<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
Nevada 04-2709807
<S> <C>
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
6787 W. Tropicana, Ste 200, Las Vegas, Nevada 89103
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(702) 227-9800
(Registrant's Telephone Number, including Area Code)
N/A
(Former Name, Former Address & Former Fiscal Year,
if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes ____X___ No___________
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.01 Par Value,
14,800,363 shares at June 9, 1999.
Transitional Small Business Disclosure Format Yes _______ No ___X___
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND JULY 31, 1998
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $16,794,000 $15,371,000
Consulting fee and other receivables 405,000 180,000
Refundable income taxes -- 311,000
Deferred tax asset 4,000 4,000
Deposits for restaurant operations 649,000 --
Prepaid expenses 228,000 31,000
----------- -----------
Total current assets 18,080,000 15,897,000
----------- -----------
Note receivable from Table Mountain Tribe 2,087,000 --
Property and equipment, net 625,000 180,000
Land held for investment or development 5,105,000 5,101,000
Investment in unconsolidated subsidiary 500,000 --
Other assets - deposits and other 10,000 9,000
----------- -----------
$26,407,000 $21,187,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 248,000 $ 126,000
Income taxes payable 195,000 10,000
Accrued expenses 84,000 143,000
----------- -----------
Total current liabilities 527,000 279,000
----------- -----------
Note payable 2,203,000 --
----------- -----------
Commitments -- --
Stockholders' equity:
Common stock, $.01 par; 30,000,000 shares authorized;
14,956,563 and 15,086,463 shares issued and outstanding 150,000 151,000
Preferred stock, $.01 par; 10,000,000 shares authorized;
shares issued and outstanding - none -- --
Capital in excess of par 3,173,000 3,324,000
Retained earnings 20,354,000 17,433,000
----------- -----------
23,677,000 20,908,000
----------- -----------
$26,407,000 $21,187,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Casino Consulting Fees $ 2,490,000 $ 1,995,000
------------ ------------
Costs and expenses:
Casino Consulting 438,000 692,000
Restaurant Operations 86,000 --
Death Care Operations -- 8,000
General and Administrative 265,000 359,000
Amortization and Depreciation 9,000 36,000
Minority Interest in Net Income of Consolidated Subsidiary -- 9,000
------------ ------------
798,000 1,104,000
------------ ------------
Income from Operations 1,692,000 891,000
------------ ------------
Other income (expense):
Interest Income 252,000 247,000
Interest Expense (44,000) --
Miscellaneous 10,000 --
------------ ------------
218,000 247,000
------------ ------------
Income before Write-Off of Project Costs and
Advances and Income Taxes 1,910,000 1,138,000
------------ ------------
Write-off of project costs and advances -- --
------------ ------------
Income before Income Taxes 1,910,000 1,138,000
------------ ------------
Income tax expense:
Current:
State 81,000 68,000
Federal 625,000 372,000
------------ ------------
706,000 440,000
------------ ------------
Net income $ 1,204,000 $ 698,000
============ ============
Earnings per common share:
Basic $ 0.08 $ 0.05
============ ============
Diluted $ 0.08 $ 0.04
============ ============
Weighted average number of common shares and common share equivalents:
Basic 15,058,000 15,133,000
Stock options and warrants 717,000 949,000
------------ ------------
Diluted 15,775,000 16,082,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Casino Consulting Fees $ 6,660,000 $ 6,525,000
------------ ------------
Costs and expenses:
Casino Consulting 1,402,000 1,425,000
Restaurant Operations 207,000 --
Death Care Operations 31,000 8,000
General and Administrative 991,000 907,000
Amortization and Depreciation 25,000 107,000
Minority Interest in Net Income of Consolidated Subsidiary -- 23,000
------------ ------------
2,656,000 2,470,000
------------ ------------
Income from Operations 4,004,000 4,055,000
------------ ------------
Other income (expense):
Interest Income 745,000 705,000
Interest Expense (44,000) --
Miscellaneous 10,000 10,000
------------ ------------
711,000 715,000
------------ ------------
Income before Write-Off of Project Costs and
Advances and Income Taxes 4,715,000 4,770,000
------------ ------------
Write-off of project costs and advances -- 861,000
------------ ------------
Income before Income Taxes 4,715,000 3,909,000
------------ ------------
Income tax expense:
Current:
State 222,000 233,000
Federal 1,572,000 1,260,000
------------ ------------
1,794,000 1,493,000
------------ ------------
Net income $ 2,921,000 $ 2,416,000
