<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
----------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
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, 15,145,863 shares at March 12, 1998.
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
January 31, 1998 and July 31, 1997
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
----------- -----------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $15,315,000 $12,588,000
Consulting fee and other receivables 300,000 191,000
Refundable income taxes 265,000 555,000
Deferred tax asset 2,000 2,000
Prepaid expenses 80,000 68,000
----------- -----------
Total current assets 15,962,000 13,404,000
----------- -----------
Property and equipment, net 193,000 212,000
----------- -----------
Land held for development 3,705,000 3,603,000
----------- -----------
Other assets:
Restricted cash 2,720,000 2,684,000
Consulting agreement acquisition costs, net 24,000 396,000
Deposits and other 9,000 273,000
----------- -----------
2,753,000 3,353,000
----------- -----------
$22,613,000 $20,572,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,000 $ 56,000
Income taxes payable 55,000 --
Accrued expenses 305,000 101,000
----------- -----------
Total current liabilities 385,000 157,000
----------- -----------
Minority interest in consolidated subsidiary 988,000 974,000
----------- -----------
Commitments -- --
Stockholders' equity:
Common stock, $.01 par; 30,000,000 shares
authorized; 15,145,863 and 14,867,958
shares issued and outstanding 152,000 149,000
Preferred stock, $.01 par; 10,000,000 shares
authorized; shares issued and outstanding - none -- --
Capital in excess of par 4,970,000 4,892,000
Retained earnings 16,118,000 14,400,000
----------- -----------
21,240,000 19,441,000
----------- -----------
$22,613,000 $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 January 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Revenues:
Casino consulting fees $ 2,220,000 $ 2,220,000
----------- ------------
Costs and expenses:
Casino consulting 376,000 405,000
General and administrative 294,000 363,000
Amortization and depreciation 36,000 37,000
Minority interest in net income of consolidated subsidiary 7,000 --
----------- ------------
713,000 805,000
----------- ------------
Income from operations 1,507,000 1,415,000
----------- ------------
Other income (expense):
Other income - interest 234,000 148,000
Miscellaneous 3,000 --
----------- ------------
237,000 148,000
----------- ------------
Income before write-off of project costs and
advances and income taxes 1,744,000 1,563,000
----------- ------------
Write-off of project costs and advances 861,000 --
----------- ------------
Income before income taxes 883,000 1,563,000
----------- ------------
Income tax expense (benefit):
Current:
State 51,000 14,000
Federal 281,000 569,000
Deferred:
State -- --
Federal -- (3,000)
----------- ------------
332,000 580,000
----------- ------------
Net income $ 551,000 $ 983,000
=========== ============
Earnings per common share:
Basic $ 0.04 $ 0.07
=========== ============
Diluted $ 0.03 $ 0.06
=========== ============
Weighted average number of common shares and common share
equivalents:
Basic 15,063,000 14,868,000
=========== ============
Diluted 16,039,000 16,186,000
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JANUARY 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Casino consulting fees $4,530,000 $4,440,000
---------- ----------
COSTS AND EXPENSES:
Casino consulting 733,000 699,000
General and administrative 548,000 646,000
Amortization and depreciation 71,000 72,000
Minority interest in net income of
consolidated subsidiary 14,000 -
---------- ----------
1,366,000 1,417,000
---------- ----------
Income from operations 3,164,000 3,023,000
---------- ----------
OTHER INCOME (EXPENSE):
Other income - interest 458,000 318,000
Miscellaneous 10,000 (2,000)
---------- ----------
468,000 316,000
---------- ----------
Income before write-off of project costs
and advances and income taxes 3,632,000 3,339,000
---------- ----------
Write-off of project costs and advances 861,000 -
---------- ----------
Income before income taxes 2,771,000 3,339,000
---------- ----------
INCOME TAX EXPENSE (BENEFIT):
Current:
State 165,000 141,000
Federal 888,000 1,170,000
Deferred:
State - (7,000)
Federal - (40,000)
---------- ----------
1,053,000 1,264,000
---------- ----------
Net income $1,718,000 $2,075,000
---------- ----------
Earnings per common share:
Basic $0.12 $0.14
========== ==========
Diluted $0.11 $0.13
========== ==========
Weighted average number of common shares
and common share equivalents:
Basic 14,966,000 14,868,000
========== ==========
Diluted 15,996,000 16,111,000
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
American Vantage Companies and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended January 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,718,000 $ 2,075,000
------------ ------------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Amortization and depreciation 47,000 72,000
Deferred income tax benefit -- (47,000)
Warrants issued for services -- 110,000
Minority interest in net income of consolidated subsidiary 14,000 --
Changes in other assets and liabilities, net 1,009,000 (204,000)
------------ ------------
1,070,000 (69,000)
------------ ------------
Net cash provided (used) by operating activities 2,788,000 2,006,000
------------ ------------
Cash flows from investing activities:
Purchase of land held for development and related costs (102,000) (5,202,000)
Purchase of property and equipment, net (4,000) (38,000)
------------ ------------
