planning Commission
and serving on the Board of Directors for Cumorah Credit Union. He was also the
recipient of the Silver Beaver Award for his service with the Boy Scouts of
America. Mr. Tanner has been retired for the past six years.
James W. Davis has been a Director of the Company since June 2000 and
Senior Partner at Key West Technologies, a business consulting partnership
advising a number of firms with regard to technology, e-commerce and the
Internet and business management since founding Key West Technologies in January
1999. Prior to founding Key West Technologies, Mr. Davis served as the President
and Chief Executive Officer of MRT micro, ASA/Inc., a communications software
company, from January 1997 until January 1999. From September 1996 to January
1997, Mr. Davis was a Visiting Research Scholar at the Communications Technology
Center at Florida Atlantic University. In March 1995, Mr. Davis founded Key West
Technologies, Inc., a computer hardware and software corporation. In February
1996, Key West Technologies, Inc. was acquired by Interaxx Television Network,
Inc. ("Interaxx"). Mr. Davis served as Chief of Executive Officer of Interaxx
from February 1996 until January 1997. Interaxx granted Mr. Davis the right to
use the name Key West Technologies in the future. Mr. Davis has also served as
Director for Intel Corp.'s Home Computing Laboratory, which was responsible for
developing a consumer-focused Pentium platform strategy, and as Senior Technical
Staff Member at International Business Machines Corp., where he worked for
twenty-five years. While at IBM, he was also a member of IBM's Academy of
Science and Technology and Chief Technical Officer of the IBM PC Company Premium
Brand.
Gregory J. Woodland has been a director of the Company since June 2000 and
Senior Partner at Key West Technologies, a business consulting partnership
advising a number of firms with regard to technology, e-commerce and the
Internet and business management, since March 2000. Prior to joining Key West
Technologies, Mr. Woodland was a Director at Solomon Smith Barney from August
1998 to February 2000, providing investment banking advice. Mr. Woodland also
served as Vice President - Finance for McAndrews & Forbes Holdings Inc.
("McAndrews") from February 1987 until August 1998. While at McAndrews, Mr.
Woodland provided a variety of services to several McAndrews portfolio
companies, including Revlon, Inc., The Coleman Company, Inc., Marvel
Entertainment Group, Inc., New World Communications Group, Inc. and Consolidated
Cigar Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during the period from
August 1, 1999 through July 31, 2000, all filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the last three fiscal years
by the Company's Chief Executive Officer and all other executive officers whose
total compensation exceeded $100,000 in those years.
15
<PAGE> 16
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
----------------------
Name and Other Annual Restricted Securities
Principal Position Year Salary($) Bonus($) Compensation($) Stock Award(s)($) Underlying Options(#)
------------------- ---- --------- -------- --------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Tassinari, 2000 $451,500 -0- $69,320(1) -0- $55,555(4)
Chief Executive 1999 $461,639 $303,062 $83,069(1) -0- -0-
Officer and 1998 $432,635 $288,000 $86,646(1) -0- 150,000(2)(3)
President
Audrey K. Tassinari, 2000 $211,760 -0- $74,779(1) -0- 27,778(4)
Executive 1999 $166,549 $130,000 $74,095(1) -0- -0-
Vice President 1998 $156,785 $142,000 $78,037(1) -0- 100,000(2)(3)
Roy K. Keefer 2000 $147,000 -0- $35,931(1) -0- 33,334(4)
Chief Financial 1999 $143,931 $ 60,000 $56,464(1) -0- -0-
Officer 1998 $133,481 $ 69,000 $68,288(1) -0- -
</TABLE>
(1) This amount includes, but is not limited to: directors fees;
disability, life and medical insurance premiums; automobile payments
and pension plan payments.
(2) Represents options which were granted in December 1997 at an exercise
price of $3.48 per share.
(3) Information is presented after giving effect to a 1 for 3 reverse stock
split on November 30, 1999.
(4) Represents options which were granted in February 2000 at an exercise
price of $1.13 per share.
Option Grants in Last Fiscal Year Table
<TABLE>
<CAPTION>
% of Total
Shares Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
---- ----------- ----------- ------ ----
<S> <C> <C> <C> <C>
Ronald J. Tassinari 55,555 6.0% $1.13 1/3/2010
Audrey K. Tassinari 27,778 3.0% $1.13 1/3/2010
Roy K. Keefer 33,334 3.6% $1.13 1/3/2010
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Options at Options at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable(2) Unexercisable(1)(2)
---- -------- -------- ---------------- -------------------
<S> <C> <C> <C> <C>
Ronald J. Tassinari -0- -0- 437,942/0 $19,090/0
Audrey K. Tassinari -0- -0- 244,003/0 $ 9,556/0
Roy K. Keefer -0- -0- 185,668/0 $11,467/0
</TABLE>
16
<PAGE> 17
(1) The closing price for the Company's Common Shares on July 31, 2000 was
$1.47 per share.
(2) Information is presented after giving effect to a 1 for 3 reverse stock
split on November 30, 1999.
Compensation of Directors
Directors receive $15,000 per annum for meetings of the Board of Directors.
They are also compensated for expenses incurred in attending the meetings. All
of the Company's directors have received stock options from the Company. See
"Item 11. - Certain Relationships and Related Transactions."
Employment Agreements
On July 20, 1995, the Company entered into substantially similar employment
agreements with Ronald J. Tassinari, to serve as the Company's Chief Executive
Officer and President, Audrey K. Tassinari, to serve as the Company's Executive
Vice President, and Roy K. Keefer to serve as the Company's Chief Financial
Officer (collectively, the "Employees"). The employment agreements provide for a
term which concludes on March 31, 2002. The agreements provide for annual
salaries of $452,000, $170,000, and $147,000, respectively, for Mr. Tassinari,
Mrs. Tassinari and Mr. Keefer. The agreements further provide that the Employees
are entitled to receive minimum annual increases in their salaries every
December equal to the greater of (i) the annual increases provided to the
Company's other salaried executives or (ii) the increase in the Annual Average
All Items Index of the U.S. City Average Consumer Price Index. Under the
agreements, the Employees are entitled to receive incentive stock options under
the Company's stock option plans, and the Company is required to reimburse
Employees for their personal legal and financial consulting expenses, subject to
a maximum of three percent of their prior calendar year's base salary. Mr.
Tassinari is entitled to a term life insurance policy with a minimum death
benefit of $2,000,000, payable to a beneficiary of Mr. Tassinari's designation.
Mrs. Tassinari and Mr. Keefer are entitled to policies with $1,500,000 and
$1,000,000 minimum death benefits, respectively, payable to beneficiaries of
their designation. The Company has agreed to provide the Employees with an
automobile allowance or, in lieu thereof, will pay them an equal monthly cash
stipend. In the event that the Company requires the Employee to relocate from
Las Vegas, Nevada, the Company has agreed to pay their relocation expenses and
to provide second mortgages on their new permanent residences of up to $100,000.
