<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, 1997
---------------------------------------------
Commission File No. 0-10061
AMERICAN VANTAGE COMPANIES
--------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 04-2709807
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(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)
AMERICAN CASINO ENTERPRISES, INC.
---------------------------------
(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 June 12, 1997.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
American Vantage Companies and Subsidiaries
Consolidated Balance Sheets
April 30, 1997 and July 31, 1996
<TABLE>
<CAPTION>
April 30, July 31,
1997 1996
----------- -----------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $18,102,000 $12,578,000
Consulting fee and other receivables 237,000 202,000
Refundable and prepaid income taxes 113,000 187,000
Deferred tax asset 2,000 2,000
Prepaid expenses 103,000 45,000
----------- -----------
Total current assets 18,557,000 13,014,000
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Property and equipment, net 222,000 214,000
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Other assets:
Consulting agreement acquisition costs, net 365,000 275,000
Deposits and other 315,000 133,000
----------- -----------
680,000 408,000
----------- -----------
$19,459,000 $13,636,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 174,000 $ 51,000
Accrued expenses 110,000 296,000
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Total current liabilities 284,000 347,000
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Minority interest in consolidated subsidiary 963,000 --
----------- -----------
Commitments -- --
Shareholders' equity:
Common stock, $.01 par; 30,000,000 shares
authorized; 14,867,958 and 14,367,958
shares issued and outstanding 149,000 144,000
Preferred stock, $.01 par; 10,000,000 shares
authorized; shares issued and outstanding - none -- --
Capital in excess of par 4,894,000 3,213,000
Retained earnings 13,169,000 9,932,000
----------- -----------
18,212,000 13,289,000
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$19,459,000 $13,636,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
American Vantage Companies and Subsidiaries
Consolidated Statements of Income
Three Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 2,490,000 $ 2,310,000
----------- -----------
Costs and expenses:
Casino consulting 588,000 327,000
General and administrative 249,000 241,000
Amortization and depreciation 37,000 34,000
Minority interest in net income of consolidated subsidiary 9,000 --
----------- -----------
883,000 602,000
----------- -----------
Income from operations 1,607,000 1,708,000
----------- -----------
Other income:
Other income - interest 236,000 134,000
Gain on sale of land held for investment or development 178,000 --
----------- -----------
414,000 134,000
----------- -----------
Income before NIGC civil fine and income taxes 2,021,000 1,842,000
----------- -----------
NIGC civil fine -- --
----------- -----------
Income before income taxes 2,021,000 1,842,000
----------- -----------
Income tax expense:
Current:
State 117,000 124,000
Federal 695,000 589,000
Deferred:
State 7,000 --
Federal 40,000 --
----------- -----------
859,000 713,000
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Net income $ 1,162,000 $ 1,129,000
=========== ===========
Earnings per common share and
common share equivalent $ 0.07 $ 0.07
----------- -----------
Weighted average number of common shares
and common share equivalents 16,170,000 16,275,000
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
American Vantage Companies and Subsidiaries
Consolidated Statements of Income
Nine Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 6,930,000 $ 7,421,000
----------- -----------
Costs and expenses:
Casino consulting 1,287,000 1,736,000
General and administrative 895,000 680,000
Amortization and depreciation 109,000 74,000
Minority interest in net income of consolidated subsidiary 9,000 --
----------- -----------
2,300,000 2,490,000
----------- -----------
Income from operations 4,630,000 4,931,000
----------- -----------
Other income:
Other income - interest 552,000 432,000
Gain on sale of land held for investment or development 178,000 --
----------- -----------
730,000 432,000
----------- -----------
Income before NIGC civil fine and income taxes 5,360,000 5,363,000
----------- -----------
NIGC civil fine -- 500,000
----------- -----------
Income before income taxes 5,360,000 4,863,000
----------- -----------
Income tax expense:
Current:
State 258,000 360,000
Federal 1,865,000 1,367,000
Deferred:
State -- --
Federal -- 339,000
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2,123,000 2,066,000
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Net income $ 3,237,000 $ 2,797,000
=========== ===========
Earnings per common share and
common share equivalent $ 0.20 $ 0.17
----------- -----------
Weighted average number of common shares
and common share equivalents 16,171,000 16,229,000
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
American Vantage Companies and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,237,000 $ 2,797,000
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 109,000 74,000
Deferred income tax expense -- 339,000
Minority interest in net income of consolidated subsidiary 9,000 --
Changes in other assets and liabilities, net (426,000) (493,000)
------------ ------------
(308,000) (80,000)
------------ ------------
Net cash provided by operating activities 2,929,000 2,717,000
------------ ------------
Cash flows from investing activities:
Property and equipment, net (45,000) (3,000)