Net cash provided (used) by investing activities (106,000) (5,240,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock
of consolidated subsidiary -- 2,638,000
Increase in cash restricted as to use (36,000) --
Investment in consolidated subsidiary -- (112,000)
Proceeds from long-term debt -- 1,673,000
Repayment of long-term debt -- (7,000)
Proceeds from issuance of common stock 81,000 125,000
------------ ------------
Net cash provided (used) by financing activities 45,000 4,317,000
------------ ------------
Net increase in cash and cash equivalents 2,727,000 1,083,000
Cash and cash equivalents, at beginning of period 12,588,000 12,578,000
------------ ------------
Cash and cash equivalents, at end of period $ 15,315,000 $ 13,661,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ 706,000 $ 1,350,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
American Vantage Companies and Subsidiaries
Consolidated Statements of Stockholders' Equity
Year Ended July 31, 1997 and Six Months
Ended January 31, 1998 (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
----------- --------- ----------- ------------
Issuance of shares 277,905 3,000 78,000
Net income for the period 1,718,000
----------- --------- ----------- ------------
Balance, January 31, 1998 15,145,863 $152,000 $4,970,000 $16,118,000
=========== ========= =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1998
(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.
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. Accordingly, the computations of basic and
diluted earnings per share have been computed in accordance with this statement.
Prior periods have been adjusted to conform with the provisions of this
statement. 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 - 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. 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.
7
<PAGE> 8
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
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 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, 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 purpose of the joint venture was to assist in the
development of a casino to be built and owned by the Auburn Tribe near
Sacramento, California. The Company has 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. Also,
the joint venture paid for predevelopment costs incurred in the process of
acquiring land, which would be placed into trust for the tribe. 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 shareholders, withdrew with its joint venture
partner, the Table Mountain Tribe, from the arrangement.
In March 1998, the Joint Venture and the Auburn Tribe signed an agreement
providing that under certain circumstances advances of $413,000 would be repaid
from the operations of the planned Auburn casino. The Company wrote off its
investment in the project and the advances made to the Auburn Tribe in the
second quarter of Fiscal 1998. The transaction is reported in the statements of
income as write-off of project costs and advances.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
Consulting agreement acquisition costs related to the Table Mountain Casino &
Bingo contract are amortized over a 27-month period that will end in May 1998.
8
<PAGE> 9
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
NOTE 4 - G & L ACQUISITION 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
January 31, 1998, G & L had $2,720,000 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 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.
9
<PAGE> 10
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1998
(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, 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 would 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. See Note 6 -
Subsequent Events - Status of Compacts in California.
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.
NOTE 6 - SUBSEQUENT EVENTS
STATUS OF COMPACTS IN CALIFORNIA
On March 6, 1998, the Governor of California announced the signing of a compact
with the Pala Band of Mission Indians to allow legal gaming on tribal lands. The
compact will permit card games, bingo and electronic lottery devices in tribal
casinos. The Table Mountain Tribe has indicated to the Governor's Office that it
is willing to sign a similar compact covering its gaming operations.
10
<PAGE> 11
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
ACQUISITION OF LAND
In February 1998, the Company acquired 20 acres of undeveloped land in N. Las
Vegas, Nevada for $1,375,000. The land is located near the site of the funeral
home and cemetery the Company is developing and will be held for future
development or sale.
11
<PAGE> 12
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 VERSUS SIX MONTHS ENDED JANUARY 31, 1997
REVENUES
Casino consulting fees in the six months ended January 31, 1998 ("Fiscal 1997")
increased 2.0% to $4,530,000 from the $4,440,000 recorded in the same period in
Fiscal 1997, 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. 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 six months ended January 31, 1998 increased to
$733,000, or 4.9%, from $699,000 in the comparable period in Fiscal 1997. This
increase is comprised principally of an increase in payroll costs and consulting
fees and a reduction in legal expenses.
General and administrative expenses in the six months ended January 31, 1998
decreased by $98,000 or 15.2% from the comparable period of Fiscal 1997. The
decrease resulted mainly from reductions in investment banking costs offset by
increases in payroll costs and consulting fees.
