UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
|X|   ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT
      OF 1934

                  For the fiscal year ended December 31, 2005
                                -----------------

|_|   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 of             (I.R.S. Employer Identification No.)
 incorporation of organization)


       4735 S. Durango Dr., Suite 105, Las Vegas, Nevada         89147
       -------------------------------------------------       ---------
           (Address of principal executive offices)            (Zip Code)

Issuer's telephone number:  (702) 227-9800

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 is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. |_|

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. |X|  YES |_|  NO

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_| YES |X| NO

State issuer's revenues for its most recent fiscal year: $313,000

The aggregate market value of the 5,216,144 shares of Common Stock held by
non-affiliates of the registrant, computed by reference to the closing sale
price of $.85 for the Company's common stock on April 12, 2006 as reported by
the NASD Over-The-Counter Bulletin Board was $4,434,000 (assuming for purposes
of such calculation that all executive officers and directors of the issuer are
affiliates and no other persons are affiliates of the issuer).

The number of shares outstanding of the issuer's common stock at April 12, 2006
was 5,729,107.

                                      -1-
<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one): YES |_|  No |X|

                                      -2-
<PAGE>

PART I

Item 1. Description of Business

Recent Developments

      Current operations and assets of the Company. Effective March 21, 2005,
American Vantage Companies ("AVCS" or the "Company") sold all of the outstanding
common stock of the Company's wholly-owned subsidiary, American Vantage Media
Corporation ("AVMC"), to Genius Products, Inc. ("Genius" or "GNPI"). Genius
began operating the AVMC operations effective March 22, 2005. See "Disposition
of AVMC" discussion below.

      AVMC constituted the vast majority of the operating assets of the Company
for the year ended December 31, 2004 and period ended March 21, 2005. In
connection with the disposition of AVMC, Genius transferred back to the Company
certain assets, liabilities and operations held by AVMC's wholly-owned
subsidiary, American Vantage/Hypnotic, Inc. ("Hypnotic") and certain liabilities
of AVMC's wholly-owned subsidiary, Wellspring Media, Inc. ("Wellspring").

      At December 31, 2005, the assets of the Company primarily consist of the
following:

o     Cash and cash equivalents;

o     Genius stock and warrants acquired as the consideration for the
      disposition of AVMC;

o     The assets of Hypnotic transferred back to the Company in connection with
      the disposition of AVMC, primarily consisting of television and film
      creative projects and a co-executive production interest in the television
      series, "The O.C.," but excluding Hypnotic's `back-end' interest in "The
      O.C."

o     A 49% membership interest in the limited liability corporation that
      operates the Border Grill Las Vegas restaurant (see "Item 1. Description
      of Business - Border Grill Restaurant), which generated $525,000 of equity
      income for the Company and cash distributions of $575,000 during the year
      ended December 31, 2005, and $558,000 of equity income for the Company and
      cash distributions of $1,055,000 during the year ended December 31, 2004;

o     The Company's ownership of YaYa Media, Inc. ("YaYa"), a non-operating
      entity, which holds a 10% interest in Games Media, LLC, a joint venture
      that creates a promotional event called a video game touring festival,
      which generated nominal revenues during the years ended December 31, 2005
      and 2004;

o     Federal and state net operating loss carryforwards and federal general
      business tax credit carryforwards, and

o     Various other assets, including prepaid expenses and furniture and
      equipment.

      At December 31, 2005, the liabilities of the Company primarily consist of
the following:

o     Liabilities relating to the Company's leased premises formerly utilized by
      AVMC;

o     Any tax liability resulting from any future placement of the GNPI common
      stock and warrants that the Company acquired in connection with the
      disposition of AVMC; and

o     Various other liabilities for operating expenses.

      Disposition of AVMC. Consideration from the sale of all of the outstanding
stock of AVMC included 7,000,000 shares of GNPI common stock and five-year
warrants to purchase an additional 1,400,000 shares of GNPI common stock, half
at an exercise price of $2.56 per share (the "$2.56 warrants") and half at an
exercise price of $2.78 per share (the "$2.78 warrants"). The consideration also
included assumption of certain liabilities, including a credit facility with
Atlantic Bank of New York with an outstanding balance (principal and interest)
of $2,349,000 and promissory notes (the "AVMC promissory notes") in the
aggregate principal amount of $4,000,000. AVCS guaranteed the obligations
arising under certain of the AVMC promissory notes aggregating $3,300,000 in
principal amount and agreed to place into escrow $2,500,000 to secure such
guarantee. AVCS also assumed payment obligations relating to approximately
$1,050,000 of accounts payable incurred in connection with the former direct
response operations of AVMC, offset from the proceeds, if any, from the sale of
approximately $300,000 of direct response inventory. The disposition of AVMC
resulted in an initial gain to the Company of $6,218,000.

                                      -3-
<PAGE>

      At March 21, 2005, of the 7,000,000 shares of GNPI common stock acquired
from Genius, 5,625,000 shares were not subject to pledges or other restrictions.
The Genius common stock is traded on the NASD's over-the-counter bulletin board
(OTCBB) under the symbol "GNPI." At December 31, 2005, a total of 675,000 shares
of Genius common stock comprising a portion of the consideration received by the
Company in the AVMC disposition are being held in escrow, of which 350,000
shares have restrictions exceeding one year to secure the indemnification
obligations under the AVMC disposition agreements. These securities are included
as long-term assets in the consolidated balance sheets.

      From April 2005 through July 2005, the Company made various payments,
totaling $211,000, against the direct response obligations. During August 2005,
the Company and Genius negotiated a final settlement payment of $586,000 for the
direct response obligations. The settlement resulted in a net adjustment of
$218,000 in the gain on disposal of AVMC. From July 2005 through December 2005,
the Company made additional accounting adjustments of $82,000 to decrease the
previously reported gain on disposal of AVMC, which resulted from the
renegotiation of certain direct sales costs.

      Related to the AVMC disposition, the Company and Genius also entered into
a pledge agreement, under which Genius transferred to the Company certain assets
and liabilities of Hypnotic. The assets transferred back to the Company
encompassed the prior Film and TV Production division operations of Hypnotic
including co-executive producer fees generated from the television series "The
O.C.," but exclude Hypnotic's `back-end' interest in "The O.C."

      Effective June 1, 2005, the Company privately placed 2,000,000 shares of
the Genius common stock and 180,000 $2.56 warrants for gross proceeds of
$3,500,000. Effective June 4, 2005, the Company privately placed 500,000 shares
of the Genius common stock and 45,000 Genius $2.56 warrants under similar terms
as the previous placement for gross proceeds of $875,000. Direct sales costs for
the June 2005 placements totaled $214,000. Related to these placements of the
Genius securities, the Company also surrendered to Genius for cancellation
225,000 $2.56 warrants. In conjunction with these transactions, the Company
recognized a loss of $2,041,000.

      In June and July 2005, the Company delivered an aggregate $2,500,000 to
fund the escrow securing the Company's obligations under certain of the AVMC
promissory notes. In February 2006, the AVMC promissory notes were repaid in
full. On March 8, 2006, the Company received the escrow principal and accrued
interest totaling $2,535,000 and its guaranty of certain of the AVMC promissory
notes was terminated.

      Effective August 2005, the Company privately placed 3,125,000 shares of
the Genius common stock for gross proceeds of $4,688,000 with direct sales costs
of $257,000. In conjunction with this transaction, the Company recognized a loss
of $2,601,000.

      On December 31, 2005, the closing bid price for the Genius stock was
$2.02. Based on the December 31, 2005 closing bid price, disposition of the
remaining 1,375,000 shares could result in estimated gross proceeds of
$2,778,000 to the Company, excluding retail mark-up, mark-down or commission.
Other factors that may affect the estimated gross proceeds include, but are not
limited to, (i) fluctuation in market prices and (ii) Genius entering into other
transactions causing dilution to the Genius outstanding stock including the
shares held by the Company. As such, the estimated gross proceeds are not
necessarily indicative of the actual gross proceeds the Company could receive
upon disposition of such 1,375,000 shares of GNPI stock.


      In accordance with Emerging Issues Task Force Issue No. 03-01 and SEC
Staff Accounting Bulletin Topic 5-M, the Company assesses whether an
other-than-temporary impairment loss on an the GNPI common stock has occurred
due to declines in fair value or other market conditions. The periodic
assessment is based on several criteria including volatility of market share
prices of GNPI common stock, intent of the Company to place the GNPI securities
the Company owns, as well as operations, current business activities,
transactions or other trends related to GNPI. At December 31, 2005, the Company
determined that it does not have the intent to hold the Genius securities for a
sufficient time to allow for a recovery in the market value to $2.25 per share,
which is the original cost that was recorded in March 2005. As such, for the
year ended December 31, 2005, the Company recorded a loss on impairment of the
equity securities totaling $316,000 which is included in non-operating expense
in the Company's consolidated statements of operations.

                                      -4-
<PAGE>

      Settlement with Table Mountain Tribe. In connection with the 1999
premature termination of the Company's contracts to provide consulting services
to an Indian gaming enterprise, the Company brought a civil action against the
Table Mountain Tribe (the "Tribe"). The lawsuit sought to recover payments due
under the contracts, as well as consulting fees that would have been due during
the remainder of the consulting contract term.

      On October 21, 2005, the Company and the Tribe settled the claims between
the parties. Under this settlement, the Company received a nominal payment from
the Tribe and each granted the other a release from all claims that could arise
under the various contracts between the parties. See "Item 3. Legal
Proceedings."

      Subsequent event. In connection with the disposition of AVMC to Genius in
March 2005 and the Company's receipt of the Genius securities issued in exchange
for the Company's interest in AVMC, it is unclear whether the Company may have
inadvertently become an "investment company," as such term is defined in the
Investment Company Act of 1940 (the "Investment Company Act") and thereby
subject to the Investment Company Act as of March 21, 2006. Accordingly, in an
abundance of caution, on March 21, 2006, the Company filed with the Securities
and Exchange Commission (the "SEC") a Notification of Registration on Form N-8A
registering the Company under the Investment Company Act. As the Company
believes that it is not an investment company, the Company anticipates seeking
clarification from the SEC on this matter. If the Company were deemed to be an
investment company, it would thereby be subject to the reporting and other
obligations and requirements of the Investment Company Act. If the Company was
subject to the Investment Company Act, the Company would need to expend
additional time, effort and expense, in excess of the time, effort and expense
presently incurred with the Company's compliance with the Securities Exchange
Act.


Development of Business

      The Company was incorporated in Nevada in 1979 under the name Western
Casinos, Inc. The Company was originally formed to engage in the business of
recreational and leisure time activities for tourists to the Las Vegas, Nevada
region, including casino gaming. The Company changed its name to American Casino
Enterprises, Inc. in 1979.

      In January 1991, the Company completed the purchase of all of the capital
stock of Millerton Games, Inc., which held a management consulting contract with
Table Mountain Casino. Table Mountain Casino is a tribal gaming enterprise owned
by the Tribe located on a Federal Indian Rancheria in Friant, California (the
"Table Mountain Casino"). While conducting operations at the Table Mountain
Casino, in March 1997, the Company changed its name to American Vantage
Companies. The Company provided gaming consulting services to Table Mountain
Casino until May 1999 when its contract to provide consulting services to the
Table Mountain Casino was prematurely terminated by the Tribe following a change
in the tribal government. See "Item 1. Description of Business - Table Mountain
Casino."

      In November 1998, Vantage Bay Group, Inc. ("Vantage Bay"), a wholly-owned
subsidiary of the Company, purchased a 49% equity interest in a limited
liability corporation, Border Grill Las Vegas, LLC (the "Border Grill")
organized to develop and operate the Border Grill Las Vegas restaurant (the
"Border Grill Restaurant") in the Mandalay Bay Hotel and Casino in Las Vegas,
Nevada. The Border Grill Restaurant opened in June 1999. See "Item 1.
Description of Business - Border Grill Restaurant."

      During April 2003, the Company acquired substantially all of the assets
and business and certain of the liabilities of YaYa, LLC as a component in its
then strategy to develop a branded content business.


                                      -5-
<PAGE>

      On December 31, 2003, the Company formed Hypnotic as a wholly-owned
subsidiary in order to acquire substantially all of the assets and business and
certain of the liabilities of Enigma Media, Inc. Hypnotic commenced operations
effective January 1, 2004. See "Item 1. Description of Business - Hypnotic."

      During December 2003, American Vantage Companies formed AVMC, as a
wholly-owned subsidiary to manage acquired or internally-developed entertainment
related businesses. Hypnotic was transferred to become a wholly-owned subsidiary
of AVMC in January 2004.

      On February 3, 2004, AVMC acquired all of the outstanding common stock of
Wellspring and began operating Wellspring effective February 3, 2004. See "Item
1. Description of Business - Wellspring."

      During September 2004, AVMC began distributing documentary films, under
the brand name "non-fiction films, inc.," as a successor to a former Wellspring
subsidiary. See "Item 1. Description of Business - non-fiction films, inc."

      During December 2004, AVMC closed its Branded Content division and
terminated the related staff and consulting positions. The Branded Content
division included all of YaYa's operations and a portion of Hypnotic's
operations.

      On March 21, 2005, the Company sold all of the outstanding common stock of
AVMC to Genius. Related to the transaction, Genius transferred back to the
Company certain assets and liabilities held by Hypnotic. The assets transferred
back to the Company include television and film creative projects and
co-executive producer fees generated from the television series "The O.C.," but
exclude Hypnotic's `back-end' interest in "The O.C."

      All references herein to the Company refer to the Company and its
subsidiaries on a consolidated basis, unless the context otherwise indicates.
The Company's principal executive offices are located at 4735 S. Durango Dr.,
Suite 105, Las Vegas, Nevada, 89147, and its telephone number is (702) 227-9800.


Border Grill Restaurant

      In November 1998, Vantage Bay, a wholly-owned subsidiary of the Company,
together with TT&T, LLC ("TT&T") organized Border Grill as a Nevada limited
liability company. Border Grill was formed for the purpose of developing and
operating the Border Grill Restaurant at the Mandalay Bay Hotel and Casino in
Las Vegas, Nevada. Pursuant to the Operating Agreement of Border Grill (the
"Border Grill Operating Agreement"), between November 1998 and July 2000 Vantage
Bay invested a total of $3,001,000 to the capital of Border Grill and loaned
Border Grill an additional $175,000 for the initial development and operation of
the Border Grill Restaurant. The Border Grill Restaurant opened in June 1999.
Since the commencement of the Border Grill Restaurant's operations Border Grill
has made period payments to its owners, including an aggregate of $575,000 and
$1,055,000 paid to the Company during the calendar years ended December 31, 2005
and 2004, respectively. The Company reviews Border Grill's monthly and annual
financial statements and annual operating budgets. The Company also reviews
major capital expenditure budgets and is involved with financing efforts related
to any major capital expenditures. Border Grill also consults with the Company
on its on-going marketing and promotional efforts, strategic planning and
employment of key management. The Company has received a return of all of its
initial capital investment and the priority return required under the Border
Grill Operating Agreement and now receives pro rata distributions from the
Border Grill based on Vantage Bay's percentage ownership.


Hypnotic

      Services. Hypnotic develops and produces traditional film and TV
properties. Hypnotic's 2005 and 2004 revenues were primarily generated from
executive co-production services, with Warner Bros., on a weekly television
series for the FOX broadcasting network.

      Internal labor and independent contractors. At December 31, 2005, Hypnotic
has no internal labor. The former Hypnotic employees provided the executive
co-production services for the FOX broadcasting network weekly television
series. In addition, the division's employees developed, proposed and managed
production of new television pilots. Independent screen writers are contracted
to write the pilot scripts accepted for production. Other independent
contractors, such as production personnel, are utilized on an as-needed basis.
The division is not dependent upon any single outsource party and believes that
there are numerous companies and/or individuals readily available to provide
production and script writing services to Hypnotic.

                                      -6-
<PAGE>

      Competition. Hypnotic's primary competition is from other independent
production studios. These independent production studios vary in size and in
services provided.

      Subsequent sale. As noted previously, effective March 21, 2005, Genius
acquired all of the outstanding common stock of AVMC. Related to the
transaction, the Company and GNPI also entered into a pledge agreement
transferring to the Company certain assets and liabilities held by Hypnotic. The
assets transferred back to the Company include television and film creative
projects and the co-executive producer fees generated from the television
series, "The O.C.," but exclude Hypnotic's `back-end' interest in "The O.C."


Wellspring

      Services and discontinued operations. On February 3, 2004, AVMC acquired
all of the outstanding common stock of Wellspring and began operating Wellspring
as of that date. Wellspring is a distributor of world cinema and wellness
programming. Wellspring's assets included a film library with approximately 750
titles distributed via its home video, direct response, worldwide sales and
theatrical units.

      As noted previously, effective March 21, 2005, Genius acquired all of the
outstanding common stock of AVMC. As a wholly-owned subsidiary of AVMC, the
Wellspring operations were included in the Company's disposition of AVMC to
GNPI.


non-fiction films, inc.

      Services and discontinued operations. During September 2004, AVMC began
distributing documentary films, under the brand name "non-fiction films," as a
successor to a former Wellspring subsidiary.

      As noted previously, effective March 21, 2005, Genius acquired all of the
outstanding common stock of AVMC. As a wholly-owned subsidiary of AVMC, the
non-fiction films, inc. operations were included in the Company's disposition of
AVMC to GNPI.


Company Employees

      As of April 12, 2006, the Company has two employees, its President and
Chief Executive Officer and its Chief Accounting Officer.


Item 2. Description of Property

      The Company's executive offices are located in approximately 1,500 square
feet of office space at 4735 S. Durango Dr., Suite 105, Las Vegas, Nevada,
89147. The lease agreement provides for a monthly base rent of approximately
$3,000 and expires on August 31, 2007.

      As noted previously, effective March 21, 2005, Genius acquired all of the
outstanding common stock of AVMC. The AVMC lease obligations for the
administrative offices located in Santa Monica, California, the direct response
offices located in Los Angeles, California and the Wellspring executive and
operations offices located in New York, New York were assumed by the Company.

      The AVMC lease agreement for its administrative offices commenced on April
15, 2004. The adjoining offices are located at 1819 Colorado Avenue and 1823
Colorado Avenue, Santa Monica, California, 90404. The lease agreement provides
for a monthly base lease amount of approximately $31,000, for both spaces, and
expires on April 14, 2009. The execution of the lease agreement required the
issuance of a $350,000 standby letter of credit. To the extent that the lease
agreement is not in default, terms of the standby letter of credit provide for
individual decreases of $50,000 on April 1 of 2005, 2006 and 2007. The standby
letter of credit is included in other assets on the December 31, 2005
consolidated balance sheets.

                                      -7-
<PAGE>

      During September 2005, the Company subleased for the remainder of the
lease term the 1819 Colorado Avenue, Santa Monica, California office to an
unaffiliated third party at an amount equal to the Company's rental obligations
under the lease for such office. The sublease terms also provided for a security
deposit totaling $96,000, which approximates three months of rent, which is
included in other long-term payables of the Company's consolidated balance sheet
at December 31, 2005.

      Until October 31, 2005, the Hypnotic operations were located at 1823
Colorado Avenue, Santa Monica, California. Effective November 1, 2005, the
Hypnotic operations were relocated to the Las Vegas corporate office. The Santa
Monica, California office has been rented to Genius on a month-to-month basis,
under the same terms and conditions as the Company's master lease. The Company
has entered into a real estate brokerage agreement to sublease this space under
the same terms and conditions as the Company's master lease. Although the
Company believes that it will be able to sublease this office based on
reasonable sublease terms and conditions, there can be no assurance that the
Company will be able to sublease the space under the full terms and conditions
of the Company's master lease.

      During September 2005, for a negotiated payment of $10,000, the Company
was released from future rent payments or other commitments related to the
direct response offices located in Los Angeles, California.

      Wellspring's executive ("20th floor") and operations ("17th floor")
offices were located on two full floors of a building located in New York City.
The lease agreement, which expires in June 2008, provides for monthly base lease
amounts of $14,000 for the 17th floor and $18,000 for the 20th floor.

      Effective August 30, 2005, Genius relocated the Wellspring staff from the
17th floor to the 20th floor. Genius may occupy the 20th floor for a
transitional period upon reimbursement of the Company's actual monthly rental
cost. At December 31, 2005, Genius continued to occupy the 20th floor.

      Effective February 15, 2006, the Company subleased the 17th floor. Except
for a monthly base rental rate of $11,000, the sublease terms are equal to the
Company's rental obligations.


Item 3. Legal Proceedings

Settlement with Table Mountain Tribe

      On February 1, 1996, the Company entered into a termination agreement (the
"Termination Agreement") that contemplated termination of the Company's 1993
consulting agreement with the Tribe (the "1993 Agreement") and the simultaneous
entering into of a new consulting agreement between the Company and the Tribe
(the "1996 Agreement"). Under the conditions of the Termination Agreement,
commencing February 1, 1996, the Tribe was required to pay the Company 48
monthly installments of $350,000 in consideration for termination of the 1993
Agreement. The term of the Termination Agreement was to be automatically
extended by one month for each month that no payment was required thereunder, up
to a maximum of 12 months.

      The 1996 Agreement required that the Company provide certain consulting
services and technical assistance. For its services under the 1996 Agreement, as
amended, the Company was to receive minimum monthly payments of $50,000. The
Tribe was also required to pay the Company additional monies for certain
increments of monthly Table Mountain Casino net income in excess of the first
$1,500,000 of net revenue from the operations of Table Mountain Casino.

      In May 1999, the Company received formal written notice from the newly
elected tribal government, that the Tribe had unilaterally terminated the 1996
Agreement and ceased payments due under the 1996 Agreement and Termination
Agreement.

                                      -8-
<PAGE>

      In June 1999, the Company brought a civil action in the United States
District Court, Eastern District of California, Fresno Division against the
Tribe for breach of the 1996 Agreement and Termination Agreement.

      The Tribe asserted defenses including sovereign immunity and counterclaims
including a demand for the return of all monies paid to the Company under the
1996 Agreement and Termination Agreement.