------------ ------------
Net cash provided (used) by investing activities (45,000) (3,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock
of consolidated subsidiary 2,627,000 --
Investment in consolidated subsidiary (112,000) --
Proceeds from long-term debt 1,673,000 --
Repayment of long-term debt (1,673,000) --
Proceeds from issuance of common stock 125,000 --
------------ ------------
Net cash provided by financing activities 2,640,000 --
------------ ------------
Net increase in cash and cash equivalents 5,524,000 2,714,000
Cash and cash equivalents, at beginning of period 12,578,000 8,841,000
------------ ------------
Cash and cash equivalents, at end of period $ 18,102,000 $ 11,555,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ 2,050,000 $ 2,196,000
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
American Vantage Companies and Subsidiaries
Consolidated Statements of Shareholders' Equity
Year Ended July 31, 1996 and Nine Months
Ended April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Common stock
-------------------------- Capital
in excess Retained
Shares Dollars of par earnings
---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, July 31, 1995 14,367,958 $144,000 $3,213,000 $ 6,136,000
Net income for the year 3,796,000
---------- -------- ---------- -----------
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 1,561,000
Net income for the period 3,237,000
---------- -------- ---------- -----------
Balance, April 30, 1997 14,867,958 $149,000 $4,894,000 $13,169,000
========== ======== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 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 (formerly American Casino
Enterprises, Inc.) 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, 1996 ("Fiscal 1996).
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 1996 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 share 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.
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 Band of Indians
(the "Table Mountain Tribe") for the Table Mountain Casino & Bingo (the
"Casino") in Friant, California, which is near Fresno, California.
On February 1, 1996, the Company signed a new consulting agreement with the
Tribe. The new consulting agreement has a duration of 27 months, and provides
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 previous consulting
agreement, and a monthly payment of $350,000 is being paid to the Company for a
term of 48 months, subject to meeting certain thresholds.
The prior consulting agreement provided for consulting fees equal to 35% of the
Casino's net income before consulting fees. For the period from June 19, 1995 to
February 1, 1996, the Company paid a concession to the Table Mountain Tribe
equal to seven percent (7%) of the Casino's net income before consulting fees.
During the period from August 1, 1995 through January 31, 1996 (the end of the
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
concession period), the concession totaled $1,276,000. Consulting fee revenue is
reported net of the concession to the Table Mountain Tribe (see Note 6 -
Litigation).
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 not commence until the casino
becomes operational and will then continue for a five-year term.
The joint venture is committed to advance to the Auburn Tribe capital 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 April 30, 1997 totaled approximately $201,000 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 American
Vantage Companies common stock at the then-current market price.
A monthly payment of $22,500 for Tribal needs will be made by the joint venture
to the Auburn Tribe until the gaming facility is operational. The Company's
share of these monthly payments ($18,000) is reported in the accompanying
balance sheet as "Consulting agreement acquisition costs" (see Note 6 -
Litigation). At April 30, 1997, $270,000 of such payments had been made by the
Company.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
TABLE MOUNTAIN CASINO & BINGO
Consulting agreement acquisition costs are amortized over the life of the
consulting contract with the Table Mountain Tribe. The amortization period was
84 months for the first six months of Fiscal 1996. The amortization period is 27
months, the length of the new consulting agreement, for periods after February
1, 1996.
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.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
NOTE 4 - LAND TRANSACTIONS
In October 1996, the Company entered into an agreement to purchase approximately
162 acres of land in Las Vegas, Nevada. The total purchase price of the land was
$5,202,000, consisting of approximately $3,600,000 in cash with the remaining
amount representing an assumption of a mortgage on the land. In connection with
the purchase, the Company granted an option to the seller of the land to
repurchase the land. The option holder exercised the option in February 1997 and
the Company recognized a gain of approximately $180,000 on the sale.
At April 30, 1997, the Company owned an option to acquire a 40 acre parcel of
land in North Las Vegas, Nevada. In May 1997, the Company exercised its option
and bought the land for approximately $3,500,000 in cash. The Company intends to
begin immediate development of the property as a funeral home, mortuary and
cemetery.
NOTE 5 - FORMATION OF NEW SUBSIDIARY
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 $2,483,000. In the event, G & L
does not effect 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 net assets of G & L over the
cost as capital in excess of par in the accompanying consolidated financial
statements.