============ ============
Earnings per common share:
Basic $ 0.19 $ 0.16
============ ============
Diluted $ 0.18 $ 0.15
============ ============
Weighted average number of common shares and common share equivalents:
Basic 15,091,000 15,021,000
Stock options and warrants 829,000 1,055,000
------------ ------------
Diluted 15,920,000 16,076,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JULY 31, 1998 AND NINE MONTHS
ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- CAPITAL
IN EXCESS RETAINED
SHARES DOLLARS OF PAR EARNINGS
------ ------- ------ --------
<S> <C> <C> <C> <C>
Balance, July 31, 1997 14,867,958 $ 149,000 $ 4,892,000 $ 14,400,000
Issuance of shares 277,905 3,000 78,000
Shares repurchased and retired (59,400) (1,000) (87,000)
Retirement of minority interest in
subsidiary (1,559,000) (36,000)
Net income for the year 3,069,000
----------- ---------- ------------ -------------
Balance, July 31, 1998 15,086,463 151,000 3,324,000 17,433,000
Issuance of shares 32,500 -- 20,000
Shares repurchased and retired (162,400) (1,000) (171,000)
Net income for the period 2,921,000
----------- ---------- ------------ -------------
Balance, April 30, 1999 14,956,563 $ 150,000 $ 3,173,000 $ 20,354,000
=========== ========== ============ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,921,000 $ 2,416,000
------------ ------------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Amortization and depreciation 25,000 107,000
Minority interest in net income of consolidated subsidiary -- 23,000
Changes in other assets and liabilities, net (513,000) 1,140,000
------------ ------------
(488,000) 1,270,000
------------ ------------
Net cash provided by operating activities 2,433,000 3,686,000
------------ ------------
Cash flows from investing activities:
Note receivable from Table Mountain Tribe (2,087,000) --
Purchase of land held for investment or development
and improvements (4,000) (1,454,000)
Purchase of property and equipment, net (470,000) (16,000)
------------ ------------
Net cash used by investing activities (2,561,000) (1,470,000)
------------ ------------
Cash flows from financing activities:
Investment in Unconsolidated Subsidiary (500,000) --
Increase in cash restricted as to use -- (53,000)
Proceeds from long-term debt 2,203,000 --
Repurchase of common stock (172,000) (51,000)
Proceeds from issuance of common stock 20,000 81,000
------------ ------------
Net cash provided (used) by financing activities 1,551,000 (23,000)
------------ ------------
Net increase in cash and cash equivalents 1,423,000 2,193,000
Cash and cash equivalents, at beginning of period 15,371,000 12,588,000
------------ ------------
Cash and cash equivalents, at end of period $ 16,794,000 $ 14,781,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ 1,310,000 $ 1,158,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
As permitted by the Securities and Exchange Commission (SEC) under Rule 10-01 of
Regulation S-X, the accompanying consolidated financial statements and notes
have been condensed and, therefore, do not contain all disclosures required by
generally accepted accounting principles. The consolidated financial statements
include the accounts of American Vantage Companies and its subsidiaries ("the
Company"). All significant intercompany accounts and transactions have been
eliminated. For additional disclosures, refer to the Annual Report on Form
10-KSB of the Company for the year ended July 31, 1998.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods.
Certain amounts in the interim period financial statements for Fiscal 1998 have
been reclassified for comparability with the current period presentation.
The computations of basic earnings per common share are based on the weighted
average number of common shares outstanding. The computations of diluted
earnings per share are based on the weighted average number of common shares and
common share equivalents outstanding. Stock purchase warrants and options
outstanding and exercisable at or below the market price are considered common
share equivalents.
Results of the interim periods are not necessarily indicative of those to be
expected for the full year.
NOTE 2 - INDIAN GAMING OPERATIONS
TABLE MOUNTAIN CASINO & BINGO
The Company has a consulting agreement with the Table Mountain Rancheria Band of
Indians (the "Table Mountain Tribe") for the Table Mountain Casino & Bingo (the
"Table Mountain Casino") in Friant, California. Additionally, effective February
1, 1996, the Company and the Table Mountain Tribe signed a termination agreement
of the March 1993 agreement under which a monthly payment of $350,000 will be
paid to the Company through January 2000, subject to meeting certain thresholds.