      In October 2005, the Company and the Tribe settled the claims between the
parties. Under this settlement, the Company received a nominal payment from the
Tribe and the Company and the Tribe each granted the other a release from all
claims that could arise under the various agreements between the parties.

Other Legal Proceedings

      During December 2004, a former Wellspring employee ("Plaintiff"), filed a
petition with the U.S. Equal Employment Opportunity Commission ("EEOC") alleging
the Company and AVMC discriminated against her because of her sex and
disability. The Company and AVMC are vigorously defending this action. However,
given the preliminary nature of the Complaint, the Company is unable to
determine its losses, if any, should the Plaintiff be successful in her
Complaint. Therefore, no accounting recognition has been given to the matter in
the accompanying consolidated financial statements.

      The Company is party to various legal proceedings arising in the ordinary
course of its business, but it is not currently a party to any legal proceeding
that management believes would have a material adverse effect on the financial
position or results of operations of the Company.


Item 4. Submission of Matters to a Vote of Security Holders

      An annual meeting of the stockholders of the Company was held on December
8, 2005 to consider and act upon the election of two persons to the Board of
Directors of the Company as Class C directors, to serve until the third
succeeding annual meeting of stockholders of the Company or until such person
shall resign, be removed or otherwise leave office.

      The holders of 5,729,107 shares of Common Stock of the Company were
entitled to vote at the meeting, of which 4,638,043 shares of common stock were
represented in person or by proxy. The stockholders voted as follows with
respect to the:


      o     Election of Class C directors to terms expiring in 2008 --

              Name                               For          Withheld Authority
--------------------------------------   ------------------   ------------------
Steven G. Barringer                               4,379,820              258,223
Jeanne Hood                                       4,384,572              253,471


PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Common Stock Prices

      The Company's common stock currently is traded on the NASD
Over-the-Counter Bulletin Board under the symbol "AVCS.OB." The Company's common
stock previously (through August 23, 2005) was traded on The Nasdaq Small Cap
Market under the symbol "AVCS."

      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
derived from reports issued by the NASD over-the-counter bulletin board (for
periods after August 23, 2005) and the Nasdaq stock market (for periods ending
on August 23, 2005). The prices represent inter-dealer quotations, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions:

                                      -9-
<PAGE>


           Period                                         High Bid     Low Bid
--------------------------------------------------------------------------------
January 1, 2004 - March 31, 2004                         $     3.34   $     3.10
April 1, 2004 - June 30, 2004                            $     3.42   $     3.15
July 1, 2004 - September 30, 2004                        $     2.89   $     2.54
October 1, 2004 - December 31, 2004                      $     1.81   $     1.76

January 1, 2005 - March 31, 2005                         $     2.03   $     1.18
April 1, 2005 - June 30, 2005                            $     1.98   $     1.39
July 1, 2005 - September 30, 2005                        $     1.50   $     0.86
October 1, 2005 - December 31, 2005                      $     1.01   $     0.81

      On April 12, 2006, the closing sale price per share for the Company's
common stock was $.85.


Holders

      On April 12, 2006 there were 863 holders of record of the 5,729,107 shares
of the Company's common stock outstanding.


Dividends

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


Recent Sales of Unregistered Securities

      None.


Equity Compensation Plan Information

      The following table sets forth, as of December 31, 2005:

o     the number of shares of the Company's common stock issuable upon exercise
      of outstanding options, warrants and rights, separately identified by
      those granted under equity incentive plans approved by the Company's
      stockholders and those granted under plans, including individual
      compensation contracts, not approved by the Company's stockholders (column
      A),

o     the weighted average exercise price of such options, warrants and rights,
      also as separately identified (column B), and

o     the number of shares remaining available for future issuance under such
      plans, other than those shares issuable upon exercise of outstanding
      options, warrants and rights (column C).

                                      -10-
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                  (C)
                                                                                                        Number of securities
                                                     (A)                                               remaining available for
                                           Number of securities to                 (B)                  future issuance under
                                                     be                     Weighted-average             equity compensation
                                           issued upon exercise of           exercise price                plans (excluding
                                            outstanding options,         of outstanding options,              securities
            Plan Category                    warrants and rights           warrants and rights         reflected in column (A))
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>                                            <C>
Equity compensation plan
 approved by security holders                            1,229,001       $                  2.01                        449,999

Equity compensation plans
 not approved by security holders                           25,000       $                  1.65                            N/A

Total                                                    1,254,001       $                  2.00                        449,999
</TABLE>



      The shares to be issued upon exercise of outstanding options, warrants and
rights granted under plans not approved by stockholders consist of:

o     25,000 warrants granted to Gerard, Klauer, Mattison, Inc. on May 3, 2002
      in connection with such firm's rendering of investment banking services to
      the Company. Each of these warrants entitles its holder to purchase one
      share of Company common stock, at a purchase price of $1.65 per share and
      expires on May 3, 2007.


Acquisitions of Common Stock

      None.


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 included in "Item 7. Financial
Statements" of this report.

Statement on Forward-Looking Statements

      In addition to historical information, this Annual Report on Form 10-KSB
contains certain forward-looking statements. Such statements include expected
financial performance and strategic and operations plans concerning the Company,
as well as assumptions, expectations, predictions, intentions or beliefs about
future events involving the Company, its vendors and customers and other
matters. 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. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance, or achievements of the Company, or industry results, to be
materially different from future results, performance, or achievements expressed
or implied by such forward-looking statements. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"could," "should," "project," "expect," "believe," estimate," "anticipate,"
"intend," "continue," "potential," "opportunity" or similar terms, variations of
those terms or the negative of those terms or other variations of those terms or
comparable words or expressions. 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:

      o     Management's ability to identify and acquire companies and ability
            to successfully integrate such acquirees,

                                      -11-
<PAGE>

      o     The continued availability of the current management of the Border
            Grill Restaurant,

      o     The amount of patrons visiting the hotel and casino where the Border
            Grill Restaurant is situated,

      o     The success of the Company's business strategies and future plans of
            operations,

      o     General economic conditions in the United States and elsewhere, as
            well as the economic conditions affecting the industries in which
            the Company's operates,

      o     Availability of existing management,

      o     Trends within the gaming and restaurant industries,

      o     Changes in federal and state tax laws or the administration of such
            laws,

      o     Ability to dispose of Genius stock acquired in connection with the
            AVMC transaction, and

      o     The other risks detailed elsewhere in this Form 10-KSB and in the
            Company's other filings with the Securities and Exchange Commission.

      Readers are urged to carefully review and consider the various disclosures
made by the Company in this Annual Report on Form 10-KSB and other Company
filings with the SEC. These reports attempt to advise interested parties of the
risks and factors that may affect the Company's business, financial condition
and results of operations and prospects. The forward-looking statements made in
this Form 10-KSB speak only as of the date hereof. The Company assumes no
obligation to update or revise any such forward-looking statements or the
factors listed above to reflect events or circumstances that may arise after
this Form 10-KSB is filed, or that may have an effect on the Company's overall
performance or financial position.


Critical Accounting Policies and Estimates

      The discussion and analysis of the Company's financial condition and
results of operations are based upon the Company's consolidated financial
statements included in this Annual Report on Form 10-KSB, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP"). The preparation of these financial
statements requires the Company to make estimates, assumptions and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities.

      The Company believes that the estimates, assumptions and judgments
involved in applying the accounting policies described below are critical with
regards to their potential impact on the consolidated financial statements, so
these are considered to be the critical accounting policies. Because of the
uncertainty inherent in these matters, actual results could differ from the
estimates used in applying the critical accounting policies. Certain of these
critical accounting policies affect working capital account balances, including
the policies for revenue recognition and accounts receivable.

      Within the context of these critical accounting policies and estimates,
the Company is not currently aware of any reasonably likely events or
circumstances that would result in materially different estimates or other
amounts being reported.

      Principles of consolidation. The Company, through a wholly-owned
subsidiary, holds a 49% interest in Border Grill that owns and operates the
Border Grill Restaurant at the Mandalay Bay Hotel and Casino in Las Vegas,
Nevada. In accordance with U.S. GAAP, the Company excludes the accounts of
Border Grill in reporting its operating results. Rather, the Company records the
results of its interest in the Border Grill using the equity method of
accounting.

      Equity securities. Consideration received from the March 21, 2005 sale of
AVMC to Genius included 7,000,000 shares of Genius common stock and five-year
warrants to purchase an additional 1,400,000 shares of Genius common stock, half
at an exercise price of $2.56 per share and half at an exercise price of $2.78
per share. The Genius common stock is traded on the NASD's over-the-counter
bulletin board (OTCBB) under the symbol "GNPI."

      In accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"), the Company classifies these equity securities as "available-for-sale." A
total of 675,000 shares of Genius common stock comprising a portion of the
consideration received by the Company in the AVMC disposition are being held in
escrow, of which 350,000 shares have restrictions exceeding one year to secure
the indemnification obligations under the AVMC disposition agreements. These
securities are included as long-term assets in the consolidated balance sheets.

                                      -12-
<PAGE>


      In accordance with Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133),
the fair value of the Genius warrants is recorded on the consolidated balance
sheet. The warrants have been accounted for as derivatives as the terms permit a
cashless exercise. Gains or losses resulting from fluctuations in the fair value
are recognized in non-operating expense in the Company's consolidated statement
of operations.


      In accordance with Emerging Issues Task Force Issue No. 03-01 and SEC
Staff Accounting Bulletin Topic 5-M, the Company assesses whether an
other-than-temporary impairment loss on the GNPI common stock has occurred due
to declines in fair value or other market conditions. The periodic assessment is
based on several criteria including volatility of market share prices of GNPI
common stock, intent of the Company to place the GNPI securities the Company
owns, as well as operations, current business activities, transactions or other
trends related to GNPI. At December 31, 2005, the Company determined that it
does not have the intent to hold the Genius securities for a sufficient time to
allow for a recovery in the market value to $2.25 per share, which is the
original cost that was recorded in March 2005. As such, the Company recorded a
loss on impairment of the equity securities totaling $316,000 which is included
in non-operating expense in the Company's consolidated statements of operations.
There were no other-than-temporary impairment losses during the year ended
December 31, 2005.


      The Financial Accounting Standards Board ("FASB") has released FASB Staff
Position 115-1 "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." The guidance addresses the "determination
as to when an investment is considered impaired, whether that impairment is
other-than-temporary, and the measurement of an impairment loss." The effective
date for the guidance is for reporting periods beginning after December 15,
2005. The guidance is not expected to have a material effect on the Company's
consolidated financial statements.


      Allowance for uncollectible accounts receivable. The Hypnotic accounts
receivable balances were based on contractual agreements. The Company did not
believe there was any significant risk relating to the collectibility of these
accounts receivable that would require an allowance for any estimated losses
resulting from the inability of its clients to make required payments. However,
the Company did periodically analyze each client account, and, when it became
aware of a specific client's inability to meet its financial obligations, such
as in the case of bankruptcy filings or deterioration in the client's overall
financial condition, the Company would record a specific provision for
uncollectible accounts to reduce the related receivable to the amount that is
estimated to be collectible.

      For former Wellspring sales, the Company recorded a monthly accrual for
bad debt expense based upon historical collections experience and other factors.
The monthly accrual and individual customer accounts were reviewed periodically
to ensure overall reasonableness and collectibility. If the Company determined
that amounts owed from customers are uncollectible, such amounts were charged
against the allowance for doubtful accounts.


      Inventories. Inventories were stated at the lower of cost or market, with
cost being determined using the average cost method. Inventories primarily
consisted of Wellspring packaging materials and finished goods that included
DVDs and video tapes.

      Goodwill and other intangible assets. In accordance with the Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets," periodic impairment tests for goodwill and other indefinite-lived
intangible assets are based on a comparison of the estimated fair value of
goodwill and other intangible assets to the carrying value. If the carrying
value exceeds the estimate of fair value, impairment is calculated as the excess
of the carrying value over the estimate of fair value. The estimates of fair
value utilized in goodwill and other indefinite-lived intangible asset tests may
be based upon a number of factors, including assumptions about the expected
future operating performance of the reporting segments.

      The Company's periodic impairment assessments of indefinite-lived assets
are an integral part of the Company's ongoing strategic review of its business
operations. The Company's estimates may change in future periods due to, among
other things, technological change, economic conditions, change in business
plans or an inability to successfully implement business plans. Such changes may
result in impairment charges recorded in future periods.

                                      -13-
<PAGE>

      At December 31, 2004, the Company's goodwill related to the December 31,
2003 acquisition of the Hypnotic operations totaled $574,000. In connection with
the sale of AVMC to Genius on March 21, 2005, management determined that the
Hypnotic goodwill carrying value of $517,000 was associated with assets sold to
Genius, and therefore, the $517,000 was included in the gain on disposal of
AVMC.

      With respect to goodwill related to the April 16, 2003 acquisition of the
YaYa, LLC assets, the operations of the segment (as part of the Branded Content
segment) were discontinued as of December 31, 2004. As a result, management
determined that the YaYa goodwill carrying value of $2,939,000 was not
recoverable. The loss from impairment is included in the loss from discontinued
operations in the accompanying consolidated statement of operations for the year
ended December 31, 2004.

      Intangible assets, such as patents or trademarks, that are determined to
have definite lives continue to be amortized over their useful lives and are
measured for impairment when events or circumstances indicate that the carrying
value may be impaired. In these cases, the Company estimates the future
undiscounted cash flows to be derived from the asset to determine whether or not
a potential impairment exists. If the carrying value exceeds the estimate of
future undiscounted cash flows, the impairment is calculated as the excess of
the carrying value of the asset over the estimate of its fair value. Any
impairment charges would be classified as other expense within the consolidated
statement of operations.

      Revenue recognition. The Hypnotic revenues primarily were generated from
an agreement to provide executive co-producer services for a television series.
These revenues were generally recognized when services were provided.

      The Company's revenues for the years ended December 31, 2005 and 2004
generated by Wellspring are included in the income (loss) from discontinued
operations for each respective period.

      Wellspring revenues were generated through its home video, direct
response, worldwide sales (television) and theatrical units.

      Wellspring revenues, generated from the home video or direct response
sales of DVDs and video tapes, net of an allowance for estimated returns, were
generally recognized at the time of shipment.

      In June 2000, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 00-2,
"Accounting by Producers or Distributors of Films" ("SOP 00-2"). In accordance
with SOP 00-2, Filmed Entertainment revenues which were derived from licensing
agreements, were recognized when there was persuasive evidence that a licensing
arrangement existed, that the film was complete and had been delivered or was
available for immediate and unconditional delivery, that the license period had
begun and the licensee could begin exploitation or exhibition of the film, the
license fee was fixed or determinable, and collection of the license fee was
reasonably assured. License fees for Wellspring were amortized to expense in the
same ratio that current period actual revenue bear to estimated remaining
unrecognized ultimate revenue as of the beginning of the current year.
Management regularly reviewed and revised, when necessary, its total ultimate
revenue estimates, which could result in a change in the rate of amortization
and/or write-down of all or a portion of the unamortized costs of the film to
its fair value. Film advertising and marketing costs were expensed the first
time the advertising takes place, unless the advertising was recoupable
according to the contract, and then it was recorded as other current assets.

      Wellspring revenues generated from the theatrical release of motion
pictures were recognized at the time of exhibition based on the segment's
participation in box office receipts.

      Cash advances received were recorded as deferred revenue until all of the
conditions of revenue recognition have been met.

      Intercompany revenues, if any, have been eliminated and were immaterial
for separate disclosure.

      Film library amortization. License fees for Wellspring were amortized to
expense in the same ratio that current period actual revenue bear to estimated
remaining unrecognized ultimate revenue as of the beginning of the current year.
Management regularly reviewed and revised, when necessary, its total revenue
estimates, which could result in a change in the rate of amortization and/or
write-down of all or a portion of the unamortized costs of the film to its fair
value.

                                      -14-
<PAGE>

      Capitalized film costs, net. Estimated recoupable costs to prepare
Wellspring film programming, paid on behalf of the licensors, were classified as
capitalized film costs, net in the consolidated balance sheets. Film advertising
and marketing costs were expensed the first time the advertising takes place,
unless the advertising was recoupable according to the contract, and then it was
capitalized to other film costs. Management evaluated recoverability
periodically based on revenues generated by the applicable films.


      Income taxes. Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is established for the expected future consequences of temporary
differences in the financial reporting and tax bases of assets and liabilities.
The Company is required to record a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. If the Company determines that it is more likely than not that these
assets will not be realized, the Company will reduce the value of these assets
to their expected realizable value, thereby decreasing net income. In assessing
the need for a valuation allowance, the Company considers all positive and
negative evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, ongoing, prudent and feasible tax planning
strategies and recent financial performance. The valuation allowance is in no
way indicative of the availability of income tax losses or other timing
differences to offset future profits earned. Rather, the valuation allowance
reduces the future income tax asset to the Company's estimate of the future tax
asset that will be realized as a reduction of cash income taxes paid in the
future. If the Company subsequently determined that the deferred tax assets,
which had been written down, would be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the
period when that determination was made.

      The Company believes it has adequately provided for income tax issues not
yet resolved with federal and state tax authorities. Although not probable, the
most adverse resolution of these issues could result in additional charges to
earnings in future periods. Based upon a consideration of all relevant facts and
circumstances, the Company does not believe the ultimate resolution of tax
issues for all open tax periods will have a material adverse effect upon its
results of operations or financial condition.


      New accounting pronouncements. In December 2004, the Financial Accounting
Standards Board issued SFAS No. 123(R), "Share-Based Payment," which revised
SFAS No. 123, "Accounting for Stock-Based Compensation" and superseded APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. This statement requires public entities to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). This cost is recognized over the period during which an employee is
required to provide services in exchange for the award. This statement also
addresses the accounting for the tax effects of share-based compensation awards.
Pursuant to a Securities and Exchange Commission rule issued in April 2005, this
statement is effective for the Company commencing on January 1, 2006. The
Company is adopting this standard as of such date using the modified prospective
application. Under the modified prospective application, the Company will
expense the cost of share-based compensation awards issued after January 1,
2006. Additionally, the Company will recognize compensation cost for the portion
of awards outstanding on January 1, 2006 for which the requisite services have
not been rendered over the periods the requisite services will be rendered after
January 1, 2006. Based upon stock options outstanding at December 31, 2005, the
Company estimates that for those options the Company will record approximately
$44,000 in stock option expense during the first quarter of 2006. Any stock
option grants in 2006 and future periods will increase the amount of
compensation cost recorded for those years.

      Other contingencies. In the ordinary course of business, the Company may
be involved in legal proceedings regarding contractual and employment
relationships, trademark or patent rights, and a variety of other matters.
Contingent liabilities are recorded when it is probable that a liability has
been incurred and the amount of the loss can reasonably be estimated. The
Company discloses contingent liabilities when there is a reasonable possibility
that the ultimate loss will materially exceed the recorded liability. Estimating
probable losses requires analysis of multiple factors, in some cases including
judgments about the potential actions of third party claimants and courts.
Therefore, actual losses in any future period are inherently uncertain.
Currently, the Company believes, that no pending legal proceedings or claims, in
the ordinary course of business, will have a material impact on the Company's
financial position or results of operations. However, if actual or estimated
probable future losses exceed the recorded liability for such claims, additional
charges may be recorded as other expense in the Company's consolidated statement
of operations during the period in which the actual loss or change in estimate
occurs.

                                      -15-
<PAGE>

      The Company made certain representations concerning AVMC as of February
28, 2005. GNPI has advised the Company that it believes that certain of these
representations may have been inaccurate. Informal discussions are being held
between the Company and Genius on this matter. The Company believes that such
representations were not inaccurate when made and that Genius has not provided
the Company with supporting documentation to substantiate Genius' assertions.
The Company cannot estimate the effect of the potential liability, if any, it
may owe to Genius related to such representations.


Results of Operations

      Overview. During April 2003, the Company acquired substantially all of the
assets and business and certain of the liabilities of YaYa, LLC as a component
in its strategy to develop a branded content business.

      On December 31, 2003, the Company formed a wholly-owned subsidiary,
Hypnotic, that acquired substantially all of the assets and business and certain
of the liabilities of Enigma Media, Inc. Hypnotic commenced operations effective
January 1, 2004.

      On February 3, 2004, AVMC acquired all of the outstanding common stock of
Wellspring and began operating Wellspring, as the Company's Filmed Entertainment
segment, effective February 3, 2004.

      During September 2004, AVMC began distributing documentary films, under
the brand name "non-fiction films, inc.," as a successor to a former Wellspring
subsidiary.

      During December 2004, AVMC closed its Branded Content segment and
terminated the related staff and consulting positions. The Branded Content
segment included all of YaYa's operations and a portion of Hypnotic's
operations.

      Effective March 21, 2005, Genius acquired from the Company all of the
outstanding common stock of AVMC. Related to the AVMC disposition, Genius
transferred back to the Company certain assets, liabilities and operations of
Hypnotic. The assets transferred to the Company include television and film
creative projects co-executive producer fees generated from the television
series, "The O.C.," but exclude Hypnotic's `back-end' interest in "The O.C."

      In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company's consolidated statements of
operations have been retroactively adjusted to account for YaYa, AVMC,
Wellspring, non-fiction films, inc. and the Branded Content segment as
discontinued operations for all periods presented.

      At December 31, 2005, the Company holds a 49% interest in TT&T, a Nevada
limited liability corporation that owns and operates the Las Vegas Border Grill
Restaurant, and, through its ownership of YaYa, a 10% interest in an
unconsolidated subsidiary named Games Media, Inc. that hosts certain video game
touring festivals.


Twelve Months Ended December 31, 2005 ("Fiscal 2005") Compared With the Twelve
Months Ended December 31, 2004 ("Fiscal 2004")

      Revenues. The Hypnotic revenues primarily are generated from an agreement
to provide executive co-producer services on a television series. These
revenues, totaling $313,000 and $638,000 for the twelve months ended December
31, 2005 and 2004, respectively, are generally recognized in installments as
services are provided. The fees were reduced for the 2005 television season as
Hypnotic provided less day-to-day executive co-producer services.

