<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 OCTOBER 31, 1997
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
(Exact name of small business issuer as specified in its charter)
Nevada 04-2709807
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
6787 W. Tropicana, Ste 200, Las Vegas, Nevada 89103
(Address of Principal Executive Offices) (Zip Code)
(702) 227-9800
(Registrant's Telephone Number, including Area Code)
N/A
(Former Name, Former Address & Former Fiscal Year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.01 Par Value,
14,867,958 shares at December 10, 1997.
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND JULY 31, 1997
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1997 1997
--------------------------------- -----------------------
(UNAUDITED)
---------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $13,917,000 $12,588,000
CONSULTING FEE AND OTHER RECEIVABLES 665,000 191,000
REFUNDABLE INCOME TAXES -- 555,000
DEFERRED TAX ASSET 2,000 2,000
PREPAID EXPENSES 111,000 68,000
--------------------------------- -----------------------
TOTAL CURRENT ASSETS 14,695,000 13,404,000
--------------------------------- -----------------------
PROPERTY AND EQUIPMENT, NET 202,000 212,000
--------------------------------- -----------------------
LAND HELD FOR DEVELOPMENT 3,660,000 3,603,000
--------------------------------- -----------------------
OTHER ASSETS:
RESTRICTED CASH 2,698,000 2,684,000
CONSULTING AGREEMENT ACQUISITION COSTS, NET 435,000 396,000
DEPOSITS AND OTHER 321,000 273,000
--------------------------------- -----------------------
3,454,000 3,353,000
--------------------------------- -----------------------
$22,011,000 $20,572,000
================================= =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $30,000 $56,000
INCOME TAXES PAYABLE 152,000 --
ACCRUED EXPENSES 240,000 101,000
--------------------------------- -----------------------
TOTAL CURRENT LIABILITIES 422,000 157,000
--------------------------------- -----------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 981,000 974,000
--------------------------------- -----------------------
COMMITMENTS -- --
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR; 30,000,000 SHARES
AUTHORIZED; 14,867,958
SHARES ISSUED AND OUTSTANDING 149,000 149,000
PREFERRED STOCK, $.01 PAR; 10,000,000 SHARES
AUTHORIZED; SHARES ISSUED AND OUTSTANDING - NONE -- --
CAPITAL IN EXCESS OF PAR 4,892,000 4,892,000
RETAINED EARNINGS 15,567,000 14,400,000
--------------------------------- -----------------------
20,608,000 19,441,000
--------------------------------- -----------------------
$22,011,000 $20,572,000
================================= =======================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C>
REVENUES:
CASINO CONSULTING FEES $2,310,000 $2,220,000
-------------------- --------------------
COSTS AND EXPENSES:
CASINO CONSULTING 356,000 278,000
GENERAL AND ADMINISTRATIVE 254,000 299,000
AMORTIZATION AND DEPRECIATION 35,000 35,000
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 8,000 --
-------------------- --------------------
653,000 612,000
-------------------- --------------------
INCOME FROM OPERATIONS 1,657,000 1,608,000
-------------------- --------------------
OTHER INCOME:
OTHER INCOME - INTEREST 224,000 168,000
MISCELLANEOUS 7,000 --
-------------------- --------------------
231,000 168,000
-------------------- --------------------
INCOME BEFORE INCOME TAXES 1,888,000 1,776,000
-------------------- --------------------
INCOME TAX BENEFIT (EXPENSE):
CURRENT:
STATE (114,000) (127,000)
FEDERAL (607,000) (601,000)
DEFERRED:
STATE -- 7,000
FEDERAL -- 37,000
-------------------- --------------------
(721,000) (684,000)
-------------------- --------------------
NET INCOME $1,167,000 $1,092,000
==================== ====================
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT $0.07 $0.07
==================== ====================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS 15,935,000 16,009,000
==================== ====================
</TABLE>
3
<PAGE> 4
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JULY 31, 1997 AND THREE MONTHS
ENDED OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------- CAPITAL
IN EXCESS RETAINED
SHARES DOLLARS OF PAR EARNINGS
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
BALANCE, JULY 31, 1996 14,367,958 $144,000 $3,213,000 $9,932,000
ISSUANCE OF SHARES 500,000 5,000 120,000
EXCESS OF EQUITY IN CONSOLIDATED
SUBSIDIARY OVER COST 1,559,000
NET INCOME FOR THE YEAR 4,468,000
-------------------- -------------------- -------------------- --------------------
BALANCE, JULY 31, 1997 14,867,958 149,000 4,892,000 14,400,000
-------------------- -------------------- -------------------- --------------------
NET INCOME FOR THE PERIOD 1,167,000