The employment agreements also provide for indemnification of the Employees in
connection with their service to the Company.
If the employment of any of the Employees is terminated by reason of death,
the Company shall pay the balance of the monies due under the agreement to the
estate of the deceased Employee. If the employment of any of the Employees is
terminated by reason of disability, the Employee shall be entitled to one year
of severance pay at full salary and then severance pay at half salary for the
remainder of the term. If any of the Employees are terminated without cause, or
the Employees terminate their own employment following: (a) a change in control
(as defined below); (b) a significant change in the Employee's duties under the
agreements; (c) a removal of the Employee from the positions or offices set
forth in the agreements; (d) a substantial reduction in compensation, unless all
senior executives receive comparable reductions; (e) a breach by the Company of
the relocation provisions set forth in the agreements; (f) the refusal of a
successor to the Company to assume the Company's obligations under the
agreements; (g) a relocation of the Company's executive offices without the
Employee's consent; (h) a failure by the Company to increase the Employee's
salary; or (i) the Employee remains employed following a change in control, but
then resigns within two years, then the Company shall pay as liquidated damages,
or severance pay, or both to the Employee on the fifth day following the
termination date, a lump sum equal to the product of (1) an amount equal to the
sum of the annual base salary in effect as of the termination date plus any
incentive compensation most recently paid or payable to the Employees,
multiplied by (2) two and ninety-nine one hundredths (2.99), (iii) plus any and
all accrued salary, accrued vacation pay and accrued bonus in addition to any
other consideration due under the agreements. In addition, the agreements
provide that in the event that an Employee terminates his or her employment
following a change in control, the Company shall, at the election of the
Employee, make a cash payment on the 91st day after such termination to the
Employee in an amount equal to the excess, if any, of (1) the number of options
then held by the Employee which have not terminated other than as a result of
17
<PAGE> 18
termination of employment multiplied by the market price of the Company's common
stock as of the date of termination, over (2) the aggregate exercise price for
all options then held by the Employee.
For purposes of the employment agreements, a "change in control of the
Company" shall be deemed to have occurred if (i) a third person becomes the
beneficial owner (as such term is defined in Rule 13d-3 promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Act")) of the securities
of the Company having twenty percent (20%) or more of the combined voting power
of all classes of the Company's securities entitled to vote in an election of
Directors of the Company; (ii) there occurs a tender offer or exchange offer by,
a merger or other business combination with, or a sale of substantially all of
the assets of the Company to any third Person; (iii) a stockholder or
stockholders holding five percent (5%) or more of the outstanding common stock
of the Company proposes a reconstitution of additions to or deletions from the
Board and as a result, obtains a majority thereof; or (iv) during any period of
two consecutive years during the term of the agreements, individuals who at the
beginning of such period constitute the Board cease for any reason other than
death or disability to constitute at least a majority thereof.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of the date of this
Report, with respect to the beneficial ownership (as such term is defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of shares of Common Stock,
the Company's sole voting securities, by each person known by the Company to be
the beneficial owner of more than 5% of its Common Stock, by each executive
officer named in the Summary Compensation Table, each director and by all
officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class(2)
---------------- ----------------------- -----------
<S> <C> <C>
Ronald J. Tassinari 812,905(3) 16.7%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Audrey K. Tassinari 628,896(4) 12.9%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Roy K. Keefer 189,668(5) 3.9%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Jeanne Hood 50,001(6) 1.0%
2316 Timberline Way
Las Vegas, NV 89117
Jay H. Brown 350,711(7) 7.2%
520 South Fourth Street
Las Vegas, NV 89101
Steven G. Barringer 25,000(8) *%
520 South Fourth Street
Las Vegas, NV 89101
Boyad Tanner 12,500(9) *%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
James W. Davis 10,000(10) *%
17300 Boca Club Boulevard #1208
Boca Raton, FL 33487
Gregory J. Woodland 10,000(10) *%
40 East 64th Street, #7
New York, NY 10021
Engex, Inc. 418,300(11) 8.6%
44 Wall Street
New York, NY 10005
All officers and directors 1,738,970(12) 35.8%
as a group (8 persons)
</TABLE>
* Indicates less than 1%
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the persons indicated.
(2) Based on 4,858,256 shares outstanding as of October 17, 2000.
(3) Includes 3,698 shares owned of record by Mr. Tassinari as custodian for
his son, 327,858 shares owned by the Tassinari Family Trust and 437,942
shares issuable upon exercise of stock options. Such shares exclude
the following shares as to which Mr. Tassinari disclaims beneficial
ownership: 316,035 shares of Common Stock beneficially owned by Audrey
K. Tassinari, Mr. Tassinari's wife. If such excluded shares were
included, Mr. Tassinari would be deemed to hold 23.4% of the Common
Stock.
(4) Includes 327,858 shares owned by the Tassinari Family Trust and an
aggregate of 244,003 shares issuable upon exercise of stock options.
In addition, such shares exclude the following shares as to which Mrs.
Tassinari disclaims beneficial ownership: 496,340 shares of Common
Stock beneficially owned by Ronald J. Tassinari, Mrs. Tassinari's
husband. If such excluded shares were included, Mrs. Tassinari would
be deemed to hold 23.4% of the Common Stock.
(5) Includes 185,000 shares underlying incentive stock options.
(6) Includes options to acquire 33,334 shares.
(7) Includes an aggregate of 260,705 shares of Common Stock beneficially
owned in joint tenancy by Mr. Brown and Mr. Brown's wife.
(8) Represents options to acquire 25,000 shares.
(9) Represents options to acquire 12,500 shares.
(10) Represents options to acquire 10,000 shares
(11) Pursuant to Schedule 13-G filed by Engex, Inc. on September 21, 2000.
(12) Includes options to purchase an aggregate of 958,447 shares of Common
Stock referred to in notes (3) through (6) and (8) through (10) above.
19
<PAGE> 20
Item 12. Certain Relationships and Related Transactions
Jeanne Hood, a Director of the Company, has provided consulting services to
the Company since February 1994. She has been compensated at the rate of $6,000
per month for such services. Jeanne Hood ceased to receive consulting fees
effective April 16, 2000.