                                      -16-
<PAGE>


      Cost of services. Cost of services primarily consists of television agency
fees and internal labor, if any, associated with providing the Hypnotic
services.

      General and administrative expenses. General and administrative expenses
for Fiscal 2005 decreased $754,000 or (19.6%) from Fiscal 2004. The decrease
primarily is the result of the following offsetting transactions:

      o     Payroll and payroll-related expenses decreased from $1,456,000 for
            Fiscal 2004 to $1,207,000 for Fiscal 2005, for a total decrease of
            $249,000. For Fiscal 2004, Hypnotic's headcount averaged
            approximately seven employees, including its two executives. During
            Fiscal 2005, Hypnotic's headcount decreased to six employees through
            April 2005 and to the two executives at October 31, 2005. The two
            Hypnotic executives were compensated through mid-December 2005. At
            December 31, 2005, Hypnotic has no employees. Offsetting the
            decrease in the Hypnotic headcount, effective August 1, 2004, the
            Company's Chief Accounting Officer's contracted annual salary was
            increased from $138,000 to $205,000.

      o     Primarily due to the decrease in the Hypnotic staff headcount,
            health insurance expenses decreased from $125,000 during Fiscal 2004
            to $67,000 during Fiscal 2005, for a total decrease of $58,000.

      o     Temporary labor service costs decreased from $82,000 during Fiscal
            2004 to $29,000 during Fiscal 2005, for a total decrease of $53,000.
            During Fiscal 2005, Hypnotic reduced certain clerical positions
            previously staffed through an outside temporary service agency. In
            addition, during Fiscal 2005, Hypnotic also eliminated a consulting
            position staffed by an independent contractor.

      o     During Fiscal 2005, the Company incurred $235,000 in accounting fees
            as compared to $309,000 in Fiscal 2004 for an overall decrease of
            $74,000 or 24.0%. The decrease primarily reflects additional audit
            fees incurred related to the restatement of financial statements for
            pre-Fiscal 2004 periods in order to correct the accounting for the
            Company's 49% interest in its unconsolidated subsidiary.

      o     Consulting fees decreased from $148,000 for Fiscal 2004 to $90,000
            for Fiscal 2005 for a total decrease of $58,000 or 39.2%. During
            Fiscal 2005, consulting fees primarily related to fees for asset
            valuations to assist with purchase price allocations and fees
            related to the Nasdaq delisting appeal. Consulting fees for Fiscal
            2004 were primarily incurred for executive compensation analyses and
            potential acquisitions.

      o     During Fiscal 2005, directors' fees increased from $95,000 for
            Fiscal 2004 to $160,000 for Fiscal 2005, a total increase of $65,000
            or 68.4%. In addition to quarterly member and committee chair fees,
            effective June 1, 2005, the Company's board of directors also
            compensated Randolph C. Read a monthly fee of $10,000 as the Board's
            acquisition committee chair.

      o     Legal fees totaled $235,000 for Fiscal 2005 as compared to $409,000
            for Fiscal 2004, for a total decrease of $174,000 or 42.5%. Legal
            fees totaling $11,000 for Fiscal 2005 as compared to $99,000 for
            Fiscal 2004 were incurred by Hypnotic. Hypnotic legal fees primarily
            relate to agreements and negotiations for new and/or potential TV
            and film projects. As such, these legal fees may vary from
            year-to-year based on the activity related to these projects. Also,
            effective November 2004, the Company ceased payment of a $5,000 per
            month retainer fee to the Company's corporate counsel, Jay H. Brown.
            Mr. Brown is a beneficial owner of more than five percent of the
            Company's common stock.


Gain on sale of undeveloped land

      On January 30, 2004, the Company completed the sale of approximately 40
acres of undeveloped land owned by the Company and located in North Las Vegas,
Nevada. The Company recognized a pre-tax gain of $3,423,000 upon consummation of
this land sale transaction.


Non-operating expense

      In June 2005, the Company privately placed a total of 2,500,000 shares of
the Genius common stock and 225,000 $2.56 warrants, for gross proceeds of
$4,375,000. Related to dispositions of such GNPI securities, the Company also
surrendered to Genius for cancellation 225,000 $2.56 warrants. The Company
recognized a loss of $2,041,000 on the June 2005 dispositions of the Genius
shares and warrants and cancellation of the Genius warrants.

                                      -17-
<PAGE>

      In August 2005, the Company privately placed an additional 3,125,000
shares of the Genius common stock for gross proceeds of $4,688,000. In
conjunction with this transaction, the Company recognized a loss of $2,601,000.


      In accordance with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," the fair value of the Genius warrants is recorded as
$1,077,000 on the December 31, 2005 consolidated balance sheet. The warrants
have been accounted for as derivatives as the warrant terms permit a cashless
exercise. Gains or losses resulting from changes in the fair value are
recognized in unrealized loss from securities in the Company's which is included
in interest and other expense, net on the Company's consolidated statement of
operations. For the year ended December 31, 2005, the Company recognized a loss
of $167,000, due to the change in the fair value of the warrants during the
period.


      In accordance with Emerging Issues Task Force Issue No. 03-01 and SEC
Staff Accounting Bulletin Topic 5-M, the Company assesses whether an
other-than-temporary impairment loss on an investment has occurred due to
declines in fair value or other market conditions. The periodic assessment is
based on several criteria including volatility of market share prices of GNPI
common stock, intent of the Company to place the GNPI securities the Company
owns, as well as operations, current business activities, transactions or other
trends related to GNPI. At December 31, 2005, the Company determined that it
does not have the intent to hold the Genius securities for a sufficient time to
allow for a recovery in the market value to $2.25 per share, which is the
original cost that was recorded in March 2005. As such, for the year ended
December 31, 2005, the Company recorded a loss on impairment of the equity
securities totaling $316,000 which is included in non-operating expense in the
Company's consolidated statements of operations. There was no
other-than-temporary impairment losses during the year ended December 31, 2005.



Equity in income of unconsolidated subsidiaries, net

      The Company, through Vantage Bay, a wholly owned subsidiary, holds a 49%
interest in Border Grill, which the Company accounts for as an unconsolidated
subsidiary. Border Grill owns and operates the Border Grill Restaurant in the
Mandalay Bay Casino and Hotel ("Mandalay Bay") located on the Las Vegas Strip.
The Company's portion of income from the Border Grill decreased from $588,000
for Fiscal 2004 to $525,000 for Fiscal 2005 for a total decrease of $63,000.
During Fiscal 2005, new restaurants opened in Mandalay Bay bringing the total to
21 restaurants. Although there is no provision in Border Grill's lease that
would limit the number of restaurants that could be operated in Mandalay Bay,
there is a provision for an "exclusive right to operate a Mexican and Latin
American style restaurant" within the Mandalay Bay facility.

      The Company reviews Border Grill's monthly and annual financial statements
and annual operating budgets. The Company also reviews major capital expenditure
budgets and is involved with financing efforts related to any major capital
expenditures. Border Grill also consults with the Company on its on-going
marketing and promotional efforts, strategic planning and employment of key
management. In accordance with U.S. GAAP, the Company excludes the accounts of
Border Grill in reporting the Company's operating results. Rather, the Company
records the operating results of Border Grill using the equity method of
accounting. Future reported income from Border Grill may differ from cash
distributions, as further discussed in the Liquidity and Capital Resources
section.

      During Fiscal 2004, YaYa held a 36% non-controlling interest in an
unconsolidated subsidiary that entered into an in-substance joint venture
arrangement to create promotional events called video game touring festivals.
The Company has no capital requirement in connection with this joint venture and
is not obligated to provide future financing of the joint venture's activities.
If, after good faith efforts by the parties to this joint venture, there are
insufficient corporate sponsors to cover all costs and expenses of staging the
initial event, the joint venture shall dissolve and liquidate, unless the
parties agree to the contrary. Revenues generated by this unconsolidated
subsidiary generally occur during the summer months due to the timing of the
video game touring festivals. For Fiscal 2004, income from this investment
totaled $37,000. Under the cost method, no income was recorded for this
subsidiary for Fiscal 2005 as YaYa's non-controlling interest has been reduced
to 10%.

                                      -18-
<PAGE>


Income (loss) from discontinued operations (net of taxes)

      As discussed previously, effective January 1, 2004, AVMC combined the YaYa
operations and the Hypnotic branded entertainment operations into the Company's
Branded Content segment. During December 2004, the Company discontinued its
Branded Content segment. In accordance with SFAS No. 144, the Branded Content
operating results for the twelve months ended December 31, 2004 have been
retroactively adjusted to account for the Branded Content segment as
discontinued operations.

      AVMC constituted a vast majority of the operating assets of the Company
during the twelve months ended December 31, 2004, as well as the three months
ended March 31, 2005. The Company disposed of AVMC to Genius effective March 21,
2005.

      In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the AVMC operating results for the twelve months
ended December 31, 2005 and 2004 have been retroactively adjusted to account for
the entities as discontinued operations for all periods presented.

      The Company received 7,000,000 shares of Genius common stock and warrants
to purchase an additional 1,400,000 shares of Genius common stock in connection
with the disposition of AVMC to Genius in March 2005. At March 21, 2005, the
fair market value of the total consideration was $17,570,000. The Company
recognized a pre-tax gain of $6,218,000 from the sale of AVMC in the quarter
ended March 31, 2005.

      Related to the sale of AVMC at March 21, 2005, AVCS assumed payment
obligations relating to approximately $1,080,000 of accounts payable incurred in
connection with the direct response operations of AVMC. From April 2005 through
July 2005, the Company made various payments, totaling $211,000, against the
direct response obligations. During August 2005, the Company and Genius
negotiated a final settlement payment of $586,000 for the direct response
obligations. The settlement resulted in a net pre-tax gain adjustment of
$218,000 to the previously recognized March 21, 2005 pre-tax gain on the AVMC
disposition transaction of $6,218,000. Transactions totaling $82,000, also
affecting the gain on sale of AVMC for the twelve months ended December 31, 2005
include renegotiation of the investment banking fee and other direct sales
costs.


Significant related party transactions

      The Company's current non-employee directors were paid $160,000 and
$95,000 during the twelve months ended December 31, 2005 and 2004, respectively,
for serving on the Board of Directors of the Company.

      On December 21, 2005, the Company granted to Steven G. Barringer, Jeanne
Hood and Randolph C. Read, non-qualified stock options to each purchase 30,000
shares of the Company's common stock at an exercise price of $0.93 per share.
The options were granted as compensation for serving on the Company's board of
directors.

      In consideration for corporate legal and consulting services, the Company
paid a minority shareholder $56,000 during the twelve months ended December 31,
2004.

      Effective June 30, 2004, the Company arranged with SouthwestUSA Bank a
$2,500,000 credit facility. Jeanne Hood, a director of the Company, is a
director of SouthwestUSA. At April 5, 2005, the Company paid the SouthwestUSA
Line of Credit principal balance of $2,500,000 by surrendering the $2,500,000
certificate of deposit held as collateral for the SouthwestUSA Line of Credit.


Liquidity and Capital Resources

      As of December 31, 2005, the Company had cash and cash equivalents
totaling $2,205,000. The Company also had working capital of $6,976,000 at
December 31, 2005, as compared with working capital of $2,963,000 at December
31, 2004. Included in the working capital balance at December 31, 2005, are
Genius stock and warrants with a fair value of $3,148,000 and restricted cash
and cash equivalents of $2,500,000. The $4,013,000 net increase in working
capital primarily is the result of the March 21, 2005 sale of AVMC and the June
2005 and August 2005 placements of Genius common stock and warrants.

                                      -19-
<PAGE>

      At December 31, 2005, the Company holds 1,375,000 shares of GNPI common
stock, 250,000 $2.56 warrants and 700,000 $2.78 warrants. A total of 675,000
shares of Genius common stock comprising a portion of the consideration received
by the Company in the AVMC disposition are being held in escrow, of which
350,000 shares have restrictions exceeding one year to secure the
indemnification obligations under the AVMC disposition agreements. Of the
remaining securities, 700,000 Genius shares, and all of the Genius warrants are
unrestricted and available-for-sale. The Company believes that, when the Company
chooses to do so, the Company will be successful in its efforts to place the
Genius securities; however, no assurance can be given as to when the remaining
shares will become available for placement and/or the amount of proceeds that
may be received upon such placement(s).

      The Genius common stock is traded on NASD's over-the-counter bulletin
board (OTCBB) under the symbol "GNPI." As of December 31, 2005, the fair market
value of the Genius common stock held by the Company is $2,778,000. The
$2,778,000 is net of a realized holding loss of $316,000 which is reported as
loss on impairment of Genius securities on the Company's consolidated statement
of operations for the twelve months ended December 31, 2005. The
available-for-sale securities are valued at their current market value as of the
end of each fiscal quarter which could fluctuate between quarters and impact the
Company's future results of operations when the securities are sold. Factors
that may affect the current market value include, but are not limited to, (i)
fluctuation in market prices; and (ii) Genius entering into another transaction
causing dilution to the Genius outstanding common stock including the shares
held by the Company.

      The Company intends to fund its future operating costs and merger and
acquisition activities from its existing working capital resources and placement
of the 700,000 shares of Genius common stock. It is possible that future
operations and merger and acquisition opportunities also may require additional
financing resources. The Company may provide for such requirements with
financing from financial institutions and/or the issuance of equity and/or debt
securities. No assurance can be given that such financing will be available on
advantageous terms to the Company, or at all.

      Net cash used in operating activities was $6,766,000 and $9,481,000 for
the twelve months ended December 31, 2005 and 2004, respectively.

      Net cash provided by investing activities of $9,327,000 for the twelve
months ended December 31, 2005 consists primarily of $9,063,000 in cash
proceeds, net of $471,000 in direct costs, generated from the placements of the
Genius stock and warrants, $2,500,000 in cash proceeds received from conversion
of a certificate of deposit and capital distributions from the Border Grill. See
further discussion of the certificate of deposit in net cash used in financing
activities.

      For the twelve months ended December 31, 2005 and 2004, the Company
received cash distributions from Border Grill totaling $575,000 and $1,055,000,
respectively. The Border Grill Operating Agreement does not provide for
guaranteed cash distributions. Therefore, future distributions from Border Grill
are subject to fluctuation based on numerous factors, including operating
results and cash flow of the Border Grill Restaurant, expansion plans for the
Border Grill Restaurant, anticipated capital expenditures for furniture and
equipment utilized in the operation of the Border Grill Restaurant and the
levels of working capital reserves.

      For the twelve months ended December 31, 2004, net cash provided by
investing activities primarily consists of the January 30, 2004 sale of the land
classified on the consolidated balance sheet as "land held for development or
sale," cash used in discontinued operations for investing activities and capital
distributions from the Border Grill. The net proceeds from the sale of the land
(excluding legal and consulting expenses), totaling $7,007,000, were utilized in
the Company's operations and in the previously announced strategy of expanding
into areas of interest in the gaming, entertainment, media and lifestyle
industries through mergers or acquisitions.

      On February 3, 2004, AVMC acquired all of the capital stock of Wellspring.
The aggregate purchase price for the shares of Wellspring capital stock was
$8,000,000, of which $4,000,000 was paid in cash and $4,000,000 in the form of
AVMC secured negotiable and non-negotiable notes. These notes were assumed by
the purchaser of AVMC effective March 21, 2005. However, the Company guaranteed
the obligations arising under notes aggregating to $3,274,000 in principal. The
promissory notes were guaranteed by Wellspring at the time of their issuance and
are secured by all of the assets of Wellspring and a pledge by AVMC of
Wellspring's capital stock owned by AVMC. The Wellspring guaranty and AVMC
pledge remain in effect. Through July 2005, the Company funded $2,500,000 to an
escrow account against its guarantee of the obligations for the AVMC promissory
notes. The $2,500,000 is included as an investing activity in the December 31,
2005 consolidated statement of cash flows.

      In February 2006, the AVMC promissory notes were repaid in full. On March
6, 2006, the Company received the escrow principal and accrued interest totaling
$2,535,000 and its guaranty of certain of the AVMC promissory notes was
terminated.

                                      -20-
<PAGE>

      Net cash used in financing activities was $2,300,000 for the twelve months
ended December 31, 2005 as compared to net cash provided by financing activities
of $2,300,000 for the comparable 2004 period. Effective June 30, 2004, the
Company arranged with SouthwestUSA Bank ("SouthwestUSA") a $2,500,000 credit
facility (the "SouthwestUSA Line of Credit"). At December 31, 2004, the Company
had borrowings of $2,300,000 from the SouthwestUSA Line of Credit, with
additional borrowings of $200,000 during the first quarter of 2005. On April 5,
2005, the Company repaid the SouthwestUSA Line of Credit principal balance of
$2,500,000 by converting the $2,500,000 certificate of deposit held as
collateral for the SouthwestUSA Line of Credit. The SouthwestUSA Line of Credit
has been cancelled.


Long-Term Financial Obligations

      In connection with the disposition of AVMC to Genius, AVMC's lease
obligations for the administrative offices located in Santa Monica, California,
the direct response offices located in Los Angeles, California and the
Wellspring executive and operations offices located in New York, New York were
assumed by the Company. However, Genius continued to occupy the Wellspring
executive ("20th floor") and operations offices ("17th floor") located in New
York, and provide rental income at an amount equal to the Company's actual
monthly rental cost.

      During September 2005, the Company subleased for the remainder of the
lease term one of the two administrative offices located in Santa Monica,
California to an unaffiliated third party at an amount equal to the Company's
rental obligations under the lease for such office. The sublease terms also
provided for a security deposit totaling $96,000, which approximates three
months of rent, which is included in other long-term payables of the Company's
consolidated balance sheet at December 31, 2005.

      Through October 31, 2005, the Company continued to utilize the remaining
Santa Monica, California office for its Hypnotic operations. Effective November
1, 2005, the Hypnotic operations were relocated to the Las Vegas corporate
office. The Santa Monica, California office was vacated and the Company
contracted with a real estate broker to sublease the office at a rate and for a
term anticipated to equal the Company's existing lease commitment. From November
1, 2005 Genius occupied this office on a month-to-month basis at the Company's
existing lease commitment terms.

      During September 2005, for a negotiated payment of $10,000, the Company
was released from future rent payments or other commitments related to the
direct response offices located in Los Angeles, California.

      Effective August 30, 2005, Genius relocated the Wellspring staff from the
17th floor to the 20th floor. At December 31, 2005, Genius continued to occupy
the 20th floor.

      Effective February 15, 2006, the Company subleased the 17th floor. Except
for a discounted monthly base rental rate of $11,000, the sublease terms are
equal to the Company's rental obligations. At December 31, 2005, the Company has
recorded an accrual of $86,000 related to the future discounted rental expense
for the 17th floor premises. The long-term portion, totaling $52,000, is
included in other long-term payables on the Company's consolidated balance sheet
at December 31, 2005.

      In connection with the April 16, 2003 acquisition of the YaYa business,
YaYa assumed a $523,000 promissory note payable to certain YaYa partners.
Provided that YaYa Media has available cash resources, the promissory note
provides for annual interest-only payments commencing on December 31, 2003
through maturity date. The interest rate on the promissory note is 9% per annum
with a maturity date of the later of (i) May 1, 2006, or (ii) the first date
that YaYa has sufficient cash resources available to repay the balance of the
promissory note and all accrued but unpaid interest. During December 2004, AVMC
closed its Branded Content division, which included the YaYa business, and
terminated the related staff and consulting positions. The promissory note is
included as a long-term note payable in the Company's consolidated balance sheet
at December 31, 2005 and 2004. YaYa's only remaining potential source of cash
flow, at December 31, 2005, is its 10% equity interest in an unconsolidated
subsidiary. However, to-date, the unconsolidated subsidiary has provided no cash
distributions to its equity members.

                                      -21-
<PAGE>


Impact of Inflation

      The Company believes that inflation has not had a material impact on costs
and expenses.


Factors That May Affect Future Results

      The Company's future success is dependent on management's ability to
acquire companies under terms and conditions favorable to the Company and with
operations that will facilitate future growth.

      The Company's success depends in large part on the continued services of
its executive officers and consultants. The loss of such personnel or any key
person could have a material adverse impact on the Company's results of
operations. Also, operating results may be adversely impacted by the Company's
inability to attract and retain highly skilled personnel.

      The Company is holding the 700,000 shares of Genius common stock not
subject to pledges or other restrictions. As such, these securities will be
valued at their then current market value as of the end of each fiscal quarter
which could fluctuate between quarters and impact the Company's future results
of operations until sold. While the Company believes that it will be successful
in its efforts to place the Genius common stock, no assurance can be given as to
the amount of proceeds that may be received upon such sale(s).


Qualitative and Quantitative Disclosures About Market and Interest Rate Risk

      Except for exceeding insured deposit limits (which deposits totaled
approximately $1,950,000 at December 31, 2005), the Company is exposed to
minimal market risks as its cash and cash equivalents investment policy allows
only short-term, highly-rated securities. The Company does not hold or issue
derivatives, derivative commodity instruments or other similar financial
instruments, for trading purposes. At December 31, 2005, the Company's cash and
cash equivalents approximate their fair values due to the short-term nature of
these instruments.

      A significant portion of the Company's assets are the in form of equity
securities of GNPI and are being held as available for sale. As such, the value
of the Company's assets are impacted by fluctuations in the GNPI market price.
At December 31, 2005, the Company determined that it does not have the intent to
hold the Genius securities for a sufficient time to allow for a recovery in the
market value to $2.25 per share, which is the original cost that was recorded in
March 2005. As such, for the year ended December 31, 2005, the Company recorded
a loss on impairment of the equity securities totaling $316,000. The Company
does not hedge against these GNPI market fluctuations. As a result, significant
deviations in the market value could have a material impact on the Company's
financial position and results of operations.

Item 7. Financial Statements

      The management of the Company is responsible for the information and
representations contained in the following Company consolidated financial
statements. The consolidated financial statements of the Company have been
prepared in conformity with accounting principles generally accepted in the
United States considered appropriate under the circumstances and include some
amounts based on best estimates and judgments. Other financial information in
this report is consistent with these financial statements.

