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, 2004

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

          For the transition period from ____________ to _____________

                         Commission File Number 0-10061

                           AMERICAN VANTAGE COMPANIES
                 (Name of small business issuer in its charter)

             Nevada                                              04-2709807
             ------                                             -----------
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                           Identification No.)

    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 (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. [_]

      State issuer's revenues for its most recent fiscal year: $17,776,000
                                                               -----------

      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 $1.65 for the Company's  common stock on April 21, 2005, as reported by
The NASDAQ Stock Market,  Inc.,  was  $8,607,000  (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 21,
2005 was 5,729,107.

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


                       DOCUMENTS INCORPORATED BY REFERENCE

None.


<PAGE>

PART I

Item 1. Description of Business

Recent Developments

      On April 16, 2003,  American  Vantage  Companies (the "Company" or "AVCS")
acquired  substantially  all of the  assets  and  business  and  certain  of the
liabilities of YaYa, LLC. YaYa Media, Inc. ("YaYa"),  a wholly-owned  subsidiary
of the  Company  was  formed,  specifically  to acquire  the YaYa,  LLC  assets,
business and  liabilities  purchased and to continue  YaYa,  LLC'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.  AVMC
acquired from Enigma its  television,  branded  entertainment  and  distribution
operations and specific intellectual  property,  including a short film library.
See "Item 1.  Description of Business - Branded  Content  Division" and "Item 1.
Description  of  Business - Film and TV  Production  Division."  The  results of
operations  for Hypnotic for the period of January 1, through  December 31, 2004
are included in the accompanying consolidated financial statements.

      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.  Wellspring  is a  distributor  of world  cinema and  wellness
programming.  Wellspring's  assets include a film library with approximately 750
titles  distributed  via its home video,  direct  response,  worldwide sales and
theatrical units. See "Item 1. Description of Business - Filmed  Entertainment."
The results of operations  for  Wellspring for the period of February 3, through
December  31,  2004 are  included  in the  accompanying  consolidated  financial
statements.

      The Company is continuing to pursue legal  remedies  related to its casino
consulting  contract  that  was  prematurely  terminated.  See  "Item  1 - Table
Mountain Casino" and, Item 3 - Legal Proceedings."

      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 the  acquired
Hypnotic operations.

      Effective March 21, 2005, the Company sold all of the  outstanding  common
stock of AVMC to Genius  Products,  Inc.  ("Genius"  or  "GNPI").  Genius  began
operating the AVMC operations effective March 22, 2005.  Consideration  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  and  half at an  exercise  price  of  $2.78  per  share.  The
consideration  also  included  assumption  of 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
$3,300,000 of the AVMC promissory notes.  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. The direct response accounts
payable  obligations will be offset from the proceeds,  if any, from the sale of
approximately $300,000 of direct response inventory.

      Of the  7,000,000  shares  of GNPI  common  stock  acquired  from  Genius,
5,675,000  shares are not subject to pledges or other  restrictions.  The Genius
common stock is traded on the over-the-counter  bulletin board (OTCBB) under the
symbol "GNPI." On April 21, 2005, the closing bid price for the Genius stock was
$1.80.  Based on the  April 21,  2005  closing  bid  price,  disposition  of the
5,675,000  shares could result in estimated gross proceeds of $10,215,000 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; or, (ii) Genius entering into another  transaction
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 5,675,000 shares of GNPI stock.

      Related to the Genius  transaction,  the Company  and Genius also  entered
into a  pledge  agreement,  transferring  to the  Company,  certain  assets  and
liabilities  held by  Hypnotic.  The  assets  transferred  back  to the  Company
encompass  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." See "Item 1.
Description   of  Business  -  Film  and  TV   Production   Division"  and  "The
Post-Disposition of AVMC Operations and Assets of the Company."


                                       1
<PAGE>

      In addition to the Hypnotic assets,  the Company retained its 49% interest
in the Las Vegas Border Grill  Restaurant,  the Table Mountain Casino litigation
and YaYa,  which assets  primarily  include a 10% interest in an  unconsolidated
investee.

