<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]      Annual report under Section 13 of 15(d) of the Securities Exchange Act
         of 1934 

         For the fiscal year ended July 31, 1998

[ ]      Transition report under Section 13 or 15(d) of the Securities
         Exchange Act of 1934 

         For the transition period from ____________ to _____________

                         Commission File Number 0-10061

                           AMERICAN VANTAGE COMPANIES
                 (Name of Small Business Issuer in its charter)

             Nevada                                              04-2709807
  (State or Other Jurisdiction                                (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

             6787 West Tropicana, Suite 200, Las Vegas, Nevada 89103
               (Address of principal executive offices) (zip code)

                                 (702) 227-9800
                (Issuer's telephone number, including area code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

         Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year.  $8,565,000.

         The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant computed by reference to the closing sale price
of $1.00 for the Company's Common Stock, as reported by NASDAQ for October 8,
1998, was $12,391,213 (assuming for purposes of such calculation that all
officers and directors of the Issuer are affiliates).

         The number of shares outstanding of the Registrant's Common Stock at
October 8, 1998 was 15,086,463.

         Transitional Small Business Disclosure Format (check one):

                                 YES ___   NO X
<PAGE>   2
                                     PART I

Item 1. Description of Business

Development of Business

         American Vantage Companies (the "Company"), a gaming consulting
company, is currently engaged in providing consulting services to Table Mountain
Casino & Bingo, a tribal gaming enterprise on a Federal Indian Rancheria in
Friant, California (the "Table Mountain Casino"). In May 1997, the Company
acquired approximately 40 acres of undeveloped land in North Las Vegas, Nevada
which the Company intends to develop as a funeral home and cemetery. However,
development has been delayed while the Clark County, Nevada government finalizes
its plan for construction of a flood control project for the area. In the event
the flood control project is built as intended, the Company would not have to
build major water control culverts on the cemetery project. The Company is
awaiting additional progress on the construction of the flood control project
before it begins development of the property. In February 1998, the Company
acquired 20 acres of undeveloped land in North Las Vegas, Nevada near the
location of the proposed funeral home and cemetery site which will be held for
future development or sale.

         In July 1998, the tribal government leaders of the Table Mountain Tribe
signed a Government to Government Agreement (the "Compact") with the State of
California. On August 27, 1998, the California Legislature approved a bill to
ratify gaming compacts between the tribes and the State of California. On
October 7, 1998, the Department of Interior disapproved the Compact because of
internal election dispute matters. However, they subsequently indicated that if
the entire membership (General Council) voted to approve the Compact, they will
approve it expeditiously. On October 22, 1998, the membership met and voted
overwhelmingly to support the Compact.

         The Company was incorporated in Nevada in 1979, under the name Western
Casinos, Inc. The Company changed its name to American Casino Enterprises, Inc.
in 1993 and then changed its name to American Vantage Companies in March 1997.
The Company was originally formed to engage in the business of recreational and
leisure time activities, including casino gaming. In January 1991, the Company
completed the purchase of all of the capital stock of Millerton Games, Inc.,
which held a management consulting contract for the Table Mountain Casino.

         The Company signed a new contract with the Table Mountain Band of
Indians (the "Table Mountain Tribe") on February 1, 1996, for a 27 month term,
to serve as a consultant to the Table Mountain Casino. In June 1997, the
consulting agreement was amended retroactive to May 1, 1997, providing for a
revised consulting fee schedule. The consulting agreement was again amended in
November 1997 to extend the consulting period to June 30, 2000 and to modify the
consulting fee schedule for consulting fees earned from May 1, 1998 to June 30,
2000.

         The Company is obligated during the period of the consulting agreement,
under certain circumstances, to loan the Table Mountain Tribe up to $4,000,000.
If the loan is made, it will be repaid, with interest, over the remaining period
of the consulting agreement.

         All references herein to the Company refer to the Company and its
subsidiaries unless the context otherwise requires. The Company's principal
executive offices are located at 6787 West Tropicana, Suite 200, Las Vegas,
Nevada 89103, and its telephone number is (702)227-9800.

Table Mountain Casino & Bingo

         On January 16, 1991, the Company completed the purchase from Maritime
Resorts International, Inc. ("Maritime"), a publicly held Utah corporation, of
100% of the outstanding stock of Millerton Games, Inc. ("Millerton"), a
California corporation which held the management consulting contract to operate
the Table Mountain Casino. The Company issued 2,257,630 shares of its Common
Stock to Maritime in January 1991. An additional


                                       -2-
<PAGE>   3
1,500,000 shares of Common Stock and a note payable ($75,763) were issued to
Maritime in January 1992 to satisfy all provisions of the agreement.

         The Table Mountain Casino, opened in 1987, is a high-stakes bingo and
gaming casino which is located on The Table Mountain Tribe's Rancheria in
Friant, California, approximately 17 miles north of Fresno. The Table Mountain
Casino contains approximately 700 bingo seats, seven conventional card tables,
five Asian card tables (where Pai Gow, Asian poker and Super Pan 9 are played),
23 stand-up card tables for Table Mountain Jackpot-21, a non-banking form of
blackjack, and approximately 830 electronic video gaming devices.

         The casino is open 24 hours a day, seven days a week. Bingo is offered
Wednesday through Saturday evenings and Sunday afternoons. Cards and electronic
video machines are offered 24 hours a day, seven days a week.

         The Table Mountain Casino is currently authorized by Tribal Ordinance
under the National Indian Gaming Act as a Class II enterprise. On February 1,
1996, the Company was granted a new 27-month consulting contract by the Table
Mountain Tribe, which gives the Company the exclusive right to provide
consulting services for the gaming casino. In July, 1998, the tribal government
leaders of the Table Mountain Tribe signed the Compact with the State of
California. The Compact contains various stipulations and regulations regarding
gaming which will be permitted at the Table Mountain Casino.

         The Table Mountain Casino also operates two concessions providing fast
food and non-alcoholic drinks on a 24 hour basis. In addition, the Table
Mountain Casino opened a full-service, 150 seat restaurant in September 1994
which is open for business 24 hours per day. There is a population of
approximately one million people located within 100 miles of the Table Mountain
Casino. The Table Mountain Casino attracts players not only from the Fresno
area, but also from other parts of Northern and Central California.

         In response to the success of the Table Mountain Casino and customer
demand, the Table Mountain Casino was renovated between 1993 and 1994 and
expanded to its current size. Other improvements include a new facade and
signage, improved air conditioning and ventilation to aid in making the facility
as smoke free as possible, improved septic and restroom facilities, installation
of fire safety features and expanded parking areas. In addition, the Table
Mountain Tribe is now constructing an extensive expansion of the Table Mountain
Casino. Under the terms of the October 1997 amendment to the consulting
agreement with the Table Mountain Tribe, the Company is required to lend up to
$4,000,000 to the Table Mountain Tribe for expansion and other uses. The Table
Mountain Tribe is renovating and expanding the casino facility by approximately
47,000 square feet. The addition will provide more casino gaming space, allow
for relocation of the bingo operation, increase the restaurant size, add an
additional snack bar, add an entertainment area and provide more administrative
office space. The expansion cost is estimated at $6,000,000 to $8,000,000. The
Company agreed to lend the Tribe up to $2,900,000 of the cost. The loan bears
interest at 9.5%, requires interest only payments until April 15, 1999 and
principal and interest payments thereafter until December 31, 1999, the maturity
date of the loan. The loan is secured by revenues from the Table Mountain
Casino. At October 1, 1998, the Company had advanced $55,000 to the Tribe on the
loan. The Company has no other present commitments for construction or
renovation expenditures.

Table Mountain Consulting Contract

         On February 1, 1996, the Company entered into a termination agreement
with the Table Mountain Tribe (the "Termination Agreement") which terminated the
Company's 1993 consulting agreement (the "1993 Agreement") and simultaneously
entered into a new consulting agreement (the "1996 Agreement"). Under the
conditions of the Termination Agreement, commencing February 1, 1996, the Table
Mountain Tribe is required to pay the Company 48 monthly installments of
$350,000 in consideration for termination of the 1993 Agreement. However, no
payment is required for any month in which the net revenue of the casino does
not equal or exceed $1 Million. The term of the Termination Agreement shall be
automatically extended by one month for each month that no payment is required
thereunder, for up to a maximum of 12 months.


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<PAGE>   4
         The 1996 Agreement requires the Company to consult and provide
technical assistance, training and advice to the Table Mountain Tribe concerning
all matters relating to the operation and business activities of the casino,
including but not limited to organization and administration, planning and
development, gaming activities, internal controls and accounting procedures,
cage operations, engineering and maintenance, housekeeping, human resources,
management information services, marketing and advertising, purchasing,
surveillance, security, and food and beverage. The 1996 Agreement was amended in
both June 1997 and October 1997. The term of the 1996 Agreement, as amended, was
extended to June 30, 2000. For its services under the 1996 Agreement, as
amended, the Company will receive minimum monthly payments of $50,000. The Table
Mountain Tribe is also required to pay the Company additional monies for certain
increments of monthly casino net revenue in excess of the first $1.5 million of
net revenue from casino operations.

         The Company has worked to involve tribal members in the management of
the operations and to further such efforts has instituted a management training
program for selected tribal members. Tribal members currently hold key
management positions with the Table Mountain Casino. No employees of the Company
hold management positions with the Table Mountain Casino.

Acquisition and Sale of Las Vegas, Nevada Property

         On October 9, 1996, the Company purchased approximately 160 acres of
undeveloped land (the "Property") in Las Vegas, Nevada from Victorson &
Associates and Fred Victorson (the "Sellers"). The Sellers were and continue to
be unrelated to the Company. The total purchase price paid by the Company for
the Property was $5,200,000. The purchase price was comprised of a cash payment
of $3,600,000 and the assumption of a $1,600,000 note (the "Note") and related
mortgage on the Property. The Company used working capital generated from its
operations to pay the cash portion of the purchase price. In connection with the
purchase, the Company granted an option to the Sellers to repurchase the land.
The Sellers exercised the option to repurchase the land in February 1997 and the
Company recognized a gain of approximately $182,000 on the sale.

Acquisition of North Las Vegas, Nevada Property

         In May 1997, the Company bought a 40 acre parcel of land in North Las
Vegas, Nevada for approximately $3,500,000 in cash. The Company intends to
develop the property as a funeral home and cemetery. However, development has
been delayed while the Clark County, Nevada government finalizes its plan for
construction of a flood control project for the area. If the flood control
project is built as intended, the Company would not have to build major water
control culverts on the cemetery project. The Company is awaiting additional
progress on the construction of the flood control project before it begins
development of the property. In February 1998, the Company bought a 20 acre
parcel of land in North Las Vegas, Nevada for $1,375,000 in cash which will be
held for future development or sale.

Competition

         There are presently casinos on Indian reservations in many states, and
tribes in other states have disclosed plans to open casinos. Under Federal law,
tribes can offer any games already legal in their state, although, among other
things, Indian casinos are not subject to state betting limits. Competition for
gaming customers in California also comes from casino-hotel operations in Nevada
and elsewhere, as well as other forms of wagering permitted in California, such
as card clubs, pari-mutual racing, lottery games and other gambling activities.

         The Table Mountain Casino competes with one other Indian gaming
operation within a fifty mile radius of Fresno, California, which was opened by
the Big Sandy Rancheria Indian Tribe during Fiscal 1996. This casino contains
approximately 100 electronic video games. It is located in Auberry, California,
approximately 25 miles from the Table Mountain Casino and approximately 40 miles
from Fresno. Another Indian gaming operation is located approximately 70 miles
from the Table Mountain Casino in Lemoore, California. Management believes the
variety of gaming offered by the Table Mountain Casino gives it a competitive
advantage over the Auberry and Lemoore


                                       -4-
<PAGE>   5
operations. The Company believes that the renovation and expansion of the Table
Mountain Casino has strengthened the Table Mountain Casino's competitive
position.