-------------------- -------------------- -------------------- --------------------
BALANCE, OCTOBER 31, 1997 14,867,958 $149,000 $4,892,000 $15,567,000
==================== ==================== ==================== ====================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,167,000 $1,092,000
--------------------- --------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION 35,000 35,000
DEFERRED INCOME TAX BENEFIT -- (44,000)
WARRANTS ISSUED FOR SERVICES -- 110,000
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 7,000 25,000
CHANGES IN OTHER ASSETS AND LIABILITIES, NET 193,000 171,000
--------------------- --------------------
235,000 297,000
--------------------- --------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,402,000 1,389,000
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF LAND HELD FOR DEVELOPMENT AND RELATED COSTS (57,000) (3,529,000)
PURCHASE OF PROPERTY AND EQUIPMENT, NET (2,000) (12,000)
--------------------- --------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (59,000) (3,541,000)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE IN CASH RESTRICTED AS TO USE (14,000) --
PROCEEDS FROM ISSUANCE OF COMMON STOCK -- 125,000
--------------------- --------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (14,000) 125,000
--------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,329,000 (2,027,000)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 12,588,000 12,578,000
--------------------- --------------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $13,917,000 $10,551,000
===================== ====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR STATE AND FEDERAL INCOME TAXES $14,000 $450,000
===================== ====================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED OCTOBER 31, 1997
(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 wholly and
majority-owned 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, 1997.
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 1997 have
been reclassified for comparability with the current period presentation.
The computations of earnings per common share and common share equivalents 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. Fully diluted earnings per share is not presented because the
effect would be antidilutive or the dilutive effect is less than three percent.
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for periods
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, which will be referred to as basic earnings per share, the dilutive
effect of stock options and warrants will be excluded. The impact is expected to
result in an increase in primary earnings per share for the three month period
ended October 31, 1997 of $0.01 and would have no effect on primary earnings per
share for the three month period ended October 31, 1996.
Results of the interim periods are not necessarily indicative of those to be
expected for the full year.
NOTE 2 - CONSULTING AGREEMENTS
TABLE MOUNTAIN CASINO & BINGO
The Company has a consulting agreement with the Table Mountain Tribe for the
Table Mountain Casino & Bingo.On February 1, 1996, the Company signed a new
consulting agreement with the Table Mountain Band of Indians (the "Table
Mountain Tribe") for the Table Mountain Casino & Bingo (the "Casino") in Friant,
California. The new consulting agreement provided that the Company will receive
a base monthly consulting fee of $90,000, plus an additional $90,000 for each
increment of $500,000 or portion thereof, of Casino monthly net income in excess
of the first $1.5 million of net income from casino operations.
6
<PAGE> 7
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
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.
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 to January 2000.
The Company is obligated, under certain circumstances, to loan the Table
Mountain Tribe up to $4,000,000. The loan will be repaid, with interest, over
the remaining period of the consulting agreement.
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 joint venture will assist in the development of a Class II
casino to be built and owned by the Auburn Tribe near Sacramento, California.
The joint venture will also train tribal members in operating the casino. The
Company has an 80% interest in the joint venture.
In February 1996, the joint venture entered into a consulting agreement with the
Auburn Tribe. Compensation to the joint venture for the consulting agreement is
structured as a base consulting fee of $150,000 per month, with additional fees
of $37,500 paid for each increment of $250,000 of net income between $1,000,000
and $3,000,000, and $31,250 paid for each increment of $250,000 of net income
over $3,000,000. The consulting fee payments will commence when the casino
becomes operational and continue for a five year term.