                                      -22-
<PAGE>

      The Audit Committee of the Board of Directors, presently consisting of
three independent directors, is responsible for the appointment of the
independent registered public accounting firm and reviews with the independent
registered public accounting firm and management, the scope and the results of
the annual audit and other matters relating to the financial affairs of the
Company as they deem appropriate.

                                      -23-
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
American Vantage Companies
Las Vegas, Nevada


We have audited the accompanying consolidated balance sheets of American Vantage
Companies and its subsidiaries (the "Company") as of December 31, 2005 and 2004,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, such consolidated financial statements present fairly, in all
material respects, the financial position of American Vantage Companies and its
subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 1, the Company changed the classification of cash flows
associated with operating, investing and financing activities and retroactively
revised the statement of cash flows for the year ended December 31, 2004 for the
change.


/s/ Deloitte & Touche LLP
Las Vegas, Nevada
April 17, 2006


                                      -24-
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                      December 31,   December 31,
                                                                          2005           2004
                                                                      ------------   ------------
<S>                                                                   <C>            <C>
ASSETS
Current assets:
        Cash and cash equivalents                                     $  2,205,000   $  1,944,000
        Restricted cash and cash equivalents                             2,500,000      2,500,000
        Genius equity securities, available for sale, at fair value
              (cost of $2,307,000 and $0), current portion               2,071,000           --
        Investment in Genius warrants (cost of $1,244,000 and $0)        1,077,000           --
        Accounts and other receivables, net, current portion                39,000      4,758,000
        Inventories                                                           --        1,311,000
        Deferred income tax asset, net of valuation allowance of
              $30,000 and $0, respectively                                    --        4,517,000
        Other                                                              148,000        311,000
                                                                      ------------   ------------
                                                                         8,040,000     15,341,000
Film inventory, net                                                           --        8,218,000
Capitalized film costs, net                                                   --        3,362,000
Furniture and equipment, net                                                23,000        346,000
Accounts receivable, less current portion                                     --          201,000
Investments in unconsolidated subsidiaries                                 588,000        715,000
Genius equity securities, available for sale, at fair value
        (cost of $788,000 and $0), less current portion                    707,000           --
Deferred income tax asset, net of valuation allowance of                      --
        $3,338,000 and $0, respectively                                    465,000        921,000
Goodwill                                                                    57,000        574,000
Other                                                                      344,000        492,000
                                                                      ------------   ------------
                                                                      $ 10,224,000   $ 30,170,000
                                                                      ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                              $     86,000   $  5,784,000
        Lines of credit                                                       --        4,649,000
        Accrued liabilities and other payables                             513,000      1,550,000
        Deferred revenue                                                      --          395,000
        Deferred income tax liability                                      465,000           --
                                                                      ------------   ------------
                                                                         1,064,000     12,378,000
Notes payable                                                              523,000      4,523,000
Other long-term payables                                                   148,000           --
                                                                      ------------   ------------
                                                                         1,735,000     16,901,000
                                                                      ------------   ------------
Stockholders' equity:
        Preferred stock, $.01 par; 10,000,000 shares authorized;
         0 shares issued and outstanding                                      --             --
        Common stock, $.01 par; 100,000,000 shares authorized;
         5,729,107 shares issued and outstanding                            57,000         57,000
        Additional paid-in capital                                       5,780,000      5,769,000
        Retained earnings                                                2,652,000      7,443,000
                                                                      ------------   ------------
                                                                         8,489,000     13,269,000
                                                                      ------------   ------------
                                                                      $ 10,224,000   $ 30,170,000
                                                                      ============   ============
</TABLE>


                 See notes to consolidated financial statements



                                      -25-
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                              Twelve Mos. Ended    Twelve Mos. Ended
                                                              December 31, 2005    December 31, 2004
                                                              -----------------    -----------------
<S>                                                           <C>                  <C>
Revenues, net                                                 $         313,000    $         638,000
Cost of services                                                        131,000              248,000
                                                              -----------------    -----------------
Gross profit                                                            182,000              390,000
                                                              -----------------    -----------------

General and administrative expenses
      Payroll and payroll-related                                     1,207,000            1,456,000
      Related parties                                                   162,000              150,000
      Other                                                           1,727,000            2,244,000
                                                              -----------------    -----------------
                                                                      3,096,000            3,850,000
Gain on sale of undeveloped land                                           --              3,423,000
                                                              -----------------    -----------------
Operating loss                                                       (2,914,000)             (37,000)
                                                              -----------------    -----------------

Non-operating expense
      Interest income and other expense, net                           (174,000)                --
      Loss on impairment of Genius equity securities                   (316,000)                --
      Loss on sale of stock                                          (4,642,000)                --
                                                              -----------------    -----------------
                                                                     (5,132,000)                --
                                                              -----------------    -----------------

Loss from continuing operations before income
 tax benefit (provision)                                             (8,046,000)             (37,000)
Income tax benefit (provision)                                          191,000              (10,000)
Equity in income of unconsolidated subsidiaries, net                    525,000              624,000
                                                              -----------------    -----------------
Loss from continuing operations                                      (7,330,000)             577,000

Income (loss) from discontinued operations
      Income (loss) from discontinued operations (including
         gain on disposal of AVMC totaling $6,518,000                 3,967,000           (8,133,000)
         for the twelve months ended December 31, 2005)
      Income tax (provision) benefit                                 (1,428,000)           3,539,000
                                                              -----------------    -----------------
                                                                      2,539,000           (4,594,000)
                                                              -----------------    -----------------

Net loss                                                      $      (4,791,000)   $      (4,017,000)
                                                              =================    =================

Net loss (income) per share -- basic and diluted:
      Continuing operations                                   $           (1.28)   $            0.10
      Discontinued operations                                              0.44                (0.80)
                                                              -----------------    -----------------
                                                              $           (0.84)   $           (0.70)
                                                              =================    =================

 Weighted average number of common shares
 and common share equivalents                                         5,729,107            5,755,000
                                                              =================    =================
</TABLE>

                 See notes to consolidated financial statements


                                      -26-
<PAGE>


AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                           Common stock           Additional                        Total
                                   ---------------------------      Paid-in        Retained      Stockholders'
                                      Shares       Par Value        Capital        Earnings         Equity
                                   ------------   ------------   ------------    ------------    -------------

<S>                                   <C>          <C>           <C>             <C>              <C>
Balance, December 31, 2003            5,690,667    $    57,000   $  5,713,000    $ 11,460,000     $ 17,230,000

 Net loss                                  --             --             --        (4,017,000)      (4,017,000)

 Issuance of common stock shares         25,000           --           94,000            --             94,000

 Exercise of stock options               13,440           --          (38,000)           --            (38,000)
                                   ------------   ------------   ------------    ------------    -------------

 Balance, December 31, 2004           5,729,107         57,000      5,769,000       7,443,000       13,269,000

 Net loss                                  --             --             --        (4,791,000)      (4,791,000)

Issuance of stock options
 for consulting services                   --             --           11,000            --             11,000
                                   ------------   ------------   ------------    ------------    -------------

 Balance, December 31, 2005           5,729,107   $     57,000   $  5,780,000    $  2,652,000    $   8,489,000
                                   ============   ============   ============    ============    =============
</TABLE>


                See notes to consolidated financial statements

                                      -27-
<PAGE>


AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Twelve Mos. Ended    Twelve Mos. Ended
                                                                                December 31, 2005    December 31, 2004
                                                                                -----------------    -----------------
<S>                                                                             <C>                  <C>
                                                                                                         (Revised)
Reconciliation of net loss to net cash used in operating activities
       Net loss                                                                 $      (4,791,000)   $      (4,017,000)
       Income (loss) from discontinued operations (net of income tax
          (provision) benefit of ($1,428,000) and $3,539,000)                           2,539,000           (4,594,000)
                                                                                -----------------    -----------------

       Loss from continuing operations                                                 (7,330,000)             577,000
       Depreciation and amortization                                                       85,000              139,000
       Loss on sale of Genius equity securities and warrants                            4,642,000                 --
       Loss on disposal of furniture and equipment                                         56,000                 --
       Unrealized loss from Genius warrants                                               167,000                 --
       Loss on impairment of Genius equity securities                                     316,000                 --
       Gain on sale of undeveloped land                                                      --             (3,423,000)
       Deferred income tax (benefit) provision                                           (191,000)              10,000
       Equity in income from unconsolidated subsidiaries, net                            (525,000)            (624,000)
       Compensation expense from issuance of stock options, net                            11,000                 --
       Issuance of common stock for investment banking services                              --                 56,000
       Other operating activities of discontinued operations                           (3,675,000)          (6,400,000)

       Change in operating assets and liabilities, net of amounts
          divested and discontinued operations:
              Accounts and other receivables, net                                         169,000             (208,000)
              Other current assets                                                        (33,000)             321,000
              Other assets                                                                 10,000              (12,000)
              Accounts payable and other current liabilities                             (393,000)               8,000
              Deferred revenue                                                            (75,000)              75,000
                                                                                -----------------    -----------------
       Net cash used in operating activities                                           (6,766,000)          (9,481,000)
                                                                                -----------------    -----------------
</TABLE>


                                      -28-
<PAGE>


AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Twelve Mos. Ended    Twelve Mos. Ended
                                                                                December 31, 2005    December 31, 2004
                                                                                -----------------    -----------------
<S>                                                                             <C>                  <C>
                                                                                                          (Revised)
Investing activities
     Purchase of furniture and equipment                                        $          (3,000)   $         (13,000)
     Proceeds from sale of furniture and equipment                                          5,000                 --
     Proceeds from sale of Genius stock and warrants, net of direct costs               8,592,000                 --
     Proceeds from sale of undeveloped land                                                  --              7,007,000
     Purchase certificate of deposit                                                         --             (2,500,000)
     Proceeds from maturity of certificate of deposit                                   2,500,000                 --
     Proceeds transferred to escrow account                                            (2,500,000)                --
     Purchase standby letter of credit                                                       --               (350,000)
     Redeem standby letter of credit                                                       50,000                 --
     Security deposit received from subleased office                                       96,000                 --
     Cash distribution from unconsolidated restaurant subsidiary                          575,000            1,055,000
     Cash used in Hypnotic acquisition direct costs                                          --                (14,000)
     Other investing activities of discontinued operations                                 12,000           (4,238,000)
                                                                                -----------------    -----------------
     Net cash provided by investing activities                                          9,327,000              947,000
                                                                                -----------------    -----------------

Financing activities
     Borrowings on line of credit                                                         200,000            2,300,000
     Payment of line of credit                                                         (2,500,000)                --
     Other financing activities of discontinued operations                                   --               (450,000)
                                                                                -----------------    -----------------

     Net cash (used in) provided by financing activities                               (2,300,000)           1,850,000
                                                                                -----------------    -----------------

Net increase (decrease) in cash and cash equivalents                                      261,000           (6,684,000)
Cash and cash equivalents, at beginning of year                                         1,944,000            8,628,000
                                                                                -----------------    -----------------

Cash and cash equivalents, at end of year                                       $       2,205,000    $       1,944,000
                                                                                =================    =================

Supplemental schedule of cash flow information:
     Cash paid for interest from continuing
     operations                                                                 $          37,000    $          52,000
                                                                                =================    =================
     Taxes paid from continuing operations                                      $           8,000    $          11,000
                                                                                =================    =================

Noncash investing and financing activities: Consideration received from March
     21, 2005 sale of AVMC:
           7,000,000 shares of Genius equity securities                         $      15,750,000    $            --
           1,400,000 warrants to purchase Genius common stock                           1,820,000                 --
                                                                                -----------------    -----------------
                                                                                       17,570,000                 --
     Fair value of disposed assets and liabilities at December 31, 2005:
           Assets, net                                                                (21,943,000)                --
           Liabilities                                                                 12,670,000                 --
           Direct costs for the sale of AVMC                                           (1,262,000)                --
           Other                                                                         (517,000)                --
                                                                                -----------------    -----------------
     Gain on disposal                                                           $       6,518,000    $            --
                                                                                =================    =================
</TABLE>

                 See notes to consolidated financial statements


                                      -29-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Nature of operations and summary of significant accounting policies

      Nature of business and business activities. During April 2003, American
Vantage Companies (the "Company") acquired substantially all of the assets and
business and certain of the liabilities of YaYa, LLC as a component in its
strategy to develop a branded content business. YaYa Media, Inc. ("YaYa Media")
is a wholly-owned subsidiary of the Company, formed specifically to acquire the
YaYa assets, business and liabilities purchased and to continue YaYa's business
and operations.

      On December 31, 2003, the Company, acquired substantially all of the
assets and business and certain of the liabilities of Enigma Media, Inc.
("Enigma"), dba Hypnotic ("Hypnotic"), and began operations effective January 1,
2004. Hypnotic has been structured as a wholly-owned subsidiary of American
Vantage Media Corporation ("AVMC"), a wholly-owned subsidiary of the Company.

      On February 3, 2004, AVMC acquired all of the outstanding common stock of
Wellspring Media, Inc. ("Wellspring") and began operating Wellspring effective
February 3, 2004.

      During September 2004, AVMC began distributing documentary films, under
the brand name "non-fiction films, inc.," as a successor to a former Wellspring
subsidiary.

      During December 2004, AVMC closed its Branded Content segment and
terminated the related staff and consulting positions. The Branded Content
segment included all of YaYa's operations and a portion of the acquired Hypnotic
operations.

      Effective March 21, 2005, the Company sold all of the outstanding common
stock of AVMC to Genius. Genius began operating the AVMC operations effective
March 22, 2005. Consideration included 7,000,000 shares of Genius common stock
and five-year warrants to purchase an additional 1,400,000 shares of Genius
common stock, half at an exercise price of $2.56 per share and half at an
exercise price of $2.78 per share. In conjunction with the sale of AVMC, the
Company recorded a gain of $6,518,000 during 2005.

      Of the 7,000,000 shares of GNPI common stock acquired from Genius,
5,625,000 shares were not subject to pledges or other restrictions. Those shares
not subject to pledges or other restrictions, along with the warrants acquired
from Genius, were classified as current assets in the accompanying consolidated
balance sheets at December 31, 2005, while the shares subject to long-term
pledges or other restrictions were recorded as long-term assets. The Genius
common stock is traded on the over-the-counter bulletin board (OTCBB) under the
symbol "GNPI."

      As a result of the AVMC transaction, Genius acquired the Company's
accounts receivable, inventories, film inventory, and capitalized film costs.
Genius also assumed certain liabilities, including a $2,349,000 Atlantic Bank of
New York credit facility and $4,000,000 of promissory notes of AVMC. AVCS has
guaranteed the obligations arising under $3,274,000 of the AVMC promissory notes
which mature on February 3, 2006 (see Note 9 - Notes payable). AVCS also assumed
payment obligations relating to approximately $1,080,000 of accounts payable
incurred in connection with the direct response operations of AVMC. The direct
response accounts payable obligations would be offset from the proceeds, if any,
from the sale of approximately $328,000 of direct response inventory.

      From April 2005 through July 2005, the Company made various payments,
totaling $211,000, against the direct response obligations. During August 2005,
the Company and Genius negotiated a final settlement payment of $586,000 for the
direct response obligations. The settlement resulted in a net adjustment of
$218,000 in the gain on disposal of AVMC. From July 2005 through December 2005,
the Company made additional accounting adjustments of $82,000 to the gain on
disposal of AVMC, which resulted from the renegotiation of certain direct sales
costs.

      Related to the AVMC disposition transaction, Genius transferred back to
the Company certain assets, liabilities and operations of Hypnotic. The book
value of these assets that were transferred back to the Company was not treated
as part of the accounting for the original sale; but, rather, was treated as
assets retained by the Company. The assets and operations transferred back to
the Company encompass the prior Film and TV Production segment operations of
Hypnotic including co-executive producer fees generated from the television
series "The O.C.," but excluding Hypnotic's `back-end' interest in "The O.C."

                                      -30-
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Effective June 1, 2005, the Company privately placed 2,000,000 shares of
the Genius common stock and 180,000 warrants to purchase shares of Genius common
stock, at an exercise price of $2.56 per share (the "$2.56 warrants"), for gross
proceeds of $3,500,000. Effective June 4, 2005, the Company privately placed an
additional 500,000 shares and 45,000 $2.56 warrants under similar terms as the
previous private placement for gross proceeds of $875,000. Direct sales costs
for the June 2005 private placements totaled $214,000. Related to these
placements of the Genius stock, the Company also surrendered to Genius for
cancellation 225,000 $2.56 warrants. In conjunction with these transactions, the
Company recognized a loss of $2,041,000.

      In addition, effective August 17, 2005, the Company placed 3,125,000
shares of the Genius common stock for gross proceeds of $4,688,000 with direct
sales costs of $257,000. In conjunction with this transaction, the Company
recognized a loss of $2,601,000.

      In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the
Company's consolidated statements of operations have been retroactively adjusted
to account for YaYa, AVMC, Wellspring, non-fiction films, inc. and the Branded
Content segment as discontinued operations for all periods presented.

      At December 31, 2005, the Company, through wholly-owned subsidiaries,
holds a 49% interest in Border Grill Las Vegas, LLC ("Border Grill"), a Nevada
Limited liability company, that owns and operates the Border Grill Restaurant
and holds a 10% interest in an unconsolidated subsidiary that promotes video
gaming tours ("Games Media").

      Principles of consolidation. The consolidated financial statements include
the accounts of American Vantage Companies and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

      The Company excludes the accounts of Border Grill and instead records its
equity interest using the equity method of accounting (based on the Company's
49% equity interest in Border Grill's net assets and the terms of the Border
Grill Operating Agreement).

      The Company also excludes the accounts of Games Media and, effective
January 1, 2005, records its equity interest using the cost method of accounting
based on the Company's 10% equity interest in the net assets of the Games Media.
Prior to January 1, 2005, the Company recorded this investment using the equity
method of accounting as the Company's equity in Games Media's net assets ranged
up to 36%.

      Use of estimates. The preparation of financial statements in conformity
with U.S. generally accepted accounting policies ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures, some of which may require revision in future periods. Actual
results could differ from those estimates.

      Cash equivalents. The Company considers all highly liquid instruments
purchased with a maturity of three months or less at date of purchase to be cash
equivalents. These primarily include money market funds.

                                      -31-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Restricted cash and cash equivalents. In June and July 2005, the Company
delivered an aggregate $2,500,000 to fund the escrow securing the Company's
obligations under certain of the AVMC promissory notes. In February 2006, the
AVMC promissory notes were repaid in full. On March 8, 2006, the Company
received the escrow principal and accrued interest totaling $2,530,000 and its
guaranty of certain of the AVMC promissory notes was terminated.

      Concentration of credit risk. The Company is subject to concentrations of
credit risk associated with cash and cash equivalents. The Company places cash
and cash equivalents with financial institutions with investment grade credit
ratings. The financial institutions are FDIC insured on amounts up to $100,000.
In aggregate, such insured limits are exceeded by $1,950,000 and $1,155,000, at
December 31, 2005 and 2004, respectively.

      Equity securities. Consideration received from the March 21, 2005
disposition of AVMC to Genius included 7,000,000 shares of Genius common stock
and five-year warrants to purchase an additional 1,400,000 shares of Genius
common stock, half at an exercise price of $2.56 per share and half at an
exercise price of $2.78 per share. In August 2005 and June 2005, the Company
privately placed an aggregate of 3,125,000 and 2,500,000 shares, respectively,
of the Genius common stock with unaffiliated third parties. In conjunction with
the June 2005 private placement, the Company also privately placed an aggregate
of 225,000 $2.56 warrants. Related to the June 2005 private placements of the
Genius securities, the Company also surrendered to Genius for cancellation
225,000 $2.56 warrants. Gross proceeds from the August 2005 and June 2005
private placements totaled $4,688,000 and $4,375,000, respectively.  As of
December 31, 2005, the Company had 1,375,000 shares of Genius common stock
classified as "available-for-sale" with a total value of $2,778,000, in
accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115").

      As of December 31, 2005, the fair value of the Genius stock classified as
short-term assets was $2,071,000. A total of 675,000 shares of the Genius common
stock are being held in escrow, of which 350,000 shares have restrictions
exceeding one year to secure the indemnification obligations under the AVMC
disposition agreements. These securities are included as long-term assets in the
consolidated balance sheets.

      In accordance with SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities," the fair value of the Genius warrants is recorded as
$1,077,000 on the December 31, 2005 consolidated balance sheet. The warrants
have been accounted for as derivatives as the terms permit a cashless exercise.
Gains or losses resulting from fluctuations in the fair value are recognized in
non-operating expense in the Company's consolidated statement of operations. For
the years ended December 31, 2005 and 2004, the Company recognized a loss of
$167,000 and $0, respectively, due to the change in the fair value of the
warrants at year-end.

      In accordance with Emerging Issues Task Force Issue No. 03-01 and SEC
Staff Accounting Bulletin Topic 5-M, the Company assesses whether an
other-than-temporary impairment loss on the GNPI common stock has occurred due
to declines in fair value or other market conditions. The periodic assessment is
based on several criteria including volatility of market share prices of GNPI
common stock, intent of the Company to place the GNPI securities the Company
owns, as well as operations, current business activities, transactions or other
trends related to GNPI. At December 31, 2005, the Company determined that it
does not have the intent to hold the Genius securities for a sufficient time to
allow for a recovery in the market value to $2.25 per share, which is the
original cost that was recorded in March 2005. As such, for the year ended
December 31, 2005, the Company recorded a loss on impairment of the equity
securities totaling $316,000 which is included in non-operating expense in the
Company's consolidated statements of operations. There were no
other-than-temporary impairment losses during the year ended December 31, 2005.


                                      -32-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



      FASB has released FASB Staff Position 115-1 "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
guidance addresses the "determination as to when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss." The effective date for the guidance is for reporting
periods beginning after December 15, 2005. The guidance is not expected to have
a material effect on the Company's consolidated financial statements.


      Allowance for uncollectible accounts receivable. The Hypnotic accounts
receivable balances were based on contractual agreements. The Company did not
believe there was any significant risk relating to the collectibility of these
accounts receivable that would require an allowance for any estimated losses
resulting from the inability of its clients to make required payments. However,
the Company did periodically analyze each client account, and, when it became
aware of a specific client's inability to meet its financial obligations, such
as in the case of bankruptcy filings or deterioration in the client's overall
financial condition, the Company would record a specific provision for
uncollectible accounts to reduce the related receivable to the amount that was
estimated to be collectible.