NOTE 6 - LITIGATION
AMERICAN VANTAGE COMPANIES
On July 15, 1994, the Chairman of the National Indian Gaming Commission ("NIGC")
issued a Notice of Violation and a separate Notice to Show Cause to the Company.
The Notice of Violation charged that the Company was in violation of certain
provisions of the Indian Gaming Regulatory Act ("IGRA") and the NIGC's
regulations, in that the Company had allegedly; (1) engaged in management of the
Table Mountain Casino & Bingo without an approved management contract beginning
on November 1, 1990; and (2) operated illegal video gaming devices and
house-banked blackjack games without a Class III gaming compact with the State
of California.
On February 1, 1996, the Company entered into a settlement agreement with the
NIGC. The settlement
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
agreement resolved all issues associated with the Notice of Violation and the
Notice to Show Cause.
In the settlement, the NIGC agreed to fully withdraw any and all allegations,
charges and claims against the Company. In turn, the Company, without admitting
or denying the NIGC allegations, agreed to pay a civil fine of $500,000 and to
terminate its 1993 amended agreement with the Table Mountain Tribe. The civil
fine was charged to operations in the second quarter of Fiscal 1996.
On February 1, 1996, the Company signed a new consulting agreement and
simultaneously entered into a termination agreement with the Table Mountain
Tribe (see Note 2 - Consulting Agreements).
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, but the State of California refused to
allow certain games.
In May 1992, the Table Mountain 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
July 1993, the Federal District Court ruled that the proposed electronic games
are a proper subject of negotiation with Tribal State Compact and that the
tribes and State should negotiate to determine whether other banked and
percentage card games will be permitted under a tribal-state compact. The State
of California appealed the District Court decision in Rumsey v. Wilson.
In November 1994, the U.S. Court of Appeals for the Ninth Circuit reversed in
part the July 1993 ruling by the District Court in favor of the tribes, 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 California law is found to permit the use of 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.
In December 1994, the tribes filed a petition for rehearing with the Ninth
Circuit and a suggestion for rehearing en banc. The petition and suggestion were
denied on August 11, 1995, with a vigorous dissent by six judges. 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 October 16,
1995, the Ninth Circuit stayed its final decision in Rumsey until the final
disposition of Western Telcon by the California Supreme Court and requested the
parties to file briefs with the Ninth Circuit after that decision.
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. The parties filed
their briefs in Rumsey on July 23, 1996.
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
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, 1995, 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. To date, no action has been taken on that petition.
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, the deadline was extended
until July 31, 1997. Negotiations for a model tribal-state compact between the
State of California and the California Tribes are continuing.
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 fees.
11
<PAGE> 12
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1997
REVENUES
Casino consulting fees in the nine month period ended April 30, 1997 ("Fiscal
1997") decreased 6.6% to $6,930,000 from the $7,421,000 recorded in the same
period in Fiscal 1996, 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
Tribe. The new consulting agreement has a duration of 27 months and provides
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
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 Tribe
signed a termination agreement of the March 1993 agreement under which a monthly
payment of $350,000 will be paid to the Company for a term of 48 months, subject
to certain thresholds.
The prior consulting agreement provided for consulting fees equal to 35% of the
Casino's net income before consulting fees. Also, for the period from June 19,
1995 to February 1, 1996, the Company paid a concession to the Tribe equal to
seven percent (7%) of the net income, before consulting fees, of the Casino.
During the period from August 1, 1995 through January 31, 1996 (the end of the
concession period), the concession totaled $1,276,000. Consulting fee revenue is
reported net of the concession to the Tribe.
COSTS AND EXPENSES
Casino consulting expenses in the nine month period ended April 30, 1997
decreased to $1,287,000, or 25.9%, from $1,736,000 in the comparable period in
Fiscal 1996. This decrease is comprised principally of a reduction in payroll
costs, legal expenses and consulting fees. And, in the comparable period of
Fiscal 1996, the Company wrote off an investment in a company seeking to build a
cardroom in a California community. Also, in the Fiscal 1996 period, the Company
incurred legal costs related to the settlement of a National Indian Gaming
Commission action against the Company.
General and administrative expenses in the nine month period ended April 30,
1997 increased by $215,000 or 31.6% over the comparable period of Fiscal 1996.
The increase resulted mainly from increases in: legal costs related to
prospective business investment opportunities, insurance costs, and office
rental costs.
