<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Nevada 04-2709807
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification 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, 15,118,963 shares at March 11, 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
January 31, 1999 and July 31, 1998
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
----------- -----------
(Unaudited)
----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $17,402,000 $15,371,000
Consulting fee and other receivables 282,000 180,000
Refundable income taxes -- 311,000
Deferred tax asset 4,000 4,000
Deposits for restaurant operations 314,000 --
Prepaid expenses 81,000 31,000
----------- -----------
Total current assets 18,083,000 15,897,000
----------- -----------
Note receivable from Table Mountain Tribe 1,318,000 --
----------- -----------
Property and equipment, net 200,000 180,000
----------- -----------
Land held for investment or development 5,105,000 5,101,000
----------- -----------
Other assets - deposits and other 9,000 9,000
----------- -----------
$24,715,000 $21,187,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51,000 $ 126,000
Income taxes payable 374,000 10,000
Accrued expenses 327,000 143,000
----------- -----------
Total current liabilities 752,000 279,000
----------- -----------
Note payable 1,318,000 --
----------- -----------
Commitments -- --
Stockholders' equity:
Common stock, $.01 par; 30,000,000 shares
authorized; 15,118,963 and 15,086,463 shares
issued and outstanding 151,000 151,000
Preferred stock, $.01 par; 10,000,000 shares
authorized; shares issued and outstanding - none -- --
Capital in excess of par 3,344,000 3,324,000
Retained earnings 19,150,000 17,433,000
----------- -----------
22,645,000 20,908,000
----------- -----------
$24,715,000 $21,187,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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American Vantage Companies
Consolidated Statements of Income
Three Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 2,040,000 $ 2,220,000
----------- -----------
Costs and expenses:
Casino consulting 512,000 376,000
Restaurant operations 121,000 --
Death care operations -- --
General and administrative 338,000 294,000
Amortization and depreciation 8,000 36,000
Minority interest in net income of consolidated -- 7,000
subsidiary
----------- -----------
979,000 713,000
----------- -----------
Income from operations 1,061,000 1,507,000
----------- -----------
Other income:
Interest 267,000 234,000
Miscellaneous -- 3,000
----------- -----------
267,000 237,000
----------- -----------
Income before write-off of project costs and
advances and income taxes 1,328,000 1,744,000
----------- -----------
Write-off of project costs and advances -- 861,000
----------- -----------
Income before income taxes 1,328,000 883,000
----------- -----------
Income tax expense:
Current:
State 45,000 51,000
Federal 441,000 281,000
----------- -----------
486,000 332,000
----------- -----------
Net income $ 842,000 $ 551,000
=========== ===========
Earnings per common share:
Basic $ 0.06 $ 0.04
=========== ===========
Diluted $ 0.05 $ 0.03
=========== ===========
Weighted average number of common shares and common share
equivalents:
Basic 15,119,000 15,063,000
Stock options and warrants 863,000 976,000
----------- -----------
Diluted 15,982,000 16,039,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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American Vantage Companies
Consolidated Statements of Income
Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 4,170,000 $ 4,530,000
----------- -----------
Costs and expenses:
Casino consulting 964,000 733,000
Restaurant operations 121,000 --
Death care operations 31,000 --
General and administrative 726,000 548,000
Amortization and depreciation 16,000 71,000
Minority interest in net income of consolidated subsidiary -- 14,000
----------- -----------
1,858,000 1,366,000
----------- -----------
Income from operations 2,312,000 3,164,000
----------- -----------
Other income:
Interest 493,000 458,000
Miscellaneous -- 10,000
----------- -----------
493,000 468,000
----------- -----------
Income before write-off of project costs and
advances and income taxes 2,805,000 3,632,000
----------- -----------
Write-off of project costs and advances -- 861,000
----------- -----------
Income before income taxes 2,805,000 2,771,000
----------- -----------
Income tax expense:
Current:
State 141,000 165,000
Federal 947,000 888,000
----------- -----------
1,088,000 1,053,000
----------- -----------
Net income $ 1,717,000 $ 1,718,000
=========== ===========
Earnings per common share:
Basic $ 0.11 $ 0.12
=========== ===========
Diluted $ 0.11 $ 0.11
=========== ===========
Weighted average number of common shares and common share
equivalents:
Basic 15,107,000 14,966,000
Stock options and warrants 883,000 1,030,000
----------- -----------
Diluted 15,990,000 15,996,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
American Vantage Companies
Consolidated Statements of
Stockholders' Equity
Year Ended July 31, 1998 and Six
Months
Ended January 31, 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 (59,400) (1,000) (87,000)
retired
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
Net income for the 1,717,000
period
----------- --------- ----------- ------------
Balance, January 31, 1999 15,118,963 $ 151,000 $ 3,344,000 $ 19,150,000
=========== ========= =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