Development of Business

      The  Company  was  incorporated  in Nevada in 1979 under the name  Western
Casinos, Inc. The Company changed its name to American Casino Enterprises,  Inc.
in 1979 and then changed its name to American  Vantage  Companies in March 1997.
The Company was originally  formed to engage in the business of recreational and
leisure time activities for tourists to the Las Vegas, Nevada region,  including
casino gaming.

      In January 1991, the Company  completed the purchase of all of the capital
stock of Millerton Games, Inc., which held a management consulting contract with
Table  Mountain  Casino.  Table  Mountain  Casino is a tribal gaming  enterprise
located on a Federal Indian Rancheria in Friant, California (the "Table Mountain
Casino").  The Company had been engaged in providing 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 Table
Mountain Band of Indians (the "Table Mountain Tribe")  following a change in the
tribal  government.  See  "Item 1.  Description  of  Business  - Table  Mountain
Casino."

      In February 1999,  Vantage Bay Group, Inc. ("Vantage Bay"), a wholly-owned
subsidiary  of the  Company,  purchased  a 49%  minority  interest  in a limited
liability  corporation  ("Restaurant  Investee",  to develop  the  Border  Grill
restaurant  located in the Mandalay  Bay Hotel and Casino in Las Vegas,  Nevada.
The  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
strategy to develop a branded content business.

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

      During  December  2003,   American   Vantage   Companies  formed  AVMC,  a
wholly-owned   subsidiary,    to   manage   acquired   or   internally-developed
entertainment related businesses.

      Effective  January 1, 2004,  AVMC  combined  the YaYa  operations  and the
Hypnotic  branded  entertainment  operations into its Branded Content  division.
Enigma's  ownership  interest in two feature films and a television  development
and production arrangement with Warner Bros. TV were combined into the Company's
Film and TV Production division.

      On February 3, 2004, AVMC acquired all of the outstanding  common stock of
Wellspring  and began  operating  Wellspring  effective  February  3, 2004.  The
Wellspring assets comprise the Filmed Entertainment division.

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

      On March 21, 2005, the Company sold all of the outstanding common stock of
AVMC to Genius.  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
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.


                                       2
<PAGE>

Table Mountain Casino

      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 Table Mountain Tribe (the "1993  Agreement")  and
the simultaneous entering into of a new consulting agreement between the Company
and the Table Mountain Tribe (the "1996 Agreement"). Under the conditions of the
Termination Agreement, commencing February 1, 1996, the Table Mountain Tribe was
required to pay the Company 48 monthly installments of $350,000 in consideration
for termination of the 1993 Agreement.  However, no payment was required for any
month in which  the net  income of the Table  Mountain  Casino  did not equal or
exceed $1,000,000. 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 consult and provide technical
assistance,  training  and advice to the Table  Mountain  Tribe  concerning  all
matters relating to the operation and business  activities of the Table Mountain
Casino, including, but not limited to, organization and administration, planning
and development, gaming activities, internal controls and accounting procedures,
cage  operations,  engineering and maintenance,  housekeeping,  human resources,
management   information  services,   marketing  and  advertising,   purchasing,
surveillance,  security and food and beverage operations. The 1996 Agreement was
amended in both June 1997 and October 1997. The term of the 1996  Agreement,  as
amended,  was to  expire  on June 30,  2000.  For its  services  under  the 1996
Agreement,  as amended,  the Company was to receive minimum monthly  payments of
$50,000.  The  Table  Mountain  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.

      On May 20, 1999, the Company received formal written notice from the newly
elected  tribal  government,  that the Table  Mountain  Tribe  had  unilaterally
terminated the Company's  contract to provide  consulting  services to the Table
Mountain  Casino,  and ceased  payments on the 1996  Agreement  and  Termination
Agreement.

      In June 1999,  the  Company  brought a civil  action in the United  States
District Court,  Eastern District of California,  Fresno Division (the "District
Court")  against the Table Mountain Tribe for breach of the Company's  contracts
with the Table Mountain Tribe.  The lawsuit seeks to recover  payments  totaling
$3,150,000 due under the Termination  Agreement and an award of $790,000,  which
represents  only the base fees due under the 1996  Agreement.  The Company  also
seeks  interest,  court costs and additional  unspecified and "to be determined"
consulting  fees that would have been due during the remainder of the consulting
term.