         The Company expects the casino to encounter competition in the form of
state authorized card rooms, one of which was built in Fowler, California
(approximately 35 miles from the Table Mountain Casino), and two of which are in
operation in Fresno and one in Clovis, California, a Fresno suburb. The Fowler
facility, which ceased operations in January 1997, is permitted to have up to 40
tables, and the two Fresno facilities are permitted to have 50 tables in total.
Although these card rooms are smaller than the Table Mountain Casino, the
presence of such facilities has diverted some of the Table Mountain Casino's
card room business.

Government Regulation

         The operation of the Table Mountain Casino is subject to regulation
under the Indian Gaming Regulatory Act (the "IGRA"). The United States Supreme
Court has declared that, once a state has legalized any form of gambling, the
Indians in that state have the right to offer the same games, but without
governmental restrictions. California v. Cabazon Band of Mission Indians, 480
U.S. 202 (1987). The basic test under IGRA has been interpreted to be that if
anyone in the state can offer a form of gambling, even though strictly limiting
the game to charities and small wagers, then tribes in that state can offer the
same game with virtually no limits. In California there is authorized off track
pari-mutual horse race wagering, bingo, lottery games (which the tribes believe
includes video gaming) and card rooms. The National Indian Gaming Commission
(the "NIGC") was established in 1988 to enforce IGRA.

         The forms of gambling that are considered to be social games and
traditional Indian games are called Class I and are left entirely under Indian
control. Class II games, which are subject to some regulation by the NIGC,
include bingo, non-banking card games, pull tabs, and other similar games
including any electronic or computerized aides used in connection with such
games. A sovereign Indian tribe can operate Class III games, which include all
forms of gaming not identified as Class I or II, including a race track, off
track pari-mutual horse racing or a lottery, only if it enters into a compact
with the state. In July, 1998, the government leaders of the Table Mountain
Tribe signed the Compact with the State of California. The Compact contains
various stipulations and regulations regarding gaming which will be permitted at
the Table Mountain Casino.

         The Compact expires January 1, 2009. It contains a renewal option for
two additional five (5) year periods upon written notice of renewal to the
Governor of California prior to the expiration date. The Compact may be
terminated earlier by the Governor of California and the options for renewal may
be denied if the Tribe has been found to have engaged in unauthorized Class III
gaming on two or more occasions or has committed violations of the terms of the
Compact on five or more occasions.

         The Compact permits two types of lottery-based machines, the Indian
Video Lottery Match Game and the Indian Video Lottery Scratcher Game. The Table
Mountain Casino will be permitted to operate 975 of these machines in total.
Each California tribe has been allotted 199 of these devices. Additional
machines may be licensed from other Federally recognized California tribes,
which do not have gaming operations, for an annual fee of up to $5,000 per
machine.

         The Table Mountain Casino will be permitted to operate existing video
gaming devices for an open-ended transition period so long as new electronic
lottery devices are unavailable or competing tribes continue to operate video
gaming devices without a tribal-state compact. Prototypes of the lottery-based
machines proposed in the Compact are presently undergoing testing at some Indian
casinos, including Table Mountain Casino. Presently, there is no way to confirm
whether the lottery-based machines provided for in the Compact will produce a
revenue stream consistent with that form of device now being played at the Table
Mountain Casino. In the event the new machines do not provide a revenue stream
consistent with that being experienced at the Table Mountain Casino, the
resulting decline in revenue and profit of the Table Mountain Casino may have a
materially adverse effect on the consulting fees earned by the Company under its
consulting agreement with the Table Mountain Tribe.


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<PAGE>   6
         The Compact provides that employees of the Table Mountain Casino will
be offered California workers' compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of the casino will have the right to binding arbitration
relating to unresolved player disputes. The casino must also carry public
liability insurance. The Table Mountain Casino offers its employees workers'
compensation, unemployment and disability insurance coverage. It also provides
public liability insurance coverage. The Compact also requires the Table
Mountain Tribe to make arrangements for mitigation of environmental, police,
fire, emergency or other local services.

         The Compact contains an option to terminate the Compact and enter into
an alternative compact set out in an initiative on the November, 1998 California
state ballot if that initiative passes and is not held to be unconstitutional.
The Table Mountain Compact has been sent to the Secretary of the Interior for
review and approval.

         In November 1998 the residents of California will vote on a referendum
to determine whether the Indian Tribes in California will have more control over
gaming operations on Indian land. In the event the referendum is passed, it is
anticipated that the legality of the referendum will be challenged in the court
system.

Employees

         As of October 8, 1998, the Company and its subsidiaries employed seven
persons including its three executive officers, one person in gaming operations,
two full-time administrative employees and one of the Company's Directors as a
gaming consultant on a full-time basis. These persons do not include 830 persons
employed at the Table Mountain Casino, none of whom is on the Company's payroll.

Item 2. Description of Property

         The Company's executive offices are located in approximately 5,116
square feet of leased office space at 6787 West Tropicana, Suite 200, Las Vegas,
Nevada 89103. The monthly rental is $8,724. The lease agreement commenced on
June 1, 1996 and expires on June 1, 2001.

         See "Item 1. Description of Business - Acquisition of North Las Vegas,
Nevada Property" for a description of undeveloped real estate which the Company
acquired in May 1997 and February 1998.

Item 3. Legal Proceedings

         Neither the Company nor any of its subsidiaries is a party to any
material legal proceeding, nor to the knowledge of Management is any litigation
threatened against the Company or its subsidiaries, except as described
hereinafter.


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<PAGE>   7
                                     PART II

Item 5. Market for the Company's Common Stock and Related Stockholder Matters

         The Company's Common Stock is traded in the over-the-counter market and
quoted through the Nasdaq Stock Market under the symbol "ACES".

         The following table sets forth the range of high and low closing bid
prices of the Company's Common Stock for each quarterly period indicated, as
reported by Nasdaq. The prices represent inter-dealer quotations, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions:

<TABLE>
<CAPTION>
Period                                                            High Bid    Low Bid
------                                                            --------    -------
<S>                                                               <C>         <C>
Fiscal 1998

         First Quarter (August 1, 1997- October 31, 1997)           $1.63      $1.00
         Second Quarter (November 1, 1997 - January 31, 1998)       $1.47      $1.03
         Third Quarter (February 1, 1998 - April 30, 1998)          $1.69      $1.16
         Fourth Quarter (May 1, 1998 - July 31, 1998)               $1.53      $1.13

Fiscal 1997

         First Quarter (August 1, 1996 - October 31, 1996)          $1.84      $1.06
         Second Quarter (November 1, 1996 - January 31, 1997)       $1.78      $1.06
         Third Quarter (February 1, 1997 - April 30, 1997)          $1.41      $1.13
         Fourth Quarter (May 1, 1997 - July 31, 1997)               $1.28      $ .94
</TABLE>

         On October 8, 1998, the closing sale price per share for the Company's
Common Stock was $1.00.

         On October 8, 1998, there were 917 holders of record of the 15,086,463
shares of the Company's Common Stock outstanding.

Dividend Policy

         The Company has not paid any cash dividends on its Common Stock since
its incorporation. The Company anticipates that in the foreseeable future,
earnings, if any, will be retained for use in its business or for other
corporate purposes.


Item 6. Management's Discussion and Analysis or Plan of Operation

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included elsewhere
in this Report.

Statement on Forward-Looking Statements

         Included in this Item 6, and in the Notes to the Consolidated Financial
Statements are certain forward-looking statements reflecting the Company's
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that


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may cause the actual results, performance, or achievements of the Company, or
industry results, to be materially different from future results, performance,
or achievements expressed or implied by such forward-looking statements.
Numerous factors may affect the Company's actual results and may cause results
to differ materially from those expressed in forward-looking statements made by
or on behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to construction activities, dependence on existing
management, gaming regulation of casinos on Indian land by Federal, state and
Tribal governments, issues related to the Year 2000, domestic and global
economic conditions and changes in Federal and state tax laws or the
administration of such laws. The Company assumes no obligation to update or
revise any such forward-looking statements or the factors listed below to
reflect events or circumstances that may arise after this report is filed, and
that may have an effect on the Company's overall performance.

Overview - Factors That May Affect Future Results

         The Company provides consulting services to the Table Mountain Band of
Indians (the "Table Mountain Tribe") for the Table Mountain Casino and Bingo
(the "Table Mountain Casino") - see Item 1. "Description of Business". In Fiscal
1998, the Table Mountain Tribe signed the Compact, which detailed stipulations
and regulations regarding gaming which will be permitted at the Table Mountain
Casino. See Note 3 - "Indian gaming operations - Tribal-State Compact" of Notes
to Consolidated Financial Statements. In November 1998 the residents of
California will vote on a referendum to determine whether the Indian Tribes in
California will have more control over gaming operations on Indian land. In the
event the referendum is passed, it is anticipated that the legality of the
referendum will be challenged in the court system.

         The tribal council of the Table Mountain Tribe believes that, because
the Tribe has signed the Compact and reaffirmed the signing of the Compact in a
vote of tribal members, the operations of the Table Mountain Casino will not be
negatively impacted by the outcome of the referendum. As a result of the tribal
vote on acceptance of the Compact, the Tribe anticipates the Department of
Interior will approve the Compact in an expeditious manner.

         Due to the uncertainties regarding legislation and regulation of Indian
gaming, reported financial information might not be indicative of future
operating results or financial condition.

         The year 2000 presents a potential problem for businesses utilizing
computers in their operations since many computer programs are date sensitive
and will only recognize the last two digits of the year, thereby recognizing the
year 2000 as the year 1900 or not at all (the "Year 2000 Issue"). The Company
has evaluated its internal operating system and is working with companies with
which it transacts business to assess their efforts to comply with the Year 2000
Issue and the Company's resulting exposure. Maintenance or modification costs of
computer programs associated with the Year 2000 Issue will be expensed as
incurred, while the costs of any new software will be capitalized and amortized
over the software's useful life. At this time, it appears the aggregate cost to
the Company relating to the Year 2000 Issue will not be material. The Company
believes that its software programs will be year 2000 compliant, however, there
can be no assurances that the Year 2000 Issue will not adversely affect the
Company.

         The Table Mountain Casino is presently undergoing the same process of
evaluating the impact of the Year 2000 Issue. Although the financial impact to
the Casino, if any, is not known, it is not believed to be material.


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<PAGE>   9
Results of Operations

Year Ended July 31, 1998 Compared With The Year Ended July 31, 1997

Revenues

         Casino consulting fees for the year ended July 31, 1998 ("Fiscal 1998")
decreased 5.4% to $8,565,000 from the $9,050,000 recorded for the year ended
July 31, 1997 ("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").

         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
Table Mountain Casino's 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 the Table Mountain
Casino meeting a certain level of profitability.

         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 Table Mountain 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 amendments to the consulting agreement, consulting
fee revenues were $485,000 lower in Fiscal 1998 than 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 through January 2000.

Costs and Expenses

         Casino consulting expenses in Fiscal 1998 increased to $1,709,000, up
7.01%, from $1,597,000 in Fiscal 1997. This increase is due to an increase in
payroll costs and legal expenses.

         General and administrative expenses in Fiscal 1998 increased by $72,000
or 6.4% from Fiscal 1997. The increase resulted from increases in payroll costs,
consulting fees, corporate legal costs and loan commitment fees and a reduction
in insurance costs.

         The Company incurred $61,000 in death care operating expenses,
principally payroll costs, in Fiscal 1998.

         Amortization and depreciation was $122,000 and $144,000 in Fiscal 1998
and 1997, respectively. Amortization is comprised of consulting agreement
acquisition costs, which were being amortized over a 27- month period that ended
in April 1998.


                                       -9-
<PAGE>   10
Other Operational Items

         Interest income from time deposits with financial institutions, totaled
$907,000 and $769,000 in Fiscal 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 proposed Auburn,
California Indian gaming project and advances related to the Auburn Tribe.

         The Company refunded minority investors in G & L Acquisition Corp., a
subsidiary, their original investment. In connection with the refund, the
company incurred investor reparation expenses of $550,000.

         The Company recorded provisions of $303,000 and $417,000 for State of
California income taxes for Fiscal 1998 and 1997, respectively.