Amortization and depreciation was $109,000 and $74,000 in the nine month periods
ended April 30, 1997 and 1996, respectively. Amortization is comprised of
consulting agreement acquisition costs, which are being amortized over the term
of the Table Mountain Casino agreement.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions, totaled $552,000 and $432,000 in the nine month periods
ended April 30, 1997 and 1996, respectively.
12
<PAGE> 13
During the third quarter of Fiscal 1997, the Company sold the land held for
investment or development and recorded a gain of approximately $178,000.
During the second quarter of Fiscal 1996, the Company charged operations for a
$500,000 civil fine assessed by the National Indian Gaming Commission.
The Company recorded provisions of $258,000 and $360,000 for State of California
income taxes for the nine month periods ended April 30, 1997 and 1996,
respectively. Provisions of $1,865,000 and $1,367,000 were recorded for Federal
income taxes currently payable for the nine month periods ended April 30, 1997
and 1996, respectively. Deferred income tax expense of $339,000 was recorded for
the nine month period ended April 30, 1996. Approximately $1,000,000 of net
operating loss carryforwards was utilized to reduce the Company's current
Federal income tax liability for the nine month period ended April 30, 1996. At
July 31, 1996, the Company had utilized all of its net operating loss
carryforwards.
Net income for the nine month period ended April 30, 1997 was $3,237,000 or
$0.20 per common share and common share equivalent compared to $2,797,000 or
$0.17 per common share and common share equivalent for the nine month period
ended April 30, 1996.
THREE MONTHS ENDED APRIL 30, 1997
REVENUES
Casino consulting fees from the Table Mountain Casino in the third quarter of
Fiscal 1997 increased by $180,000 or 7.8% from the third quarter of Fiscal 1996
due to the different consulting fees under the old and the new agreements.
COSTS AND EXPENSES
Casino consulting expenses increased to $588,000 in the third quarter of Fiscal
1997 from $327,000 in the third quarter of Fiscal 1996. This increase is
comprised principally of increased payroll costs resulting from discretionary
bonuses, which were paid to key employees.
General and administrative expenses were $249,000 for the third quarter of
Fiscal 1997 and $241,000 for the third quarter of Fiscal 1996. The change is
attributed principally to a decrease in expenses resulting from the cancellation
of stock options previously granted to an investment banking company and offset
by an increase in payroll costs.
OTHER OPERATIONAL ITEMS
Interest income increased to $236,000 in the third quarter of Fiscal 1997 from
$134,000 in the third quarter of Fiscal 1996. The income is represented by
interest earned on the Company's bank deposits.
In the third quarter of Fiscal 1997, the Company sold land held for investment
or development and recorded a gain of approximately $178,000.
During the second quarter of Fiscal 1996, the Company charged operations for a
$500,000 civil fine assessed by the National Indian Gaming Commission.
The Company recorded state income taxes of $124,000 and Federal income taxes of
$735,000 for the three month period ended April 30, 1997 as compared to state
income tax expense of $124,000 and Federal income tax expense of $589,000 for
the same period in Fiscal 1996.
Net income for the three month period ended April 30, 1997 was $1,162,000 or
$0.07 per common share
13
<PAGE> 14
and common share equivalent compared to $1,129,000 or $0.07 per common share and
common share equivalent for the three month period ended April 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES AT APRIL 30, 1997
At April 30, 1997, the Company had consolidated working capital of $18,273,000,
as compared with working capital of $12,667,000 at July 31, 1996. The change
resulted principally from a combination of increases of cash ($5,524,000),
prepaid expenses ($58,000), accounts payable ($123,000) and consulting fee and
other receivables ($35,000) and reductions of refundable and prepaid income
taxes ($74,000) and accrued expenses ($186,000).
During the nine month period ended April 30, 1997, investing activities used
$45,000 as compared to $3,000 used by investing activities in the same period in
Fiscal 1996. The cash used in investing activities in Fiscal 1997 was to acquire
additional office furniture and equipment and leasehold improvements.
Financing activities in the nine month period ended April 30, 1997 were
comprised of the assumption and repayment of a mortgage payable ($1,673,000),
the proceeds from the exercise of 500,000 options ($125,000) and the issuance of
common stock of a consolidated subsidiary ($2,515,000, net of the Company's
investment in the subsidiary).