Amortization and depreciation was $71,000 and $72,000 in the six months ended
January 31, 1998 and
12
<PAGE> 13
1997, 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 $458,000 and $318,000 in the six months ended
January 31, 1998 and 1997, 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 $165,000 and $141,000 for State of California
income taxes for the six months ended January 31, 1998 and 1997, respectively.
Additionally, a deferred state income tax benefit of $7,000 was recorded for the
six months ended January 31, 1997.
Provisions of $888,000 and $1,170,000 were recorded for Federal income taxes
currently payable for the six months ended January 31, 1998 and 1997,
respectively. Deferred income tax benefits of $40,000 (federal) and $7,000
(state) were recorded for the six months ended January 31, 1997.
Net income was $1,718,000 and $2,075,000 for the six months ended January 31,
1998 and 1997, respectively.
THREE MONTHS ENDED JANUARY 31, 1998 VERSUS THREE MONTHS ENDED JANUARY 31, 1997
REVENUES
Casino consulting fees from the Table Mountain Casino in the second quarter of
Fiscal 1998 were the same as those recorded in the second quarter of Fiscal
1997.
COSTS AND EXPENSES
Casino consulting expenses decreased to $376,000 in the second quarter of Fiscal
1998 from $405,000 in the second quarter of Fiscal 1997. This decrease is
comprised principally of a reduction in legal expenses and a minimal reduction
in most other expense categories offset by an increase in payroll costs.
General and administrative expenses were $294,000 for the second quarter of
Fiscal 1998 and $363,000 for the second quarter of Fiscal 1997. The decrease
resulted mainly from lower legal costs and small reductions in most expenses in
this classification, except that payroll costs showed an increase for the
period.
OTHER OPERATIONAL ITEMS
Interest income increased to $234,000 in the second quarter of Fiscal 1998 from
$148,000 in the second quarter of Fiscal 1997. 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 $51,000 and Federal income taxes of
$281,000 for the three months ended January 31, 1998 as compared to state income
taxes of $14,000 and Federal income taxes of $569,000 for the same period in
Fiscal 1997. A federal income tax benefit of $3,000 was recorded in the second
quarter of Fiscal 1997.
Net income for the three months ended January 31, 1998 and 1997 was $551,000 and
$983,000, respectively.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES AT JANUARY 31, 1997 AND THE SIX MONTHS THEN
ENDED
At January 31, 1998, the Company had consolidated working capital of
$15,577,000, as compared with working capital of $13,247,000 at July 31, 1997.
The change resulted principally from a combination of increases of cash
($2,727,000), income taxes payable ($55,000); prepaid expenses ($12,000),
accrued expenses ($204,000) and consulting fee and other receivables ($109,000)
and reductions in accounts payable ($31,000) and refundable income taxes
($290,000).
During the six months ended January 31, 1998, investing activities used $106,000
as compared to $5,240,000 used by investing activities in the same period in
Fiscal 1997. The cash used in investing activities in Fiscal 1998 was to acquire
additional office furniture and equipment and for capitalized costs related to
the funeral home and cemetery being developed by the Company.
Financing activities in the six months ended January 31, 1998 were comprised of
the proceeds from the issuance of common stock ($81,000) and an increase in cash
restricted as to use ($36,000). The cash restricted as to use represents a
portion of the proceeds from the issuance of stock in G & L Acquisition Corp.
The net increase resulted from interest earned on the funds held in escrow.
At January 31, 1998, restricted cash of $2,720,000 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.
The Company signed an amendment to the Table Mountain Casino consulting
agreement in November 1997. The amendment extends the consulting period to June
30, 2000. The agreement requires the Company to lend up to $4,000,000 to the
Table Mountain Tribe, if certain conditions are met. If the loan is made, it
will be repaid over the remaining period of the consulting agreement.
In May 1997, the Company purchased approximately 40 acres of land in N. Las
Vegas, Nevada for approximately $3,500,000. The Company is developing the
property as a funeral home and cemetery. The estimated cost to complete the
project is approximately $6,000,000. In connection with the project, the Company
has obtained a $4,000,000 loan commitment from a bank to provide up to
$4,000,000 for the temporary and permanent financing of the construction and
development of the project. Interest on the construction loan will be charged at
1% above the prime rate on funds drawn on the loan. Upon completion of the
project, the bank has committed to provide a seven year permanent loan with
interest at 3% above an interest rate index, which is based on United States
Treasury Securities rates. Additional funds required to construct and develop
the project will be provided from cash on hand, operations, additional financing
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.