         Provisions of $1,604,000 and $2,218,000 were recorded for Federal
income taxes currently payable for Fiscal 1998 and 1997, respectively.

         Net income was $3,069,000 ($0.19 diluted earnings per share) and
$4,468,000 ($0.28 diluted earnings per share) for Fiscal 1998 and 1997,
respectively.

Liquidity and Capital Resources

         At July 31, 1998, the Company had consolidated working capital of
$15,618,000, as compared with working capital of $13,247,000 at July 31, 1997.

         During the year ended July 31, 1998, investing activities used
$1,517,000 as compared to $3,649,000 used by investing activities in Fiscal
1997. The cash used in investing activities in Fiscal 1998 was to purchase
additional office furniture and equipment, capitalized costs related to the
funeral home and cemetery which the Company plans to develop and to acquire 20
acres of undeveloped land in North Las Vegas, Nevada. The land is located near
the site of the planned funeral home and cemetery and will be held for future
development or sale.

         Financing activities in the year ended July 31, 1998 were comprised of
the proceeds from the issuance of common stock ($81,000) and cash used to
repurchase Company common stock ($88,000). Additionally, the Company refunded to
minority investors their original investment in G & L Acquisition Corp. This
resulted in a decrease in cash restricted as to use ($2,684,000), which resulted
from the original private placement of stock in G & L Acquisition, and the
elimination of the minority interest in the subsidiary ($2,569,000).

         The November 1997 amendment to the Table Mountain Casino consulting
agreement extended the consulting period to June 30, 2000. The Company is
obligated during the period of the consulting agreement, under certain
circumstances, to loan the Table Mountain Tribe up to $4,000,000. If the loan is
made, it will be repaid over the remaining period of the consulting agreement.
In August 1998, the Company committed to lend to the Tribe up to $2,900,000 for
renovation and expansion of the Table Mountain Casino. Interest (at 9.5%) only
payments are required until April 15, 1999 and principal and interest payments
are due thereafter until December 31, 1999, the maturity date of the loan.
Revenues from the Table Mountain Casino secure the loan. At October 1, 1998,
approximately $55,000 had been loaned to the Tribe.

         The Company obtained a $2,900,000 line of credit from a bank. The line
is totally secured by certificates of deposit as monies are drawn on the line.
The line bears interest at 6.8%, interest only payments are due monthly and the
line expires and is payable on December 31, 1999. At October 1, 1998,
approximately $55,000 had been drawn on the line of credit.


                                      -10-
<PAGE>   11
         In Fiscal 1997, the Company purchased approximately 40 acres of land in
North Las Vegas, Nevada for approximately $3,500,000. The Company plans to
develop the property as a funeral home and cemetery. The estimated cost to build
the project, including the acquisition of the land, ranges from $8,000,000 to
$12,000,000. In connection with the project, the Company has obtained a 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. The
commitment expires in December 1998. 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. The development of this
property has been delayed while the Clark County, Nevada government finalizes
its plan for construction of a flood control project for the area. In the event
the flood control project is built as intended, the Company would not have to
build major water control culverts on the cemetery project. The Company is
awaiting additional progress on the construction of the flood control project
before it develops the property.

         Historically, the Company has provided funds for its operations from
operating activities, financing from financial institutions and stockholders,
and issuance of common stock, and it will likely continue to use these sources
of liquidity in the future. The Company has always sought and will continue to
seek other suitable consulting contracts and/or ownership of casinos and other
gaming opportunities on and off Indian land, as well as recreational, leisure
time and entertainment ventures. Additionally, the Company will continue to
pursue any business venture, including those not previously described, which
management believes affords an opportunity to increase stockholder value. In the
event any of these opportunities come to fruition, management will consider
satisfying financing requirements from working capital, through borrowing or
capital infusion through the public or private placement of common stock of the
Company or its subsidiaries.

         At July 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 referenced 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 December 1998 and bears interest at 1% above an
indexed prime (8.5% at July 31, 1998). At July 31, 1998, no funds were
outstanding on the lines of credit.

         In July 1998, the tribal government leaders of the Table Mountain Tribe
signed the Compact. The Compact contains various stipulations and regulations
regarding gaming which will be permitted at the Table Mountain Casino. The Tribe
has submitted the Compact to the Department of Interior for approval. See Note 3
-"Indian Gaming Operations - Tribal-State Compact" of Notes to Consolidated
Financial Statements.

         The Company historically and currently has derived substantially all of
its revenues and income from services provided to the Table Mountain Tribe. The
Company is taking steps to diversify its business activities and is seeking
other opportunities to provide a means of obtaining other sources of revenues.

Item 7. Financial Statements

         The consolidated financial statements of the Company are set forth in a
separate section of this Report following Part III.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

         None.


                                      -11-
<PAGE>   12
                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

         Set forth below are the names of all the directors and executive
officers of the Company along with certain information relating to the business
experience of each of the listed officers and directors.

Name                             Position
----                             --------

Ronald J. Tassinari              Chief Executive Officer, President and Director

Audrey K. Tassinari              Executive Vice President and Director

Roy K. Keefer                    Chief Financial Officer,
                                 Secretary/Treasurer and Director

Jeanne Hood                      Director

Steven G. Barringer              Director

         Directors are elected to serve for three years, or until their
successors are elected and qualified (except that at least twenty-five percent
of all Directors must be elected each year). Officers serve at the discretion of
the Board of Directors subject to any contracts of employment. The Board of
Directors has an Audit Committee and a Compensation Committee, each comprised of
Jeanne Hood and Steven G. Barringer. The Board of Directors does not have a
nominating committee. See "Item 10. Executive Compensation."

         Ronald J. Tassinari has been Chief Executive Officer, President and a
Director of the Company since its inception in August 1979.

         Audrey K. Tassinari has been a Director of the Company since March 1985
and a Vice President since April 1986. Mrs. Tassinari is the wife of Ronald J.
Tassinari, the Company's President.

         Roy K. Keefer has been Chief Financial Officer and Secretary/Treasurer
of the Company since April 1992. Mr. Keefer has been a Director of the Company
since December 1992.

         Jeanne Hood has been a Director of the Company since February 1994.
Since February 1994, Ms. Hood has served as a gaming consultant to the Company.
See "Item 12. Certain Relationships and Related Transactions." From 1985 to
1993, Ms. Hood served as President and Chief Executive Officer of Elsinore
Corporation, a publicly traded gaming company, and of Four Queens, Inc., a
wholly-owned subsidiary of Elsinore Corporation, which subsidiary owns and
operates the Four Queens Hotel Casino in Las Vegas, Nevada.

         Steven G. Barringer has been a Director since February 1998. He is a
member of the law firm of Singer, Brown and Barringer, Las Vegas, Nevada,
practicing natural resources and environmental law. Before forming Singer, Brown
and Barringer in January 1996, Mr. Barringer was a member of the law firm of
Holland & Hart, Washington D.C.


                                      -12-
<PAGE>   13
             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

         Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during the period from
August 1, 1997 through July 31, 1998, all filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with.

Item 10. Executive Compensation

Summary Compensation Table

         The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company during the last three fiscal
years by the Company's Chief Executive Officer and all other executive officers
whose total compensation exceeded $100,000 in those years.

<TABLE>
<CAPTION>
                                       Annual Compensation                      Long-Term Compensation
                              --------------------------------------   ----------------------------------------
                                                                                     Awards
                                                                       ---------------------------------------- 
Name and                                              Other Annual       Restricted          Securities
Principal Position     Year   Salary($)   Bonus($)   Compensation($)   Stock Award(s)($)  Underlying Options(#)
------------------     ----   ---------   --------   ---------------   -----------------  ---------------------
<S>                    <C>    <C>         <C>        <C>               <C>                <C>       
Ronald J. Tassinari,   1998   $432,635    $288,000     $86,646(1)           -0-              150,000(6)
Chief Executive        1997   $417,988    $230,000     $70,281(1)           -0-              400,000(3)(4)
Officer and            1996   $375,695    $270,000     $58,905(1)           -0-              400,000(2)(4)
President              
                       
Audrey K. Tassinari,   1998   $156,785    $142,000     $78,037(1)           -0-              100,000(6)
Executive              1997   $153,621    $110,000     $55,840(1)           -0-              250,000(3)(4)
Vice President         1996   $132,887    $130,000     $42,392(1)           -0-              250,000(2)(4)
                       
Roy K. Keefer          1998   $133,481    $69,000      $68,288(1)           -0-                   --
Chief Financial        1997   $127,768    $ 25,500     $46,599(1)           -0-              150,000(5)(4)
Officer                1996   $124,393    $ 60,000     $47,029(1)           -0-              150,000(5)(4)
</TABLE>

----------
(1)      This amount includes, but is not limited to: directors fees;
         disability, life and medical insurance premiums; automobile payments
         and pension plan payments.

(2)      Represents options which were granted in October 1995 at an exercise
         price of $1.75 per share, canceled and re-granted in October 1996 at
         $1.375 per share.

(3)      Represents options which were granted in October 1995 at an exercise
         price of $1.75 per share, canceled and re-granted in October 1996 at
         $1.375 per share.

(4)      The Board re-granted such options at a price closer to the fair market
         value of the Company's Common Stock in order to provide a better
         incentive to these officers.

(5)      Represents options which were granted in October 1995 at an exercise
         price of $1.75 per share, canceled and regranted in October 1996 at
         $1.25 per share.

(6)      Represents options which were granted in December 1997 at an exercise
         price of $1.16 per share.


                                      -13-
<PAGE>   14
Option Grants in Last Fiscal Year Table

<TABLE>
<CAPTION>
                                       % of Total
                       Shares          Options         Exercise
                       Underlying      Granted to      or Base
                       Options         Employees in    Price          Expiration
Name                   Granted (#)     Fiscal Year     ($/Sh)            Date
----                   -----------     -----------     ------            ----
<S>                    <C>             <C>             <C>            <C>
Ronald J. Tassinari     150,000           43%          $1.16           12/17/02
 
Audrey K. Tassinari     100,000           29%          $1.16           12/17/02
</TABLE>


Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table

<TABLE>
<CAPTION>
                                                                      Value of
                                                 Number of            Unexercised
                                                 Unexercised          In-The-Money
                        Shares                   Options at           Options at
                        Acquired                 FY-End (#)           FY-End ($)
                        on Exer-     Value       Exercisable/         Exercisable/
Name                    cise (#)     Realized    Unexercisable        Unexercisable(1)
----                    --------     --------    -------------        ----------------
<S>                     <C>          <C>         <C>                  <C>
Ronald J. Tassinari      150,000       79,500    1,214,000/100,000    493,040/140,000

Audrey K. Tassinari      100,000       53,000    665,334/66,666       250,187/9,333

Roy K. Keefer             50,000       26,500    557,000/0            255,770/0
</TABLE>

----------
(1)      The closing price for the Company's Common Shares on July 31, 1998 was
         $1.00 per share.


Compensation of Directors

         Directors receive $15,000 per annum for meetings of the Board of
Directors. They are also compensated for expenses incurred in attending the
meetings. All of the Company's directors have received stock options from the
Company. See "Item 11. - Certain Relationships and Related Transactions."

Employment Agreements

         On July 20, 1995, the Company entered into substantially similar
employment agreements with Ronald J. Tassinari, to serve as the Company's Chief
Executive Officer and President, Audrey K. Tassinari, to serve as the Company's
Executive Vice President, and Roy K. Keefer to serve as the Company's Chief
Financial Officer (collectively, the "Employees"). The employment agreements
provide for a term which concludes on March 31, 2002. The agreements provide for
annual salaries of $430,000, $162,000, and $140,000, respectively, for Mr.
Tassinari, Mrs. Tassinari and Mr. Keefer. The agreements further provide that
the Employees are entitled to receive minimum annual increases in their salaries
every December equal to the greater of (i) the annual increases provided to the
Company's other salaried executives or (ii) the increase in the Annual Average
All Items Index of


                                      -14-
<PAGE>   15
the U.S. City Average Consumer Price Index. Under the agreements, the Employees
are entitled to receive incentive stock options under the Company's stock option
plans, and the Company is required to reimburse Employees for their personal
legal and financial consulting expenses, subject to a maximum of three percent
of their prior calendar year's base salary. Mr. Tassinari is entitled to a term
life insurance policy with a minimum death benefit of $2,000,000, payable to a
beneficiary of Mr. Tassinari's designation. Mrs. Tassinari and Mr. Keefer are
entitled to policies with $1,500,000 and $1,000,000 minimum death benefits,
respectively, payable to beneficiaries of their designation. The Company has
agreed to provide the Employees with an automobile allowance or, in lieu
thereof, will pay them an equal monthly cash stipend. In the event that the
Company requires the Employee to relocate from Las Vegas, Nevada, the Company
has agreed to pay their relocation expenses and to provide second mortgages on
their new permanent residences of up to $100,000. The employment agreements also
provide for indemnification of the Employees in connection with their service to
the Company.