The joint venture is committed to advance capital to the Auburn Tribe for land
acquisition, pre-development costs, and Tribal needs. Advances will begin to be
repaid with interest after the casino begins operations. Advances to the Auburn
Tribe by the Company at October 31, 1997 totaled approximately $312,000 and are
reported as deposits and other in the accompanying balance sheet.
The Auburn Tribe is in the process of acquiring land for the casino. If and when
the Auburn Tribe acquires the land, it will be submitted to the Bureau of Indian
Affairs for placement into trust. At the time the land is placed into trust, a
one-time fee of $125,000 will be paid by the joint venture to the Auburn Tribe.
The Auburn Tribe will also receive options to acquire 150,000 shares of the
Company's common stock at the then-current market price. A monthly payment of
$22,500 for Tribal needs will be made to the Auburn
7
<PAGE> 8
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
Tribe until the gaming facility is operational. The Company's share of these
payments are reported in the accompanying balance sheet as consulting agreement
acquisition costs. At October 31, 1997, $387,000 had been capitalized.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
TABLE MOUNTAIN CASINO & BINGO
Consulting agreement acquisition costs are amortized over a 27 month period that
will end in May 1998.
UNITED AUBURN INDIAN COMMUNITY
Interim payments to the Auburn Tribe for Tribal needs are being capitalized and
will begin to be amortized, after the casino is operational, over the period of
the contract.
NOTE 4 - G & L ACQUISTION CORP.
In September 1996, the Company formed a new subsidiary, G & L Acquisition Corp.
("G & L"). G & L will pursue 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"). The Company owns
approximately 64% of the outstanding shares of G & L.
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. In the event G & L does
not affect the acquisition or establishment of a Target Business within 18
months from the closing of the offering, January 21, 1997, the remaining net
proceeds from the offering will be returned to the investors in the private
placement.
The Company recorded the excess of its equity in the assets of G & L over the
cost as capital in excess of par in the accompanying financial statements. At
October 31, 1997, G & L had $2,698,000 of cash and cash equivalents, which are
reported as restricted cash in the accompanying consolidated balance sheet.
NOTE 5 - LITIGATION - TABLE MOUNTAIN CASINO
In 1992, the National Indian Gaming Commission promulgated regulations stating
that Indian casinos could not offer certain games, including electronic gaming
machines, such as the Table Mountain Tribe's video pull tab gaming devices,
without state approval under tribal-state compacts. Several tribes sought a
compact to engage in full casino gaming, however, the State of California
refused to allow certain games.
In May 1992, the Tribe and other California Indian tribes filed a lawsuit in
Federal Court against the State of California and its Governor over the scope of
gaming permissible on Indian land, captioned Rumsey v. Wilson. In November 1994,
the U.S. Court of Appeals for the Ninth Circuit held that the games are a proper
subject of negotiation in a Tribal State compact only if they are allowed to the
California State Lottery and remanded the case to the District Court for
additional fact finding. The remanded issue is whether California law permits
the use of video gaming devices. If the California State Lottery is permitted
8
<PAGE> 9
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
to use video gaming devices, the tribes are entitled to seek agreements for the
use of such devices. If California is not found to permit their use, the tribes
would not be so entitled under the Court of Appeals' analysis. The U.S. Court
remanded this issue to the District Court.
On August 21, 1995, the Ninth Circuit issued an order requesting further
briefing by the parties on the relevance of a state court decision entitled
Western Telcon v. California State Lottery. In Western Telcon, the issue was
whether the State Lottery could operate banked games and utilize slot machines.
On June 24, 1996, the California Supreme Court decided Western Telcon. The court
held that the California State Lottery could not "bank" games, but it left open
the possibility that certain types of electronic devices could be used to play
non-banked games, and cited with approval the Lottery's use of on-line computers
and video terminals as consistent with the State Lottery Act.