Historically, the Company has provided funds for its operations from operating
activities, financing from 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
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, 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 reference prime rate. Certificates of deposit totaling
$500,000 collateralize the line. The other $1,000,000 line of credit is
unsecured, expires in November 1997 and bears interest at 1% above an indexed
prime (8.5% at April 30, 1997). At April 30, 1997, no funds were outstanding on
the lines of credit.
In May 1997, the Company paid approximately $3,500,000 in cash for a parcel of
approximately 40 acres of land in North Las Vegas, Nevada. The Company intends
to begin immediate development of the property as a funeral home, mortuary and
cemetery. Short-term and permanent financing from an institutional lender will
provide funds for the development. The Company is currently negotiating terms of
a financing package with a financial institution in Las Vegas, Nevada. Funds
required for the property's operations, after completion of construction,
initially will be provided by the Company's working capital. Subsequently,
management anticipates that the property will generate cash flow sufficient to
maintain its operations independently.
In February 1997, the U.S. Attorney's 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 Sate of California over the types of games
to be included in a compact or unplug the machines in their casinos
14
<PAGE> 15
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, the deadline was extended
until July 31, 1997. Negotiations for a model tribal-state compact between the
State of California and the California Tribes are continuing.
Should the U.S. Attorney's office 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 fees. The Company plans to diversify its business operations and is
seeking other opportunities to provide a means of obtaining other sources of
revenue.
15
<PAGE> 16
PART II
OTHER INFORMATION
Item 1. See Part I, Note 6 of Notes to Consolidated Financial Statements.
Item 5. Other Information
See Part I. Notes 4, 5 and 6 of Notes to Consolidated
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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 April 30, 1997.
16
<PAGE> 17
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 13, 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)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
----------- --------------------------------------------------------
<S> <C>
11.01 Schedule of Computation of Earnings Per Common Share And
Common Share Equivalent
27.1 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 11.01
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
THREE MONTHS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY:
Net income $ 1,162,000 $ 1,129,000
=========== ===========
Weighted average number of common shares
outstanding during the period 14,868,000 14,368,000
Add:
Common stock equivalents (determined
using the "treasury stock" method) representing
shares issuable upon exercise of options
and warrants that are in the money 1,302,000 1,907,000
----------- -----------
Weighted average number of shares used in
calculation of primary income per share 16,170,000 16,275,000
=========== ===========
PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.07 $ 0.07
=========== ===========
FULLY DILUTED:
Net income $ 1,162,000 $ 1,129,000
=========== ===========
Weighted average number of common shares
outstanding during the year 14,868,000 14,368,000
Add:
Common stock equivalents (determined
using the "treasury stock" method) representing
shares issuable upon exercise of options
and warrants that are in the money 1,161,000 1,350,000
----------- -----------
Weighted average number of shares used in
calculation of fully diluted income per share 16,029,000 15,718,000
=========== ===========
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.
<PAGE> 2
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
NINE MONTHS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY:
Net income $ 3,237,000 $ 2,797,000
=========== ===========
Weighted average number of common shares
outstanding during the period 14,868,000 14,368,000
Add:
Common stock equivalents (determined
using the "treasury stock" method) representing
shares issuable upon exercise of options
and warrants that are in the money 1,303,000 1,861,000
----------- -----------
Weighted average number of shares used in
calculation of primary income per share 16,171,000 16,229,000
=========== ===========
PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.20 $ 0.17
=========== ===========
FULLY DILUTED:
Net income $ 3,237,000 $ 2,797,000
=========== ===========
Weighted average number of common shares
outstanding during the year 14,868,000 14,368,000
Add:
Common stock equivalents (determined
using the "treasury stock" method) representing
shares issuable upon exercise of options
and warrants that are in the money 1,373,000 1,899,000
----------- -----------
Weighted average number of shares used in
calculation of fully diluted income per share 16,241,000 16,267,000
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.20 $ 0.17
=========== ===========
</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> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 18102000
<SECURITIES> 0
<RECEIVABLES> 237000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18557000
<PP&E> 222000
<DEPRECIATION> 0
<TOTAL-ASSETS> 19459000
<CURRENT-LIABILITIES> 284000
<BONDS> 0
0
0
<COMMON> 149000
<OTHER-SE> 18063000
<TOTAL-LIABILITY-AND-EQUITY> 19459000
<SALES> 6930000
<TOTAL-REVENUES> 6930000
<CGS> 0
<TOTAL-COSTS> 2300000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5360000
<INCOME-TAX> 2123000
<INCOME-CONTINUING> 3237000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3237000
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