      For Wellspring sales, the Company recorded a monthly accrual for bad debt
expense based upon historical collections experience and other factors. The
monthly accrual and individual customer accounts were reviewed periodically to
ensure overall reasonableness and collectibility. If the Company determined that
amounts owed from customers were uncollectible, such amounts were charged
against the allowance for doubtful accounts.

      Inventories. Inventories were stated at the lower of cost or market, with
cost being determined using the average cost method. Inventories primarily
consisted of Wellspring packaging materials and finished goods that included
DVDs and video tapes.

      Furniture and equipment, net. Direct furniture and equipment purchases are
recorded at cost. Furniture and equipment obtained through acquisition
activities are recorded at the estimated fair market value on date of
acquisition. Depreciation for financial reporting purposes is determined on a
straight-line basis primarily over three to seven years.

      Land held for development or sale. At July 31, 2003, land held for
development or sale consisted of approximately 40 acres of undeveloped land in
North Las Vegas, Nevada, that was valued at the lower of cost or estimated fair
value less costs to sell.

      On January 30, 2004, the Company completed the sale of the approximately
40 acres of undeveloped land for $7,007,000 in cash (excluding legal and
consulting costs).

      The Company recognized a pre-tax gain of approximately $3,423,000 upon
consummation of this land sale transaction.

      Goodwill. In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), goodwill and intangible assets with indefinite lives
are no longer amortized but, instead, are evaluated for impairment periodically,
or when events indicate that an impairment could exist. As required by SFAS No.
142, in the Company's impairment test of goodwill, the fair value of the
applicable reporting unit is compared to its carrying value. If the carrying
value of the reporting unit exceeds the estimate of fair value, the Company
calculates the impairment as the excess of the carrying value of goodwill over
its estimated fair value.

      At December 31, 2004, the Company's goodwill related to the December 31,
2003 acquisition of the Hypnotic operations totaled $574,000. In connection with
the sale of AVMC to Genius on March 21, 2005, management determined that the
Hypnotic goodwill carrying value of $517,000 was associated with assets sold to
Genius, and therefore, the $517,000 was included in the determination of gain on
sale.


                                      -33-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Revenue recognition. The Hypnotic revenues primarily were generated from
an agreement to provide executive co-producer services for a television series.
These revenues were generally recognized when services were provided.

      The Company's revenues for the years ended December 31, 2005 and 2004
generated by Wellspring are included in the income (loss) from discontinued
operations for each respective period.

      Wellspring revenues were generated through its home video, direct
response, worldwide sales (television) and theatrical units.

      Wellspring revenues, generated from the home video or direct response
sales of DVDs and video tapes, net of an allowance for estimated returns
totaling $350,000 included in accounts receivable, net in the December 31, 2004
consolidated balance sheet, were generally recognized at the time of shipment.

      In accordance with Statement of Position 00-2, "Accounting by Producers or
Distributors of Films," Wellspring revenues which were derived from licensing
agreements, were recognized when there was persuasive evidence that a licensing
arrangement existed, that the film was complete and had been delivered or was
available for immediate and unconditional delivery, that the license period had
begun and the licensee could begin exploitation or exhibition of the film, the
license fee was fixed or determinable and collection of the license fee was
reasonably assured. License fees for Wellspring were amortized to expense in the
same ratio that current period actual revenue bear to estimated remaining
unrecognized ultimate revenue as of the beginning of the current year.
Management regularly reviewed and revised, when necessary, its total ultimate
revenue estimates, which could result in a change in the rate of amortization
and/or write-down of all or a portion of the unamortized costs of the film to
its fair value. Film advertising and marketing costs were expensed the first
time the advertising takes place, unless the advertising is recoupable according
to the contract, and then it was recorded as other current assets.

      Wellspring revenues generated from the theatrical release of motion
pictures were recognized at the time of exhibition based on the segment's
participation in box office receipts.

      Cash advances received were recorded as deferred revenue until all of the
conditions of revenue recognition have been met.

      Intercompany revenues, if any, were eliminated and were immaterial for
separate disclosure.

      Film library amortization. License fees for Wellspring were amortized to
expense in the same ratio that current period actual revenue bear to estimated
remaining unrecognized ultimate revenue as of the beginning of the current year.
Management regularly reviewed and revised, when necessary, its total revenue
estimates, which could result in a change in the rate of amortization and/or
write-down of all or a portion of the unamortized costs of the film to its fair
value.


      Capitalized film costs, net. Estimated recoupable costs to prepare
Wellspring film programming, paid on behalf of the licensors, were classified as
capitalized film costs, net in the consolidated balance sheets. Film advertising
and marketing costs were expensed the first time the advertising takes place,
unless the advertising was recoupable according to the contract, and then it was
capitalized to other film costs. Management evaluated recoverability
periodically based on revenues generated by the applicable films.


      Advertising expense. Advertising expense includes the costs associated
with the production of advertisements and the communication of those
advertisements. Advertising costs are expensed as incurred in accordance with
SOP 93-7 "Reporting on Advertising Costs." Advertising expense from continuing
operations totaled $0 for the twelve months ended December 31, 2005 and 2004.


                                      -34-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Stock-based compensation. The Company accounts for stock-based employee
compensation using the intrinsic value method provided for in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Historically, the Company has granted stock options to its employees with
exercise prices equal to the market value on the date of grant and, accordingly,
no compensation expense is recognized.

      Under the intrinsic value method, no compensation cost has been recognized
for employee stock-based compensation under the applicable circumstances. Had
the Company used the fair value-based method of accounting and recognized
compensation expense as provided for in SFAS No. 123, "Stock-Based
Compensation," the net loss and net loss per share for the following periods
would have been as follows:

<TABLE>
<CAPTION>
                                           Twelve Mos. Ended   Twelve Mos. Ended
                                           December 31, 2005   December 31, 2004
                                           -----------------   -----------------
<S>                                        <C>                 <C>
Net loss, as reported                      $      (4,791,000)  $      (4,017,000)
     Total stock-based consulting
     compensation
      expense included in reported net
      loss, net
      of tax                                           7,000                --
                                           -----------------   -----------------

Net loss, as adjusted                             (4,784,000)         (4,017,000)
     Deduct: Total stock-based
      compensation expense determined
      under
      fair value method, net of tax                 (209,000)           (566,000)
                                           -----------------   -----------------

Pro forma net loss                         $      (4,993,000)  $      (4,583,000)
                                           =================   =================

Pro forma net loss per share -- basic and
diluted                                    $           (0.87)  $           (0.80)
                                           =================   =================
</TABLE>


      The weighted-average grant-date fair value of the options granted was
$1.31 and $3.73 per option for the twelve months ended December 31, 2005 and
2004, respectively.

      The weighted-average grant-date fair value of each non-employee award and
the pro forma presentation for employee stock-based compensation was determined
by using the Black-Scholes option pricing model and the following key
assumptions:

                                 Twelve Mos. Ended  Twelve Mos. Ended
                                 December 31, 2005  December 31, 2004
                                 -----------------  -----------------
Expected stock price volatility   131.3% - 136.1%    138.0% - 140.0%
Expected options lives (years)           10                10
Expected dividend yield                   0                 0
Risk-free interest rates             4.1% - 4.5%           4.5%


                                      -35-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Income taxes. The Company accounts for income taxes under the provisions
of SFAS No. 109, "Accounting for Income Taxes." Current income tax expense is
the amount of income taxes expected to be payable for the current year. A
deferred income tax asset or liability is established for the expected future
consequences of temporary differences in the financial reporting and tax bases
of assets and liabilities. The Company considers future taxable income and
ongoing, prudent and feasible tax planning strategies in assessing the value of
its deferred tax assets. If the Company determines that it is more likely than
not that these assets will not be realized, the Company will reduce the value of
these assets to their expected realizable value, thereby decreasing net income.
If the Company subsequently determines that the deferred tax assets, which had
been reduced, would be realized in the future, the value of the deferred tax
assets would be increased, thereby increasing net income in the period when that
determination is made.


      For the twelve months ended December 31, 2005, the Company recorded an
income tax benefit from continuing operations as a result of the tax effect of
the periods' pretax losses of $3,559,000, offset by the recording of a valuation
allowance of $3,368,000 during the twelve months ended December 31, 2005. For
the twelve months ended December 31, 2004, the Company recognized a tax benefit
of $1,154,000 primarily related to the periods' losses from continuing
operations. For the twelve months ended December 31, 2004, the Company
recognized a tax provision of $1,164,000 primarily related to the gain on the
sale of the land.


      Net loss per common share. The computation of basic and diluted loss per
common share is based on the weighted average number of common shares
outstanding. Options and warrants to purchase 1,229,000 and 1,025,000 shares,
respectively, of common stock at December 31, 2005 and 1,114,000 and 1,025,000
shares, respectively, of common stock at December 31, 2004, were not included in
the computation of basic and diluted loss per common share because the effect
would be anti-dilutive.

      Consolidated statements of cash flows. Subsequent to the issuance of the
Company's consolidated financial statements for the twelve months ended December
31, 2004, the Company determined that the cash flows associated with
discontinued operations should not have been presented as a single item within
the investing activities category of the consolidated statements of cash flows.
As a result, during 2005, the Company changed the presentation of its
consolidated statements of cash flows to separately present the cash flows from
discontinued operations within the categories of operating, investing and
financing activities. A summary of the effects of the change in presentation on
the consolidated statements of cash flows for the twelve months ended December
31, 2004, is as follows:

                                                               Twelve Mos. Ended
                                                               December 31, 2004
                                                               -----------------

Net cash used in operating activities as previously reported        $(9,295,000)
Change in net cash used in discontinued operations                     (186,000)
                                                                    -----------
Net cash used in operating activities as currently reported         $(9,481,000)
                                                                    ===========

Net cash provided by investing activities as previously reported    $   761,000
Change in net cash used in discontinued operations                      186,000
                                                                    -----------
Net cash provided by investing activities as currently reported     $   947,000
                                                                    ===========

Net cash provided by financing activities as previously reported    $ 1,850,000
Change in net cash used in discontinued operations                           --
                                                                    -----------
Net cash provided by financing activities as currently reported     $ 1,850,000
                                                                    ===========

      Reclassifications. Certain amounts as previously reported for the December
31, 2004 period have been reclassified to conform to the current year
presentation.

      New accounting pronouncements. In December 2004, the Financial Accounting
Standards Board issued SFAS No. 123(R), "Share-Based Payment," which revised
SFAS No. 123, "Accounting for Stock-Based Compensation" and superseded APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. This statement requires public entities to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). This cost is recognized over the period during which an employee is
required to provide services in exchange for the award. This statement also
addresses the accounting for the tax effects of share-based compensation awards.
Pursuant to a Securities and Exchange Commission rule issued in April 2005, this
statement is effective for the Company commencing on January 1, 2006. The
Company is adopting this standard as of such date using the modified prospective
application. Under the modified prospective application, the Company will
expense the cost of share-based compensation awards issued after January 1,
2006. Additionally, the Company will recognize compensation cost for the portion
of awards outstanding on January 1, 2006 for which the requisite services have
not been rendered over the periods the requisite services will be rendered after
January 1, 2006. Based upon stock options outstanding at December 31, 2005, the
Company estimates that for those options the Company will record approximately
$44,000 in stock option expense during the first quarter of 2006. Any stock
option grants in 2006 and future periods will increase the amount of
compensation cost recorded for those years.




                                      -36-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Discontinued operations

      Effective January 1, 2004, AVMC combined the YaYa operations and the
Hypnotic branded entertainment operations into its Branded Content segment.
During December 2004, the Company discontinued its Branded Content segment.

      In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," Company's consolidated statements of operations
have been retroactively adjusted to account for YaYa, AVMC, Wellspring,
non-fiction films, inc. and the Branded Content segment as discontinued
operations for all periods presented:

                                         Twelve Mos. Ended   Twelve Mos. Ended
                                         December 31, 2005   December 31, 2004
                                         -----------------   -----------------

Revenues                                 $       1,698,000   $      19,014,000
Cost of sales and services                       1,794,000          11,889,000
                                         -----------------   -----------------

Gross profit                                       (96,000)          7,125,000
                                         -----------------   -----------------

Selling, general and administrative              2,390,000          15,083,000
Non-operating expense                              (65,000)           (175,000)
Gain on disposal of AVMC                         6,518,000                --
Income tax (provision) benefit                  (1,428,000)          3,539,000
                                         -----------------   -----------------

Income (loss) from discontinued
 operations                              $       2,539,000   $      (4,594,000)
                                         =================   =================


      The loss on impairment of Hypnotic goodwill of $517,000 for the twelve
months ended December 31, 2005 and loss on impairment of the YaYa goodwill of
$2,939,000 for the twelve months ended December 31, 2004 is included in the
respective income (loss) from discontinued operations.


Note 3 - Investments in unconsolidated subsidiaries

      The Company, through a wholly owned subsidiary, holds a 49% interest in
Border Grill, an unconsolidated subsidiary that owns and operates the Border
Grill Restaurant in a casino hotel located on the Las Vegas "Strip." The Company
excludes the accounts of Border Grill and instead records its equity interest
using the equity method of accounting, as adjusted to reflect the terms of the
Border Grill Operating Agreement regarding allocation of profits and losses
among the Border Grill's members.

      The following summarizes the unaudited condensed balance sheets at
December 31, 2005 and 2004 of the Border Grill:


                                      -37-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   December 31, 2005  December 31, 2004
                  -----------------  -----------------
Assets            $       1,480,000  $       1,496,000
Liabilities                 451,000            473,000
                  -----------------  -----------------

Members' capital  $       1,029,000  $       1,023,000
                  =================  =================


      The following summarizes the condensed statements of operations for the
twelve months ended December 31, 2005 and 2004 (unaudited) of Border Grill:

                                         Twelve Mos. Ended  Twelve Mos. Ended
                                         December 31, 2005  December 31, 2004
                                         -----------------  -----------------
Revenues                                 $       7,786,000  $       7,634,000
Expenses excluding depreciation
 and amortization                                6,416,000          6,172,000
Depreciation and amortization                      139,000            252,000
                                         -----------------  -----------------

Net income                               $       1,231,000  $       1,210,000
                                         =================  =================


      For the twelve months ended December 31, 2005, the Company's income from
Border Grill, totaling $604,000, was decreased by $79,000 to adjust the
Company's net capital contribution in Border Grill to reflect the Company's
portion of total member's capital.

      In addition, as a result of the YaYa, LLC asset acquisition, the Company,
through YaYa, obtained a non-controlling interest (10% at December 31, 2005 and
2004, respectively) in an unconsolidated subsidiary ("Games Media") that has
entered into an in-substance joint venture arrangement to create a promotional
event called a video game touring festival. The Company has no capital
requirement in connection with this joint venture and is not obligated to
provide future financing of the activities. If, after good faith efforts by the
members, there are insufficient corporate sponsors to cover all costs and
expenses of staging the initial event, the joint venture shall dissolve and
liquidate, unless the members agree to the contrary.

      The following summarizes the unaudited condensed balance sheets at
December 31, 2005 and 2004 of Games Media:


                  December 31, 2005  December 31, 2004
                  -----------------  -----------------

Assets            $         624,000  $         480,000
Liabilities                 180,000             82,000
                  -----------------  -----------------

Members' capital  $         444,000  $         398,000
                  =================  =================


                                      -38-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The following summarizes the unaudited condensed statements of operations
for the twelve months ended December 31, 2005 and 2004 of Games Media:

                                           Twelve Mos. Ended   Twelve Mos. Ended
                                           December 31, 2005   December 31, 2004
                                           -----------------   -----------------
Revenues                                   $       2,785,000   $       2,312,000

Expenses                                           2,624,000           1,942,000
                                           -----------------   -----------------
Net income                                 $         161,000   $         370,000
                                           =================   =================


Note 4 - Goodwill

      On February 3, 2004, AVMC acquired all of the outstanding common stock of
Wellspring and began operating Wellspring as of that date. The aggregate
purchase price for the outstanding shares of Wellspring common stock was
$8,000,000, of which $4,000,000 was paid in cash and $4,000,000 in the form of
secured negotiable promissory notes and a secured non-negotiable promissory
note.

      AVMC acquired from Wellspring its approximately 750-title film library and
its home video, direct response, worldwide distribution and theatrical
divisions.

      In conjunction with the Wellspring acquisition, an independent third-party
appraised the Wellspring film library at $12,790,000. The following table
summarizes the estimated fair value of Wellspring's assets and liabilities at
December 31, 2004, and calculates the resulting `negative goodwill' balance.
Negative goodwill was allocated pro rata to the acquired film library and fixed
assets:


                                      -39-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S>                                                                      <C>
Purchase price:
     Issuance of promissory notes                                        $       4,000,000
     Cash paid for acquisition                                                   4,000,000

Acquisition direct costs:
     Issuance of common stock options as investment banking fee                    235,000
     Legal, accounting and other miscellaneous direct acquisition costs            165,000
                                                                         -----------------
Total purchase price and direct costs                                            8,400,000
                                                                         -----------------

Fair value of Wellspring's assets and liabilities:
     Assets
        Film library                                                            12,790,000
        Capitalized film costs                                                   2,100,000
        Furniture and equipment                                                    344,000
        Deferred income tax asset                                                1,506,000
        Other assets                                                               193,000
        Current assets (including $4,360,000 in accounts receivable)             6,173,000
                                                                         -----------------
                                                                                23,106,000
                                                                         -----------------
     Liabilities
        Line of credit                                                           2,799,000
        Current liabilities                                                      4,426,000
                                                                         -----------------
                                                                                 7,225,000
                                                                         -----------------
Fair value of identifiable net assets acquired                                  15,881,000
                                                                         -----------------

Negative goodwill                                                        $      (7,481,000)
                                                                         =================
</TABLE>

      Consideration paid in acquiring the Hypnotic assets, business and
liabilities consisted of the issuance of 1,000,000 warrants (each, an "Enigma
Warrant") to Enigma. Each Enigma Warrant, which was valued at $0.75 per Enigma
Warrant, grants its holder the right to purchase one share of the Company's
common stock, par value $0.01 per share, at an exercise price of $5.00 per
share, at any time on or before December 31, 2013. The terms of the Enigma
Warrants were the result of arm's-length negotiations between the Company and
Enigma.

      The following table summarizes the estimated fair value of Hypnotic's
assets and liabilities at December 31, 2004, and calculates the resulting
goodwill balance:


                                      -40-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                <C>
Purchase price:
          Issuance of 1,000,000 warrants for shares of the Company's common stock  $         750,000
Acquisition direct costs:
          Issuance of common stock options as investment banking fee                          30,000
          Legal, accounting and other miscellaneous direct acquisition costs                 111,000
                                                                                   -----------------
Total purchase price and direct costs                                                        891,000
                                                                                   -----------------

Fair value of Hypnotic's assets and liabilities:
          Assets
                 Film inventory                                                              657,000
                 Furniture and equipment                                                     185,000
                 Other assets (including $25,000 in identifiable intangibles)                163,000
                 Current assets (including $806,000 in accounts receivable)                1,104,000
                                                                                   -----------------
                                                                                           2,109,000
                                                                                   -----------------
          Liabilities
                 Film production liabilities                                                 612,000
                 Deferred revenue                                                            585,000
                 Current liabilities                                                         595,000
                                                                                   -----------------
                                                                                           1,792,000
                                                                                   -----------------
Fair value of identifiable net assets acquired                                               317,000
                                                                                   -----------------

Goodwill                                                                           $         574,000
                                                                                   =================
</TABLE>


      Consideration paid in acquiring the YaYa, LLC assets, business and
liabilities consisted of 824,811 shares of the Company's common stock and the
assumption of liabilities totaling approximately $2,500,000, including loans
aggregating $1,110,000 in principal amount made by the Company to YaYa, LLC in
December 2002 and March 2003. The 824,811 shares of Company common stock were
valued at $1.41 per share based on the closing price of the Company's common
stock on April 16, 2003. Prior to December 31, 2004, the Company allocated the
estimated fair value of YaYa's assets and liabilities, and calculated the
resulting goodwill balance of $2,939,000.

      Effective January 1, 2004, AVMC combined the YaYa operations and the
Hypnotic branded entertainment operations into its Branded Content segment.
During December 2004, the Company discontinued its Branded Content segment. As a
result, and in connection with the preparation of the December 31, 2004
financial statements, management determined that the YaYa goodwill carrying
value of $2,939,000 was not recoverable. The loss from impairment is included in
loss from discontinued operations in the consolidated statement of operations
for the year ended December 31, 2004.

      The following unaudited pro forma information, for the twelve months ended
December 31, 2004, represents the results of operations of the Company as if the
Wellspring, Hypnotic and YaYa acquisitions had occurred at January 1, 2004 after
giving pro forma effect to elimination of various positions, increases in
certain salaries, increased income tax benefits and discontinued operations from
the Branded Content segment:



                                      -41-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                               Twelve Mos. Ended
                                                               December 31, 2004
                                                                   (unaudited)
                                                              =================

Revenues, net                                                 $      21,368,000
                                                              =================

Net loss                                                      $      (6,813,000)
                                                              =================

Net loss per common share - basic and diluted                 $           (1.18)
                                                              =================


      The unaudited pro forma information does not purport to be indicative of
the results that would actually have been achieved had the acquisitions occurred
as of the date of the periods indicated.


Note 5 - Accounts and other receivables, net

      Accounts and other receivables, net consist of:

<TABLE>
<CAPTION>
                                                       December 31, 2005  December 31, 2004
                                                       -----------------  -----------------
<S>                                                    <C>                <C>
Gross accounts and other receivables                   $          39,000  $       6,272,000
Less allowances for doubtful accounts and returns                   --           (1,313,000)
                                                       -----------------  -----------------

Total accounts and other receivables, net                         39,000          4,959,000
Less long-term portion                                              --             (201,000)
                                                       -----------------  -----------------

Total accounts receivable, net, current portion        $          39,000  $       4,758,000
                                                       =================  =================
</TABLE>

      Bad debt expense of $124,000 and $898,000 was recorded for the twelve
months ended December 31, 2005 and 2004, respectively. Sales returns expense of
$270,000 and $1,736,000 were recorded as an offset against gross revenues for
the twelve months ended December 31, 2005 and 2004, respectively.