In June 1997, the consulting agreement was amended, retroactive to May 1, 1997,
to provide a revised consulting fee schedule. The revised schedule provided for
a base monthly consulting fee of $60,000, plus additional fees of $50,000 to
$100,000 for increments of $225,000 to $500,000 or portion thereof, of monthly
casino net income in excess of the first $1.5 million of net income from casino
operations. A second amendment to the consulting agreement was signed in
November 1997. The consulting fee schedule was adjusted, effective February 1,
1998, to provide for a base fee of $50,000 and additional fees of $45,000 to
$60,000 for increments of $250,000 to $500,000 or portion thereof, of monthly
casino net income in excess of $1.5 million of net income from casino
operations. The term of the agreement was extended to June 30, 2000.
7
<PAGE> 8
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
The Company will continue to receive a monthly payment of $350,000 in accordance
with terms of the termination agreement signed in February 1996. These payments
will continue through January 2000.
The Company is obligated, under certain circumstances, to loan the Table
Mountain Tribe up to $4,000,000. As a part of this commitment, in August 1998,
the Company committed to lend to the Table Mountain Tribe up to $2,900,000 for
renovation and expansion of the Table Mountain Casino. The expansion will
increase the size of the casino by approximately 60,000 square feet. Interest
(at 9.5%) only payments are required until April 15, 1999 and principal and
interest payments are due thereafter until December 31, 1999, the maturity date
of the loan. The loan is secured by revenues from the Table Mountain Casino. At
April 30, 1999, the loan balance was approximately $2,087,000. (See Note 6).
Management believes the maturity date of the loan will be extended and, as a
result, the note is not classified as current.
See Note 8 - Subsequent Event.
TRIBAL-STATE COMPACT
In July 1998, the tribal government leaders of the Table Mountain Tribe signed a
Tribal-State compact with the State of California. The Table Mountain Compact
was also approved by the Secretary of the Interior. The compact contains various
stipulations and regulations regarding gaming which will be permitted at the
Table Mountain Casino.
The agreement expires January 1, 2009. It contains a renewal option for two
additional five (5) year periods upon written notice of renewal to the Governor
of California prior to the expiration date. The options for renewal may be
denied if the Tribe has been found to have engaged in unauthorized Class III
gaming on two or more occasions or has committed violations of the terms of the
compact on five or more occasions.
The compact permits two types of lottery based machines, the Indian Video
Lottery Match Game and the Indian Video Lottery Scratcher Game. The Table
Mountain Casino will be permitted to operate 975 of these machines in total. The
Table Mountain Tribe has been allotted 199 of these devices. Additional machines
may be licensed from other Federally recognized tribes for an annual fee of up
to $5,000 per machine.
The Table Mountain Casino will be permitted to operate existing video gaming
devices for an open-ended transition period so long as new electronic lottery
devices are unavailable or competing tribes continue to operate video gaming
devices without a state compact. Prototypes of the lottery based machines
proposed in the compact are presently undergoing testing at some Indian casinos,
including Table Mountain Casino. Presently, there is no way to confirm whether
the lottery based machines provided for in the compact will produce an income
stream consistent with those devices now being played at the Table Mountain
Casino. In the event the new machines do not produce an income stream consistent
with that being experienced at the Table Mountain Casino, the resulting decline
in revenue and profits of the
8
<PAGE> 9
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
Casino may have a materially adverse effect on the consulting fees earned by the
Company under its consulting agreement with the Table Mountain Tribe.
The compact provides that employees of the Table Mountain Casino will be offered
California workers' compensation, unemployment insurance, disability insurance
and guaranteed the right to engage in collective bargaining activities. Patrons
of the casino will have the right to require binding arbitration of player
disputes. The casino must also carry public liability insurance. The Table
Mountain Casino presently offers its employees workers' compensation,
unemployment and disability insurance coverage. It also provides public
liability insurance coverage. The compact also requires the Table Mountain Tribe
to make arrangements for mitigation of environmental, police, fire, emergency or
other local services.
The compact contains an option to terminate the agreement and enter into the
alternative compact set out in a proposition ("Prop 5") on the November 1998
California state ballot if that initiative passed and was not held to be
unconstitutional. Prop 5 passed in the November ballot, however, the
constitutionality of the proposition is being challenged in the California
judicial system.
The Table Mountain Tribe and other California tribes are currently involved in
discussions with the Governor of California to explore the possibility of
developing new guidelines for existing and future gaming compacts. As of June 9,
1999, no definitive agreement has been reached as a result of the discussions.
UNITED AUBURN INDIAN COMMUNITY
In February 1996, the Company formed a joint venture with the Table Mountain
Tribe to provide consulting services to the United Auburn Indian Community ("the
Auburn Tribe"). The purpose of the joint venture was to assist in the
development of a Class II casino to be built and owned by the Auburn Tribe near
Sacramento, California. The Company had an 80% interest in the joint venture.