         If the employment of any of the Employees is terminated by reason of
death, the Company shall pay the balance of the monies due under the agreement
to the estate of the deceased Employee. If the employment of any of the
Employees is terminated by reason of disability, the Employee shall be entitled
to one year of severance pay at full salary and then severance pay at half
salary for the remainder of the term. If any of the Employees are terminated
without cause, or the Employees terminate their own employment following: (a) a
change in control (as defined below); (b) a significant change in the Employee's
duties under the agreements; (c) a removal of the Employee from the positions or
offices set forth in the agreements; (d) a substantial reduction in
compensation, unless all senior executives receive comparable reductions; (e) a
breach by the Company of the relocation provisions set forth in the agreements;
(f) the refusal of a successor to the Company to assume the Company's
obligations under the agreements; (g) a relocation of the Company's executive
offices without the Employee's consent; (h) a failure by the Company to increase
the Employee's salary; or (i) the Employee remains employed following a change
in control, but then resigns within two years, then the Company shall pay as
liquidated damages, or severance pay, or both to the Employee on the fifth day
following the termination date, a lump sum equal to the product of (i) an amount
equal to the sum of the annual base salary in effect as of the termination date
plus any incentive compensation most recently paid or payable to the Employees,
multiplied by (ii) two and ninety-nine one hundredths (2.99), (iii) plus any and
all accrued salary, accrued vacation pay and accrued bonus in addition to any
other consideration due under the agreements. In addition, the agreements
provide that in the event that an Employee terminates his or her employment
following a change in control, the Company shall make a cash payment on the 91st
day after such termination to the Employee in an amount equal to the excess, if
any, of (1) the number of options then held by the Employee which have not
terminated other than as a result of termination of employment multiplied by the
market price of the Company's common stock as of the date of termination, over
(2) the aggregate exercise price for all options then held by the Employee.

         For purposes of the employment agreements, a "change in control of the
Company" shall be deemed to have occurred if (i) a third person becomes the
beneficial owner (as such term is defined in Rule 13d-3 promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Act")) of the securities
of the Company having twenty percent (20%) or more of the combined voting power
of all classes of the Company's securities entitled to vote in an election of
Directors of the Company; (ii) there occurs a tender offer or exchange offer by,
a merger or other business combination with, or a sale of substantially all of
the assets of the Company to any third Person; (iii) a stockholder or
stockholders holding five percent (5%) or more of the outstanding common stock
of the Company proposes a reconstitution of additions to or deletions from the
Board and as a result, obtains a majority thereof; or (iv) during any period of
two consecutive years during the term of the agreements, individuals who at the
beginning of such period constitute the Board cease for any reason other than
death or disability to constitute at least a majority thereof.


                                      -15-
<PAGE>   16
Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information as of the date of
this Report, with respect to the beneficial ownership (as such term is defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of shares of Common
Stock, the Company's sole voting securities, by each person known by the Company
to be the beneficial owner of more than 5% of its Common Stock, by each
executive officer named in the Summary Compensation Table, each director and by
all officers and directors as a group.

<TABLE>
<CAPTION>
 Name and Address of                   Amount  and Nature of       Percentage
 Beneficial Owner                     Beneficial Ownership(1)      of Class(2)
 ----------------                     -----------------------      -----------
<S>                                   <C>                          <C>
Ronald J. Tassinari                          2,338,874 (3)            15.5%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103

Audrey K. Tassinari                          1,820,002 (4)            12.1%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103

Roy K. Keefer                                 619,000 (5)             4.1%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103

Jeanne Hood                                   150,000 (6)             1.0%
2316 Timberline Way
Las Vegas, NV  89117

Jay H. Brown                                1,453,023 (7)             9.6%
520 South Fourth Street
Las Vegas, NV  89101

Steven G. Barringer                            75,000 (8)              .5%
520 South Fourth Street
Las Vegas, NV  89101

All officers and directors                  4,064,303 (9)            26.9%
as a group (5 persons)
</TABLE>

----------
(1)      Unless otherwise noted, all shares are beneficially owned and the sole
         voting and investment power is held by the persons indicated.

(2)      Based on 15,086,463 shares outstanding as of the date of October 8,
         1998.

(3)      Includes 11,094 shares owned of record by Mr. Tassinari as custodian
         for his son, 938,573 shares owned by the Tassinari Family Trust and
         1,214,100 shares issuable upon exercise of stock options. Such shares
         exclude the following shares as to which Mr. Tassinari disclaims
         beneficial ownership: 881,429 shares of Common Stock beneficially owned
         by Audrey K. Tassinari, Mr. Tassinari's wife. If such excluded shares
         were included, Mr. Tassinari would be deemed to hold 21.4% of the
         Common Stock.

(4)      Includes 938,573 shares owned by the Tassinari Family Trust and an
         aggregate of 665,334 shares issuable upon exercise of stock options. In
         addition, such shares exclude the following shares as to which Mrs.


                                      -16-
<PAGE>   17
         Tassinari disclaims beneficial ownership: 1,389,307 shares of Common
         Stock beneficially owned by Ronald J. Tassinari, Mrs. Tassinari's
         husband. If such excluded shares were included, Mrs. Tassinari would be
         deemed to hold 21.4% of the Common Stock.

(5)      Includes 557,000 shares underlying incentive stock options.

(6)      Includes options to acquire 120,000 shares.

(7)      Includes an aggregate of 73,333 shares of Common Stock and
         324,074 Warrants beneficially owned by Mr. Brown's son and 100,616
         shares of Common Stock beneficially owned in joint tenancy by Mr. Brown
         and Mr. Brown's wife.

(8)      Represents options to acquire 75,000 shares.

(9)      Includes options to purchase an aggregate of 2,601,334 shares of Common
         Stock referred to in notes 3, 4, 5 and 6 above.

Item 12. Certain Relationships and Related Transactions

         Jeanne Hood, a Director of the Company, has provided consulting
services to the Company since February 1994. She has been compensated at the
rate of $6,000 per month for such services.

         On November 23, 1994, the Board of Directors granted stock options to
Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors or former
Directors of the Company, to purchase 50,000, 50,000 and 12,500 shares of Common
Stock, respectively. The options were immediately exercisable at $.69 per share
in recognition of prior services rendered to the Company. All of the options
were exercised after July 31, 1997 and prior to December 31, 1997.

         On October 19, 1995, the Board of Directors granted stock options to
Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors or former
Directors of the Company, to purchase 50,000, 100,000 and 15,000 shares of
Common Stock, respectively. The options were immediately exercisable at $1.75
per share in recognition of prior services rendered to the Company and expire on
October 18, 2005. These options were re-granted on October 7, 1996 to Ms. Hood
and Mr. Sanderson at an exercise price of $1.25 per share.

         On October 19, 1995, the Board of Directors granted stock options to
Ronald J. Tassinari, Audrey K. Tassinari and Roy K. Keefer, each an Officer and
Director of the Company, to purchase 400,000, 250,000 and 150,000 shares of
Common Stock, respectively. The options were immediately exercisable at $1.75
per share in recognition of prior services rendered to the Company and expire on
October 18, 2005. On October 7, 1996, the foregoing options were canceled and
re-granted at an exercise price of $1.25 per share.

         On August 8, 1996, the Company loaned $130,000 to Ronald J. Tassinari,
the Company's President and a Director. Such amount was repaid on October 29,
1996, together with interest of $2,993, which had been accrued at the rate of
ten and one-quarter (10.25%) percent per annum.

         On December 12, 1997, the Board of Directors granted stock options to
Ronald J. Tassinari and Audrey K. Tassinari to purchase 150,000 and 100,000
shares of Common Stock, respectively. The options are exercisable at $1.16 per
share and expire on December 17, 2002.

         On February 6, 1998 stock options were granted to Steven G. Barringer
to purchase 75,000 shares of Common Stock which was subsequently approved by the
Board of Directors. The options are exercisable at $1.19 per share and expire on
February 6, 2008.


                                      -17-
<PAGE>   18
         See "Item 10. Executive Compensation" for the terms of certain stock
options and Employment Agreements between the Company and Ronald J. Tassinari,
Audrey K. Tassinari and Roy K. Keefer, each a Director and officer of the
Company.



Item 13. Exhibits, List and Reports on Form 8-K

(a)      Exhibits

         3.1      Articles of Incorporation and By Laws of the Company. (1)

         3.2      Certificate of Amendment to Articles of Incorporation of the
                  Company.(5)

         3.3      Certificate of Amendment to Articles of Incorporation of the
                  Company.(6)

         4.1      Warrant Certificate between the Company and Jay H. Brown dated
                  July 23, 1991. (2)

         10.1     American Casino Enterprises, Inc. 1991 Officers Stock Option
                  Plan, as amended. (3)

         10.2     American Casino Enterprises, Inc. 1992 Employees Stock Option
                  Plan. (3)

         10.3     American Casino Enterprises, Inc. 1996 Stock Option Plan. (3)

         10.4     Management Consultant Contract dated March 27, 1993 between
                  the Company and the Table Mountain Tribe.(5)

         10.5     Employment Agreement between the Company and Ronald J.
                  Tassinari dated July 20, 1995. (6)

         10.6     Employment Agreement between the Company and Audrey K.
                  Tassinari dated July 20, 1995. (6)

         10.7     Employment Agreement between the Company and Roy K. Keefer
                  dated July 20, 1995. (6)

         10.8     Letter Agreement dated September 11, 1995 between the Company
                  and Table Mountain Rancheria. (6)

         10.9     Business Loan Agreement and Promissory Note dated November 15,
                  1994 between the Company and First Security Bank of Nevada.
                  (6)

         10.10    Settlement Agreement, dated February 1, 1996, between the
                  Company and the NIGC. (7)

         10.11    Termination Agreement, dated February 1, 1996, between the
                  Company and the Table Mountain Tribe. Exhibit A to the
                  Termination Agreement is set forth as Exhibit 99.1 below, and
                  Exhibit B to the Termination Agreement is incorporated herein
                  by reference from Exhibit 10.3 above.(7)

         10.12    Consulting Agreement, dated February 1, 1996, between the
                  Company and the Tribe. (7)

         10.13    Option to Purchase and Escrow Instructions dated as of October
                  9, 1996, among the Company, Victorson & Associates, Inc., Fred
                  Victorson and United Title of Nevada. (8)

         10.14    Purchase Agreement and Escrow Instructions dated October 9,
                  1996, among Victorson & Associates, Inc., Fred Victorson and
                  the Company. (8)


                                      -18-
<PAGE>   19
         10.15    Joint Venture Agreement between the Company and the Table
                  Mountain Tribe, dated as of February 1, 1996.(8)

         10.16    Funding and Loan Agreement between the Auburn Tribe and the
                  Table Mountain/ACES Joint Venture, dated February 1, 1996.(8)

         10.17    Lease for the Company's offices dated March 14, 1996, between
                  the Company and Tropicana Trail Limited Partnership.(8)

         10.18    Agreement to terminate Funding and Loan Agreement, dated March
                  10, 1998, between the Company and the Auburn Tribe.

         10.19    Promissory Note, dated March 10, 1998, between the Company and
                  the Auburn Tribe.

         10.20    Promissory Note and Loan Agreement, dated August 24, 1998,
                  between the Company and the Table Mountain Tribe.