      As discussed in "Note 1 - Nature of operations and summary of significant
accounting policies (Nature of business and business activities)," effective
March 21, 2005, Genius acquired AVMC and its subsidiaries' accounts and other
receivables. As such, bad debt and sales return expenses, recorded for the 2005
and 2004 periods, are included in the income (loss) from discontinued operations
on the Company's consolidated statements of operations.



                                      -42-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 6 - Film inventory, net

                          December 31, 2005           December 31, 2004
                     --------------------------  --------------------------
                         Gross                      Gross
                        Carrying   Accumulated     Carrying    Accumulated
                         Amount    Amortization     Amount     Amortization
                     ------------  ------------  ------------  ------------

Film inventory, net  $       --    $       --    $ 10,657,000  $  2,439,000
                     ============  ============  ============  ============


      The aggregate film inventory amortization expense for the twelve months
ended December 31, 2005 was $665,000 as compared to $2,439,000 for the twelve
months ended December 31, 2004.

      As discussed in Note 1 - Nature of operations and summary of significant
accounting policies (Nature of business and business activities), effective
March 21, 2005, Genius acquired AVMC and its subsidiaries' film inventory. As
such, the film inventory amortization expense, for the 2005 and 2004 periods are
included in the income (loss) from discontinued operations on the Company's
consolidated statements of operations.

      The film inventory was amortized over a period primarily ranging from five
to seven years. At December 31, 2004, the film inventory had unamortized costs
of $8,218,000.

      At December 31, 2004, the film library represented films that had been
released or were available for release. No films were in production, in
development or preproduction.

      At December 31, 2004, the Company also estimated 53% of its unamortized
film costs for released films, excluding acquired film libraries, would be
amortized during the three-year period ending December 31, 2007. Amortization of
at least 80% of the film costs for released films, excluding acquired film
libraries, was estimated to occur in 2014.


Note 7 - Furniture and equipment, net

                                   December 31,   December 31,
                                       2005           2004
                                   ------------   ------------
Computer equipment                 $     55,000   $    604,000
Furniture and fixtures                   23,000        107,000
Office equipment                         29,000         57,000
Production equipment                       --           21,000
Leasehold improvements                    7,000         56,000
                                   ------------   ------------
                                        114,000        845,000
Less accumulated depreciation and
amortization                            (91,000)      (499,000)
                                   ------------   ------------
                                   $     23,000   $    346,000
                                   ============   ============


                                      -43-
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Depreciation expense from continuing operations, for the twelve months
ended December 31, 2005 and 2004, totaled $85,000 and $139,000, respectively. As
discussed in Note 1 - Nature of operations and summary of significant accounting
policies (Nature of business and business activities), effective March 21, 2005
Genius acquired AVMC and its subsidiaries' furniture and equipment. The
aggregate depreciation and amortization expense, from discontinued operations,
totaled $51,000 for the twelve months ended December 31, 2005 and $204,000 for
the respective 2004 period.


Note 8 - Lines of credit

      In conjunction with the February 3, 2004 Wellspring acquisition, the
Company assumed a Revolving Line of Credit arrangement ("Atlantic Line of
Credit") with Atlantic Bank of New York ("Atlantic"). The Atlantic Line of
Credit, originally was to expire on May 1, 2004. The Atlantic Line of Credit was
extended to February 15, 2005. The Atlantic Line of Credit provided for a
$4,500,000 credit facility and was secured by substantially all of the assets of
Wellspring. The interest rate was a floating rate of 2.75% above Atlantic's
prime lending rate (which was 8.0% at December 31, 2004). To the extent that the
borrowing base (defined in the Atlantic Line of Credit as the sum of 50% of
eligible accounts receivable, 70% of wholesale inventories and 30% of retail
inventories) was below the $4,500,000 maximum, the Atlantic Line of Credit was
limited to the borrowing base. At December 31, 2004, the Company had an
outstanding principal balance of $2,349,000 under the Atlantic Line of Credit.

      Related to the March 21, 2005 AVMC disposition transaction, Genius assumed
the Atlantic Bank of New York credit facility.

      Effective June 30, 2004, the Company arranged with SouthwestUSA Bank
("SouthwestUSA") a $2,500,000 credit facility (the "SouthwestUSA Line of
Credit"). The SouthwestUSA Line of Credit was secured by a certificate of
deposit in the principal amount of $2,500,000. This certificate of deposit had a
stated interest rate of 1.75% and maturity date of June 30, 2005. Jeanne Hood, a
director of the Company, is a director of SouthwestUSA.

      On April 5, 2005, the Company paid the SouthwestUSA Line of Credit
principal balance of $2,500,000 by surrendering the $2,500,000 certificate of
deposit held as collateral for the SouthwestUSA Line of Credit. The SouthwestUSA
Line of Credit has been cancelled.


Note 9 - Notes payable

      The aggregate purchase price for the shares of Wellspring capital stock
included the issuance by AVMC of $4,000,000 of secured negotiable notes and a
secured non-negotiable note. The notes bear interest at 7% per annum, are
payable quarterly, and mature on February 3, 2006. The notes are guaranteed by
Wellspring and are secured by a junior line on all of the assets of Wellspring
and a pledge of Wellspring's capital stock by AVMC. The liens are subordinate to
the rights of Atlantic.

      As discussed in "Note 1 - Nature of operations and summary of significant
accounting policies," on March 21, 2005, the Company sold all of the outstanding
common stock of AVMC to Genius. Related to the transaction, the Company
guaranteed to the respective noteholders the obligations arising under certain
secured negotiable AVMC promissory notes and a secured non-negotiable AVMC
promissory note aggregating $3,274,000 in principal amount. The noteholders
received their promissory notes in connection with AVMC's acquisition of
Wellspring on February 3, 2004. The promissory notes bear interest at 7.0% per
annum, payable quarterly, and matured on February 3, 2006. The promissory notes
were guaranteed by Wellspring at the time of their issuance and are secured by
all of the assets of Wellspring and a pledge by AVMC of Wellspring's capital
stock owned by AVMC. The Wellspring guaranty and AVMC pledge remained in effect
after the sale of AVMC to Genius.


                                      -44-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      During June 2005 and July 2005, the Company funded $2,050,000 and
$450,000, respectively, to an escrow account against the guarantee of the
obligations for the AVMC promissory notes and secured non-negotiable AVMC
promissory note.

      In February 2006, the AVMC promissory notes were repaid in full. On March
8, 2006, the Company received the escrow principal and accrued interest totaling
$2,530,000 and its guaranty of certain of the AVMC promissory notes was
terminated.

      From the April 16, 2003 acquisition of the YaYa business, the Company
assumed a $523,000 promissory note payable to prior owners of the YaYa business.
Provided that YaYa Media had available cash resources from revenues generated
from YaYa Media business activities, the promissory note provided for annual
interest-only payments commencing on December 31, 2003 through maturity date.
The interest rate on the promissory note is 9% with a maturity date of the later
of (i) May 1, 2006, or (ii) the first date that YaYa Media has sufficient cash
available to repay the balance of the promissory note and all accrued but
previously unpaid interest. During December 2004, AVMC closed its Branded
Content division, which included the YaYa business, and terminated the related
staff and consulting positions. The promissory note is included as a long-term
note payable in the Company's consolidated balance sheet at December 31, 2005
and 2004. YaYa's only remaining potential source of cash flow, at December 31,
2005, is its 10% equity interest in Games Media, an unconsolidated subsidiary.
However, to-date, the unconsolidated subsidiary has provided no cash
distributions to its equity members.


Note 10 - Stockholders' equity

      Preferred stock. The Board of Directors has authority, without additional
stockholder approval, to issue up to 10,000,000 shares of preferred stock and to
set the various terms including, without limitation, dividend rates, conversion
rights, voting rights, terms of redemption and liquidation preferences.
Conversion rights associated with a future issuance of preferred stock could
dilute the interest of the holders of common stock. Voting rights and
liquidation preferences could also be senior to the rights and preferences of
the common stockholders.

      Common stock. Effective July 18, 2003, the Company's stockholders ratified
an increase in the Company's authorized common stock from 10,000,000 to
100,000,000 shares.

      In February 2004, 13,440 shares of the Company's common stock were issued
to a former employee as a result of options exercised.

      In December 2004, the Company issued 25,000 shares of the Company's common
stock to retain the services of Jefferies & Co., Inc. to act as financial
advisor to the Company in various financing matters.

      YaYa, LLC and the Company also entered into a Voting Agreement, dated as
of April 16, 2003. This agreement provides that YaYa, LLC will vote all of the
shares of the Company's common stock that it owns, including the 824,811 shares
YaYa, LLC acquired in the acquisition transaction, as directed by the Company's
board of directors, except in connection with any (a) tender offer by a party
other than YaYa, LLC or an affiliate of YaYa, LLC, (b) transaction which is
subject to Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as
amended, or (c) merger involving the Company where, as a result of such merger,
the then stockholders of the Company would, upon consummation of such merger,
own less than 50% of the total voting power of the entity surviving such merger.
The agreement further provides that it is terminable on the later of: (x) the
day following the 20th consecutive trading day where the closing price of the
Company's common stock exceeds $7.50 per share or (y) April 16, 2010. Upon the
dissolution of YaYa, LLC, the obligations of YaYa, LLC were assumed by the
parties who received the shares of the Company's common stock in connection with
such dissolution.


                                      -45-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



      Stock repurchase program. From time to time, the Company may repurchase,
without additional shareholder approval, up to an aggregate of $2,000,000 of its
common stock in the open market or in 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. The
Company has purchased a total of 387,027 shares ($415,000) prior to August 1,
2002. The Company has not purchased shares subsequent to August 1, 2002.

      Stock plans. At December 31, 2005 and 2004, the Company has two separate
active stock plans with 1,583,334 shares available 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. In
addition, the Company has two expired stock option plans which authorized
500,000 shares reserved for issuance to officers of the Company and 833,334
shares reserved for issuance to key employees, including officers. Options,
under all plans, have generally not been granted at 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 four plans:

<TABLE>
<CAPTION>
                                                                                                  Employees, Officers
                                             Officers                  Key Employees               Directors, Others
                                    --------------------------  ---------------------------  -------------------------------
Common shares reserved for issuance          500,000                     833,334                       1,583,334
                                    ==========================  ===========================  ===============================
<S>                                 <C>           <C>           <C>            <C>           <C>            <C>
Outstanding, December 31, 2003            11,696  $       1.13       117,304   $       1.16       868,335   $           1.70
Granted                                     --            --            --             --         150,000               3.83
Exercised                                   --            --         (33,334)          1.13          --                  --
Canceled / expired                          --            --            --             --            --                  --
                                    ============  ============  ============   ============  ============   ================

Outstanding, December 31, 2004            11,696          1.13        83,970           1.16     1,018,335               2.23
Granted                                     --            --            --             --         190,000               1.60
Exercised                                   --            --            --             --            --                  --
Canceled / expired                          --            --            --             --         (75,000)              3.19
                                    ------------  ------------  ------------   ------------  ------------   ----------------

Outstanding, December 31, 2005            11,696  $       1.13        83,970   $       1.16     1,133,335   $           2.17
                                    ============  ============  ============   ============  ============   ================

Options outstanding -- weighted
 average remaining contractual
 life (years) // range of exercise
 prices                                      4.2  $       1.13           4.4    $1.13-$1.63           7.3        $0.93-$4.15
                                    ============  ============  ============   ============  ============   ================

Options exercisable -- weighted
 average remaining contractual
 life (years) // range of exercise
 prices                                      4.2  $       1.13           4.4    $1.13-$1.63           6.7        $0.93-$4.15
                                    ============  ============  ============   ============  ============   ================
</TABLE>

                                      -46-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Warrants. Pursuant to the December 31, 2003 asset acquisition agreement
among Enigma and the Company, the Company issued to Enigma warrants (each, a
"Enigma warrant"), which were valued at $0.75 per Enigma warrant, to purchase a
total of 1,000,000 shares of the Company's common stock, par value $0.01 per
share, at an exercise price of $5.00 per share (the Enigma warrants "Exercise
Price"), expiring on December 31, 2013. The Company and Enigma fixed the terms
of the Enigma warrants pursuant to arm's-length negotiations.

      Commencing on July 1, 2006, the Company may redeem the Enigma warrants, in
whole or in part, at a redemption price of $0.75 per Enigma warrant, provided
that the average of the closing sale prices of the Company's common stock as
reported on the Nasdaq Stock Market or other reporting system that provides last
sale prices, has been at least 200% of the Exercise Price for a period of 20
consecutive trading days ending on the third day prior to the date on which the
Company gives notice of redemption.

      Holders of Enigma warrants have the right to demand one registration for
resale of the shares underlying the Enigma warrants at the expense of the
Company and two additional registrations at their own expense. They also have
unlimited piggyback registrations with respect to shares that have not been
previously registered.


Note 11 - Income taxes

      Income tax benefit (provision) related to continuing operations is
comprised as follows:

                                          Twelve Mos. Ended   Twelve Mos. Ended
                                          December 31, 2005   December 31, 2004
                                          -----------------   -----------------

Current:
 Federal                                  $            --     $            --
 State                                                 --                  --
                                          -----------------   -----------------

                                          $            --     $            --
                                          =================   =================

Deferred:
 Federal                                  $         474,000   $        (234,000)
 State                                             (283,000)            224,000
                                          -----------------   -----------------

                                          $         191,000   $         (10,000)
                                          =================   =================


      The total income tax (provision) benefit is recorded as follows:


                                   Twelve Mos. Ended   Twelve Mos. Ended
                                   December 31, 2005   December 31, 2004
                                   -----------------   -----------------

Continuing operations              $         191,000   $         (10,000)
Discontinued operations                   (1,428,000)          3,539,000
                                   -----------------   -----------------

                                   $      (1,237,000)  $       3,529,000
                                   =================   =================


                                      -47-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



      The income tax provision for the twelve months ended December 31, 2005 and
2004 differs from the amount of income tax determined by applying the applicable
U.S. statutory federal income tax rate to pre-tax loss as a result of the
following differences:

<TABLE>
<CAPTION>
                                                  Twelve Mos. Ended           Twelve Mos. Ended
                                                  December 31, 2005     %     December 31, 2004     %
                                                  -----------------   -----   -----------------   -----
<S>                                               <C>                   <C>   <C>                   <C>
Statutory federal tax rate                        $       2,557,000      34   $        (200,000)    (34)
Expected state tax, net of federal                          151,000       2             (29,000)     (5)
Effect of permanent differences                             (21,000)     (0)            (32,000)     (5)
Employment tax credits                                       25,000       0              25,000       4
Benefit of no state tax on land gain                           --         0             253,000      43
Loss utilization against income from
 discontinued operations                                  1,428,000      19                --         0
Effect of deferred tax asset valuation allowance         (3,368,000)    (45)               --         0
Effect of reduction in expected state tax rate
 on net deferred tax asset                                 (249,000)     (3)               --         0
Other                                                      (332,000)     (4)            (27,000)     (5)
                                                  -----------------   -----   -----------------   -----

                                                  $         191,000       3   $         (10,000)     (2)
                                                  =================   =====   =================   =====
</TABLE>


      The components of deferred net tax assets and liabilities at December 31,
2005 and 2004 are comprised of:


                                                     December 31,   December 31,
                                                         2005           2004
                                                     ------------   ------------

Tax attributes of unconsolidated investee            $    177,000   $    141,000
Reserves, allowances and accruals                          46,000        712,000
Basis in acquired intangibles (film library)                 --          874,000
Net operating loss                                      3,644,000      3,646,000
Basis of securities                                      (498,000)          --
Other                                                      (1,000)        65,000
                                                     ------------   ------------

                                                        3,368,000      5,438,000
Less: deferred tax asset valuation allowance           (3,368,000)          --
                                                     ------------   ------------

                                                     $       --     $  5,438,000
                                                     ============   ============


      As of December 31, 2005, the Company had available net operating loss
carryforwards for federal and state of $9,823,000 and $9,987,000, respectively,
which begin to expire in 2022 and 2012, respectively. The Company also had
available, as of December 31, 2005, federal general business tax credit
carryforwards of $184,000, which begin to expire in 2022.




                                      -48-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 12 - Commitments and contingencies

      Operating lease commitments. At December 31, 2005, the Company leases its
corporate office space located in Las Vegas, Nevada under an agreement that
terminates on October 31, 2008. At December 31, 2005, the lease agreement
provides for a monthly base rental amount of $3,000 and payment of taxes,
insurance, maintenance and other expenses related to the leased property.

      The lease obligations for the two administrative offices formerly utilized
by AVMC and located in Santa Monica, California, the direct response offices
located in Los Angeles, California and the Wellspring executive and operations
offices located in New York, New York were assumed by the Company in connection
with the AVMC disposition.

      During September 2005, the Company subleased for the remainder of the
lease term one of the two administrative offices located in Santa Monica,
California to an unaffiliated third party at an amount equal to the Company's
rental obligations under the lease for such office. The sublease terms also
provided for a security deposit totaling $96,000, which approximates three
months of rent, which is included in other long-term payables of the Company's
consolidated balance sheet at December 31, 2005.

      Through October 31, 2005, the Company continued to utilize the remaining
Santa Monica, California office for its Hypnotic operations. Effective November
1, 2005, the Hypnotic operations were relocated to the Las Vegas corporate
office. The Santa Monica, California office was vacated and the Company
contracted with a real estate broker to sublease the office at a rate and for a
term anticipated to equal the Company's existing lease commitment. From November
1, 2005 Genius has occupied this office on a month-to-month basis, at the
Company's existing lease commitment terms.

      In connection with the April 2004 execution of the Santa Monica,
California lease agreement, a $350,000 standby letter of credit benefiting the
landlord was purchased. To the extent that the lease agreements are not in
default, terms of the standby letter of credit provide for individual decreases
of $50,000 on each of April 1, 2005, 2006 and 2007. The standby letter of
credit, totaling $300,000 at December 31, 2005, is included in other assets in
the consolidated balance sheet.

      During September 2005, for a negotiated payment of $10,000, the Company
was released from future rent payments or other commitments related to the
direct response offices located in Los Angeles, California.

      Wellspring's executive ("20th floor") and operations offices ("17th
floor") were located on two full floors of a building located at 419 Park Avenue
South, New York, New York, 10016. The lease agreement, which expires in June
2008, provides for monthly base lease amounts of $14,000 for the 17th floor and
$18,000 for the 20th floor.

      Genius may occupy the 17th floor and 20th floor for a transitional period,
upon reimbursement of the Company's actual monthly rental cost. Effective August
30, 2005, Genius relocated the Wellspring staff from the 17th floor to the 20th
floor. At December 31, 2005, Genius continued to occupy the 20th floor.

      Effective February 15, 2006, the Company subleased the 17th floor to a
third party. Except for a discounted monthly base rental rate of $11,000, the
sublease terms are equal to the Company's rental obligations. At December 31,
2005, the Company has recorded an accrual of $86,000 related to the future
discounted rental expense generated from these discontinued operations. The
long-term portion, totaling $52,000, is included in other long-term payables of
the Company's consolidated balance sheet at December 31, 2005.



                                      -49-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The aggregate future minimum commitments under the operating leases less
contracted sublease rental amounts, are as follows:


 Twelve Mos. Ended
    December 31,
---------------------

        2006                                      $       808,000
        2007                                              809,000
        2008                                              609,000
        2009                                              105,000
        2010                                                   -
     Thereafter                                                -
                                                  ---------------

Total future minimum rental payments required           2,331,000
Less: sublease rentals                                 (2,146,000)
                                                  ---------------

                                                  $       185,000
                                                  ===============


      Rent expense from continuing operations for the twelve months ended
December 31, 2004 and 2005 totaled $179,000 and $214,000, respectively. For the
twelve months ended December 31, 2005 and 2004, rent expense from discontinued
operations totaled $522,000 and $713,000, respectively. For the twelve months
ended December 31, 2005, the Company received sublease rentals totaling
$303,000.

      Litigation and claims. In connection with the premature termination of the
Company's agreements to provide consulting services to an Indian gaming
enterprise, the Company brought a civil action against the Table Mountain Tribe
(the "Tribe"). The lawsuit sought to recover payments due under the agreements,
as well as consulting fees that would have been due during the remainder of the
consulting contract term.

      On October 21, 2005, the Company and the Tribe settled the claims between
the parties. Under this settlement, the Company received a nominal payment from
the Tribe and the Company and the Tribe each granted the other a release from
all claims that could arise under the various agreements between the parties.

      The Company made certain representations concerning AVMC as of February
28, 2005. GNPI has advised the Company that it believes that certain of these
representations may have been inaccurate. Informal discussions are being held
between the Company and Genius on this matter. The Company believes that such
representations were not inaccurate when made and that Genius has not provided
the Company with supporting documentation to substantiate Genius' assertions.
The Company cannot estimate the effect of the potential liability, if any, it
may owe to Genius related to such representations.

      During December 2004, a former Wellspring employee ("Plaintiff"), filed a
petition with the U.S. Equal Employment Opportunity Commission ("EEOC") alleging
the Company and AVMC discriminated against her because of her sex and
disability. The Company and AVMC are vigorously defending this action. However,
given the preliminary nature of the Complaint, the Company is unable to
determine its losses, if any, should the Plaintiff be successful in her
Complaint. Therefore, no accounting recognition has been given to the matter in
the accompanying consolidated financial statements.

      In the ordinary course of its business, the Company may be subject from
time to time to claims and legal actions. The Company has no history of material
claims and, excluding the above discussion, no material actions were pending or
threatened against the Company.




                                      -50-
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 13 - Related party transactions

      The Company's current non-employee directors were paid $160,000 and
$95,000 during the twelve months ended December 31, 2005 and 2004, respectively,
for serving on the Board of Directors of the Company.