See "Item 10. Executive Compensation" for the terms of certain stock
options and Employment Agreements between the Company and Ronald J. Tassinari,
Audrey K. Tassinari and Roy K. Keefer, each a Director or former Director and
officer of the Company and "Item 11. Security Ownership of Certain Beneficial
Owners and Management" for the terms of certain stock options of the Company's
officers and directors.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation and By Laws of the Company.(1)
3.2 Certificate of Amendment to Articles of Incorporation of the
Company.(5)
3.3 Certificate of Amendment to Articles of Incorporation of the
Company.(6)
10.1 American Casino Enterprises, Inc. 1991 Officers Stock Option
Plan, as amended.(3)
10.2 American Casino Enterprises, Inc. 1992 Employees Stock Option
Plan.(3)
10.3 American Casino Enterprises, Inc. 1996 Stock Option Plan.(3)
10.4 Management Consultant Contract dated March 27, 1993 between
the Company and the Table Mountain Tribe.(5)
10.5 Employment Agreement between the Company and Ronald J.
Tassinari dated July 20, 1995.(6)
10.6 Employment Agreement between the Company and Audrey K.
Tassinari dated July 20, 1995.(6)
10.7 Employment Agreement between the Company and Roy K. Keefer
dated July 20, 1995.(6)
10.8 Letter Agreement dated September 11, 1995 between the Company
and Table Mountain Rancheria.(6)
10.9 Settlement Agreement, dated February 1, 1996, between the
Company and the NIGC.(7)
10.10 Termination Agreement, dated February 1, 1996, between the
Company and the Table Mountain Tribe. Exhibit A to the
Termination Agreement is set forth as Exhibit 99.1 below, and
Exhibit B to the Termination Agreement is incorporated herein
by reference from Exhibit 10.3 above.(7)
10.11 Consulting Agreement, dated February 1, 1996, between the
Company and the Tribe.(7)
10.12 Option to Purchase and Escrow Instructions dated as of October
9, 1996, among the Company, Victorson & Associates, Inc., Fred
Victorson and United Title of Nevada.(8)
10.13 Purchase Agreement and Escrow Instructions dated October 9,
1996, among Victorson & Associates, Inc., Fred Victorson and
the Company.(8)
10.14 Joint Venture Agreement between the Company and the Table
Mountain Tribe, dated as of February 1, 1996.(8)
20
<PAGE> 21
10.15 Funding and Loan Agreement between the Auburn Tribe and the
Table Mountain/ACES Joint Venture, dated February 1, 1996. (8)
10.16 Lease for the Company's offices dated March 14, 1996, between
the Company and Tropicana Trail Limited Partnership. (8)
10.17 Agreement to terminate Funding and Loan Agreement, dated March
10, 1998, between the Company and the Auburn Tribe. (9)
10.18 Promissory Note and Loan Agreement, dated August 24, 1998,
between the Company and the Table Mountain Tribe. (9)
10.19 License Agreement, dated as of November 12, 1998, by and among
Sitka, the Company and World Championship Wrestling, Inc. (10)
10.20 Lease for Restaurant Space, dated as of November 19, 1998, by
and between New Castle Corp. and Sitka. (10)
10.21 Operating Agreement, dated November 12, 1998, by and between
TT&T and Vantage Bay. (10)
10.22 Lease for Restaurant Space, dated November 12, 1998, by and
between Mandalay Corp. and Border Grill Las Vegas, LLC. (10)
10.23 Stock Purchase Agreement, dated as of December 1, 1999, among
the Company, Placement 2000 and Michael Woloshin (11)
10.24 Employment Agreement, dated as of December 1, 1999, between
the Michael Woloshin and Placement 2000 (11)
10.25 Option Agreement, dated as of December 1, 1999, between the
Company and Michael Woloshin (11)
21.1 Subsidiaries of the Registrant
23.1 Consent of Bradshaw, Smith & Co.
27.1 Financial Data Schedules
99.1 Order of the United States Department of the Interior, dated
February 1, 1996. (7)
(1) Incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for July 31, 1981.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for July 31, 1991.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-00905) declared effective on February 13, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1995.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
dated February 1, 1996.
21
<PAGE> 22
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 9, 1996.
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1998.
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1999.
(11) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 27, 2000.
(b) Reports on Form 8-K.
On January 27, 2000, the Registrant filed a Report on Form 8-K
reporting the purchase of 80% of the capital stock of Placement 2000.
On October 12, 2000, the Registrant filed a Report on Form 8-K
reporting the closing of the Nitro Grill and the current state of their
suit against the Table Mountain Tribe.
22
<PAGE> 23
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunder duly authorized.
Dated: October 27, 2000 AMERICAN VANTAGE COMPANIES
By: /s/ Ronald J. Tassinari
---------------------------------
Ronald J. Tassinari, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald J. Tassinari President and Director October 27, 2000
----------------------- (Principal Executive Officer)
Ronald J. Tassinari
/s/ Audrey K. Tassinari Executive Vice October 27, 2000
----------------------- President and Director
Audrey K. Tassinari
/s/ Roy K. Keefer Chief Financial October 27, 2000
----------------- Officer, Vice President and
Roy K. Keefer Secretary/Treasurer
(Principal Financial and
Accounting Officer)
/s/ Jeanne Hood Director October 27, 2000
---------------
Jeanne Hood
/s/ Steven G. Barringer Director October 27, 2000
-----------------------
Steven G. Barringer
/s/ Boyad Tanner Director October 27, 2000
----------------
Boyad Tanner
/s/ James W. Davis Director October 27, 2000
------------------
James W. Davis
/s/ Gregory J. Woodland Director October 27, 2000
-----------------------
Gregory J. Woodland
</TABLE>
23
<PAGE> 24
AMERICAN VANTAGE COMPANIES
YEARS ENDED JULY 31, 2000 AND 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent auditors' report F1
Financial statements:
Consolidated balance sheets F2
Consolidated statements of operations F3-F4
Consolidated statements of cash flows F5-F6
Consolidated statements of stockholders' equity F7
Notes to consolidated financial statements F8-F25
</TABLE>
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Vantage Companies
We have audited the accompanying consolidated balance sheets
of American Vantage Companies as of July 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
American Vantage Companies as of July 31, 2000 and 1999, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Bradshaw, Smith & Co., LLP
October 12, 2000
Las Vegas, Nevada
<PAGE> 26
AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,307,000 $12,626,000
Accounts receivable 280,000 175,000
Mortgage note receivable and accrued interest 1,489,000 1,500,000
Refundable income taxes 1,708,000 219,000
Deferred income tax asset 641,000 135,000
Prepaid expenses 75,000 41,000
----------- -----------
Total current assets 11,500,000 14,696,000
PROPERTY AND EQUIPMENT, NET 241,000 163,000
LAND HELD FOR INVESTMENT OR DEVELOPMENT 4,894,000 5,105,000
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY 2,038,000 592,000
DEFERRED INCOME TAX ASSET 92,000 191,000
GOODWILL, NET 250,000 --
NET ASSETS OF DISCONTINUED OPERATION 232,000 2,437,000
OTHER ASSETS - PRINCIPALLY RESTRICTED CASH IN 2000 538,000 24,000
----------- -----------
$19,785,000 $23,208,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 460,000 $ 559,000
Accrued expenses 330,000 167,000
Current portion of capitalized lease obligations 20,000 --
----------- -----------
Total current liabilities 810,000 726,000
----------- -----------
LONG-TERM LIABILITIES:
Capitalized lease obligations, less current portion 12,000 --
----------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 88,000 --
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 30,000,000 shares authorized; 4,858,256 and
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 2,941,000 2,974,000
Capital in excess of par - stock options 278,000 --
Retained earnings 15,607,000 19,459,000