During the period from February 1996 through January 1998, the joint venture
provided monthly payments of $22,500 to the Auburn Tribe for tribal needs. The
payments were capitalized as consulting agreement acquisition costs. Also, the
joint venture paid for predevelopment costs incurred in the process of acquiring
land, which would be placed into trust for the Tribe. These advances to the
Auburn Tribe by the Company were capitalized. The land was to be utilized for
the casino site and other tribal uses.
In March 1998, Company management believing the project could not be completed
in a time frame that was in the best interests of its stockholders withdrew with
its joint venture partner, the Table Mountain Tribe, from the arrangement. The
joint venture and the Auburn Tribe in March 1998 signed an agreement providing
that under certain circumstances advances of $413,000 would be repaid from the
future operations of the planned Auburn casino. The Company wrote off its
investment in the project and the advances made to the Auburn Tribe ($861,000
combined) in the second quarter of Fiscal 1998.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
Consulting agreement acquisition costs related to the Table Mountain Tribe
contract were amortized over
9
<PAGE> 10
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
a 27 month period that ended in May 1998.
NOTE 4 - G & L ACQUISITION CORP.
In September 1996, the Company formed a new subsidiary, G & L Acquisition Corp.
("G & L"). G & L sought business opportunities involving the establishment or
acquisition of a California card room, a gaming business located on a ship which
sails to international waters from home ports in the United States or elsewhere
and/or a leisure business ("Target Business").
G & L sold additional shares of its common stock through a private placement to
"accredited investors" as such term is defined in Regulation D under the
Securities Act of 1933. The private placement resulted in the sale of 1,992,000
shares at a price of $1.55 per share. The net proceeds from the sale, after the
costs of the offering, totaled approximately $2,625,000.
The Company was not able to find, within an 18 month period as provided in the
private placement memorandum, an investment that met specific investment
criteria. As a result, in the fourth quarter of Fiscal 1998, investors were
given a refund of their original investment. In connection with the refund, the
Company incurred investor reparation expenses of $550,000. The Company also
recorded a reduction of its capital in excess of par by $1,559,000 and retained
earnings by $36,000 in connection with the refund. The transaction resulted in G
& L becoming a wholly owned subsidiary at July 31, 1998. It was previously a 64%
owned subsidiary.
NOTE 5 - RESTAURANT OPERATIONS
WCW NITRO GRILL
On November 12, 1998, Sitka Restaurant Group, Inc. ("Sitka"), a subsidiary of
the Company, entered into a license agreement (the "License Agreement") with
World Championship Wrestling, Inc. ("WCW") to create and 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 will remain in effect so long
as Sitka continues to open a minimum number of restaurants or, in the
alternative, meet certain minimum royalties. The License Agreement provides for
Sitka to make certain minimum guaranteed payments upon opening of each
restaurant and annually thereafter to WCW against royalties payable to WCW based
on the gross sales of food and beverages, merchandise and fee-based attractions
and/or promotions.
On November 19, 1998, Sitka entered into a ten-year lease for restaurant space
with New Castle Corp. for the location of the first WCW Nitro Grill. The first
WCW Nitro Grill is located in the Excalibur Hotel and Casino in Las Vegas,
Nevada and opened in May of 1999. The Company plans to expend approximately
$2,500,000, including capital expenditures and startup costs, to develop the
restaurant.
10
<PAGE> 11
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
BORDER GRILL LAS VEGAS
In February 1999, a wholly-owned subsidiary of the Company entered into an
agreement with the owners/operators of the Border Grill Restaurants to develop a
restaurant in the Mandalay Bay Resort & Casino in Las Vegas, Nevada. The
subsidiary will have a 49% interest in the limited liability corporation that is
developing the restaurant. The Company will use working capital to provide
approximately $3,000,000 for the development of the restaurant, which is
expected to open in June 1999.
NOTE 6 - NOTE PAYABLE
In August 1998, the Company obtained a $2,900,000 line of credit with a bank.
The line is totally secured by certificates of deposit. The line bears interest
at 6.8%, interest only payments are due monthly and the line expires and is
payable on December 31, 1999. At April 30, 1999, approximately $2,203,000 had
been drawn on the line. Bank officials have agreed to extend the maturity date
of the loan to match the maturity date of the Company's loan to the Table
Mountain Tribe. As a result, the note payable is not classified as current.