American Vantage Companies
Consolidated Statements of Cash Flows
Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,717,000 $ 1,718,000
------------ ------------
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Amortization and depreciation 16,000 47,000
Minority interest in net income of -- 14,000
consolidated subsidiary
Changes in other assets and liabilities, net 318,000 1,009,000
------------ ------------
334,000 1,070,000
------------ ------------
Net cash provided by operating activities 2,051,000 2,788,000
------------ ------------
Cash flows from investing activities:
Note receivable from Table Mountain Tribe (1,318,000) --
Purchase of land held for investment or
development and improvements (4,000) (102,000)
Purchase of property and equipment, net (36,000) (4,000)
------------ ------------
Net cash used by investing activities (1,358,000) (106,000)
------------ ------------
Cash flows from financing activities:
Increase in cash restricted as to use -- (36,000)
Proceeds from long-term debt 1,318,000 --
Proceeds from issuance of common stock 20,000 81,000
------------ ------------
Net cash provided by financing activities 1,338,000 45,000
------------ ------------
Net increase in cash and cash equivalents 2,031,000 2,727,000
Cash and cash equivalents, at beginning of period 15,371,000 12,588,000
------------ ------------
$ 17,402,000 $ 15,315,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ 425,000 $ 706,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
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AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 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 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
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AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 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 3, 1999, the maturity date
of the loan. The loan is secured by revenues from the Table Mountain Casino. At
January 31, 1999, approximately $1,318,000 had been loaned to the Table Mountain
Tribe. (See Note 5).
Management believes the maturity date of the loan will be extended and, as a
result, the note is not classified as current.
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 Casino may have a materially adverse effect on the
consulting fees earned by the Company under its
8
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AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
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 Compact has been approved by the Secretary of the Interior.
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. As of January 31, 1999, the
Auburn Tribe had not placed land into trust for the casino site.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
Consulting agreement acquisition costs related to the Table Mountain Tribe
contract were amortized over a 27 month period that ended in May 1998.
9
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AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
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 - WCW NITRO GRILL
On November 12, 1998, Sitka Restaurant Group, Inc. ("Sitka"), a wholly-owned
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 will commence on the earlier of May 1, 1999 or the opening
of the first WCW Nitro Grill 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 will be located in the Excalibur Hotel and Casino in Las Vegas,
Nevada and is scheduled to open in the Spring of 1999. The Company expects to
expend approximately $2,500,000 to develop the restaurant.
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
10
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AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
line expires and is payable on December 31, 1999. At January 31, 1999,
approximately $1,318,000 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 - SUBSEQUENT EVENT
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 the Spring of 1999.
NOTE 8 - 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.
11
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PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1999 VERSUS SIX MONTHS ENDED JANUARY 31, 1998
REVENUES
Casino consulting fees in the six months ended January 31, 1999 ("Fiscal 1999")
decreased 8.0% to $4,170,000 from the $4,530,000 recorded in the same period in
Fiscal 1998, and were derived from the consulting agreement the Company has with
the Table Mountain 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.
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 six months ended January 31, 1999 increased to
$964,000, or up 31.5%, from $733,000 in the comparable period in Fiscal 1998.
This is comprised principally of increases in employee compensation costs,
political contributions and legal fees.
The Company incurred startup expenses in connection with its development of the
WCW (World Championship Wrestling) Nitro Grill, which is scheduled to open in
the Spring of 1999. The restaurant is in the Excalibur Hotel and Casino in Las
Vegas, Nevada. The Company estimates it will cost $2,500,000,
12
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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 six months ended January 31, 1999
increased by $178,000 or 32.5% from the comparable period of Fiscal 1998. The
increase is attributed to additional employee compensation costs, political
contributions and corporate legal fees.