On October 29, 1996, the Ninth Circuit issued an order finding that the Western
Telcon decision had no impact on its earlier opinion in Rumsey. As a result, the
Court reissued its opinion of August 11, 1996, which will have the effect of
sending the Rumsey case back to the District Court to determine whether the
California State Lottery uses electronic devices that constitute "slot
machines".
On December 30, 1996, several Tribal plaintiffs in the Rumsey case filed a
petition asking the U.S. Supreme court to review the Ninth Circuit Court
decision, which the Supreme Court rejected. In June 1997, the Supreme Court
denied the petition, making final the Ninth Circuit ruling sending the case back
to the District Court, where it is now pending.
In February 1997, the U.S. Attorneys' offices in California issued letters to
the Indian Tribes in California ("Tribes") which operate casinos using
electronic gaming devices. The letters, in essence, gave the Tribes until May 1,
1997 to reach a settlement with the State of California over the types of games
to be included in a compact or unplug the machines in their casinos.
The Table Mountain Tribe entered into an agreement with the U.S. Attorney for
the Eastern District of California in which the Tribe agreed to abide by the
deadline and the U.S. Attorney agreed to consider extensions of the deadline if
the Tribes showed "good faith". On April 29, 1997, and again on July 3, 1997,
the deadline was extended until September 30, 1997. On September 30, 1997, the
U.S. Attorney for the Eastern District announced that the office will defer
enforcement action against tribes currently engaged in uncompacted gaming
pending (i) the completion of the ongoing compact negotiations between the Pala
Band of Mission Indians and the State of California and (ii) the establishment
of a framework for future negotiations between the State of California and other
California Tribes, including those that presently are engaged in gaming.
Negotiations for a model tribal-state compact between the State of California
and the California Tribes are continuing and the parties are optimistic an
agreement will be reached in the year ended July 31, 1998.
Should the U.S. Attorneys' offices enforce compliance with their letters or
should the State of California be successful in its legal actions, it could have
an adverse effect on the Company's business, because decreases in the Table
Mountain Casino's net income before consulting fees would decrease the Company's
consulting fee revenues.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED OCTOBER 31, 1997 VERSUS THREE MONTH PERIOD ENDED
OCTOBER 31, 1996
REVENUES
Casino consulting fees in the three month period ended October 31, 1997 ("the
Fiscal 1998 Period") increased 4.1% to $2,310,000 from $2,220,000 for the three
month period ended October 31, 1996 ("the Fiscal 1997 Period"), and were derived
from the consulting agreement the Company has with the Table Mountain Band of
Indians (the "Tribe") for the operation of 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 Band of Indians (the "Table Mountain Tribe") for the Table
Mountain Casino & Bingo (the "Casino") in Friant, California. The new agreement
provided that the Company will receive a base monthly consulting fee of $90,000,
plus an additional $90,000 for each increment of $500,000 or portion thereof, of
Casino monthly net income in excess of the first $1.5 million of net income from
casino operations. 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.
As a result of the November 1997 amendment of the consulting agreement,
consulting fee revenues will be approximately $800,000 lower in Fiscal 1998, if
operations of the Casino for the period from February 1, 1998 through July 31,
1998 are at the same level as in the comparable period in Fiscal 1997.
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 to January 2000.
COSTS AND EXPENSES
Casino consulting expenses in the three month period ended October 31, 1997,
increased to $356,000, up by 28.1%, from $278,000 in the comparable quarter in
Fiscal 1997. This is attributed to increased employee compensation costs,
consulting and other expenses.
General and administrative expenses in the first quarter of Fiscal 1998
decreased by $45,000 or 15.1% over the comparable quarter of Fiscal 1997. The
decrease is attributable mainly to expenses related to the value of stock
purchase warrants issued to the Company's investment banker for services
rendered
10
<PAGE> 11
($110,000) in Fiscal 1997, which were not recurring in Fiscal 1998. The
warrants were subsequently cancelled in the quarter ended April 30, 1997. The
decrease was offset by increases in the first quarter of Fiscal 1998 expenses
related to employee compensation, consulting and legal expenses.