----------- -----------
18,875,000 22,482,000
----------- -----------
$19,785,000 $23,208,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements. F2
<PAGE> 27
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Casino consulting fees $ -- $ 6,660,000
Fees and commissions - recruitment and Internet 589,000 --
----------- -----------
589,000 6,660,000
----------- -----------
COSTS AND EXPENSES:
Casino consulting 485,000 1,828,000
Death care operations 301,000 47,000
Recruitment and Internet operations 1,167,000 --
General and administrative 2,103,000 1,179,000
Amortization and depreciation 84,000 34,000
Minority interest in consolidated subsidiary (118,000) --
Loss of unconsolidated subsidiary 103,000 608,000
----------- -----------
4,125,000 3,696,000
----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS (3,536,000) 2,964,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 954,000 941,000
Interest expense (3,000) (42,000)
Miscellaneous 3,000 --
----------- -----------
954,000 899,000
----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,582,000) 3,863,000
----------- -----------
INCOME TAX BENEFIT (EXPENSE):
Current:
State -- (115,000)
Federal 962,000 (1,526,000)
Deferred:
State (49,000) 48,000
Federal (96,000) 211,000
----------- -----------
817,000 (1,382,000)
----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS (1,765,000) 2,481,000
----------- -----------
DISCONTINUED OPERATION:
Loss from operations of discontinued operation, net of income
tax benefit of $498,000 and $235,000 (968,000) (455,000)
Estimated loss on disposal of discontinued operation, including
provision of $101,000 for operating losses during phase-out period,
less applicable income tax benefits of $577,000 (1,119,000) --
----------- -----------
NET (LOSS) INCOME $(3,852,000) $ 2,026,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements. F3
<PAGE> 28
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
(LOSS) EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations $ (0.36) $ 0.49
Discontinued operation (0.43) (0.09)
------------- -------------
Net (loss) income (0.79) 0.40
============= =============
(LOSS) EARNINGS PER COMMON SHARE - DILUTED:
Income from continuing operations (0.36) 0.47
Discontinued operation (0.43) (0.09)
------------- -------------
Net (loss) income $ (0.79) $ 0.38
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS:
Basic 4,880,000 5,003,000
Stock options and warrants -- 247,000
------------- -------------
Diluted 4,880,000 5,250,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements. F4
<PAGE> 29
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,852,000) $ 2,026,000
------------ ------------
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Provision for loss on disposal of non-current assets of discontinued
operation 1,799,000 --
Minority interest in consolidated subsidiary (118,000) --
Loss of unconsolidated subsidiary 103,000 608,000
Amortization and depreciation 84,000 34,000
Deferred income tax benefit (407,000) (322,000)
Write off of improvements to land held for investment or development 211,000 --
Stock options issued for services 179,000 --
Changes in other assets and liabilities, net (1,760,000) 518,000
Changes in net assets of discontinued operation 404,000 (570,000)
------------ ------------
495,000 268,000
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,357,000) 2,294,000
------------ ------------
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) (1,500,000)
Repayment of mortgage note receivable 1,500,000 --
Investment in unconsolidated subsidiary (1,550,000) (1,200,000)
Note receivable from Table Mountain Tribe -- (2,203,000)
Repayment of note receivable from Table Mountain Tribe -- 2,203,000
Net investing activities of discontinued operation -- (1,867,000)
Purchase of land held for investment or development -- (4,000)
Purchase of property and equipment, net (86,000) (16,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,914,000) (4,587,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 2,203,000
Repayment of long-term debt -- (2,203,000)
Principal payments on capitalized leases (15,000) --
Repurchase of common stock (33,000) (472,000)
Proceeds from issuance of common stock -- 20,000
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (48,000) (452,000)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,319,000) (2,745,000)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 12,626,000 15,371,000
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 7,307,000 $ 12,626,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements. F5
<PAGE> 30
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR STATE AND FEDERAL INCOME TAXES $ -- $ 141,000
=========== ===========
CASH PAID FOR INTEREST $ 3,000 $ 42,000
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
PURCHASE OF PLACEMENT 2000.COM, INC.:
Fair value of accounts receivable $ (116,000) $ --
Goodwill (276,000) --
Liabilities assumed 109,000 --
Minority interest 206,000 --
Stock options issued 99,000 --
----------- -----------
NET $ 22,000 $ --
=========== ===========
PURCHASE OF EQUIPMENT UNDER CAPITAL LEASES $ 47,000 $ --
=========== ===========
COMMON STOCK OPTIONS ISSUED FOR SERVICES $ 179,000 $ --
=========== ===========
DETAIL OF CHANGES IN OTHER ASSETS AND LIABILITIES
Decrease in accounts receivables $ 11,000 $ 5,000
(Increase) decrease in refundable income taxes (1,489,000) 92,000
Increase in mortgage note interest receivable (189,000) --
Increase in prepaid expenses (34,000) (10,000)
Increase in other assets (14,000) (14,000)
Increase (decrease) in accounts payable (208,000) 432,000
Increase in accrued expenses 62,000 23,000
Decrease in income taxes payable -- (10,000)
Increase in accrued loss of discontinued operations 101,000 --
----------- -----------
$(1,760,000) $ 518,000
=========== ===========
Changes in net assets of discontinued operation:
Decrease (increase) in accounts receivable $ 1,000 $ (16,000)
Decrease (increase) in inventories 77,000 (153,000)
Decrease (increase) in prepaid expenses 326,000 (335,000)
Decrease (increase) in other assets -- (66,000)
----------- -----------
$ 404,000 $ (570,000)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements. F6
<PAGE> 31
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2000 AND 1999
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS
COMMON STOCK CAPITAL OF PAR -
---------------------------- IN EXCESS STOCK RETAINED
SHARES AMOUNT 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 -- -- -- 179,000 --
Issuance of common stock options in
acquisition of Placement 2000.Com,
Inc. -- -- -- 99,000 --
Shares repurchased and retired (28,744) -- (33,000) -- --
Net loss for the year -- -- -- -- (3,852,000)
------------ ------------ ------------ ------------ ------------
BALANCE, JULY 31, 2000 4,858,256 $ 49,000 $ 2,941,000 $ 278,000 $ 15,607,000
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements. F7
<PAGE> 32
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000 AND 1999
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
The Company, until May 1999, was principally engaged in providing
consulting services to a gaming facility in central California. The
Company is involved with two restaurant operations in Southern Nevada.
The Company operated one of the restaurants until September 2000 and is
a minority investor in the other restaurant. The Company owns two
parcels of land totaling 60 acres in North Las Vegas, Nevada which will
be used for future development or sale.
In December 1999, the Company acquired a majority interest in a company
involved in traditional recruitment of information technology
professionals and providing Internet online services to them. The
subsidiary is located in New York, New York and provides services
principally to the surrounding tri-state area.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of American
Vantage Companies and its wholly and majority-owned subsidiaries (the
"Company"). A 49% owned subsidiary is reported in the consolidated
balance sheets at the Company's equity in net assets of the subsidiary.