         10.21    Promissory Note and Loan Agreement, dated August 24, 1998,
                  between the Company and United Security Bank.

         21.1     Subsidiaries of the Registrant

         23.1     Consent of Bradshaw, Smith & Co.

         27.1     Financial Data Schedules

         99.1     Order of the United States Department of the Interior, dated
                  February 1, 1996. (7)

----------
(1)      Incorporated by reference to Exhibit 3(i) to the Company's Annual
         Report on Form 10-K for July 31, 1981.

(2)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for July 31, 1991.

(3)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 333-00905) declared effective on February 13, 1996.

(4)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the year ended July 31, 1994.

(5)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the year ended July 31, 1995.

(6)      Incorporated by reference from the Company's Current Report on Form 8-K
         dated February 1, 1996.

(7)      Incorporated by reference from the Company's Current Report on Form 8-K
         dated October 9, 1996.

(8)      Incorporated by reference from the Company's Annual Report on Form
         10-KSB for the year ended July 31, 1996.

(b)      Reports on Form 8-K.

                On July 16, 1998, the Registrant filed a Report on Form 8-K
         reporting that it refunded $3,119,600 to the investors in its 64% owned
         subsidiary, G & L Acquisition Corp.


                                      -19-
<PAGE>   20
                                   SIGNATURES

                Pursuant to the Requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunder duly authorized.

Dated: October 28, 1998                AMERICAN VANTAGE COMPANIES



                                       By: /s/ Ronald J. Tassinari
                                           -------------------------------
                                           Ronald J. Tassinari, President


                Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.

     Signature                        Title                          Date
     ---------                        -----                          ----

/s/ Ronald J. Tassinari      Chief Executive Officer,           October 28, 1998
Ronald J. Tassinari          President and Director
                             (Principal Executive Officer) 


/s/ Audrey K. Tassinari      Executive Vice                     October 28, 1998
Audrey K. Tassinari          President and Director



/s/ Roy K. Keefer            Chief Financial                    October 28, 1998
Roy K. Keefer                Officer, Secretary/
                             Treasurer and Director
                             (Principal Financial and
                             Accounting Officer)



/s/ Jeanne Hood              Director                           October 28, 1998
Jeanne Hood



/s/ Steven G. Barringer      Director                           October 28, 1998
Steven G. Barringer


<PAGE>   21
                           AMERICAN VANTAGE COMPANIES

                       YEARS ENDED JULY 31, 1998 AND 1997
<PAGE>   22
                           AMERICAN VANTAGE COMPANIES

                       YEARS ENDED JULY 31, 1998 AND 1997





                                    CONTENTS

                                                                           PAGE

Independent auditors' report                                                 1

Financial statements:
   Consolidated balance sheets                                               2
   Consolidated statements of income                                         3
   Consolidated statements of changes in stockholders' equity                4
   Consolidated statements of cash flows                                   5-6
   Notes to consolidated financial statements                             7-23
<PAGE>   23
                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
American Vantage Companies


                  We have audited the accompanying consolidated balance sheets
of American Vantage Companies as of July 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

                  We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
American Vantage Companies as of July 31, 1998 and 1997, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.


/s/ BRADSHAW, SMITH & CO.


Las Vegas, Nevada
October 1, 1998
(Except for Note 3 as to which
 the date is October 22, 1998)

<PAGE>   24
AMERICAN VANTAGE COMPANIES

CONSOLIDATED BALANCE SHEETS

JULY 31, 1998 AND 1997




<TABLE>
<CAPTION>
ASSETS                                                                                  1998                 1997
                                                                                  ----------------     ----------------
CURRENT ASSETS:
<S>                                                                               <C>                  <C>            
  Cash and cash equivalents                                                       $     15,371,000     $     12,588,000
  Consulting fee and other receivables                                                     180,000              191,000
  Refundable income taxes                                                                  311,000              555,000
  Deferred tax asset                                                                         4,000                2,000
  Prepaid expenses                                                                          31,000               68,000
                                                                                  ----------------     ----------------
         Total current assets                                                           15,897,000           13,404,000
                                                                                  ----------------     ----------------
PROPERTY AND EQUIPMENT, NET                                                                180,000              212,000
                                                                                  ----------------     ----------------
LAND HELD FOR INVESTMENT OR DEVELOPMENT                                                  5,101,000            3,603,000
                                                                                  ----------------     ----------------
OTHER ASSETS:
  Restricted cash                                                                               --            2,684,000
  Consulting agreement acquisition costs, net                                                   --              396,000
  Deposits and other                                                                         9,000              273,000
                                                                                  ----------------     ----------------
                                                                                             9,000            3,353,000
                                                                                  ----------------     ----------------
                                                                                  $     21,187,000      $    20,572,000
                                                                                  ================     ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                $        126,000      $        56,000
  Income taxes payable                                                                      10,000                   --
  Accrued expenses                                                                         143,000              101,000
                                                                                  ----------------     ----------------
         Total current liabilities                                                         279,000              157,000
                                                                                  ----------------     ----------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                                                    --              974,000
                                                                                  ----------------     ----------------
COMMITMENTS AND CONTINGENCIES                                                                   --                   --
STOCKHOLDERS' EQUITY:
  Common stock, $.01 par; 30,000,000 shares
     authorized; 15,086,463 and 14,867,958 shares
     issued and outstanding                                                                151,000             149,000
  Preferred stock; $.01 par; 10,000,000 shares
     authorized; shares issued and outstanding - none                                           --                  --
  Capital in excess of par                                                               3,324,000           4,892,000
  Retained earnings                                                                     17,433,000          14,400,000
                                                                                  ----------------     ----------------
                                                                                       20,908,000           19,441,000
                                                                                  ----------------     ----------------
                                                                                  $    21,187,000      $    20,572,000
                                                                                  ================     ================
</TABLE>


                 See Notes to Consolidated Financial Statements.
                                                                               2
<PAGE>   25
AMERICAN VANTAGE COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED JULY 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                  ----------------     ----------------
REVENUES:
<S>                                                                               <C>                  <C>            
  Casino consulting fees                                                          $      8,565,000     $      9,050,000
                                                                                  ----------------     ----------------
COSTS AND EXPENSES:
  Casino consulting                                                                      1,709,000            1,597,000
  Death care operations                                                                     61,000                   --
  General and administrative                                                             1,205,000            1,133,000
  Amortization and depreciation                                                            122,000              144,000
  Minority interest in net income of consolidated subsidiary                                    --               20,000
                                                                                  ----------------     ----------------
                                                                                         3,097,000            2,894,000
                                                                                  ----------------     ----------------
INCOME FROM OPERATIONS                                                                   5,468,000            6,156,000
OTHER INCOME (EXPENSE):
  Interest                                                                                 907,000              769,000
  Loss on disposition of fixed assets                                                           --               (4,000)
  Gain on sale of land held for investment or development                                       --              182,000
  Miscellaneous                                                                             10,000                   --
                                                                                  ----------------     ----------------
                                                                                           917,000              947,000
                                                                                  ----------------     ----------------
INCOME BEFORE WRITE-OFF OF PROJECT COSTS AND ADVANCES,
  INVESTOR REPARATION EXPENSE AND INCOME TAXES                                           6,385,000            7,103,000
WRITE-OFF OF PROJECT COSTS AND ADVANCES                                                    861,000                   --
INVESTOR REPARATION EXPENSE                                                                550,000                   --
                                                                                  ----------------     ----------------
INCOME BEFORE INCOME TAXES                                                               4,974,000            7,103,000
                                                                                  ----------------     ----------------
INCOME TAX EXPENSE (BENEFIT):
  Current:
     State                                                                                 303,000              417,000
     Federal                                                                             1,604,000            2,218,000
  Deferred:
     State                                                                                      --                   --
     Federal                                                                                (2,000)                  --
                                                                                  ----------------     ----------------
                                                                                         1,905,000            2,635,000
                                                                                  ----------------     ----------------
NET INCOME                                                                        $      3,069,000      $     4,468,000
                                                                                  ================     ================
EARNINGS PER COMMON SHARE:
  Basic                                                                           $           0.20     $           0.30
                                                                                  ================     ================
  Diluted                                                                         $           0.19     $           0.28
                                                                                  ================     ================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  AND COMMON SHARE EQUIVALENTS:
     Basic                                                                              15,040,000           14,868,000
     Stock options and warrants                                                          1,171,000            1,187,000
                                                                                  ----------------     ----------------
     Diluted                                                                            16,211,000           16,055,000
                                                                                  ================     ================
</TABLE>


                 See Notes to Consolidated Financial Statements.
                                                                               3
<PAGE>   26
AMERICAN VANTAGE COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED JULY 31, 1998 AND 1997




<TABLE>
<CAPTION>
                                                                                  CAPITAL
                                                                                 IN EXCESS             RETAINED
                                                  COMMON STOCK                     OF PAR              EARNINGS
                                         --------------------------------        ------------        ------------
                                            SHARES             AMOUNT
                                         ------------        ------------
<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                                       --                  --                  --             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                --
Shares repurchased and retired                (59,400)             (1,000)            (87,000)               --
Retirement of minority interest in
  subsidiary                                     --                  --            (1,559,000)            (36,000)
Net income                                       --                  --                  --             3,069,000
                                         ------------        ------------        ------------        ------------
BALANCE, JULY 31, 1998                     15,086,463        $    151,000        $  3,324,000        $ 17,433,000
                                         ============        ============        ============        ============
</TABLE>


                 See Notes to Consolidated Financial Statements.
                                                                               4
<PAGE>   27
AMERICAN VANTAGE COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                  ----------------     ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                  <C>            
  Net income                                                                      $     3,069,000      $     4,468,000
                                                                                  ----------------     ----------------
  Adjustments to reconcile net income to net cash provided (used) by operating
     activities:
       Amortization and depreciation                                                       122,000             144,000
       Deferred income tax benefit                                                         (2,000)                  --
       Minority interest in net income of consolidated
         subsidiary                                                                             --              20,000
       Changes in other assets and liabilities, net                                      1,003,000            (927,000)
                                                                                  ----------------     ----------------
                                                                                         1,123,000            (763,000)
                                                                                  ----------------     ----------------
  NET CASH PROVIDED BY OPERATING ACTIVITIES                                             4,192,000            3,705,000
                                                                                  ----------------     ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of land held for investment or development
     and improvements                                                                  (1,498,000)          (3,603,000)
  Purchase of property and equipment, net                                                 (19,000)             (46,000)
                                                                                  ----------------     ----------------
  NET CASH USED IN INVESTING ACTIVITIES                                                (1,517,000)          (3,649,000)
                                                                                  ----------------     ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock
     of consolidated subsidiary                                                                 --           2,625,000
  Decrease (increase) in cash restricted as to use                                       2,684,000          (2,684,000)
  Investment in consolidated subsidiary                                                         --            (112,000)
  Retirement of minority interest in consolidated subsidiary                           (2,569,000)                   --
  Proceeds from long-term debt                                                                  --           2,073,000
  Repayment of long-term debt                                                                   --          (2,073,000)
  Repurchase of common stock                                                              (88,000)                   --
  Proceeds from issuance of common stock                                                    81,000             125,000
                                                                                  ----------------     ----------------
  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                      108,000             (46,000)
                                                                                  ----------------     ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                               2,783,000               10,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                            12,588,000          12,578,000
                                                                                  ----------------     ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                            $    15,371,000      $    12,588,000
                                                                                  ================     ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for state and federal income taxes                                    $     1,653,000      $     3,004,000
                                                                                  ================     ================
</TABLE>


                 See Notes to Consolidated Financial Statements.
                                                                               5
<PAGE>   28
AMERICAN VANTAGE COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                                       1998                 1997
                                                                                  ----------------     ----------------
DETAIL OF CHANGES IN OTHER ASSETS AND LIABILITIES:
<S>                                                                               <C>                  <C>            
  Decrease in consulting fee and receivables                                      $         11,000     $         11,000
  Decrease (increase) in refundable income taxes                                           244,000             (368,000)
  Decrease (increase) in consulting agreement acquisition costs                            324,000             (217,000)
  Decrease (increase) in prepaid expenses                                                   37,000              (23,000)
  Decrease (increase) in deposits and other assets                                         265,000             (140,000)
  Increase in accounts payable                                                              70,000                5,000
  Increase (decrease) in accrued expenses                                                   42,000             (195,000)
  Increase in income taxes payable                                                          10,000                   --
                                                                                  ----------------     ----------------
                                                                                  $      1,003,000     $       (927,000)
                                                                                  ================     ================
</TABLE>


                 See Notes to Consolidated Financial Statements.
                                                                               6
<PAGE>   29



AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JULY 31, 1998 AND 1997



1.     NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       NATURE OF BUSINESS:

       The Company is currently engaged in providing consulting services to a
         gaming facility in central California. The Company acquired 40 acres of
         land in North Las Vegas, Nevada on which it plans to develop and
         construct a funeral home and cemetery. See Note 8.