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
14
<PAGE> 15
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, 1998, the Company had revolving lines of credit totaling
$2,000,000 with two banks. One line for $1,000,000 expires in December 1998 and
bears interest at 2.5% above a reference prime rate. The line is collateralized
by certificates of deposit totaling $500,000. The other $1,000,000 line of
credit is unsecured, expires in November 1998 and bears interest at 1% above an
indexed prime (8.5% at January 31, 1998). At January 31, 1998, no funds were
outstanding on the lines of credit.
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. It is
unknown what action the Tribes, including the Table Mountain Tribe, will take in
response to the letter.
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.
On March 6, 1998, the Governor of California announced the signing of a compact
with the Pala Band of Mission Indians to allow legal gaming on tribal lands. The
compact will permit card games, bingo and electronic lottery devices in tribal
casinos. The Table Mountain Tribe has indicated to the Governor's Office that it
is willing to sign a similar compact covering its gaming operations.
In February 1998, the Company acquired 20 acres of undeveloped land in N. Las
Vegas, Nevada for $1,375,000. The land is located near the site of the funeral
home and cemetery the Company is developing and will be held for future
development or sale.
15
<PAGE> 16
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 Agreement to Terminate Funding and Loan Agreement
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) A Form 8-K was filed by the Company with the Securities and
Exchange Commission on November 12, 1997 reporting the Second
Amendment to Consultant Agreement dated November 7,
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: March 19, 1998 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>
10.1 AGREEMENT TO TERMINATE FUNDING AND LOAN AGREEMENT
11.1 SCHEDULE OF COMPUTATION OF EARNINGS SHARE
27.1 FINANCIAL DATA SCHEDULE
</TABLE>
------------------------------
<PAGE> 1
AGREEMENT TO TERMINATE
FUNDING AND LOAN
AGREEMENT
This Termination Agreement is made this 10th day of March, 1998, by and
between the United Auburn Indian Community, 661 Newcastle Road, #1, Newcastle,
California 95658, a federally recognized Indian Tribe (hereinafter "Auburn" or
the "Community") and Table Mountain/ACES Joint Venture, a joint venture between
American Casino Enterprises, Inc., 6243 Industrial Road, Las Vegas, Nevada
89918, a Nevada corporation, and the Table Mountain Band of Indians of the Table
Mountain Rancheria, P.O. Box 410, Friant, California 93623, a federally
recognized Indian Tribe (hereinafter "Lender").
RECITALS
WHEREAS, the Community and Lender entered into a Funding and Loan
Agreement on February 1, 1996, which provided that Lender would lend to
Community up to Fifteen Million Dollars ($15,000,000.00) for various purposes
including the acquisition of land and the construction of a tribal gaming
enterprise; and
WHEREAS, Lender advanced to the Community the principal sum of Four
Hundred Thirteen Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents
($413,312.54) pursuant to a line of credit Promissory Note which provides for
repayment of principal and interest to begin following the commencement of the
official opening of the gaming enterprise; and
WHEREAS, the Lender retained the right, during the term of the Funding and
Loan Agreement, to terminate its obligation to fund the loan under that
Agreement; and
WHEREAS, no land has been acquired and the gaming enterprise has not
been constructed; and
WHEREAS, Lender desires to terminate the Agreement and all obligations it
has under the Funding and Loan Agreement.
NOW, THEREFORE, it is agreed as follows:
1. The Funding and Loan Agreement is terminated effective the date of this
Termination Agreement.
2. The Community will execute and deliver to Lender a Promissory Note in
the form attached hereto as Exhibit "A" which provides that the Community will
repay to Lender the principal sum of Four Hundred Thirteen Thousand, Three
Hundred Twelve Dollars and Fifty-Four Cents ($413,312.54), together with all
interest earned by the Community after payment of all operating costs,
management and/or consulting fees and the amortization of any land acquisition
costs, construction costs and attorney's fees, provided that payments shall
begin only after the gaming enterprise net income has exceeded Five Hundred
Thousand Dollars ($500,000.00) in six (6) consecutive months. Payments shall
first be credited to interest and then to principal provided that
<PAGE> 2
the maximum payable in any one (1) month will be twenty-five percent (25%) of
the Community's net income during that month or Two Hundred Thousand Dollars
($200,000.00), whichever is less.
3. Lender hereby relinquishes, waives, abandons and gives up any rights or
claims it might otherwise have under the Funding and Loan Agreement or any
agreement executed to effectuate the terms and conditions of that Funding and
Loan Agreement.
4. The Community hereby relinquishes, waives, abandons and gives up any
and all claims it might otherwise have under the Funding and Loan Agreement
against the Lender.
WHEREFORE, this Agreement is effective the date first above written.