The Company has reported all of the loss of the unconsolidated
subsidiary in the accompanying statements of operations. All
significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS:
The Company maintains cash and cash equivalents, investments with
original maturities of three months or less, with certain financial
institutions. Due to the quality of the financial institutions
involved, they present a low level of risk to the Company. The carrying
amount of cash and cash equivalents approximates their fair value.
ALLOWANCES FOR DOUBTFUL ACCOUNTS:
Accounts receivable and mortgage note receivables are reported at their
fair value and are, in the opinion of management, collectible and no
allowances for doubtful accounts were necessary at July 31, 2000 and
1999. Specific accounts, which in the opinion of management, are
uncollectible are written off when such determination is made.
INVENTORIES:
Inventories, consisting principally of retail merchandise for sale are
included in the net assets of discontinued operation in the
accompanying consolidated balance sheets and are stated at the lower of
cost or market using the first-in, first-out method.
F8
<PAGE> 33
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
PROPERTY, EQUIPMENT AND DEPRECIATION:
Property and equipment is stated at cost. Depreciation is calculated
using accelerated methods over the estimated useful lives of the
assets.
REVENUE RECOGNITION:
Revenue from recruitment is recognized when recruiting candidates begin
to work for their new employers. Internet revenue is recognized when
the service is provided. Revenue earned from the Table Mountain Casino
& Bingo is recorded as earned under the terms of the consulting and
termination agreements.
ADVERTISING COSTS:
Advertising costs are expensed as incurred. Advertising expense for the
years ended July 31, 2000 and 1999 totaled $190,000 and $26,000,
respectively.
EARNINGS PER SHARE:
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 excluded from the computation of diluted loss per share
in 2000 because the effect would be anti-dilutive.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and cash equivalents, mortgage note and accounts receivable, land
held for investment or development, and accounts payable are reported
at amounts that approximate their fair values.
F9
<PAGE> 34
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
2. MORTGAGE NOTE RECEIVABLE:
The mortgage note receivable at July 31, 1999 bears interest at 22% and
is secured by a first mortgage on undeveloped land in Henderson, Nevada
with an appraised value of $3,100,000. The note principal and accrued
interest was due July 29, 2000 at which time it was paid in full.
In January 2000, the Company issued a note receivable for $1,300,000
bearing interest at 22%. The note is secured by a first mortgage on
another parcel of undeveloped land in Henderson, Nevada with an
appraised value of $2,175,000. The note principal and accrued interest
are due January 7, 2001.
3. RESTAURANT OPERATIONS:
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 invested $2,750,000 in BGLV.
All (100%) of the loss from the operations for the restaurant for the
period from June 17, 1999, the date operations began, to July 31, 2000,
including the expense of startup costs in 1999, are reported as loss of
unconsolidated subsidiary in the consolidated statements of operations.
In the later part of 2000, the restaurant began to report income from
its operations. The Company will continue to recognize all such income
until prior losses have been offset and thereafter net income will be
split proportionate to ownership interests.
The following summarizes the condensed balance sheet and condensed
statement of loss for BGLV at July 31, 2000 and for the year then
ended.
<TABLE>
<S> <C>
Assets $ 2,461,000
Liabilities 421,000
-----------
Members' capital $ 2,040,000
===========
Revenues $ 4,507,000
Expenses 4,610,000
-----------
Loss from operations $ (103,000)
===========
</TABLE>
BGLV has a management agreement with an entity owned by the majority
owners requiring payments equal to 5% of the gross sales of the
restaurant.
F10
<PAGE> 35
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
3. RESTAURANT OPERATIONS (CONTINUED):
NITRO GRILL RESTAURANT:
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 are included in restaurant operation expenses in the
consolidated statement of operations for 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 June 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. For the years ended July
31, 2000 and 1999, the Company reported licensing expense of $250,000
and $63,000, respectively, incurred under the terms of the agreement.
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. During the years ended July 31, 2000 and
1999, the Company reported $63,000 and $20,000, respectively, of
expense under the terms of the agreement.
The restaurant space lease is for 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 rental payments. The lease also requires an annual
payment of $65,000 for utilities. During the years ended July 31, 2000
and 1999, the Company incurred lease expense of $175,000 and $44,000,
respectively.
See Note 14 - Subsequent Event - Discontinued Operation.
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Furniture, fixtures and office equipment $340,000 $213,000
Leasehold improvements 115,000 115,000
-------- --------
455,000 328,000
Less accumulated depreciation 214,000 165,000
-------- --------
$241,000 $163,000
======== ========
</TABLE>
F11
<PAGE> 36
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
5. INDIAN GAMING OPERATIONS:
TABLE MOUNTAIN CASINO & BINGO:
Until May 1999, the Company provided casino consulting services to Table
Mountain Casino & Bingo, a Tribal gaming enterprise of the Table
Mountain Band of Indians (the "Table Mountain Tribe"), in Friant,
California under terms of a consulting agreement which expired in June
2000.
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 obligated during the period of the consulting agreement,
under certain circumstances, to loan the Table Mountain Tribe up to
$4,000,000.
A termination agreement signed in February 1996 provided that the Company
would receive a monthly payment of $350,000 through January 2000,
subject to meeting certain thresholds.
The contracts were prematurely terminated by the tribe in May, 1999. See
Note 13 - Litigation with the Table Mountain Tribe.
6. 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
$276,000 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.
F12
<PAGE> 37
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
6. ACQUISITION OF PLACEMENT 2000.COM, INC. (CONTINUED):
The following summarizes the acquisition of Placement 2000:
<TABLE>
<S> <C>
Fair value of assets acquired, including cash $ 1,138,000
Liabilities assumed (109,000)
Goodwill 276,000
Minority interest (206,000)
Stock options issued (99,000)
-----------
Cash paid $ 1,000,000
===========
</TABLE>
Placement 2000 specializes in online services for information technology
(IT) professionals, companies, and recruiters. Based in New York,
Placement 2000 is developing three distinct web-based properties that
will 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 websites are intended to be fully
operational in Fiscal 2001.
7. 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 the proposed sale of the land 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 year
ended July 31, 2000.
F13
<PAGE> 38
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY:
COMMON STOCK:
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 1999 have been
restated to adjust for the reverse split as though it occurred at the
beginning of 1999.
PREFERRED STOCK:
The Board of Directors has the authority to issue the preferred stock,
the terms of which (including, without limitation, dividend rates,
conversion rights, voting rights, terms of redemption and liquidation
preferences) may be fixed by the Board at its sole discretion. The
holders of the Company's common stock will not be entitled to vote upon
such matters. No shares of preferred stock of any series are
outstanding and the Board of Directors has no present intention to
issue any such shares. Shares of preferred stock issued in the future
could have conversion rights, which may result in the issuance of
additional shares of common stock, which could dilute the interest of
the holders of common stock. Such shares could also have voting rights
and liquidation preferences which are senior to the rights and
preferences of the common stock. Additionally, such shares could have
dividend, redemption or other restrictive provisions.