       PRINCIPLES OF CONSOLIDATION:

       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.

       CASH AND CASH EQUIVALENTS:

       The Company maintains cash and cash equivalents, investments with
         original maturities of three months or less, with certain financial
         institutions. Due to the quality of the financial institutions
         involved, they present a low level of risk to the Company. The carrying
         amount of cash and cash equivalents approximates their fair value.

       ALLOWANCES FOR DOUBTFUL ACCOUNTS:

       Consulting fee and other receivables are reported at their fair value and
         are, in the opinion of management, collectible and no allowances for
         doubtful accounts were established at July 31, 1998 and 1997.

       PROPERTY, EQUIPMENT AND DEPRECIATION:

       Property and equipment is stated at cost. Depreciation is calculated
         using accelerated methods over the estimated useful lives of the
         assets.

       CONSULTING AGREEMENT ACQUISITION COSTS:

       All internal salary and related indirect costs of the Company's
         consulting agreement acquisition efforts are expensed as incurred.
         Direct costs are capitalized when the Company has a consulting contract
         with a federally recognized Indian tribe which is proposing to conduct
         authorized gaming activities.


                                                                               7
<PAGE>   30
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



1.     NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       (CONTINUED):

       CONSULTING AGREEMENT ACQUISITION COSTS (CONTINUED):

         Table Mountain Casino & Bingo:

         Consulting agreement acquisition costs are comprised of costs
           associated with the acquisition of a subsidiary which previously held
           the consulting agreement with the Table Mountain Casino & Bingo (the
           "Table Mountain Casino"). They were amortized over a 27-month period
           that ended April, 1998.

         United Auburn Indian Community:

         Certain payments to the United Auburn Indian Community (the "Auburn 
         Tribe") were capitalized.
            See Note 3.

       EARNINGS PER SHARE:

       During the fiscal year ended July 31, 1998, the Company adopted the
         statement of Financial Accounting Standards No. 128, Earnings Per
         Share. Accordingly, the computations of basic and diluted earnings per
         share have been computed in accordance with this statement. Earnings
         per share for the year ended July 31, 1997 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.

       USE OF ESTIMATES:

       The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the amounts reported in the financial
         statements and accompanying notes. Actual results could differ from
         those estimates.

       FAIR VALUE OF FINANCIAL INSTRUMENTS:

       Cash and cash equivalents, receivables and accounts payable are carried
         at amounts that approximate their fair values.


                                                                               8
<PAGE>   31
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



2.     PROPERTY AND EQUIPMENT:

       Property and equipment is comprised of:


<TABLE>
<CAPTION>
                                                                               1998                 1997
                                                                         ----------------     ----------------
<S>                                                                      <C>                  <C>            
Furniture, fixtures and office equipment                                 $        198,000     $        181,000
Leasehold improvements                                                            115,000              137,000
                                                                         ----------------     ----------------
                                                                                  313,000              318,000
Less accumulated depreciation                                                     133,000              106,000
                                                                         ----------------     ----------------
                                                                         $        180,000     $        212,000
                                                                         ================     ================
</TABLE>

3.     INDIAN GAMING OPERATIONS:

       TABLE MOUNTAIN CASINO & BINGO:

       The Company has a consulting agreement with the Table Mountain Band of
         Indians (the "Table Mountain Tribe") for the Table Mountain Casino. On
         February 1, 1996, the Company signed a new consulting agreement with
         the Table Mountain Tribe for the Table Mountain Casino in Friant,
         California. The new consulting agreement provided that the Company
         would 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.

       In June, 1997, the consulting agreement was amended, retroactive to May
         1, 1997, to provide a revised consulting fee schedule. The revised
         schedule provided for a base monthly consulting fee of $60,000, plus
         additional fees of $50,000 to $100,000 for increments of $225,000 to
         $500,000 or portion thereof, of monthly casino net income in excess of
         the first $1.5 million of net income from casino operations. A second
         amendment to the consulting agreement was signed in November, 1997. The
         consulting fee schedule was adjusted, effective February 1, 1998, to
         provide for a base fee of $50,000 and additional fees of $45,000 to
         $60,000 for increments of $250,000 to $500,000 or portion thereof, of
         monthly casino net income in excess of $1.5 million of net income from
         casino operations. The term of the agreement was extended to June 30,
         2000.

       The Company will continue to receive a monthly payment of $350,000 in
         accordance with terms of the termination agreement signed in February,
         1996. These payments will continue through January, 2000.

       The Company is obligated 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. See Note 11.

                                                                               9
<PAGE>   32
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



3.     INDIAN GAMING OPERATIONS (CONTINUED):

       TRIBAL-STATE COMPACT:

       In July, 1998, the tribal government leaders of the Table Mountain Tribe
         signed a Tribal-State compact with the State of California. The compact
         contains various stipulations and regulations regarding gaming which
         will be permitted at the Table Mountain Casino.

       The compact agreement expires January 1, 2009. It contains a renewal
         option for two additional five (5) year periods upon written notice of
         renewal to the Governor of California prior to the expiration date. The
         compact may be terminated earlier by the Governor of California and the
         options for renewal may be denied if the Tribe has been found to have
         engaged in unauthorized Class III gaming on two or more occasions or
         has committed violations of the terms of the compact on five or more
         occasions.

       The compact permits two types of lottery-based machines, the Indian Video
         Lottery Match Game and the Indian Video Lottery Scratcher Game. The
         Table Mountain Casino will be permitted to operate 975 of these
         machines in total. Each California tribe has been allotted 199 of these
         devices. Additional machines may be licensed from other Federally
         recognized California tribes, which do not have gaming operations, for
         an annual fee of up to $5,000 per machine.

       The Table Mountain Casino will be permitted to operate existing video
         gaming devices for an open-ended transition period so long as new
         electronic lottery devices are unavailable or competing tribes continue
         to operate video gaming devices without a state compact. Prototypes of
         the lottery-based machines proposed in the compact are presently
         undergoing testing at some Indian casinos, including Table Mountain
         Casino. Presently, there is no way to confirm whether the lottery-based
         machines provided for in the compact will produce an income stream
         consistent with those devices now being played at the Table Mountain
         Casino. In the event the new machines do not produce an income stream
         consistent with that being experienced at the Table Mountain Casino,
         the resulting decline in revenue and profits of the Casino may have a
         materially adverse effect on the consulting fees earned by the Company
         under its consulting agreement with the Table Mountain Tribe.

       The compact provides that employees of the Table Mountain Casino will be
         offered California workers' compensation, unemployment insurance,
         disability insurance and guaranteed the right to engage in collective
         bargaining activities. Patrons of the casino will have the right to
         require binding arbitration of player disputes. The casino must also
         carry public liability insurance. The Table Mountain Casino presently
         offers its employees workers' compensation, unemployment and disability
         insurance coverage. It also provides public liability insurance
         coverage. The compact also requires the Table Mountain Tribe to make
         arrangements for mitigation of environmental, police, fire, emergency
         or other local services.

       The compact contains an option to terminate the agreement and enter into
         the alternative compact set out in an initiative on the November, 1998
         California state ballot if that initiative passes and is not held to be
         unconstitutional. The compact has been sent to the Secretary of the
         Interior for review and approval.

                                                                              10
<PAGE>   33
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



3.     INDIAN GAMING OPERATIONS (CONTINUED):

       TRIBAL-STATE COMPACT (CONTINUED):

       On October 7, 1998, the Department of Interior disapproved the Table
         Mountain Compact because of internal election dispute matters. However,
         they subsequently indicated that if the entire membership (General
         Council) votes to approve the compact, they will approve it
         expeditiously. The membership met October 22, 1998 and the majority
         voted to support the Compact.

       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 had an 80%
         interest in the joint venture.

       During the period from February, 1996 through January, 1998, the joint
         venture provided monthly payments of $22,500 to the Auburn Tribe for
         tribal needs. The payments are reported in the accompanying
         consolidated balance sheets as consulting agreement acquisition costs.
         At July 31, 1997, approximately $324,000 had been capitalized. Also,
         the joint venture paid for predevelopment costs incurred in the process
         of acquiring land, which would be placed into trust for the Tribe.
         These advances to the Auburn Tribe by the Company at July 31, 1997
         totaled approximately $263,800 and are reported as deposits and other
         in the accompanying consolidated balance sheets. The land was to be
         utilized for the casino site and other tribal uses.

       In March, 1998, Company management, believing the project could not be
         completed in a time frame that was in the best interests of its
         stockholders, withdrew with its joint venture partner, the Table
         Mountain Tribe, from the arrangement. The joint venture and the Auburn
         Tribe in March, 1998 signed an agreement providing that under certain
         circumstances advances of $413,000 would be repaid from the future
         operations of the planned Auburn casino. The Company wrote off its
         investment in the project and the advances made to the Auburn Tribe
         ($861,000 combined) in the second quarter of Fiscal 1998. The
         transaction is reported in the consolidated statements of income as
         write-off of project costs and advances.

       As of July 31, 1998, the Auburn Tribe had not placed land into trust for
         the casino site.


                                                                              11
<PAGE>   34
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY:

       PREFERRED STOCK:

       The Board of Directors has the authority to issue the preferred stock,
         the terms of which (including, without limitation, dividend rates,
         conversion rights, voting rights, terms of redemption and liquidation
         preferences) may be fixed by the Board at its sole discretion. The
         holders of the Company's common stock will not be entitled to vote upon
         such matters. No shares of preferred stock of any series are
         outstanding and the Board of Directors has no present intention to
         issue any such shares. Shares of preferred stock issued in the future
         could have conversion rights, which may result in the issuance of
         additional shares of common stock, which could dilute the interest of
         the holders of common stock. Such shares could also have voting rights
         and liquidation preferences which are senior to the rights and
         preferences of the common stock. Additionally, such shares could have
         dividend, redemption or other restrictive provisions.

       WARRANTS:

       In July, 1991, the Company sold shares of common stock together with
         warrants to purchase additional common stock shares. On June 27, 1997,
         the Board of Directors granted an extension of the exercise period of
         the remaining 972,222 warrants to July, 1999 and increased the exercise
         price per share to $.90.

       STOCK REPURCHASE PROGRAM:

       In Fiscal 1998, the Board of Directors authorized the expenditure of up
         to $2,000,000 to repurchase the Company's common stock. If the Company
         repurchases shares, it will be done according to applicable securities
         laws and at times and in amounts as management deems appropriate.
         Shares may be purchased in the open market or privately negotiated
         transactions, with the timing and terms of such purchases to be
         determined by management based on market conditions. There is no
         expiration date for the repurchase program.

       In the year ended July 31, 1998, the Company purchased 59,400 shares of
         common stock at a cost of $88,000.


                                                                              12
<PAGE>   35
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY (CONTINUED):

       STOCK OPTION PLANS:

       Prior to 1997, the Company's stockholders approved the creation of an
         Officers' Stock Option Plan and an Employees' Stock Option Plan. Under
         the Officers' Stock Option Plan, 1,500,000 shares of the Company's
         common stock are reserved for issuance to Company officers. The
         Employees' Stock Option Plan provides for 2,500,000 shares of common
         stock which may be issued to key employees, including officers. In
         1997, the Company's stockholders approved the creation of the 1996
         Stock Option Plan which reserves an additional 2,500,000 shares of the
         Company's common stock for issuance to employees, officers and
         directors of the Company and others who are involved in the continuing
         development and success of the Company or its subsidiaries. The
         options, under all plans, are granted at not less than 100% of the
         market value of the Company's common stock on the date of grant.