Amortization and depreciation was $16,000 and $71,000 in the six months ended
January 31, 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 $493,000 and $458,000 in the six months ended
January 31, 1999 and 1998, respectively.
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 $141,000 and $165,000 for State of California
income taxes for the six months ended January 31, 1999 and 1998, respectively.
Provisions of $947,000 and $888,000 were recorded for Federal income taxes
currently payable for the six months ended January 31, 1999 and 1998,
respectively.
Net income was $1,717,000 and $1,718,000 for the six months ended January 31,
1999 and 1998, respectively.
THREE MONTHS ENDED JANUARY 31, 1999 VERSUS THREE MONTHS ENDED JANUARY 31, 1998
REVENUES
Casino consulting fees from the Table Mountain Casino in the second quarter of
Fiscal 1999 were $180,000 or 8.1% lower than those recorded in the second
quarter of Fiscal 1998. This principally resulted from a lower consulting fee
schedule in the amendment to the contract, which became effective February 1,
1998.
COSTS AND EXPENSES
Casino consulting expenses increased to $512,000 in the second quarter of Fiscal
1999 from $376,000 in the second quarter of Fiscal 1998. This resulted
principally from increases in payroll and most expenses in this category.
The Company began to incur startup costs in connection with the development of
the WCW Nitro Grill in the second quarter of Fiscal 1999.
General and administrative expenses were $338,000 for the second quarter of
Fiscal 1999 and $294,000 for the second quarter of Fiscal 1998. The increase
resulted mainly from higher employee compensation and legal costs.
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OTHER OPERATIONAL ITEMS
Interest income increased to $267,000 in the second quarter of Fiscal 1999 from
$234,000 in the second quarter of Fiscal 1998. The income is represented by
interest earned on the Company"s bank deposits.
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 state income taxes of $45,000 and Federal income taxes of
$441,000 for the three months ended January 31, 1999 as compared to state income
taxes of $51,000 and Federal income taxes of $281,000 for the same period in
Fiscal 1998.
Net income for the three months ended January 31, 1999 and 1998 was $843,000 and
$551,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES AT JANUARY 31, 1999 AND THE SIX MONTHS THEN
ENDED
At January 31, 1999, the Company had consolidated working capital of
$17,332,000, as compared with working capital of $15,618,000 at July 31, 1998.
The change resulted principally from a combination of increases of cash
($2,031,000), income taxes payable ($364,000); prepaid expenses ($50,000),
accrued expenses ($184,000) and consulting fee and other receivables ($102,000)
and deposits for restaurant operations ($314,000) and reductions in accounts
payable ($75,000) and refundable income taxes ($311,000).
During the six months ended January 31, 1999, investing activities used
$1,358,000 as compared to $106,000 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 ($1,318,000), to acquire additional
office furniture and equipment ($36,000) and for capitalized costs related to
the land held for investment or development ($4,000).
Financing activities in the six months ended January 31, 1999 were comprised of
the proceeds from a bank loan ($1,318,000) and the issuance of common stock
($20,000).
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
January 31, 1999, approximately $1,318,000 had been loaned to the Tribe.
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 January 31, 1999, approximately $1,318,000
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.
14
<PAGE> 15
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. 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. It is scheduled to open in
the spring of 1999. The Company will fund the cost to develop the restaurant
from its working capital.
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 the Spring 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 January 31, 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 January 31, 1999. At January 31, 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 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
15
<PAGE> 16
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.
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.
16
<PAGE> 17
PART II
OTHER INFORMATION
Item 1. See Part I, Note 2 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
17
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN VANTAGE COMPANIES
Dated: March 15, 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)
18
<PAGE> 19
EXHIBIT INDEX
EX - 27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 17,402,000
<SECURITIES> 0
<RECEIVABLES> 282,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,083,000
<PP&E> 200,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,715,000
<CURRENT-LIABILITIES> 752,000
<BONDS> 0
0
0
<COMMON> 151,000
<OTHER-SE> 22,494,000
<TOTAL-LIABILITY-AND-EQUITY> 24,715,000
<SALES> 4,170,000
<TOTAL-REVENUES> 4,170,000
<CGS> 0
<TOTAL-COSTS> 1,858,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,805,000
<INCOME-TAX> 1,088,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,717,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