WARRANTS:
In July, 1991, the Company sold shares of common stock together with
warrants to purchase additional common stock shares. On June 27, 1997,
the Board of Directors granted an extension of the exercise period of
the remaining 324,074 warrants to July, 1999 and increased the exercise
price per share to $2.70. The warrants expired in July 1999.
STOCK REPURCHASE PROGRAM:
In Fiscal 1998, the Board of Directors authorized the expenditure of up
to $2,000,000 to repurchase the Company's common stock. When the
Company repurchases shares, it is done according to applicable
securities laws and at times and in amounts as management deems
appropriate. Shares may be purchased in the open market or privately
negotiated transactions, with the timing and terms of such purchases to
be determined by management based on market conditions. There is no
expiration date for the repurchase program.
In the years ended July 31, 2000 and 1999, the Company purchased 28,744
and 153,183 shares of common stock at a cost of $33,000 and $472,000,
respectively.
F14
<PAGE> 39
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS:
Prior to 1997, the Company's stockholders approved the creation of an
Officers' Stock Option Plan and an Employees' Stock Option Plan. Under
the Officers' Stock Option Plan, 1,500,000 shares of the Company's
common stock are reserved for issuance to Company officers. The
Employees' Stock Option Plan provides for 2,500,000 shares of common
stock which may be issued to key employees, including officers. In
1997, the Company's stockholders approved the creation of the 1996
Stock Option Plan which reserves an additional 2,500,000 shares of the
Company's common stock for issuance to employees, officers and
directors of the Company and others who are involved in the continuing
development and success of the Company or its subsidiaries. The
options, under all plans, are granted at not less than 100% of the
market value of the Company's common stock on the date of grant.
The following is a summary of activity of outstanding stock options under
the Officers' Stock Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
Weighted
Average
Shares Exercise Price
------- --------------
<S> <C> <C>
BALANCE, JULY 31, 1998 93,756 $ 2.07
------- -------
BALANCE, JULY 31, 1999 93,756 2.07
------- -------
Granted 11,696 1.13
Canceled/expired (11,696) 2.07
------- -------
BALANCE, JULY 31, 2000 93,756 $ 1.95
======= =======
EXERCISABLE, JULY 31, 2000 93,756 $ 1.95
======= =======
</TABLE>
The following is a summary of information about the Officers' Stock
Option Plan options outstanding at July 31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
---------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.13 11,696 9.5 $ 1.13 11,696 $ 1.13
2.07 82,060 0.8 2.07 82,060 2.07
---------- -------- ------- ------ ---------- --------
$1.13-2.07 93,756 1.9 $ 1.95 93,756 $ 1.95
========== ======== ======= ====== ========== ========
</TABLE>
F15
<PAGE> 40
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS (CONTINUED):
Activity of the Employees' Stock Option Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
Weighted
Average
Shares Exercise Price
-------- --------------
<S> <C> <C>
BALANCE, JULY 31, 1998 712,913 $ 2.70
-------- --------
BALANCE, JULY 31, 1999 712,913 2.70
-------- --------
Granted 108,971 1.13
Canceled/expired (108,971) 2.07
-------- --------
BALANCE, JULY 31, 2000 712,913 $ 2.55
======== ========
EXERCISABLE, JULY 31, 2000 712,913 $ 2.55
======== ========
</TABLE>
The following is a summary of information about the Employees' Stock
Option Plan options outstanding at July 31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 1.13 108,971 9.6 $ 1.13 108,971 $ 1.13
2.07 337,275 1.3 2.07 337,275 2.07
3.75 266,667 1.3 3.75 266,667 3.75
-------------- ----------- ----------- --------- ----------- ---------
$ 1.13-3.75 712,913 1.9 $ 2.55 712,913 $ 2.55
============== =========== =========== ========= =========== =========
</TABLE>
F16
<PAGE> 41
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS (CONTINUED):
Activity of the 1996 Stock Option Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
Weighted
Average
Shares Exercise Price
------- --------------
<S> <C> <C>
BALANCE, JULY 31, 1998 116,671 $ 3.51
------- --------
BALANCE, JULY 31, 1999 116,671 3.51
------- --------
Granted 22,333 1.13
------- --------
BALANCE, JULY 31, 2000 139,004 $ 3.12
======= ========
EXERCISABLE, JULY 31, 2000 139,004 $ 3.12
======= ========
</TABLE>
The following is a summary of information about the 1996 Stock Option
Plan options outstanding at July 31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.13 22,333 9.6 $ 1.13 22,333 $ 1.13
3.48-3.57 116,671 4.0 3.51 116,671 3.51
------------- ----------- ----------- --------- ----------- -----------
$ 1.13-3.57 139,004 4.8 $ 3.12 139,004 $ 3.12
============= =========== =========== ========= =========== ===========
</TABLE>
F17
<PAGE> 42
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED:
Other options were granted to outside members of the Board of Directors,
the former principal of Placement 2000, and to legal counsel for
services. The options were granted at the market value of the Company's
common stock at the date of grant. Activity of other options granted is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
BALANCE, JULY 31, 1998 128,333 $3.18
-------- -----
Canceled/expired (16,667) 1.59
Exercised (10,832) 1.89
-------- -----
BALANCE, JULY 31, 1999 100,834 3.60
-------- -----
Granted 782,409 1.63
Canceled/expired (54,167) 3.10
-------- -----
BALANCE, JULY 31, 2000 829,076 $1.77
======== =====
EXERCISABLE, JULY 31, 2000 519,909 $1.72
======== =====
</TABLE>
The following is a summary of information about other options outstanding
at July 31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.09 50,000 9.8 $ 1.09 20,000 $ 1.09
1.13 75,001 9.6 1.13 62,501 1.13
1.47 324,074 0.4 1.47 324,074 1.47
1.97 333,334 4.4 1.97 66,667 1.97
3.57 25,000 7.6 3.57 25,000 3.57
3.75 5,000 1.3 3.75 5,000 3.75
5.25 16,667 0.3 5.25 16,667 5.25
----------- ----------- ----------- ---------- ----------- ------------
$ 1.09-5.25 829,076 3.6 $ 1.77 519,909 $ 1.72
=========== =========== =========== ========== =========== ============
</TABLE>
F18
<PAGE> 43
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED (CONTINUED):
Statement of Financial Accounting Standards No. 123 - Accounting for
Stock-Based Compensation ("SFAS 123"), provides that companies may
elect to account for employee stock options using a fair value-based
method or continue to apply the intrinsic value-based method prescribed
by Accounting Principals Board Opinion No. 25 ("APB 25").