Amortization and depreciation was $35,000 in the three month periods ended
October 31, 1997 and 1996. Amortization is comprised of consulting agreement
acquisition costs related to the Table Mountain Casino consulting agreement.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions, totaled $224,000 and $168,000 in the three month periods
ended October 31, 1997 and 1996, respectively.
The Company recorded provisions of $114,000 and $127,000 for State of California
income taxes for the three month periods ended October 31, 1997 and 1996,
respectively. Additionally, a deferred state income tax benefit of $7,000 was
recorded for the three month period ended October 31, 1996.
Provisions of $607,000 and $601,000 were recorded for Federal income taxes
currently payable for the three month periods ended October 31, 1997 and 1996,
respectively. A deferred Federal tax benefit of $37,000 was recorded for the
three month period ended October 31, 1996.
Net income for the three month period ended October 31, 1997 was $1,167,000 or
$0.07 per common share and common share equivalent compared to $1,092,000 or
$0.07 per common share and common share equivalent for the three month period
ended October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES AT OCTOBER 31, 1997 AND
THE THREE MONTH PERIOD THEN ENDED
At October 31, 1997, the Company had consolidated working capital of
$14,274,000, as compared with working capital of $13,247,000 at July 31, 1997.
The change resulted principally from a combination of increases of cash
($1,329,000), consulting fee and other receivables ($474,000), prepaid expenses
($43,000), income taxes payable ($152,000), accrued expenses ($139,000), and
decreases of refundable income taxes ($555,000) and accounts payable ($26,000).
During the first three months of Fiscal 1998, the Company used $59,000 in
investing activities as compared to $3,541,000 used by investing activities in
the first three month period of Fiscal 1997. Cash was used in investing
activities in Fiscal 1998 for development costs ($57,000) related to a 40-acre
parcel of land acquired for the development of a cemetery and funeral home in
North Las Vegas, Nevada. Additionally, $2,000 was spent to acquire additional
office furniture and equipment. An unrelated parcel of land was acquired in the
first quarter of Fiscal 1997 ($3,529,000). The parcel was subsequently sold
during the year ended July 31, 1997 for a profit of $182,000.
Financing activities for the three month period ended October 31, 1997 consisted
of an increase in the cash restricted as to use related to proceeds from the
issuance of stock in G & L Acquisition Corp. The increase resulted from interest
earned on the funds held in escrow.
At October 31, 1997, restricted cash of $2,698,000 was available for the use of
G & L Acquisition Corp. The proceeds derived from the sale of common stock of G
& L Acquisition Corp. ("G & L") can only be used for the establishment or
acquisition of specified gaming or leisure business opportunities. In the event
G & L does not affect the establishment or acquisition of one of these
opportunities, the remaining net proceeds from the offering will be returned to
the investors in the private placement.
Historically, the Company has provided funds for its operations from operating
activities, financing from
11
<PAGE> 12
financial institutions and shareholders, 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 shareholder value. In the event any of these
opportunities come to fruition, management will consider satisfying necessary
financing from working capital, borrowing or capital infusion through public or
private placement of common stock of the Company or its subsidiaries.
At October 31, 1997, the Company had revolving lines of credit totaling
$2,000,000 with two banks. One line for $1,000,000 expires in December 1997 and
bears interest at 2.5% above a referenced prime rate (8.5% at October 31, 1997).
Certificates of deposit totaling $500,000 collateralize the line. The Company
expects to renew this line under similar terms in December 1997. The other
$1,000,000 line of credit is unsecured, expired November 30, 1997 and bore
interest at 1% above an indexed prime (8.5% at October 31, 1997). The line was
renewed in December 1997 with similar features. At October 31, 1997, no funds
were outstanding on the lines of credit.
In February 1997, the U.S. Attorneys' offices in California issued letters to
the Indian Tribes in California ("Tribes") which operate casinos using
electronic gaming devices. The letters, in essence, gave the Tribes until May 1,
1997 to reach a settlement with the State of California over the types of games
to be included in a compact or unplug the machines in their casinos.