       The following is a summary of activity of outstanding stock options under
         the Officers' Stock Option Plan:


<TABLE>
<CAPTION>
                                                                                OPTIONS OUTSTANDING
                                                                       -------------------------------------
                                                                                                WEIGHTED
                                                                                                AVERAGE
                                                                                                EXERCISE
                                                                            SHARES               PRICE
                                                                       ----------------     ----------------
<S>                                                                           <C>           <C>             
Balance, July 31, 1996                                                        1,031,266     $           0.47
Exercised                                                                      (500,000)                0.25
                                                                       ----------------     ----------------
Balance, July 31, 1997                                                          531,266                 0.68
Exercised                                                                      (250,000)                0.53
                                                                       ----------------     ----------------
Balance, July 31, 1998                                                          281,266     $           0.69
                                                                       ================     ================
Exercisable, July 31, 1998                                                      281,266     $           0.69
                                                                       ================     ================
</TABLE>


       The following is a summary of information about the Officers' Stock
         Option Plan options outstanding at July 31, 1998:


<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
----------------------------------------------------------------------    ----------------------------------
                                        WEIGHTED
                                        AVERAGE           WEIGHTED                              WEIGHTED
    RANGE OF                           REMAINING          AVERAGE                               AVERAGE
    EXERCISE           NUMBER         CONTRACTUAL         EXERCISE             NUMBER           EXERCISE
     PRICES         OUTSTANDING       LIFE (YEARS)         PRICE            EXERCISABLE          PRICE
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
<S>                        <C>                   <C>  <C>                          <C>      <C>            
$          0.69            281,266               2.0  $          0.69              281,266  $          0.69
================  ================  ================  ================    ================  ================
</TABLE>




                                                                              13
<PAGE>   36
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997


4.     STOCKHOLDERS' EQUITY (CONTINUED):

       STOCK OPTION PLANS (CONTINUED):

       Activity of the Employees' Stock Option Plan is summarized as follows:


<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING
                                 ----------------------------
                                                    WEIGHTED
                                                    AVERAGE
                                                    EXERCISE
                                  SHARES             PRICE
                                 ----------        ----------
<S>                               <C>              <C>       
Balance, July 31, 1996            2,208,734        $     1.10
Granted                             800,000              1.36
Canceled                           (820,000)             1.72
                                 ----------        ----------
Balance, July 31, 1997            2,188,734              0.96
Exercised                           (50,000)             0.53
                                 ----------        ----------
Balance, July 31, 1998            2,138,734        $     0.90
                                 ==========        ==========
Exercisable, July 31, 1998        2,138,734        $     0.90
                                 ==========        ==========
</TABLE>


       The following is a summary of information about the Employees' Stock
         Option Plan options outstanding at July 31, 1998:


<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
----------------------------------------------------------------------    ----------------------------------
                                        WEIGHTED
                                        AVERAGE           WEIGHTED                              WEIGHTED
    RANGE OF                           REMAINING          AVERAGE                               AVERAGE
    EXERCISE           NUMBER         CONTRACTUAL         EXERCISE             NUMBER           EXERCISE
     PRICES         OUTSTANDING       LIFE (YEARS)         PRICE            EXERCISABLE          PRICE
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
<S>                      <C>                     <C>  <C>                        <C>        <C>            
$          0.69          1,338,734               2.3  $          0.69            1,338,734  $          0.69
           1.25            800,000               3.3             1.25              800,000             1.25
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
$     0.69-1.25          2,138,734               2.4  $          0.90            2,138,734  $          0.90
================  ================  ================  ================    ================  ================
</TABLE>


                                                                              14
<PAGE>   37
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY (CONTINUED):

       STOCK OPTION PLANS (CONTINUED):

       Activity of the 1996 Stock Option Plan is summarized as follows:


<TABLE>
<CAPTION>
                                                                                OPTIONS OUTSTANDING
                                                                       -------------------------------------
                                                                                                WEIGHTED
                                                                                                AVERAGE
                                                                                                EXERCISE
                                                                            SHARES               PRICE
                                                                       ----------------     ----------------
<S>                                                                             <C>         <C>             
Balance, July 31, 1996                                                               --     $             --
Balance, July 31, 1997                                                               --                   --
Granted                                                                         350,000                 1.17
                                                                       ----------------     ----------------
Balance, July 31, 1998                                                          350,000     $           1.17
                                                                       ================     ================
Exercisable, July 31, 1998                                                       98,334     $           1.16
                                                                       ================     ================
</TABLE>


       The following is a summary of information about the 1996 Stock Option
         Plan options outstanding at July 31, 1998:


<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
----------------------------------------------------------------------    ----------------------------------
                                        WEIGHTED
                                        AVERAGE           WEIGHTED                              WEIGHTED
    RANGE OF                           REMAINING          AVERAGE                               AVERAGE
    EXERCISE           NUMBER         CONTRACTUAL         EXERCISE             NUMBER           EXERCISE
     PRICES         OUTSTANDING       LIFE (YEARS)         PRICE            EXERCISABLE          PRICE
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
<S>                        <C>                   <C>  <C>                           <C>     <C>            
$     1.16-1.19            350,000               6.0  $          1.17               98,334  $          1.16
================  ================  ================  ================    ================  ================
</TABLE>


                                                                              15
<PAGE>   38
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY (CONTINUED):

       OTHER OPTIONS GRANTED:

       Other options were granted to outside members of the Board of Directors
         and to the Table Mountain Tribe. The options were granted at the market
         value of the Company's common stock at the date of grant. Activity of
         other options granted is as follows:


<TABLE>
<CAPTION>
                                                                                OPTIONS OUTSTANDING
                                                                       -------------------------------------
                                                                                                WEIGHTED
                                                                                                AVERAGE
                                                                                                EXERCISE
                                                                            SHARES               PRICE
                                                                       ----------------     ----------------
<S>                                                                           <C>         <C>             
Balance, July 31, 1996                                                          415,000     $           1.06
Granted                                                                         115,000                 1.25
Canceled                                                                       (127,500)                1.63
                                                                       ----------------     ----------------
Balance, July 31, 1997                                                          402,500                 0.93
Granted                                                                          75,000                 1.19
Exercised                                                                       (92,500)                0.58
                                                                       ----------------     ----------------
Balance, July 31, 1998                                                          385,000     $           1.06
                                                                       ================     ================
Exercisable, July 31, 1998                                                      325,000     $           1.03
                                                                       ================     ================
</TABLE>


       The following is a summary of information about other options outstanding
at July 31, 1998:


<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
----------------------------------------------------------------------    ----------------------------------
                                        WEIGHTED
                                        AVERAGE           WEIGHTED                              WEIGHTED
    RANGE OF                           REMAINING          AVERAGE                               AVERAGE
    EXERCISE           NUMBER         CONTRACTUAL         EXERCISE             NUMBER           EXERCISE
     PRICES         OUTSTANDING       LIFE (YEARS)         PRICE            EXERCISABLE          PRICE
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
<S>                        <C>                   <C>  <C>                          <C>      <C>            
$      0.53-0.69           145,000               1.0  $          0.61              145,000  $          0.61
       1.19-1.25           190,000               8.0             1.23              130,000             1.23
            1.75            50,000               2.0             1.75               50,000             1.75
----------------  ----------------  ----------------  ----------------    ----------------  ----------------
$     0.53-1.75            385,000               3.4  $          1.06              325,000  $          1.03
================  ================  ================  ================    ================  ================
</TABLE>


                                                                                


                                                                              16
<PAGE>   39
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY (CONTINUED):

       OTHER OPTIONS GRANTED (CONTINUED):

       The Financial Accounting Standards Board issued Statement of Financial
         Accounting Standards No. 123 - Accounting for Stock-Based Compensation
         ("SFAS 123"), which provides that companies may elect to account for
         employee stock options using a fair value-based method or continue to
         apply the intrinsic value-based method prescribed by Accounting
         Principals Board Opinion No. 25 ("APB 25").

       Under the fair value-based method prescribed by SFAS 123, all employee
         stock option grants are considered compensatory. Compensation cost is
         measured at the date of grant based on the estimated fair value of the
         options determined using an option pricing model. The model takes into
         account the stock price at the grant date, the exercise price, the
         expected life of the option, the volatility of the stock, expected
         dividends on the stock and the risk-free interest rate over the
         expected life of the option. Under APB 25, generally only stock options
         that have intrinsic value at the date of grant are considered
         compensatory. Intrinsic value represents the excess, if any, of the
         market price of the stock at the grant date over the exercise price of
         the options.

       As permitted by SFAS 123, the Company accounts for these plans under APB
         25, under which no compensation cost has been recognized.

       The following table discloses the Company's proforma net income and net
         income per share assuming compensation cost for employee stock options
         and warrants had been determined using the fair value-based method
         prescribed by SFAS 123.


<TABLE>
<CAPTION>
                                                                             1998                 1997
                                                                       ----------------     ----------------
Net income:
<S>                                                                    <C>                  <C>            
  As reported                                                          $      3,069,000     $     4,468,000
  Proforma                                                                    3,011,000           4,454,000
Earnings per share:
  Basic:
     As reported                                                                   0.20                0.30
     Proforma                                                                      0.20                0.30
  Diluted:
     As reported                                                                   0.19                0.28
     Proforma                                                                      0.19                0.28
</TABLE>


                                                                                
                                                                              17
<PAGE>   40
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



4.     STOCKHOLDERS' EQUITY (CONTINUED):

       OTHER OPTIONS GRANTED (CONTINUED):

       The fair value of each award under the stock option plans is estimated on
         the date of grant using the Black-Scholes option pricing model. The
         following assumptions were used to estimate the fair value of the
         options and warrants with extension of exercise periods:


<TABLE>
<CAPTION>
                                                                    1998                       1997
                                                           ----------------------     ----------------------
                                                                                          EMPLOYEE STOCK
                                                               EMPLOYEE STOCK           OPTION PLAN, OTHER
                                                              OPTION PLAN AND              OPTIONS AND
                                                               OTHER OPTIONS                 WARRANTS
                                                           ----------------------     ----------------------
<S>                                                        <C>                       <C>         
Expected stock price volatility                                   75.5% and 76.1%            83.4% and 97.8%
Expected option/warrant lives                                            5 and 10                    2 and 5
Expected dividend yield                                                        --                         --
Risk-free interest rates                                        5.6% and 5.8-5.9%              6.2% and 6.3%
Weighted-average fair value of                             
  warrants/options granted during year                     $        0.76 and 0.99     $        0.56 and 0.94
</TABLE>

5.     INCOME TAXES:

       The income tax expense for 1998 and 1997 differs from the amount of
         income tax determined by applying the applicable U.S. statutory federal
         income tax rate to pre-tax income as a result of the following
         differences:


<TABLE>
<CAPTION>
                                                                 1998          %           1997          %
                                                           ----------------  ------  ----------------  -----
<S>                                                        <C>                <C>    <C>                 <C>
Statutory federal tax rate                                 $      1,691,000      34  $      2,415,000     34
Change in net deferred tax assets                                    (2,000)     --                --     --
State income tax, net of federal benefit                            200,000       4           275,000      4
Utilization of capital loss carryforward                                 --      --           (60,000)    (1)
Other                                                                16,000      --             5,000     --
                                                           ----------------  ------  ----------------  -----
Effective tax expense                                      $      1,905,000      38   $     2,635,000     37
                                                           ================  ======  ================  =====
</TABLE>


                                                                              18
<PAGE>   41
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



6.     SEGMENT INFORMATION:

       Revenues, operating income (loss) (excluding amortization and
         depreciation and minority interest), identifiable assets, capital
         expenditures, and depreciation and amortization are as follows:

<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                  ----------------     ----------------
           Revenues:
<S>                                                                               <C>                  <C>            
              Casino consulting                                                   $     8,565,000      $     9,050,000
                                                                                  ================     ================
           Operating income (loss):
              Casino consulting                                                   $     6,784,000      $     7,358,000
              Death care                                                                  (61,000)                   --
              Corporate                                                                (1,255,000)          (1,182,000)
                                                                                  ----------------     ----------------
                                                                                  $     5,468,000      $     6,176,000
                                                                                  ================     ================
           Identifiable assets:
              Casino consulting                                                   $    15,456,000      $    15,768,000
              Death care                                                                 3,750,000           3,603,000
              Corporate                                                                  1,981,000           1,201,000
                                                                                  ----------------     ----------------
                                                                                  $    21,187,000      $    20,572,000
                                                                                  ================     ================
           Capital expenditures:
              Death care                                                          $       148,000      $     3,603,000
              Corporate                                                                 1,369,000               46,000
                                                                                  ----------------     ----------------
                                                                                  $     1,517,000      $     3,649,000
                                                                                  ================     ================
           Depreciation and amortization:
              Casino consulting                                                   $        72,000      $        95,000
              Corporate                                                                    50,000               49,000
                                                                                  ----------------     ----------------
                                                                                  $       122,000      $       144,000
                                                                                  ================     ================
</TABLE>

       There were no intersegment sales during 1998 and 1997.