Under the fair value-based method prescribed by SFAS 123, all employee
stock option grants are considered compensatory. Compensation cost is
measured at the date of grant based on the estimated fair value of the
options determined using an option pricing model. The model takes into
account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the stock, expected
dividends on the stock and the risk-free interest rate over the
expected life of the option. Under APB 25, generally only stock options
that have intrinsic value at the date of grant are considered
compensatory. Intrinsic value represents the excess, if any, of the
market price of the stock at the grant date over the exercise price of
the options.
As permitted by SFAS 123, the Company accounts for these plans under APB
25, under which no compensation cost has been recognized.
The following table discloses the Company's proforma net income (loss)
and net income (loss) per share assuming compensation cost for employee
stock options and warrants had been determined using the fair
value-based method prescribed by SFAS 123.
<TABLE>
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
Net (loss) income:
As reported $ (3,852,000) $ 2,026,000
Proforma (4,021,000) 2,026,000
(Loss) earnings per share:
Basic:
As reported (0.79) 0.13
Proforma (0.82) 0.13
Diluted:
As reported (0.79) 0.13
Proforma (0.82) 0.13
</TABLE>
F19
<PAGE> 44
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED (CONTINUED):
The fair value of each award under the stock option plans is estimated on
the date of grant using the Black-Scholes option pricing model. The
following range of assumptions were used to estimate the fair value of
the options for the year ended July 31, 2000:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
OPTION PLAN AND
OTHER OPTIONS
----------------
<S> <C>
Expected stock price volatility 9.61% to 110.8%
Expected option lives (years) 1 to 5
Expected dividend yield --
Risk-free interest rates 6.2% to 6.7%
Weighted-average fair value of options granted during year $ 0.51 to 1.49
</TABLE>
9. INCOME TAXES:
The income tax benefit (expense) for 2000 and 1999 differs from the
amount of income tax determined by applying the applicable U.S.
statutory federal income tax rate to pre-tax income as a result of the
following differences:
<TABLE>
<CAPTION>
2000 % 1999 %
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statutory federal tax rate $ 878,000 34 $(1,314,000) (34)
State income tax, net of federal benefit -- -- (132,000) (4)
Other (61,000) (2) 64,000 2
----------- ----------- ----------- -----------
Effective tax expense $ 817,000 32 $(1,382,000) (36)
=========== =========== =========== ===========
</TABLE>
The components of deferred tax benefits and assets at July 31, 2000 and
1999 and for the years then ended are comprised of:
F20
<PAGE> 45
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
9. INCOME TAXES (CONTINUED):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
DEFERRED TAX (EXPENSE) BENEFITS:
Start-up costs of restaurant $ 33,000 $ 10,000
Loss of unconsolidated subsidiary (221,000) 243,000
Accrued expenses 43,000 6,000
--------- ---------
TOTAL DEFERRED TAX BENEFITS $(145,000) $ 259,000
========= =========
DEFERRED TAX ASSETS (LIABILITIES):
Current:
Start-up costs of restaurants $ 28,000 $ 15,000
(Income) loss of unconsolidated subsidiary (54,000) 110,000
Accrued expenses 54,000 10,000
Estimated loss on disposal of discontinued
assets 613,000 --
--------- ---------
641,000 135,000
Long-term:
Start-up costs of restaurants 92,000 134,000
Loss of unconsolidated subsidiary -- 57,000
--------- ---------
92,000 191,000
--------- ---------
TOTAL DEFERRED TAX ASSETS $ 733,000 $ 326,000
========= =========
</TABLE>
10. SEGMENT INFORMATION:
Revenues, operating (loss) income (excluding amortization and
depreciation and minority interest), identifiable assets (excluding
discontinued operations), capital expenditures, and depreciation and
amortization are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting $ -- $ 6,660,000
Recruitment and Internet 589,000 --
----------- -----------
$ 589,000 $ 6,660,000
=========== ===========
Operating (loss) income:
Casino consulting $ (485,000) $ 4,832,000
Restaurant (103,000) (608,000)
Death care (301,000) (47,000)
Recruitment and Internet (578,000) --
Corporate (2,103,000) (1,179,000)
----------- -----------
$(3,570,000) $ 2,998,000
=========== ===========
</TABLE>
F21
<PAGE> 46
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
10. SEGMENT INFORMATION (CONTINUED):
<TABLE>
<S> <C> <C>
Identifiable assets:
Restaurant $ 2,038,000 $ 605,000
Death care -- 157,000
Recruitment and Internet 662,000 --
Corporate 16,853,000 20,010,000
----------- -----------
$19,553,000 $20,772,000
=========== ===========
Capital expenditures:
Recruitment and Internet $ 72,000 $ --
Corporate 14,000 16,000
----------- -----------
$ 86,000 $ 16,000
=========== ===========
Depreciation and amortization:
Recruitment and Internet $ 53,000 $ --
Corporate 31,000 34,000
----------- -----------
$ 84,000 $ 34,000
=========== ===========
</TABLE>
There were no intersegment sales during 2000 and 1999.
11. COMMITMENTS AND CONTINGENCIES:
a) COMMITMENTS:
The Company leases restaurants and office space and automobiles under
operating leases expiring in various years through 2004. See Note
3 - Restaurant operations and Note 14 - Subsequent event.
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of July 31, 2000
are:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------ ----------------
<S> <C>
2001 $ 237,000
2002 58,000
2003 50,000
2004 13,000
Thereafter --
----------------
$ 358,000
================
</TABLE>
Lease expense was $173,000 and $176,000 for the years ended July 31,
2000 and 1999, respectively.
F22
<PAGE> 47
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
11. COMMITMENTS AND CONTINGENCIES (CONTINUED):
b) CONCENTRATIONS OF CREDIT RISK:
The Company's cash, cash equivalents and restricted cash are on
deposit with two financial institutions which are FDIC insured on
amounts up to $100,000.
Through April 1999 virtually all the Company's revenues and related
receivables were derived from the consulting agreement with the
Table Mountain Tribe. No receivables from the Table Mountain Tribe
are reported in the July 31, 2000 and 1999 consolidated balance
sheets.
c) EMPLOYMENT AGREEMENTS:
In July, 1995, the Company entered into employment agreements with
certain key executives which expire in 2002. The employment
agreements provide for, among other things, annual base
compensation, participation in bonus plans and life insurance. The
agreements also contain severance provisions which provide for
payments to the executives in the event of their termination after
a change in control, as defined. The severance provisions provide
for a compensation payment equal to the sum of A) the product of
2.99 times the sum of (I) the annual salary in effect for the
executive, at the time of the change of control, plus (ii) accrued
bonus payable to the executive under the Company's compensation
policies and B) payment based on the number of stock options which
the key executives have not exercised within three months of their
termination of employment. Aggregate annual salaries guaranteed by
the agreements are $769,000. At July 31, 2000, the estimated
amount that would have been payable as severance compensation
under the agreements to these executives based on compensation and
stock options was $2,338,000.
The Company also has agreements with two employees of a subsidiary.