NOTE 7 - YEAR 2000 COMPLIANCE
Currently many of the computer systems in use record years in a two-digit
format. These computer systems are unable to properly interpret dates beyond the
year 1999, which could lead to worldwide business disruptions in the processing
of information. The potential costs and uncertainties associated with this
problem will depend on many things, including the software, hardware and the
industry in which the company operates. This requires companies to coordinate
with other entities, with which they electronically interact, including
customers and suppliers.
The Company has evaluated its internal operating system and is working with
companies with which it transacts business to assess their efforts to comply
with the Year 2000 problem and the Company's resulting exposure. At this time,
it appears the aggregate cost to the Company relating to the problem will not be
material.
The Table Mountain Casino is presently undergoing the same process of evaluating
the impact of the Year 2000 problem. Although the financial impact to the
Casino, if any, is not known, it is not believed to be material.
NOTE 8 - SUBSEQUENT EVENT
In May 1999, the Company received formal notice from the legal counsel of the
Table Mountain Rancheria Band of Indians that the General Council of the Table
Mountain Rancheria had voted to terminate the Company's contract to provide
casino consulting services to the Table Mountain Casino & Bingo. As of April 30,
1999 the Table Mountain Tribe owed the Company approximately $2,087,000. At the
time of the termination, the Company collected all but $13,000 of the principal
portion of the note receivable from the Table Mountain Tribe and collected all
but $90,000 of consulting fees due as of April 30, 1999. As of June
11
<PAGE> 12
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
9, 1999, these two receivable amounts remain unpaid by the Table Mountain Tribe.
Because management believes its contracts with the Table Mountain Tribe are
valid and enforceable, the Company is reviewing its legal alternatives and
considering appropriate action, which can be taken. Concurrent with receiving
payment from the Table Mountain Tribe, the Company paid off the $2,203,000 note
payable to a bank in May 1999.
The loss of casino consulting fees will have a material adverse effect on the
operations of the Company. Although the Nitro Grill opened in May 1999, its
contribution to income from operations cannot be expected to reach the level
generated by the Table Mountain Casino contract. Company management is
continuing its diversification efforts and is seeking other business
opportunities to replace the consulting revenue received from the Table Mountain
Casino. Until such time as, and if, these efforts are successful, the Company
will utilize accumulated cash reserves to provide working capital for corporate
operating expenses.
12
<PAGE> 13
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1999 VERSUS NINE MONTHS ENDED APRIL 30, 1998
REVENUES
Casino consulting fees in the nine months ended April 30, 1999 ("Fiscal 1999")
increased 2.1% to $6,660,000 from the $6,525,000 recorded in the same period in
Fiscal 1998, and were derived from the consulting agreement the Company has with
the Table Mountain Rancheria Band of Indians (the "Tribe") for providing
consulting services to the Table Mountain Casino & Bingo (the "Table Mountain
Casino"), which is located near Fresno, California. See "Liquidity and Capital
Resources" for further discussion of the contract.
On February 1, 1996, the Company signed a new consulting agreement with the
Table Mountain Tribe for the Table Mountain Casino. Additionally, effective
February 1, 1996, the Company and the Table Mountain Tribe signed a termination
agreement of the March 1993 consulting agreement under which a monthly payment
of $350,000 will be paid to the Company through January 2000, subject to meeting
certain thresholds.
In June 1997, the consulting agreement was amended, retroactive to May 1, 1997,
to provide a revised consulting fee schedule. The revised schedule provided for
a base monthly consulting fee of $60,000, plus additional fees of $50,000 to
$100,000 for increments of $225,000 to $500,000 or portion thereof, of monthly
casino net income in excess of the first $1.5 million of net income from casino
operations. A second amendment to the consulting agreement was signed in
November 1997. 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 will continue to receive a monthly payment of $350,000 in accordance
with terms of the termination agreement signed in February 1996. These payments
will continue through January 2000.
The Company is obligated, under certain circumstances, to loan the Table
Mountain Tribe up to $4,000,000. As a part of this commitment, in August 1998,
the Company committed to lend to the Table Mountain Tribe up to $2,900,000 for
renovation and expansion of the Table Mountain Casino. The expansion will
increase the size of the casino by approximately 60,000 square feet. Interest
(at 9.5%) only payments are required until April 15, 1999 and principal and
interest payments are due thereafter until December 31, 1999, the maturity date
of the loan. The loan is secured by revenues from the Table Mountain Casino.