7. FORMATION OF NEW SUBSIDIARY:

       In September, 1996, the Company formed a new subsidiary, G & L
         Acquisition Corp. ("G & L"). G & L sought business opportunities
         involving the establishment or acquisition of a California card room, a
         gaming business located on a ship which sails to international waters
         from home ports in the United States or elsewhere and/or a leisure
         business ("Target Business").

       G & L sold additional shares of its common stock through a private
         placement to "accredited investors" as such term is defined in
         Regulation D under the Securities Act of 1933. The private placement
         resulted in the sale of 1,992,000 shares at a price of $1.55 per share.
         The net proceeds from the sale, after the costs of the offering, and
         the capital contributed by the initial investors, totaled approximately
         $2,625,000.


                                                                              19
<PAGE>   42
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



7.     FORMATION OF NEW SUBSIDIARY (CONTINUED):

       The Company was not able to find, within an 18-month period as provided
         in the private placement memorandum, an investment which met specific
         investment criteria. As a result, in the year ended July 31, 1998,
         investors were given a refund of their original investment. In
         connection with the refund, the Company incurred investor reparation
         expenses of $550,000. The Company also recorded a reduction of its
         capital in excess of par by $1,559,000 and retained earnings by $36,000
         in connection with the refund. The transaction resulted in G & L
         becoming a wholly-owned subsidiary at July 31, 1998. It was 64% owned
         at July 31, 1997.

       At July 31, 1997, G & L had $2,684,000 of cash and cash equivalents,
         which is reported as restricted cash in the accompanying consolidated
         balance sheets and could only be used for the purposes specified
         previously.

8.     LAND TRANSACTIONS:

       In October, 1996, the Company purchased approximately 162 acres of land
         in Las Vegas, Nevada. 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 $182,000.

       In May, 1997, the Company purchased approximately 40 acres of land in 
         North Las Vegas, Nevada for approximately $3,500,000. The Company
         intends to develop the property as a funeral home and cemetery.
         However, development has been delayed while the Clark County, Nevada
         government finalizes its plan for construction of a flood control
         project for the area. In the event the flood control project is built
         as intended, the Company would not have to build major water control
         culverts on the cemetery project. The Company is awaiting additional
         progress on the construction of the flood control project before it
         begins development of the property. See Note 9.

       In February, 1998, the Company acquired an additional 20 acre parcel of
         undeveloped land in North Las Vegas, Nevada for $1,350,000. The land
         will be held for future development or sale.

9.     COMMITMENTS AND CONTINGENCIES:

       a)  COMMITMENTS:

           1)   Operating leases:

                The Company leases automobiles and office space under operating
                  leases expiring in various years through 2001.


 

                                                                              20
<PAGE>   43
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



9.     COMMITMENTS AND CONTINGENCIES (CONTINUED):

       a)  COMMITMENTS (CONTINUED):

           1)   Operating leases (continued):

                Minimum future rental payments under non-cancelable operating
                  leases having remaining terms in excess of one year as of July
                  31, 1998 for each of the next five years are:


<TABLE>
<CAPTION>
       YEAR                                              AMOUNT
------------------                                  ----------------
<S>                                                <C>             
       1999                                         $        164,000
       2000                                                  130,000
       2001                                                   90,000
       2002                                                       --
       2003                                                       --
                                                    ----------------
                                                    $        384,000
                                                    ================
</TABLE>

                Lease expense was $154,000 and $163,000 for the years ended July
                  31, 1998 and 1997, respectively.

           2) Lines of credit:

                At July 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, 1998 and bears interest at 2.5% above a
                  referenced prime rate. Certificates of deposit totaling
                  $500,000 collateralize the line. The other $1,000,000 line of
                  credit is unsecured, expires in December, 1998 and bears
                  interest at 1% above an indexed prime rate. At July 31, 1998,
                  no funds were outstanding on the lines of credit. See Note 11.

           3) Construction loan commitment:

                The Company has a construction loan commitment from a financial
                  institution to provide temporary and permanent financing for
                  up to $4,000,000 of the costs to develop and construct the
                  planned funeral home and cemetery. 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 financial institution 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. The commitment expires in December, 1998.


                                                                              21
<PAGE>   44
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997



9.     COMMITMENTS AND CONTINGENCIES (CONTINUED):

       b) CONCENTRATIONS OF CREDIT RISK:

           The Company's cash, cash equivalents and restricted cash are on
              deposit with two financial institutions which are FDIC insured on
              amounts up to $100,000.

           Virtually all the Company's revenues and related receivables are
              derived from the consulting agreement with the Table Mountain
              Casino. Generally, these receivables are unsecured. The carrying
              value of receivables approximates their fair value.

       c)  EMPLOYMENT AGREEMENTS:

           In July, 1995, the Company entered into employment agreements with
              certain key executives which expire in 2002. The employment
              agreements provide for, among other things, annual base
              compensation, participation in bonus plans and life insurance. The
              agreements also contain severance provisions which provide for
              payments to the executives in the event of their termination after
              a change in control, as defined. The severance provisions provide
              for a compensation payment equal to 2.99 times the annual salary
              paid to the executive at the time of the change of control, as
              well as accelerated payment of accrued bonuses payable to the
              executives under the Company's compensation policies and an
              additional payment based on the number of stock options which the
              key executives have not exercised within three months of their
              termination of employment. Aggregate annual salaries guaranteed by
              the agreements are $732,000. At July 31, 1998, the estimated
              amount that would have been payable as severance compensation
              under the agreements to these executives based on compensation and
              stock options was $3,188,000.

10.    RETIREMENT PLAN:

       All of the Company's employees participate in a simplified employee
         pension plan. Employer contributions to the Plan are made on a
         discretionary basis and were $104,000 and $93,000 for the years ended
         July 31, 1998 and 1997, respectively.

11.    SUBSEQUENT EVENT:

       In August, 1998, the Company obtained a $2,900,000 line of credit with a
         bank. The line is totally secured by certificates of deposit as monies
         are drawn on the line. The line bears interest at 6.8%, interest only
         payments are due monthly and the line expires and is payable on
         December 31, 1999. At October 1, 1998, approximately $55,000 had been
         drawn on the line of credit.



                                                                              22
<PAGE>   45
AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED JULY 31, 1998 AND 1997


11.    SUBSEQUENT EVENT (CONTINUED):

       In August, 1998, the Company committed to lend to the Table Mountain
         Tribe up to $2,900,000 for renovation and expansion of the Table
         Mountain Casino. The expansion will increase the Casino by
         approximately 47,000 square feet. Interest (at 9.5%) only payments are
         required until April 15, 1999 and principal and interest payments are
         due thereafter until December 31, 1999, the maturity date of the loan.
         The loan is secured by revenues from the Table Mountain Casino.


                                                                              23
<PAGE>   46
                                 EXHIBIT INDEX

Exhibit
  No.                             Description
-------                           -----------
  3.1      Articles of Incorporation and By Laws of the Company. (1)

  3.2      Certificate of Amendment to Articles of Incorporation of the
           Company.(5)

  3.3      Certificate of Amendment to Articles of Incorporation of the
           Company.(6)

  4.1      Warrant Certificate between the Company and Jay H. Brown dated July
           23, 1991. (2)

  10.1     American Casino Enterprises, Inc. 1991 Officers Stock Option Plan, as
           amended. (3)

  10.2     American Casino Enterprises, Inc. 1992 Employees Stock Option Plan.
           (3)

  10.3     American Casino Enterprises, Inc. 1996 Stock Option Plan. (3)

  10.4     Management Consultant Contract dated March 27, 1993 between the
           Company and the Table Mountain Tribe.(5)

  10.5     Employment Agreement between the Company and Ronald J. Tassinari
           dated July 20, 1995. (6)

  10.6     Employment Agreement between the Company and Audrey K. Tassinari
           dated July 20, 1995. (6)

  10.7     Employment Agreement between the Company and Roy K. Keefer dated July
           20, 1995. (6)

  10.8     Letter Agreement dated September 11, 1995 between the Company and
           Table Mountain Rancheria. (6)

  10.9     Business Loan Agreement and Promissory Note dated November 15, 1994
           between the Company and First Security Bank of Nevada. (6)

  10.10    Settlement Agreement, dated February 1, 1996, between the Company and
           the NIGC. (7)

  10.11    Termination Agreement, dated February 1, 1996, between the Company
           and the Table Mountain Tribe. Exhibit A to the Termination Agreement
           is set forth as Exhibit 99.1 below, and Exhibit B to the Termination
           Agreement is incorporated herein by reference from Exhibit 10.3
           above.(7)

  10.12    Consulting Agreement, dated February 1, 1996, between the Company and
           the Tribe. (7)

  10.13    Option to Purchase and Escrow Instructions dated as of October 9,
           1996, among the Company, Victorson & Associates, Inc., Fred Victorson
           and United Title of Nevada. (8)

  10.14    Purchase Agreement and Escrow Instructions dated October 9, 1996,
           among Victorson & Associates, Inc., Fred Victorson and the Company.
           (8)


<PAGE>   47
Exhibit
  No.                                Description
-------                              -----------
  10.15    Joint Venture Agreement between the Company and the Table Mountain
           Tribe, dated as of February 1, 1996(8).

  10.16    Funding and Loan Agreement between the Auburn Tribe and the Table
           Mountain/ACES Joint Venture, dated February 1, 1996(8).

  10.17    Lease for the Company's offices dated March 14, 1996, between the
           Company and Tropicana Trail Limited Partnership(8).

  10.18    Agreement to terminate Funding and Loan Agreement, dated March 10,
           1998, between the Company and the Auburn Tribe.

  10.19    Promissory Note, dated March 10, 1998, between the Company and the
           Auburn Tribe.

  10.20    Promissory Note and Loan Agreement, dated August 24, 1998, between
           the Company and the Table Mountain Tribe.

  10.21    Promissory Note and Loan Agreement, dated August 24, 1998, between
           the Company and United Security Bank.

  21.1     Subsidiaries of the Registrant

  23.1     Consent of Bradshaw, Smith & Co.

  27.1     Financial Data Schedules

  99.1     Order of the United States Department of the Interior, dated February
           1, 1996. (7)

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(1)      Incorporated by reference to Exhibit 3(i) to the Company's Annual
         Report on Form 10-K for July 31, 1981.

(2)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for July 31, 1991.

(3)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 333-00905) declared effective on February 13, 1996.

(4)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the year ended July 31, 1994.

(5)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the year ended July 31, 1995.

(6)      Incorporated by reference from the Company's Current Report on Form 8-K
         dated February 1, 1996.

(7)      Incorporated by reference from the Company's Current Report on Form 8-K
         dated October 9, 1996.

(8)      Incorporated by reference from the Company's Annual Report on Form 
         10-KSB for the year ended July 31, 1996.