      On December 21, 2005, the Company granted to Steven G. Barringer, Jeanne
Hood and Randolph C. Read, non-qualified stock options to each purchase 30,000
of the Company's common stock shares at an exercise price of $1.26 per share.
The options were granted as compensation for serving on the Company's board of
directors.

      In consideration for corporate legal and consulting services, the Company
paid a minority shareholder $56,000 during the twelve months ended December 31,
2004.

      Other related party transactions are described in Note 4 - Lines of Credit
and Note 6 - Stockholders' equity (stock options).


Note 14 - Employee benefit plans

      2004 Employee Stock Purchase Plan. In June 2004, the Company's
shareholders approved the 2004 Employee Stock Purchase Plan ("Stock Purchase
Plan"). Under the Stock Purchase Plan, eligible employees, may in the aggregate,
purchase up to 1,500,000 shares of common stock at semi-annual intervals through
periodic payroll deductions. Purchases are limited to a maximum value of $25,000
per calendar year based on the Internal Revenue Code Section 423 limitation. At
the discretion of the Company's Compensation Committee, the Stock Purchase Plan
may be opened for shares to be purchased on July 1 and January 1 of each year
until termination of the plan on December 31, 2009. The purchase price is 85% of
the lower of (i) the fair market value of the common stock on the participant's
entry date into the offering period, or (ii) the fair market value on the
semi-annual purchase date. To-date, the Compensation Committee has not opened
the Stock Purchase Plan.

      Retirement plan. Company employees meeting certain eligibility
requirements participate in a simplified employee pension plan. Employer
contributions to this plan are made on a discretionary basis and were $82,000
for the twelve months ended December 31, 2005 and 2004, respectively.


Note 15 - Segment reporting

      See "Note 1 - Nature of operations and summary of significant accounting
policies (Nature of business and business activities)" for the discussion
concerning the March 2005 AVMC disposition transaction and December 2005 closure
of Hypnotic operations.

      Effective January 1, 2004, AVMC combined the YaYa operations and the
Hypnotic branded entertainment operations into its Branded Content segment.
During December 2004, the Company discontinued its Branded Content segment.

      As a result of the above transactions the Company has one reportable
segment at December 31, 2005. Accordingly, the Company's consolidated statements
of operations have been retroactively adjusted to account for these former
segments as discontinued operations for all periods presented in accordance with
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
See "Note 2 - Discontinued operations" for a summary of the operating results
for the twelve months ended December 31, 2005 and 2004 for these former
segments.


                                      -51-
<PAGE>

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

Financial Disclosure

      During the Company's two most recent fiscal years, there were no
disagreements between the Company and Deloitte & Touche LLP, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
Deloitte & Touche LLP's satisfaction would have caused Deloitte & Touche LLP to
make reference to the subject matter of the disagreement(s) in connection with
its reports.


Item 8A. Controls and Procedures

      An evaluation was performed, as of December 31, 2005, under the
supervision and with the participation of the Company's management, including
its President and Chief Executive Officer and Chief Accounting Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934. Based on such evaluation, the Company's management
concluded that the Company's disclosure controls and procedures were effective
to ensure that information the Company is required to disclose in reports that
the Company's files or submits under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the SEC's rule and
forms, and that such information is accumulated and communicated to the
Company's management, including the President and Chief Executive Officer and
Chief Accounting Officer, as appropriate, to allow timely decisions regarding
required disclosure.

      There has been no change in the Company's internal controls over financial
reporting that occurred during the fourth fiscal quarter of 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.


Item 8B. Other Information

      None.


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 directors and officers.

Name                      Age   Position
--------------------------------------------------------------------------------
Ronald J. Tassinari        62   Founder, Chief Executive Officer, President and
                                Chairman of the Board of Directors

Steven G. Barringer        49   Director (Corporate Governance Liaison)

Jeanne Hood                76   Director (Chairman of the Audit Committee)

Randolph C. Read           53   Director (Chairman of the Compensation Committee
                                and the Acquisition
                                Committee)

Audrey K. Tassinari        65   Director

Anna M. Morrison           50   Chief Accounting Officer


                                      -52-
<PAGE>

      Ronald J. Tassinari, an original founder of the Company, has served as the
Chief Executive Officer, President and Chairman of the Board of Directors since
its inception in August 1979. Mr. Tassinari also is a member of the Company's
acquisition committee. Mr. Tassinari is the husband of Audrey K. Tassinari,
another director of the Company.

      Steven G. Barringer has served as a director of the Company since February
1998 and the Company's corporate governance liaison since July 2003. Mr.
Barringer has been a member of Holland & Hart LLP since April 2006. Mr.
Barringer was a member of the government relations firm of MGN, Inc. in
Washington, D.C. from November 2000 to April 2006. Mr. Barringer also has
maintained his own law practice, Steven G. Barringer, P.L.L.C., in Washington,
D.C. since November 2000. From April 1999 to October 2000, Mr. Barringer was a
member of the law firm of Dickstein Shapiro Morin & Oshinsky, LLP, in
Washington, D.C., practicing natural resources and environmental law.

      Jeanne Hood has been a director of the Company since February 1994 and
chairman of the Company's audit committee since March 2002. Ms. Hood was a
gaming consultant to the Company from February 1994 to April 2000. Ms. Hood
served as a director of Pioneer Citizens Bank (a Nevada statewide bank) until
its merger during 2000 with Zions, a large regional bank with offices in seven
states. Since January 2000, she has served on the board of Southwest USA Bank.

      Randolph C. Read was elected to the Company's board of directors in May
2003. He has been the President and Chief Executive Officer of American
Strategic Investments, L.P., an investment fund that focuses on established
commercial business operations and investing in both debt and/or equity of those
entities, since 2002. Mr. Read served as President of Knowledge Universe
Business Group and President of Knowledge Universe Capital Co. from 1999 to
2002.

      Audrey K. Tassinari has been a director of the Company since March 1985.
Ms. Tassinari served as the Company's Executive Vice President from April 1986
until July 2002, when she resigned such position in connection with the
Company's corporate restructuring. During her tenure as an officer of the
Company, she was responsible for the Company's management and employee training
programs at Table Mountain Casino that grew from approximately 45 employees in
1989 to 850 employees in 1999. From 1973 to 1985, Ms. Tassinari held key
management positions in the hotel/casino industry. Ms. Tassinari is the wife of
Ronald J. Tassinari, the Company's Chief Executive Officer and President.

      Anna M. Morrison was appointed Chief Accounting Officer of the Company in
April 2003. From August 2002 to April 2003, she provided financial and
accounting services to the Company as an outside consultant. She was President
of Morrison Business Resources, Inc. and an associate with Resources Connection,
Inc. and Robert Half International, Inc. from 1997 to August 2002. Ms. Morrison
served as a manager and an associate for Price Waterhouse LLP, a predecessor of
PricewaterhouseCoopers LLP from 1987 to 1992 and from 1993 to 1996. Ms. Morrison
is a certified public accountant.


Audit Committee

      The Company's Board of Directors has determined that Ms. Hood is an "audit
committee financial expert" as defined in Item 401(e) of Regulation S-B. The
current members of the Audit Committee are Ms. Hood and Messrs. Barringer and
Read. The Company's Board of Directors has determined that all of the members of
the Audit Committee are independent as defined under Rule 10A-3 under the
Exchange Act.


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 persons who own more than ten percent of the Company's
equity securities are required by regulation to furnish the Company with copies
of all Section 16(a) forms they file.

                                      -53-
<PAGE>

      Based solely on the Company's review of the copies of those reports
received by it, or written representations from certain reporting persons that
no other reports were required for those persons, for the twelve months ended
December 31, 2005, the Company is not aware of any failures to file reports or
report transactions in a timely manner, except that one report was filed late
for each of Jeanne Hood and Randolph C. Read. These late filings were in
connection with the reporting of the grant of options to each of such
individuals. Mr. Read claims that the one-business day delinquency in the filing
of his Form 4 was due to no fault of his own. The late filing of Ms. Hood's Form
4 was attributable to a delay in receiving Edgar codes from the SEC.


Code of Ethics

      The Company's board of directors has established a code of ethics that
applies to the Company's principal executive, financial and accounting officer.
A copy of the Company's code of ethics has been made Exhibit 14.1 of the
Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 2003,
filed with the SEC on October 29, 2003.


Item 10. Executive Compensation

Summary Compensation Table

      In February 2004, the Company changed its fiscal year to end on December
31 from July 31 of each calendar year. The following table sets forth, with
respect to the twelve months ended December 31, 2005, 2004 and 2003 and the
fiscal year ended July 31, 2003, all compensation earned by our Chief Executive
Officer and other officers who were serving as executive officers of the Company
as of the close of business on December 31, 2005 and whose total annual salary,
bonus and other annual compensation earned during the twelve months ended
December 31, 2005 exceeded $100,000. Due to the overlap of periods constituting
the twelve months ended December 31, 2003 and the fiscal year ended July 31,
2003, information included in the twelve month period ended December 31, 2003
may be duplicative of information included in the fiscal year ended July 31,
2003.

<TABLE>
<CAPTION>
                                                                                                            Long-Term
                                                                                                           Compensation
                                                         Annual Compensation                                   Awards
                                      --------------------------------------------------------------       ------------
                                                                                                             Securities
                                                                                        Other Annual         Underlying
Name and Principal Position(s)                  Period             Salary      Bonus    Compensation          Options
---------------------------------     --------------------------  ---------   --------  ------------       ------------

<S>                                   <C>                         <C>         <C>       <C>                     <C>
Ronald J. Tassinari,                  Fiscal year ended 12/31/05  $ 316,857   $     -   $     41,000(1)              -
 Chief Executive Officer and
 President                            Fiscal year ended 12/31/04    300,923         -         41,000(1)              -

                                      Twelve months ended
                                        12/31/03                    287,857    100,000        40,000(3)         275,000(4)

                                       Fiscal year ended 7/31/03    272,473         -         40,000(3)          25,000(7)



Anna M. Morrison,                     Fiscal year ended 12/31/05  $ 208,462   $     -   $     41,000(1)          50,000(2)
 Chief Accounting Officer
                                      Fiscal year ended 12/31/04    160,308         -         41,000(1)              -

                                      Twelve months ended
                                       12/31/03                      92,349     15,000        25,539(5)          60,000(6)

                                       Fiscal year ended 7/31/03     33,798         -          8,808(8)          50,000(9)
</TABLE>


(1)   Includes SAR/SEP retirement plan contributions totaling $41,000 the
      Company made on the named executive officer's behalf.

(2)   Represents options to purchase 50,000 of the Company's common stock shares
      at an exercise price of $0.93.

(3)   Includes SAR/SEP retirement plan contributions totaling $40,000 the
      Company made on the named executive officer's behalf.

                                      -54-
<PAGE>

(4)   Represents option to purchase 25,000 of the Company's common stock shares
      at an exercise price of $1.41 per share and 250,000 shares at an exercise
      price of $2.87 per share.

(5)   Includes SAR/SEP retirement plan contributions totaling $25,539 the
      Company made on the named executive officers' behalf.

(6)   Represents options to purchase 50,000 of the Company's common stock shares
      at an exercise price of $1.41 per share and 10,000 shares at an exercise
      price of $2.87 per share.

(7)   Represents an option to purchase 25,000 of the Company's common stock
      shares at an exercise price of $1.41 per share.

(8)   Includes SAR/SEP retirement plan contributions totaling $8,808 the Company
      made on the named executive officer's behalf.

(9)   Represents an option to purchase 50,000 of the Company's common stock
      shares at an exercise price of $1.41 per share.


Option Grants In Last Fiscal Year

      The following table sets forth:

      o     The number of shares underlying options the Company granted during
            the twelve months ended December 31, 2005 to each of the named
            executive officers listed in the Summary Compensation Table
            contained in the "Executive Compensation" subsection of this Form
            10-KSB,

      o     The percentage that the option grant represents of the total options
            granted to all of the Company's employees during the twelve months
            ended December 31, 2005,

      o     The per share exercise price of each option,

      o     and the expiration date of each option.


<TABLE>
<CAPTION>
                                                                   Percentage of
                                      Number of Securities     Total Options Granted
                                       Underlying Options        to All Employees         Exercise
              Name                          Granted               in Fiscal Year           Price           Expiration Date
----------------------------------    ---------------------    ----------------------    -----------    ----------------------

<S>                                          <C>                      <C>                   <C>          <C>
Ronald J. Tassinari                            0                       0.0%                 $ -                  ---

Anna M. Morrison                             50,000                   100.0%                0.93          December 20, 2015
</TABLE>

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

      None of the named executive officers listed in the Summary Compensation
Table exercised an option held by the officer during the fiscal year ended
December 31, 2005.

      The following table includes the number and value of exercisable and
unexercisable stock options granted to each of the named executive officers
listed in the Summary Compensation Table at December 31, 2005.

                                      -55-
<PAGE>

<TABLE>
<CAPTION>
                                                                                  Number of Securities
                                                                                       Underlying          Value of Unexercised
                                                                                      Unexercised              In-The-Money
                                                                                   Options at FY-End       Options at FY-End ($)
                                        Shares Acquired            Value             Exercisable /             Exercisable /
              Name                        on Exercise             Realized         Unexercisable (1)         Unexercisable (1)
----------------------------------    ---------------------    ---------------    ---------------------    ----------------------
<S>                                            <C>             <C>                  <C>                       <C>
Ronald J. Tassinari                            0               $             0      180,555 / 150,000              $0 / $0

Anna M. Morrison                               0               $             0       79,000 / 31,000          $23,250 / $23,250
</TABLE>


(1)   The closing price for the Company's common stock on December 31, 2005 was
      $0.93 per share.


Compensation of Directors

      Non-employee directors receive $15,000 per annum for serving on the Board
of Directors of the Company.

      Jeanne Hood, Randolph C. Read and Steven G. Barringer and Randolph C. Read
also received $10,000 each for serving as the chairpersons for the audit and
compensation committees, respectively and as the corporate governance liaison.

      In addition to quarterly fees received in his capacity as a non-employee
director and chair of the compensation committee, effective June 1, 2005,
Randolph C. Read receives a monthly fee of $10,000 as chair of the Board's
acquisition committee.


Employment and Severance Agreements

      Effective January 1, 2006, the Company entered into a new employment
agreement with Ronald J. Tassinari. The Company entered into this new employment
agreement in order to comply with new Internal Revenue Code sections, rules and
regulations concerning recognition of deferred income. With the exception of the
timing of certain severance payments, the new employment agreement has
substantially similar compensation and other provisions as provided in the
employment agreement superceded by the new employment agreement. Mr. Tassinari's
January 2006 employment agreement provides for him to continue to serve as the
Company's Chief Executive Officer and President. The January 2006 agreement with
Mr. Tassinari provides, among other matters, for (a) an initial annual base
salary of $326,400, subject to adjustments in the event of increases the Company
gives to any of its other executives or increases in a specified cost-of-living
index, (b) reimbursement for his personal legal and financial consulting
expenses to a maximum of 3% of his prior calendar year's base salary, (c) his
right to designate the beneficiary on a $2,000,000 term life policy on his life
and (d) reimbursement of all normal expenses relating to the use of his personal
automobile. The Company also retained the right in the January 2006 employment
agreement to otherwise increase Mr. Tassinari's base salary and grant Mr.
Tassinari other incentive compensation, such as stock options or bonuses. Mr.
Tassinari's January 2006 agreement also contains indemnification provisions
relating to his performance of services on the Company's behalf, and
confidentiality, non-disparagement, non-competition and non-solicitation
provisions.

      Mr. Tassinari's January 2006 employment agreement further provides that,
upon his death during the agreement's term, the Company is obligated to pay his
designee or estate a lump sum death benefit equal to the sum of (a) the
annualized average of the base salary paid to him during the five calendar years
immediately preceding his death, plus (b) the annualized average of the
incentive awards granted to him during the five calendar years immediately
preceding his death. The January 2006 agreement also provides for disability
coverage, including continuing to pay him his base salary and keeping in effect
any incentive awards during an initial period and then continuing to pay him for
a one year period at a rate equal to the annualized average of the base salary,
plus the value of any incentive compensation, paid to him during the prior five
calendar years.

                                      -56-
<PAGE>

      Mr. Tassinari's January 2006 employment agreement provides for payments in
the event of his termination "without cause" or if he terminates his employment
for "good reason," as such terms are used in the agreement. These payments
include (a) payment of a sum equal to 2.99 times the annualized average of the
base salary, plus the value of any incentive compensation, paid to him during
the prior five calendar years, (b) reimbursement of certain legal fees up to
$100,000, (c) continuation of, or the payment of an amount equal in value to,
all employee benefits which he was entitled to receive immediately prior to
termination for the remaining term of the employment agreement and (d)
continuation of, or the payment of an amount equal in value to, all medical
insurance coverage for him and his family for a twelve month period following
termination. The maximum amount of all of these payments may not exceed the
amount which would otherwise result in an "excess parachute payment" under
section 280G of the Internal Revenue Code, minus $1.00.

      The Company entered into a new employment agreement with Anna M. Morrison,
the Chief Accounting Officer, as of January 1, 2006. The Company entered into
this new employment agreement in order to comply with new Internal Revenue Code
sections, rules and regulations concerning recognition of deferred income. With
the exception of the timing of certain severance payments, the new employment
agreement has substantially similar compensation and other provisions as
provided in the employment agreement superceded by the new employment agreement.
This agreement has a term expiring on December 31, 2006 (subject to extension)
and provides for a base salary of $215,500 per year. The Company has the right
under this agreement to increase Ms. Morrison's base salary and to grant her
incentive compensation, such as additional options or bonuses. Ms. Morrison's
agreement contains severance or "golden parachute" provisions providing for
payments equal to 100% of Ms. Morrison's base salary as in effect on the date of
such termination, if she is terminated without cause or she terminates her
employment following a change in control of the Company.


Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

      The Company's common stock is the only class of the Company's voting
securities presently outstanding.

      The following table sets forth information with respect to the beneficial
ownership of shares of the Company's common stock as of April 12, 2006:

o     each person known to beneficially own 5% or more of the outstanding shares
      of such class of stock, based on filings with the Securities and Exchange
      Commission and certain other information,
o     each of the Company's "named executive officers" and directors, and
o     all of the Company's executive officers and directors as a group.

      Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power. In addition, under SEC rules, a person
is deemed to be the beneficial owner of securities which may be acquired by such
person upon the exercise of options and warrants or the conversion of
convertible securities within 60 days from the date on which beneficial
ownership is to be determined.

      The term "named executive officers" is defined in the SEC rules as those
executive officers that are required to be listed in the Summary Compensation
Table provided in the discussion in this report.

Except as otherwise indicated in the notes to the following table,

o     The Company believes that all shares are beneficially owned, and
      investment and voting power is held by, the persons named as owners, and
o     the address for each beneficial owner listed in the table is American
      Vantage Companies, 4735 S. Durango Dr., Suite 105, Las Vegas, NV, 89147.

                                      -57-
<PAGE>
<TABLE>
<CAPTION>
                                                                  Amount and Nature of             Percentage of
Name and Address of Stockholder                                   Beneficial Ownership          Outstanding Shares
-------------------------------                                   --------------------          ------------------
<S>                                                               <C>                           <C>
Ronald J. Tassinari (1)........................................       620,329 (2) (3)                  11.7
Audrey K. Tassinari (4)........................................       620,329 (2) (5)                  11.7
Viviendi Universal Entertainment LLLP (6)......................       524,939 (7)                       8.4
Engex, Inc. (8)................................................       474,500 (9)                       8.3
Rosalind Davidowitz (10).......................................       437,747 (11)                      7.6
Jay H. and Sharyn Brown (12)...................................       348,211 (13)                      6.0
Blueridge Associates (2).......................................       367,279 (2) (14)                  6.4
White Rock Partners, Krest LLC, ET Holdings, L.L.C.,
  Hampstead Associates, L.L.C., Ridgeview Associates,
  LLC, Michael R. Milken and Lowell J. Milken  (15)............       336,505 (2) (16)                  5.9
Anna M. Morrison (17)..........................................       113,300 (18)                      2.0
Jeanne Hood (19)...............................................        87,501 (2) (20)                  1.5
Steven G. Barringer (21).......................................        55,000 (2) (22)                  1.0
Randolph C. Read (23)..........................................        35,000 (2) (24)                  0.6

All executive officers and directors as a group
   (six persons) (25)..........................................     1,785,941 (2) (26)                 28.9

</TABLE>

(1)   Mr. Tassinari is the Company's President and Chief Executive Officer. Mr.
      Tassinari also serves as Chairman of the Company's board of directors. Mr.
      Tassinari is the husband of Audrey K. Tassinari, another director of the
      Company.

(2)   Does not include 824,811 shares of the Company common stock held by
      certain stockholders who have granted the Company's board of directors a
      limited power to vote such shares. These stockholders acquired such
      824,811 shares in connection with the dissolution of YaYa, LLC ("YaYa").
      The Company issued such 824,811 shares to YaYa as the consideration for
      the April 2003 acquisition from YaYa of certain assets and the YaYa
      business. Such stockholders have granted the Company's board of directors
      a limited power to direct how they are to vote their aggregate 824,811
      shares of the Company's common stock pursuant to a voting agreement dated
      as of January 1, 2005. This power has been granted to the Company's board
      as a group, and not to any individual director. The Company believes that
      such voting power is not held by any individual since the Company's board
      is required to act by plurality. As such, no individual director named in
      this stockholder table is listed as the beneficial owner of the 824,811
      shares owned by the former YaYa creditors as of the above schedule date,
      although such shares are included in the aggregate amount held by all
      executive officers and directors as a group. The stockholders include
      White Rock Partners ("White Rock"), which acquired 55,236 shares, Krest
      LLC ("Krest"), which acquired 281,269 shares, and Blueridge Associates LLC
      ("Blueridge"), which acquired 324,178 shares. See note (15) below for
      further information regarding White Rock and Krest. The address for
      Blueridge is c/o Maron & Sandler, 1250 Fourth Street - Suite 500, Santa
      Monica, California, 90401.