COSTS AND EXPENSES
Casino consulting expenses in the nine months ended April 30, 1999 decreased to
$1,402,000, or down 1.6%, from $1,425,000 in the comparable period in Fiscal
1998. This is comprised principally of decreases in employee compensation costs,
legal costs and consultant fees offset by increases in political contributions
and allocated corporate overhead expenses.
The Company incurred startup expenses of $207,000 in Fiscal 1999 in connection
with its development of
13
<PAGE> 14
the WCW (World Championship Wrestling) Nitro Grill, which opened in May of 1999.
The restaurant is in the Excalibur Hotel and Casino in Las Vegas, Nevada. The
Company estimates it will cost $2,500,000, including capital expenditures and
startup costs, to develop the restaurant.
The development of the cemetery/funeral home project has been delayed while the
Clark County, Nevada government finalizes its plans for construction of a flood
control project for the area. See "Liquidity and Capital Resources" for
additional discussion of the project.
General and administrative expenses in the nine months ended April 30, 1999
increased by $84,000 or 9.3% from the comparable period of Fiscal 1998. The
increase is attributed to additional political contributions and corporate legal
fees, which were offset by decreases in consultant fees and loan origination
costs.
Amortization and depreciation was $25,000 and $107,000 in the nine months ended
April 30, 1999 and 1998, respectively. Amortization is comprised of consulting
agreement acquisition costs related to the Table Mountain Casino consulting
agreement and were amortized over a 27 month period which ended in May 1998.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions, totaled $745,000 and $705,000 in the nine months ended
April 30, 1999 and 1998, respectively.
Interest expense in Fiscal 1999 totaled $44,000 for the nine months ended April
30, 1999.
During the second quarter of Fiscal 1998, the Company charged operations
$861,000 for the write-off of its investment in the Auburn project costs and
advances related to the Auburn Tribe.
The Company recorded provisions of $222,000 and $233,000 for State of California
income taxes for the nine months ended April 30, 1999 and 1998, respectively.
Provisions of $1,572,000 and $1,260,000 were recorded for Federal income taxes
currently payable for the nine months ended April 30, 1999 and 1998,
respectively.
Net income was $2,921,000 and $2,416,000 for the nine months ended April 30,
1999 and 1998, respectively. Diluted earnings per share were $0.18 and $0.15 for
the nine months ended April 30, 1999 and 1998, respectively.
THREE MONTHS ENDED APRIL 30, 1999 VERSUS THREE MONTHS ENDED APRIL 30, 1998
REVENUES
Casino consulting fees from the Table Mountain Casino in the third quarter of
Fiscal 1999 were $495,000, or 24.8%, higher than those recorded in the third
quarter of Fiscal 1998. This principally resulted from increased gaming activity
and revenues at the casino.
COSTS AND EXPENSES
Casino consulting expenses decreased to $438,000 in the third quarter of Fiscal
1999 from $692,000 in the third quarter of Fiscal 1998. This resulted
principally from decreases in payroll, legal expenses and consulting fees paid.
The Company incurred additional startup costs in connection with the development
of the WCW Nitro Grill in the third quarter of Fiscal 1999.
14
<PAGE> 15
General and administrative expenses were $265,000 for the third quarter of
Fiscal 1999 and $359,000 for the third quarter of Fiscal 1998, a decrease of
26.2%. The decrease resulted mainly from lower employee compensation, legal fees
and consultant fees paid.
OTHER OPERATIONAL ITEMS
Interest income increased to $252,000 in the third quarter of Fiscal 1999 from
$247,000 in the third quarter of Fiscal 1998. The income is represented by
interest earned on the Company"s bank deposits.
Interest expense in Fiscal 1999 totaled $44,000 for the three months ended April
30, 1999.
The Company recorded state income taxes of $81,000 and Federal income taxes of
$625,000 for the three months ended April 30, 1999 as compared to state income
taxes of $68,000 and Federal income taxes of $372,000 for the same period in
Fiscal 1998.
Net income for the three months ended April 30, 1999 and 1998 was $1,204,000 and
$698,000, respectively. Diluted earnings per share were $0.08 and $0.04 for the
three months ended April 30, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES AT APRIL 30, 1999 AND THE NINE MONTHS THEN ENDED
At April 30, 1999, the Company had consolidated working capital of $17,552,000,
as compared with working capital of $15,618,000 at July 31, 1998. The change
resulted principally from a combination of increases of cash ($1,423,000),
income taxes payable ($185,000), prepaid expenses ($197,000), accounts payable
($123,000), consulting fee and other receivables ($225,000) and deposits for
restaurant operations ($649,000) and reductions in refundable income taxes
($311,000) and accrued expenses ($59,000).