The Table Mountain Tribe entered into an agreement with the U.S. Attorney for
the Eastern District of California in which the Tribe agreed to abide by the
deadline and the U.S. Attorney agreed to consider extensions of the deadline if
the Tribes showed "good faith". On April 29, 1997, and again on July 3, 1997,
the deadline was extended until September 30, 1997. On September 30, 1997, the
U.S. Attorney for the Eastern District announced that the office will defer
enforcement action against tribes currently engaged in uncompacted gaming
pending (i) the completion of the ongoing compact negotiations between the Pala
Band of Mission Indians and the State of California and (ii) the establishment
of a framework for future negotiations between the State of California and other
California Tribes, including those that presently are engaged in gaming.
Negotiations for a model tribal-state compact between the State of California
and the California Tribes are continuing and the parties are optimistic an
agreement will be reached in the year ending July 31, 1998.
Should the U.S. Attorneys' offices enforce compliance with their letters or
should the State of California be successful in its legal actions, it could have
an adverse effect on the Company's business, because decreases in the Table
Mountain Casino's net income before consulting fees would decrease the Company's
consulting fee revenues. The Company plans to diversify its business operations
and is seeking other opportunities to provide a means of obtaining other sources
of revenue.
Recently issued accounting standards may affect the Company's Financial
Statements in the future. See the Notes to Consolidated Financial Statements in
this report.
12
<PAGE> 13
PART II
OTHER INFORMATION
Item 1. See Part I, Note 5 of Notes to Consolidated Financial
Statements.
Item 5. Other Information
See Part I, Notes 4 and 5 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Second Amendment to Consultant
Agreement dated November 7, 1997*
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company
during the quarter ended October 31, 1997.
- --------------------------
* Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on November 12, 1997.
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------------- ----------------------------------------------------
<S> <C>
10.1 SECOND AMENDMENT TO CONSULTANT AGREEMENT DATED
NOVEMBER 7, 1997.*
11.1 SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
27.1 FINANCIAL DATA SCHEDULE
-----------------------------
</TABLE>
* INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 8-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
NOVEMBER 12, 1997.
14
<PAGE> 15
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: December 12, 1997 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)
15
<PAGE> 1
EXHIBIT 11.1
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
PRIMARY:
<S> <C> <C>
Net income $ 1,167,000 $ 1,092,000
=========== ===========
Weighted average number of common shares
outstanding during the period 14,868,000 14,868,000
Add:
Common stock equivalents (determined using the "treasury
stock" method) representing shares issuable upon exercise
of options and warrants that are in the money 1,067,000 1,141,000
--------- ---------
Weighted average number of shares used in
calculation of primary income per share 15,935,000 16,009,000
========== ==========
PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.07 $ 0.07
=========== ===========
FULLY DILUTED:
Net income $ 1,167,000 $ 1,092,000
=========== ===========
Weighted average number of common shares
outstanding during the year 14,868,000 14,868,000
Add:
Common stock equivalents (determined using the "treasury
stock" method) representing shares issuable upon exercise
of options and warrants that are in the money 1,442,000 1,485,000
--------- ---------
Weighted average number of shares used in
calculation of fully diluted income per share 16,310,000 16,353,000
========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.07 $ 0.07
=========== ===========
</TABLE>
NOTE: Fully diluted earnings per common share and common
share equivalent is not presented in the Consolidated
Statements of Income because the effect is antidilutive or
the dilutive effect is less than three percent.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,917,000
<SECURITIES> 0
<RECEIVABLES> 665,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,695,000
<PP&E> 202,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,011,000
<CURRENT-LIABILITIES> 422,000
<BONDS> 0
0
0
<COMMON> 149,000
<OTHER-SE> 20,459,000
<TOTAL-LIABILITY-AND-EQUITY> 22,011,000
<SALES> 2,310,000
<TOTAL-REVENUES> 2,310,000
<CGS> 0
<TOTAL-COSTS> 356,000
<OTHER-EXPENSES> 297,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,888,000
<INCOME-TAX> 721,000
<INCOME-CONTINUING> 1,167,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,167,000
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