The agreements expire in May and December 2002 and provide for
compensation and benefits totaling $428,000 and $279,000 in the
years ending July 31, 2001 and 2002, respectively.
12. RETIREMENT PLAN:
All of the Company's employees meeting certain eligibility requirements
participate in a simplified employee pension plan. Employer
contributions to the Plan are made on a discretionary basis and were
$94,000 and $103,000 for the years ended July 31, 2000 and 1999,
respectively.
F23
<PAGE> 48
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
13. 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 payment 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 were invalid, for several reasons,
and requesting restitution for all consulting fees paid to the Company
during the period of the contracts.
In September 2000, an Order ("Order") was filed with the District Court
by Judge Anthony W. Ishii dismissing, with prejudice, 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. The Company or the
Tribe, however, can file a motion to amend their pleading to remain in
District Court or, in the alternative, pursue the matter in state
court. The Company intends to vigorously pursue its litigation against
the Table Mountain Tribe in the Superior Court of the State of
California.
14. SUBSEQUENT EVENT - DISCONTINUED OPERATION:
On September 30, 2000, the Company closed the WCW Nitro Grill restaurant.
In connection with the discontinuance of this business, the Company
recorded operating losses of $67,000 (net of an income tax benefit of
$34,000) expected for the period from August 1, 2000 through September
30, 2000. Additionally, a provision of $1,052,000 was recorded (net of
an income tax benefit of $543,000) to provide for losses which the
Company will incur in disposing of the restaurant's equipment and
inventory. Both of these items were recorded in the consolidated
statement of operations for the year ended July 31, 2000 as estimated
loss on disposal of discontinued operation.
The results of the restaurant's operations have been reported separately
in the accompanying consolidated statements of operations as
discontinued operations for the years ended July 31, 2000 and 1999.
F24
<PAGE> 49
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 2000 AND 1999
14. SUBSEQUENT EVENT - DISCONTINUED OPERATION (CONTINUED):
The net assets of the discontinued operation have been recorded at their
estimated net realizable value under the caption "Net assets of
discontinued operation" in the accompanying consolidated balance sheets
for 2000 and 1999.
The following summarizes the net assets of the discontinued operation at
July 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Accounts receivable $ 13,000 $ 16,000
Prepaid expenses and deposits 8,000 401,000
Inventories 77,000 153,000
Equipment 134,000 1,866,000
---------- ----------
$ 232,000 $2,436,000
========== ==========
</TABLE>
The discontinued operation had revenues of $3,302,000 and $1,005,000 for
the years ended July 31, 2000 and 1999, respectively. The restaurant
was opened in May 1999.
Rent expense for the discontinued operation was $175,000 and $44,000 for
the years ended July 31, 2000 and 1999, respectively.
F25
<PAGE> 50
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Incorporation and By Laws of the Company.(1)
3.2 Certificate of Amendment to Articles of Incorporation of the
Company.(5)
3.3 Certificate of Amendment to Articles of Incorporation of the
Company.(6)
10.1 American Casino Enterprises, Inc. 1991 Officers Stock Option
Plan, as amended.(3)
10.2 American Casino Enterprises, Inc. 1992 Employees Stock Option
Plan.(3)
10.3 American Casino Enterprises, Inc. 1996 Stock Option Plan.(3)
10.4 Management Consultant Contract dated March 27, 1993 between
the Company and the Table Mountain Tribe.(5)
10.5 Employment Agreement between the Company and Ronald J.
Tassinari dated July 20, 1995.(6)
10.6 Employment Agreement between the Company and Audrey K.
Tassinari dated July 20, 1995.(6)
10.7 Employment Agreement between the Company and Roy K. Keefer
dated July 20, 1995.(6)
10.8 Letter Agreement dated September 11, 1995 between the Company
and Table Mountain Rancheria.(6)
10.9 Settlement Agreement, dated February 1, 1996, between the
Company and the NIGC.(7)
10.10 Termination Agreement, dated February 1, 1996, between the
Company and the Table Mountain Tribe. Exhibit A to the
Termination Agreement is set forth as Exhibit 99.1 below, and
Exhibit B to the Termination Agreement is incorporated herein
by reference from Exhibit 10.3 above.(7)
10.11 Consulting Agreement, dated February 1, 1996, between the
Company and the Tribe.(7)
10.12 Option to Purchase and Escrow Instructions dated as of October
9, 1996, among the Company, Victorson & Associates, Inc., Fred
Victorson and United Title of Nevada.(8)
10.13 Purchase Agreement and Escrow Instructions dated October 9,
1996, among Victorson & Associates, Inc., Fred Victorson and
the Company.(8)
10.14 Joint Venture Agreement between the Company and the Table
Mountain Tribe, dated as of February 1, 1996.(8)
<PAGE> 51
10.15 Funding and Loan Agreement between the Auburn Tribe and the
Table Mountain/ACES Joint Venture, dated February 1, 1996.(8)
10.16 Lease for the Company's offices dated March 14, 1996, between
the Company and Tropicana Trail Limited Partnership.(8)
10.17 Agreement to terminate Funding and Loan Agreement, dated March
10, 1998, between the Company and the Auburn Tribe.(9)
10.18 Promissory Note and Loan Agreement, dated August 24, 1998,
between the Company and the Table Mountain Tribe.(9)
10.19 License Agreement, dated as of November 12, 1998, by and among
Sitka, the Company and World Championship Wrestling, Inc.(10)
10.20 Lease for Restaurant Space, dated as of November 19, 1998, by
and between New Castle Corp. and Sitka.(10)
10.21 Operating Agreement, dated November 12, 1998, by and between
TT&T and Vantage Bay.(10)
10.22 Lease for Restaurant Space, dated November 12, 1998, by and
between Mandalay Corp. and Border Grill Las Vegas, LLC.(10)
10.23 Stock Purchase Agreement, dated as of December 1, 1999, among
the Company, Placement 2000 and Michael Woloshin(11)
10.24 Employment Agreement, dated as of December 1, 1999, between
the Michael Woloshin and Placement 2000(11)
10.25 Option Agreement, dated as of December 1, 1999, between the
Company and Michael Woloshin(11)
21.1 Subsidiaries of the Registrant
23.1 Consent of Bradshaw, Smith & Co.
27.1 Financial Data Schedules
99.1 Order of the United States Department of the Interior, dated
February 1, 1996.(7)
(1) Incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for July 31, 1981.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for July 31, 1991.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-00905) declared effective on February 13, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1995.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
dated February 1, 1996.
<PAGE> 52
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 9, 1996.
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1998.
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1999.
(11) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 27, 2000.
(b) Reports on Form 8-K.
On January 27, 2000, the Registrant filed a Report on Form 8-K
reporting the purchase of 80% of the capital stock of Placement 2000.
On October 12, 2000, the Registrant filed a Report on Form 8-K
reporting the closing of the Nitro Grill and the current state of their
suit against the Table Mountain Tribe.