During the nine months ended April 30, 1999, investing activities used
$2,561,000 as compared to $1,470,000 used by investing activities in the same
period in Fiscal 1998. The cash used in investing activities in Fiscal 1999 was
for a loan made to the Table Mountain Tribe ($2,087,000), to acquire additional
property and equipment, principally restaurant equipment and leasehold
improvements ($470,000) and for capitalized costs related to the land held for
investment or development ($4,000).
Financing activities in the nine months ended April 30, 1999 were comprised of
the proceeds from a bank loan ($2,203,000), the issuance of common stock
($20,000) and the repurchase and retirement of common stock ($172,000). During
the third quarter of Fiscal 1999, the Company paid $500,000 of its approximate
$3,000,000 commitment to fund the development of the Border Grill restaurant.
The November 1997 amendment to the Table Mountain Casino consulting agreement
extended the consulting period to June 30, 2000. The Company is obligated during
the period of the consulting agreement, under certain circumstances, to loan the
Table Mountain Tribe up to $4,000,000. If the loan is made, it will be repaid
over the remaining period of the consulting agreement. In August 1998, the
Company committed to lend to the Tribe up to $2,900,000 for renovation and
expansion of the Table Mountain Casino. Interest (at 9.5%) only payments are
required until April 15, 1999 and principal and interest payments are due
thereafter until December 31, 1999, the maturity date of the loan. Management
believes the maturity date of the note will be extended, however, the date has
not been determined. Revenues from the Table Mountain Casino secure the loan. At
April 30, 1999, the Tribe owed the Company approximately $2,087,000.
15
<PAGE> 16
The Company obtained a $2,900,000 line of credit from a bank. The line is
totally secured by certificates of deposit as monies are drawn on the line. The
line bears interest at 6.8%, interest only payments are due monthly and the line
expires and is payable on December 31, 1999. Bank officials have agreed to
extend the maturity date of the loan to match the maturity date of the Company's
loan to the Table Mountain Tribe. At April 30, 1999, approximately $2,203,000
had been drawn on the line of credit.
In Fiscal 1997, the Company purchased approximately 40 acres of land in North
Las Vegas, Nevada for approximately $3,500,000. The Company plans to develop the
property as a funeral home and cemetery. The estimated cost to build the
project, including the acquisition of the land, ranges from $8,000,000 to
$12,000,000. The development of this property has been 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 is built as
indicated, the Company would not have to build major water control culverts on
the cemetery project and more of the land will be useable. The Company is
awaiting additional progress on the construction of the flood control project
before it begins development of the property.
Funds required to construct and develop the project will be provided from bank
borrowings, cash on hand, and operations, or a combination of all three sources.
Funds required for the property's operations, after completion of construction,
initially will be provided by the Company's working capital, which is generated
by other sources, and/or borrowings. Ultimately, management anticipates that the
property will generate sufficient cash flow to maintain its operations
independently
In November 1998, a wholly-owned subsidiary of the Company entered into an
agreement with World Championship Wrestling, Inc. ("WCW"), a Time Warner company
(NYSE:TWX) to create and develop one or more themed restaurants. The Company
expects to expend approximately $2,500,000 to develop the first restaurant in
the Excaliber Hotel and Casino in Las Vegas, Nevada. The Company will fund the
cost to develop the restaurant from its working capital.
The restaurant opened in May of 1999.
In February 1999, a wholly-owned subsidiary of the Company entered into an
agreement with the owners/operators of the Border Grill Restaurants to develop a
restaurant in the Mandalay Bay Resort & Casino in Las Vegas, Nevada. The
subsidiary will have a 49% interest in the limited liability corporation, which
is developing the restaurant. The Company will use working capital to provide
approximately $3,000,000 for the development of the restaurant, which is
expected to open in June of 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 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. Additionally, the Company will continue to pursue any
business venture, including those not previously described, which management
believes affords 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.
At April 30, 1999, the Company had revolving lines of credit totaling $2,000,000
with two banks. One line for $1,000,000 expires in December 1999 and bears
interest at 1.5% above a referenced prime rate. Certificates of deposit totaling
$500,000 collateralize the line. The other $1,000,000 line of credit is
unsecured, expires in December 1999 and bears interest at 1% above an indexed
prime (8.5%) at April 30, 1999. At April 30, 1999, no funds were outstanding on
the lines of credit.