UNITED AUBURN INDIAN COMMUNITY,
a federally recognized Indian Tribe
/s/ Jessica Tavares
-------------------
By Jessica Tavares, President
TABLE MOUNTAIN/ACES JOINT VENTURE
/s/ Ronald J. Tassinari
-----------------------
By Ronald J. Tassinari
<PAGE> 3
EXHIBIT A
PROMISSORY NOTE
$413,312.54 MARCH 10, 1998
FOR VALUE RECEIVED, the United Auburn Indian Community, a federally
recognized Indian tribe ("Maker"), promises to pay to Table Mountain/ACES Joint
Venture, or order ("Holder"), at Table Mountain Casino, 8184 Table Mountain
Road, Post Office Box 445, Friant, California 93626, or at such other place as
Holder may designate in writing, the principal balance of Four Hundred Thirteen
Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents ($413,312.54), plus
interest on the principal balance from time to time outstanding, calculated on a
daily basis (based on a 360-day year), at the rate of interest per annum which
is one and one-half (1.5) percentage points greater than the rate of interest
publicly announced, quoted or published by Wells Fargo Bank, from time to time,
at its Sacramento, California office as its "Prime Rate" ("Stated Interest"),
adjusted quarterly, commencing on the date identified as the commencement date
in paragraph (a) immediately below, principal and interest payable as follows:
(a) Fully amortizing payments of principal and interest shall be paid
monthly, commencing on the first day subsequent to the date that the Maker's
gaming enterprise has earned Five Hundred Thousand Dollars ($500,000.00), net
income to the Maker, for each of six (6) consecutive months, and continuing on
the first (1st) of each month thereafter at the rate of Two Hundred Thousand
Dollars ($200,000.00) per month or twenty-five percent (25%) of the Maker's net
monthly income from the gaming enterprise, whichever is less, until the
principal and interest are paid in full.
(b) If during any month following the Maker's earning net income in
excess of Five Hundred Thousand Dollars ($500,000.00) from its gaming enterprise
for six (6) consecutive months, the Maker's net income from the gaming
enterprise drops below Five Hundred Thousand Dollars ($500,000.00) then the
payment of the interest and principal then due on this Note, if any, shall be
excused that month and no payment shall be made until the net income to Maker
from its gaming enterprise exceeds Five Hundred Thousand Dollars ($500,000.00).
(c) Maker shall have the right to pay all or any portion of this
Promissory Note without penalty.
(d) This Promissory Note is not secured.
(e) This Promissory Note shall be construed in accordance with and
governed by federal law, and to the extent not inconsistent therewith, the laws
of the State of California.
<PAGE> 4
IN WITNESS WHEREOF, Maker has executed this Promissory Note at Sacramento,
California, this 10th day of March , 1998.
MAKER:
UNITED AUBURN INDIAN COMMUNITY,
a federally recognized Indian Tribe
/s/ Jessica Tavares
-------------------
By Jessica Tavares, President
<PAGE> 1
EXHIBIT 11.1
AMERICAN VANTAGE COMPANIES AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS
FISCAL 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 551,000 $ 983,000
=========== ===========
Weighted average number of common shares
outstanding during the period 15,063,000 14,868,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.04 $ 0.07
=========== ===========
DILUTED EARNINGS PER SHARE
Weighted average number of common shares
outstanding during the period 15,063,000 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 976,000 1,318,000
----------- -----------
Weighted average number of shares used in
calculation of diluted earnings per share 16,039,000 16,186,000
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.03 $ 0.06
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 1,718,000 $ 2,075,000
=========== ===========
Weighted average number of common shares
outstanding during the period 14,966,000 14,868,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.12 $ 0.14
=========== ===========
DILUTED EARNINGS PER SHARE
Weighted average number of common shares
outstanding during the period 14,966,000 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 1,030,000 1,243,000
----------- -----------
Weighted average number of shares used in
calculation of diluted earnings per share 15,996,000 16,111,000
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.11 $ 0.13
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 15,315,000
<SECURITIES> 0
<RECEIVABLES> 300,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,962,000
<PP&E> 193,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,613,000
<CURRENT-LIABILITIES> 385,000
<BONDS> 0
0
0
<COMMON> 152,000
<OTHER-SE> 21,088,000
<TOTAL-LIABILITY-AND-EQUITY> 21,240,000
<SALES> 4,530,000
<TOTAL-REVENUES> 4,530,000
<CGS> 0
<TOTAL-COSTS> 733,000
<OTHER-EXPENSES> 633,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,771,000
<INCOME-TAX> 1,053,000
<INCOME-CONTINUING> 1,718,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,718,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