(3)   Includes (a) 3,698 shares of Company common stock owned of record by Mr.
      Tassinari, his wife and child, as joint tenants, (b) 443,293 shares owned
      by the Tassinari Family Trust, a family trust in which Mr. Tassinari and
      his wife are trustees and beneficiaries, (c) 5,000 shares owned of record
      by his spouse, (d) 130,555 shares issuable upon exercise of options
      granted to Mr. Tassinari, which shares are exercisable within the next 60
      days, and (d) 27,778 shares issuable upon exercise of options granted to
      Mr. Tassinari's spouse, which shares are exercisable within the next 60
      days. Mr. Tassinari disclaims beneficial ownership to the (x) 27,778
      shares underlying options granted his spouse, (y) 5,000 shares owned of
      record by his spouse and (z) 221,646 shares held by the Tassinari Family
      Trust in excess of his pecuniary interest in such trust. Does not include
      150,000 shares of the Company's common stock issuable upon exercise of an
      option granted to Mr. Tassinari, which shares are not exercisable within
      the next 60 days.

(4)   Ms. Tassinari resigned as the Company's Executive Vice President,
      effective July 31, 2002. Ms. Tassinari continues to serve as one of the
      Company's directors. Ms. Tassinari is the wife of Ronald J. Tassinari.

(5)   Includes (a) 3,698 shares of Company common stock owned of record by Ms.
      Tassinari, her spouse and child as joint tenants, (b) 443,293 shares owned
      by the Tassinari Family Trust, a family trust in which Ms. Tassinari and
      her husband are trustees and beneficiaries, (c) 27,778 shares issuable
      upon exercise of options granted to Ms. Tassinari, which shares are
      exercisable within the next 60 days, (d) 130,555 shares issuable upon
      exercise of options granted to Ms. Tassinari's husband which are
      exercisable within the next 60 days and (e) 10,005 shares held of record
      by Ms. Tassinari's husband. Ms. Tassinari disclaims beneficial ownership
      to the (x) 130,555 shares underlying options granted her husband, (y)
      221,647 shares held by the Tassinari Family Trust in excess of her
      pecuniary interest in such trust and (z) 10,005 shares held of record by
      Ms. Tassinari's husband.


                                      -58-
<PAGE>

(6)   The address for Vivendi Universal Entertainment LLLP ("Viviendi) is 100
      Universal City Plaza - Building 1280-6, Universal City, California, 91608.

(7)   Represents 524,939 shares of Company common stock issuable upon exercise
      of warrants held by Vivendi, which shares are exercisable within the next
      60 days.

(8)   The address for Engex, Inc. is 44 Wall Street, New York, New York, 10005.

(9)   According to the Schedule 13D of Engex, Inc. filed with the SEC on July
      10, 2003, Engex claims to have sole voting and dispositive power with
      respect to 474,500 shares of Company common stock. Such amount does not
      include 12,300 shares owned directly by the chairman of Engex, Inc., J.
      Morton Davis, or 547,747 shares owned by Mr. Davis's wife, Rosalind
      Davidowitz. According to the proxy statement of Engex filed with the SEC
      on January 11, 2005, the principal stockholders of Engex are (a) Mr.
      Davis, the reported beneficial owner of 6.2% of the outstanding common
      stock of Engex, (b) Ms. Davidowitz, the reported beneficial owner of 28.2%
      of the outstanding common stock of Engex, (c) Kinder Investments L.P., the
      reported beneficial owner of 11.2% of the outstanding common stock of
      Engex, and (d) Venturetek LP, the reported beneficial owner of 11.4% of
      the outstanding common stock of Engex. The Engex proxy statement also
      reports that Dov Perlysky, the managing member of the general partner of
      Kinder Investments, is a member of the immediate family of Mr. Davis.
      According to the Schedule 13G/A of Kinder Investments, Nesher, LLC and Dov
      Perlysky filed with the SEC on July 24, 2003, Kinder Investments is the
      owner of an additional 274,100 shares of Company common stock and Mr.
      Perlysky, the managing member of the general partner of Kinder
      Investments, has sole voting and dispositive powers with respect to such
      274,100 shares. The shares listed in the principal stockholders table are
      limited to those shares set forth in Schedule 13D of Engex as being
      beneficially owned by Engex. See Note (11) for further information with
      respect to Mr. Davis' and Ms. Davidowitz's ownership interest in the
      Company's outstanding common stock.

(10)  The address of Rosalind Davidowitz is 7 Sutton Place South, Lawrence, New
      York, 11563.

(11)  According to the Schedule 13G/A of Rosalind Davidowitz filed with the SEC
      on February 7, 2006, Ms. Davidowitz claims to have sole voting and
      dispositive powers with respect to 437,747 shares of Company common stock
      owned directly by her and that she may be deemed the beneficial owner of
      12,300 shares owned by J. Morton Davis, Mrs. Davidowitz's husband. Ms.
      Davidowitz's Schedule 13G/A states that Mr. Davis has the sole power to
      dispose or to direct the dispositionof the 12,300 shares owned by him. The
      shares listed in the principal stockholders table are limited to those
      shares set forth in Ms. Davidowitz's Schedule 13G as being beneficially
      owned by her. See Note (9) for further information concerning Ms.
      Davidowitz's ownership interest in Engex, another stockholder of the
      Company, and other related matters.

(12)  These stockholders hold 260,711 shares of Company common stock of record
      as tenants-in-common. Mr. Brown provides legal services to the Company
      from time to time and previously served as a member of the advisory group
      the Company formed to assist the Company's management in evaluating merger
      and acquisition candidates. Mr. Brown received an option to purchase
      87,500 shares of Company common stock upon his appointment to the advisory
      group, which shares were to become exercisable upon consummation of a
      merger or acquisition transaction involving the Company during the term of
      the advisory group. Such an acquisition transaction was consummated on
      April 16, 2003. The address for Mr. and Ms. Brown is 1801 Waldman Avenue,
      Las Vegas, Nevada, 89102.

                                      -59-
<PAGE>

(13)  Includes 87,500 shares of Company common stock that are issuable upon
      exercise of an option granted to Mr. Brown, which shares are exercisable
      within the next 60 days.

(14)  Includes 43,101 shares of Company common stock issuable upon exercise of
      warrants held by Blueridge, which shares are exercisable within the next
      60 days. Such shares are not subject to the voting agreement referred to
      in note (2) above.

(15)  According to a Schedule 13D/A filed with the Securities and Exchange
      Commission on January 10, 2005 by YaYa, White Rock, Krest, ET Holdings,
      L.L.C. ("ET"), Hampstead Associates, L.L.C. ("Hampstead"), Ridgeview
      Associates, LLC ("Ridgeview)", Michael R. Milken ("M. Milken") and Lowell
      J. Milken ("L. Milken"), YaYa, the former record holder of 824,811 shares
      of our common stock, was dissolved. In connection with the dissolution of
      YaYa, the shares of Company common stock held by YaYa were distributed to
      the creditors of YaYa, including White Rock and Krest. According to our
      stock records, 55,236 shares were transferred to and are currently held of
      record by White Rock and 281,269 were transferred to and are currently
      held of record by Krest. We have no knowledge, nor do our stock records
      show, of any shares of Company common stock being transferred to or held
      by ET, Hampstead, Ridgeview, M. Milken or L. Milken. The Schedule 13D/A
      reports White Rock as having sole voting and dispositive power with
      respect to 55,236 shares of Company common stock and Krest as having sole
      voting and dispositive power with respect to 281,269 shares of Company
      common stock and shared voting and dispositive power with respect to
      55,236 shares of Company common stock. The Schedule 13D/A reports each of
      ET, Hampstead, Ridgeview, M. Milken and L. Milken as having sole voting
      and dispositive power with respect to no shares of Company common stock
      and shared voting and dispositive power with respect to 336,505 shares of
      Company common stock. The Schedule 13D/A does not provide any information
      regarding the relationship or agreements by which these persons and
      entities share any voting and dispositive power with each other, except
      that (a) the secretary of YaYa is Stanley E. Maron, (b) the general
      partner of White Rock is Mapleleaf Partners whose general manager is Mr.
      Maron, (c) the secretary of Krest is Mr. Maron, (d) the assistant
      secretary of ET holdings is Mr. Maron and (e) the manager of Hampstead is
      Ridgeview whose manager is M. Milken. In the original schedule 13D filed
      with the SEC on April 28, 2003 by YaYa, White Rock, ET, Hampstead,
      Ridgeview, M. Milken, L. Milken and others, (x) Hampstead is the manager
      of an entity, ET Consolidated, L.L.C. ("ET Consolidated"), which is the
      manager of ET, (y) Mr. Milken and L. Milken are each managers of
      Ridgeview, directors of ET, ET Consolidated and Hampstead and may be
      deemed a controlling person of Ridgeview. The address for each of White
      Rock, Krest, ET, Hampstead, Ridgeview, M. Milken and L. Milken, according
      to the original Schedule 13D, is 1250 Fourth Street - Suite 580, Santa
      Monica, California, 90401. In a letter dated December 12, 2005, the
      Company was advised that Krest had distributed Krest's 281,269 shares of
      Company common stock to six of its members as follows: Arrowleaf Partners
      (513 shares), ET (144,774 shares), Thomas Kalinske (1,721 shares), David
      Kyman (23 shares), M. Milken (4,988 shares) and Mollusk Holdings LLC
      (129,250 shares)

(16)  Does not include (a) 102,183 shares of Company common stock issuable upon
      exercise of warrants held by Knowledge Universe ("KU"), which shares are
      exercisable within the next 60 days, (b) 60,114 shares of Company common
      stock issuable upon exercise of warrants held by Blue Rock Partners
      ("BRP"), which shares are exercisable within the next 60 days, and (c)
      8,620 shares of Company common stock issuable upon exercise of warrants
      held by Pinecrest Associates, LLC ("PA"), which shares are exercisable
      within the next 60 days. The Company believes that KU, BRP and/or PA may
      be affiliates of one or more of White Rock, Krest, ET, Hampstead,
      Ridgeview, M. Milken and L. Milken.

(17)  Ms. Morrison became the Company's Chief Accounting Officer on April 16,
      2003.

(18)  Includes 79,000 shares of Company common stock issuable upon exercise of
      an option granted to Ms. Morrison, which shares are exercisable within the
      next 60 days.

(19)  Ms. Hood is a director of the Company.

(20)  Includes 70,834 shares of Company common stock issuable upon exercise of
      options granted to Ms. Hood that are exercisable within the next 60 days.

(21)  Mr. Barringer is a director of the Company.

(22)  Represents 55,000 shares of Company common stock issuable upon exercise of
      options granted to Mr. Barringer, which shares are exercisable within the
      next 60 days.

(23)  Mr. Read is a director of the Company.

(24)  Includes 35,000 shares of Company common stock issuable upon exercise of
      an option granted to Mr. Read, which shares are exercisable within the
      next 60 days.

(25)  Includes only current executive officers and directors.

(26)  Includes those shares beneficially owned by the Company's current
      executive officers and directors, as set forth in notes (3), (5), (18),
      (20), (22) and (24).

Securities Authorized For Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

      The Company has provided in the "Equity Compensation Plan Information"
section of Item 5 of this Annual Report on Form 10-KSB certain information with
respect to securities authorized for issuance under the Company's equity
incentive plans.


                                      -60-
<PAGE>

Item 12. Certain Relationships and Related Transactions

      Effective June 30, 2004, the Company arranged with SouthwestUSA Bank
("SouthwestUSA") a $2,500,000 credit facility (the "SouthwestUSA Line of
Credit"). Jeanne Hood, a director of the Company, is a director of SouthwestUSA.

      Mr. Brown, received $0 and $56,000 during the twelve months ended December
31, 2005 and 2004, respectively, in consideration for consulting and legal
services he performed for the Company's benefit.

      As compensation for serving on the Company's board or as a board committee
chair, on December 21, 2005, the Company granted to each of Steven G. Barringer,
Jeanne Hood and Randolph C. Read non-qualified stock options to purchase 30,000
of the Company's common stock each at an exercise price of $0.93 per share.
One-third of the options became exercisable on the date of grant and one-third
become exercisable on the first and second anniversary of the date of grant. The
options expire upon the earlier of (i) ten years from the date of grant or (ii)
upon the removal or resignation of such person as a director of the Company.

      See subsection entitled "Employment and Severance Agreements" for
discussions of the employment agreements the Company has entered into with
Ronald J. Tassinari and Anna M. Morrison and the options granted to these
executive officer pursuant to such employment agreements.


Item 13. Exhibits

(a)   Exhibits

      2.1   Asset Purchase Agreement, dated as of April 16, 2003, among YaYa,
            LLC, American Vantage Companies and YaYa Media, Inc. (5)

      2.2   Asset Purchase Agreement, dated December 31, 2003, among American
            Vantage Media Corporation, American Vantage Companies and Enigma
            Media, Inc. (6)

      4.1   American Vantage Companies Common Stock Purchase Warrant to Gerard
            Klauer Mattison & Co., Inc. (Certificate No.: GKM-1), dated as of
            May 3, 2002. (4)

      4.2   American Vantage Companies Common Stock Purchase Warrant to Enigma
            Media, Inc. (Certificate No. A-1), dated December 31, 2003. (6)

      4.3   American Vantage Companies Common Stock Purchase Warrant to Enigma
            Media, Inc. (Certificate No. A-2), dated December 31, 2003. (6)

      10.1  American Casino Enterprises, Inc. 1996 Stock Option Plan. (1)

      10.2  American Vantage Companies 2003 Equity Incentive Plan. (9)

      10.3  Settlement Agreement, dated February 1, 1996, between the Company
            and the National Indian Gaming Commission. (1)

      10.4  Termination Agreement, dated February 1, 1996, between the Company
            and the Table Mountain Rancheria. 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. (1)

      10.5  Consulting Agreement, dated February 1, 1996, between the Company
            and Table Mountain Rancheria. (1)

      10.6  Amendment to Consulting Agreement, dated June 26, 1997, between the
            Company and Table Mountain Rancheria. (3)

                                      -61-
<PAGE>

      10.7  Joint Venture Agreement, dated as of February 1, 1996, between the
            Company and the Table Mountain Rancheria. (1)

      10.8  Funding and Loan Agreement, dated February 1, 1996, between United
            Auburn Indian Community and Table Mountain/ACES Joint Venture (joint
            venture between the Company and Table Mountain Band of Indians of
            the Table Mountain Rancheria). (1)

      10.9  Settlement and Mutual Release Agreement, dated October 20, 2005,
            between the Company and Table Mountain Rancheria *

      10.10 Lease, dated June 10, 2003, between the Company and Durango Trop,
            L.L.C. (10)

      10.11 Operating Agreement for Border Grill Las Vegas, LLC, dated November
            12, 1998, by and between TT&T, LLC and Vantage Bay Group, Inc. (2)

      10.12 Employment Agreement, dated as of January 1, 2006, between American
            Vantage Companies and Ronald J. Tassinari. *

      10.13 Employment Agreement, dated as of January 1, 2006, between Anna M.
            Morrison and American Vantage Companies. *

      10.14 Employment Agreement, dated as of August 1, 2004, between Anna M.
            Morrison and American Vantage Companies. (12)

      10.15 Voting Agreement, dated as of April 16, 2003, among YaYa, LLC and
            American Vantage Companies. (5)

      10.16 Stock Purchase Agreement, dated February 3, 2004, among American
            Vantage Media Corporation, Wellspring Media, Inc., Al Cattabiani,
            Carl Seldin Koerner, Clara Spalter Miller and Lee Miller. (7)

      10.17 Secured Negotiable Note, dated February 3, 2004, in the principal
            amount of $1,076,704 issued to Al Cattabiani. (7)

      10.18 Secured Negotiable Note, dated February 3, 2004, in the principal
            amount of $65,472 issued to Carl Seldin Koerner. (7)

      10.19 Secured Negotiable Note, dated February 3, 2004, in the principal
            amount of $965,712 issued to Clara Spalter Miller. (7)

      10.20 Secured Negotiable Note, dated February 3, 2004, in the principal
            amount of $965,712 issued to Lee Miller. (7)

      10.21 Secured Non-Negotiable Note, dated February 3, 2004, in the
            principal amount of $200,000 issued to Al Cattabiani. (8)

      10.22 Guaranty, dated February 3, 2004, by Wellspring Media, Inc. (7)

      10.23 Security Agreement, dated February 3, 2004, by Wellspring Media,
            Inc. in favor of Lee Miller as security agent. (7)

      10.24 Stock Pledge Agreement, dated February 3, 2004, from American
            Vantage Media Corporation to Lee Miller as pledge agent. (7)

      10.25 Agreement and Plan of Merger, dated as of March 21, 2005, among
            Genius Products, Inc., Genius Acquisition Corp., American Vantage
            Companies and American Vantage Media Corporation (minus exhibits and
            schedules). (11)

                                      -62-
<PAGE>

      10.26 Assumption of Obligations and Pledge Agreement (Video Catalog),
            dated March 21, 2005, between American Vantage Companies and Genius
            Products, Inc. (11)

      10.27 Assignment, Assumption and Pledge Agreement, dated March 21, 2005,
            between American Vantage Companies and Genius Products, Inc. (11)

      10.28 Resale and Voting Agreement, dated March 21, 2005, between American
            Vantage Companies and Genius Products, Inc. (11)

      10.29 Registration Rights Agreement, dated March 21, 2005, between
            American Vantage Companies and Genius Products, Inc. (11)

      10.30 Guaranty, dated March 18, 2005, among American Vantage Companies, Al
            Cattabiani, Lee Miller, Clara Spalter Miller and Clark Selding
            Koerner. (11)

      14.1  Code of Ethics, dated as of July 31, 2003. (10)

      21.1  Subsidiaries of the Registrant.*

      31.1  Certification of Ronald J. Tassinari.*

      31.2  Certification of Anna M. Morrison.*

      32.1  Certification of Ronald J. Tassinari pursuant to 18 U.S.C. Section
            1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002. *

      32.2  Certification of Anna M. Morrison pursuant to 18 U.S.C. Section
            1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002. *

-------------------------
* Filed herewith.

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

(2)   Incorporated by reference to the Company's Annual Report on Form 10-KSB
      for the year ended July 31, 1999.

(3)   Incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended July 31, 1997.

(4)   Incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended July 31, 2002.

(5)   Incorporated by reference from the Company's Current Report on Form 8-K
      filed on April 30, 2003.

(6)   Incorporated by reference from the Company's Current Report on Form 8-K
      filed on January 15, 2004.

(7)   Incorporated by reference from the Company's Current Report on Form 8-K
      filed on February 18, 2004.

(8)   Incorporated by reference from the Company's Current Report on Form 8-K/A
      filed on March 15, 2004.

(9)   Incorporated by reference from the Company's Current Report on Definitive
      Form 14A filed on June 19, 2003.

                                      -63-
<PAGE>

(10)  Incorporated by reference from the Company's Current Report on Form 10-KSB
      for the year ended July 31, 2003.

(11)  Incorporated by reference from the Company's Current Report on Form 8-K
      filed on March 25, 2005.

(12)  Incorporated by reference from the Company's Current Report on Form 10-KSb
      for the year ended December 31, 2004.


Item 14. Principal Accountant Fees and Services

      The following table sets forth the fees billed by the Company's
independent accountants for the years ended December 31, 2005 and 2004 for the
categories of services indicated.

Category                                                   2005          2004
----------------------------------------------------    ----------    ----------

  Audit fees (1)                                        $  209,000    $  182,000
  Audit-related fees (2)                                         0         9,000
  Tax fees (3)                                              83,000        22,000
  All other fees (4)                                             0             0

(1)   Consists of fees billed for the audit of the Company's financial
      statements, review of financial statements included in the Company's
      Quarterly Reports on Form 10-QSB and services that are normally provided
      by the accountant in connection with statutory and regulatory filings or
      engagements.

(2)   Consists of assurance and related services that are reasonably related to
      the performance of the audit and reviews of the Company's financial
      statements that are not included in "audit fees" in this table.

(3)   Consists of professional services rendered for tax compliance, tax advice
      and tax planning. The nature of these tax services is tax preparation.

(4)   The Company's independent accountants did not provide any other services
      during the two fiscal years.


Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors

      The Company's Audit Committee pre-approves all audit and permissible
non-audit services provided by our independent registered public accounting
firm. These services may include audit services, audit-related services, tax
services and other services. The Audit Committee has designated its chairperson,
Jeanne Hood, to pre-approve permissible non-audit services provided by the
independent registered public accounting firm. Generally, the entire Audit
Committee pre-approves audit services to be performed on quarterly and annual
financial statements. The chairperson presents all pre-approved services to the
full Audit Committee for their review and ratification. The percentage of
services set forth above in the categories "Audit fees," "Audit-related fees,"
"Tax fees" and "All other fees" that were approved by the Audit Committee was
100%. The Audit Committee may also pre-approve particular services on a
case-by-case basis.




                                      -64-
<PAGE>

                                   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:  April 12, 2006

                                          AMERICAN VANTAGE COMPANIES


                                          By: /s/ Ronald J.Tassinari
                                          -------------------------------------
                                          Ronald J. Tassinari, President and
                                          Chief Executive Officer

      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.
<TABLE>
<CAPTION>

Signature                              Title                                         Date
-------------------------              -------------------------------------         --------------
<S>                                    <C>                                           <C>
/s/ Ronald J. Tassinari                President and Chief Executive Officer,        April 12, 2006
-------------------------
Ronald J. Tassinari                    Director (Principal Executive)



/s/ Anna M. Morrison                   Chief Accounting Officer                      April 12, 2006
-------------------------
Anna M. Morrison                       (Principal Financial Officer)



/s/ Steven G. Barringer                Director                                      April 12, 2006
-------------------------
Steven G. Barringer



/s/ Jeanne Hood                        Director                                      April 12, 2006
-------------------------
Jeanne Hood



/s/ Randolph C. Read                   Director                                      April 12, 2006
-------------------------
Randolph C. Read



/s/ Audrey K. Tassinari                Director                                      April 12, 2006
-------------------------
Audrey K. Tassinari
</TABLE>

                                      -65-
<PAGE>