In July 1998, the tribal government leaders of the Table Mountain Tribe signed a
Tribal-State compact with
16
<PAGE> 17
the State of California. The compact contains various stipulations and
regulations regarding gaming which will be permitted at the Table Mountain
Casino. The compact was approved by the Department of Interior, however, the
legal impact of California Proposition 5 has not been fully determined. See Note
2 - "Indian Gaming Operations - Tribal-State Compact" of Notes to Consolidated
Financial Statements.
The Company has evaluated its internal operating system and is working with
companies with which it transacts business to assess their efforts to comply
with the Year 2000 problem and the Company's resulting exposure. At this time,
it appears the aggregate cost to the Company relating to the problem will not be
material. The Table Mountain Casino is presently undergoing the same process of
evaluating the impact of the Year 2000 problem. Although the financial impact to
the Casino, if any, is not known, it is not believed to be material.
In May 1999, the Company received formal notice from the legal counsel of the
Table Mountain Rancheria Band of Indians that the General Council of the Table
Mountain Rancheria had voted to terminate the Company's contract to provide
casino consulting services to the Table Mountain Casino & Bingo. As of April 30,
1999 the Table Mountain Tribe owed the Company approximately $2,087,000. At the
time of the termination, the Company collected all but $13,000 of the principal
portion of the note receivable from the Table Mountain Tribe and collected all
but $90,000 of consulting fees due as of the end of April 1999. As of June 9,
1999, these two receivable amounts remain unpaid by the Table Mountain Tribe.
Because management believes its contracts with the Table Mountain Tribe are
valid and enforceable, the Company is reviewing its legal alternatives and
considering appropriate action, which can be taken. Concurrent with receiving
payment from the Table Mountain Tribe, the Company paid off the $2,203,000 note
payable to a bank in May 1999.
The loss of casino consulting fees will have a material adverse effect on the
operations of the Company. Although the Nitro Grill opened in May of 1999, its
contribution to income from operations cannot be expected to reach the level
generated by the Table Mountain Casino contract. Company management is
continuing its diversification efforts and is seeking other business
opportunities to replace the consulting revenue received from the Table Mountain
Casino. Until such time as, and if, these efforts are successful, the Company
will utilize accumulated cash reserves to provide working capital for corporate
operating expenses.
Included in this Item 1, 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. 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.
17
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. See Part I, Note 2 of Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a vote of Security Holders
On May 24, 1999, the Company held an annual meeting of stockholders to
consider and vote upon (i) a proposal to elect Jeanne Hood and Steven
G. Barringer as Class C Directors of the Company, and (ii) to ratify
the appointment of Bradshaw Smith & Co. as the Company's independent
auditors for the year ended July 31, 1999.
The number of votes cast for, against and to withhold authority to vote
for each of the foregoing proposals are set forth below:
(i) Proposal to elect Directors:
<TABLE>
<CAPTION>
Withhold
For Against Authority
--- ------- ---------
<S> <C> <C> <C>
Jeanne Hood 12,644,569 -- 13,722
Steven G. Barringer 12,567,663 -- 90,628
(ii) To ratify Bradshaw Smith & Co. as the
Company's independent auditors 12,241,948 130,065 286,345
</TABLE>
Item 5. Other Information
In May 1999, the Company received a notice of termination of
its consulting agreement for the Table Mountain Casino &
Bingo. See Part I Note 8 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) A Form 8-K was filed by the Company with the
Securities and Exchange Commission on May 28, 1999
reporting the formal notice from the Table Mountain
Rancheria Band of Indians to terminate the Company's
consulting agreement for the Table Mountain Casino &
Bingo.*
- --------------------------
* Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on May 28, 1999.
18
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN VANTAGE COMPANIES
Dated: June 11, 1999 By: /s/ Ronald J. Tassinari
Las Vegas, Nevada -----------------------
Ronald J. Tassinari
President
(Principal Executive Officer)
By:/s/ Roy K. Keefer
-----------------
Roy K. Keefer
(Chief Financial Officer and
Accounting Officer)
19
<PAGE> 20
Exhibit Index
Exhibits
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 16,794,000
<SECURITIES> 0
<RECEIVABLES> 405,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,080,000
<PP&E> 625,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,407,000
<CURRENT-LIABILITIES> 527,000
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 23,527,000
<TOTAL-LIABILITY-AND-EQUITY> 26,407,000
<SALES> 6,660,000
<TOTAL-REVENUES> 6,660,000
<CGS> 0
<TOTAL-COSTS> 2,656,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,000
<INCOME-PRETAX> 4,715,000
<INCOME-TAX> 1,794,000
<INCOME-CONTINUING> 2,921,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.15
</TABLE>