      The Table Mountain Tribe filed a counterclaim against the Company claiming
the  consulting  contracts  are  invalid  for  several  reasons  and  requesting
restitution for all consulting fees previously paid to the Company.

      In September  2000, an order was filed by District  Court Judge Anthony W.
Ishii who dismissed the Company's claims against the Table Mountain Tribe due to
the  District  Court's  lack of  subject  matter  jurisdiction.  The order  also
dismissed  the Table  Mountain  Tribe's  counterclaim  against the Company.  The
District Court made no ruling on the merits of the action.  The Company appealed
the order of the District  Court to the Ninth  Circuit  Court of Appeals,  which
upheld the District Court's dismissal.

      In December 2000, the Company filed a virtually identical suit against the
Table  Mountain  Tribe in the  Fresno  County  Superior  Court  of the  State of
California. In April 2001, an order was filed by Superior Court Judge Stephen J.
Kane who  dismissed  the  Company's  civil  action  for lack of  subject  matter
jurisdiction  based on the  Superior  Court's  determination  that  federal  law
completely  preempts  the field of Indian  gaming.  The  Superior  Court made no
ruling on the merits of the action.

      In July 2001, the Company filed an appeal with the California  State Court
of Appeals,  Fifth  District.  In October 2002, the California  Court of Appeals
reversed the April 2001 order of dismissal.  Both the  California  Supreme Court
and the United  States  Supreme  Court  subsequently  denied the Table  Mountain
Tribe's petition to review that appellate court decision.


                                       3
<PAGE>

      In April 2003,  with the case remanded back to the Fresno County  Superior
Court,  the Table Mountain Tribe filed a motion to dismiss the case based on the
Table  Mountain  Tribe's  assertion that its contracts with the Company were not
properly  authorized  by tribal  authorities,  and thereby did not  constitute a
valid waiver of the Table Mountain Tribe's sovereign immunity.  In May 2003, the
Fresno  County  Superior  Court  determined  that the  Company  was  entitled to
discovery on the sovereign  immunity  issue and,  only after such  discovery was
completed, would the Fresno County Superior Court conduct further proceedings on
the sovereign immunity issue.

      In January  2004,  the  California  Superior  Court granted the motion and
dismissed the Company's complaint. The Company has filed an appeal of this order
with the California Court of Appeal, which has yet to schedule a hearing.

      If the Court of Appeal  overturns the Superior Court  dismissal and allows
the Company to pursue its claim  against  the Table  Mountain  Tribe,  the Table
Mountain Tribe may file a counterclaim seeking to recover prior fees paid to the
Company or on other  grounds  that may be alleged by the Table  Mountain  Tribe.
Since the Company is unable to determine  its losses,  if any,  should the Table
Mountain Tribe's counterclaim be successful,  no accounting recognition has been
given to the matter in the accompanying financial statements.

Border Grill Restaurant

      On November 12, 1998, Vantage Bay entered into an operating agreement (the
"Operating Agreement") with TT&T, LLC ("TT&T") to develop a restaurant named the
Border  Grill in the  Mandalay  Bay Hotel and Casino in Las Vegas,  Nevada.  The
Operating Agreement provides that Vantage Bay, in exchange for a 49% interest in
the Nevada limited liability company that owns Border Grill, contribute $251,000
upon the  execution  of the  Operating  Agreement  and,  thereafter,  contribute
further  capital  up to an  aggregate  of  $2,750,000,  all of  which  had  been
contributed  by the Company prior to July 31, 2000, to fund the  development  of
the restaurant  subject to the terms and conditions of the Operating  Agreement.
Vantage  Bay also  agreed to loan to TT&T up to  $175,000  for  development  and
operation  of the  restaurant.  The  Company  further  agreed to  guarantee  all
payments due from Vantage Bay to TT&T. The Border Grill opened on June 17, 1999.
The Company has no day-to-day  management  responsibility in connection with the
restaurant  or the  limited  liability  company.  Since  commencement  of Border
Grill's  operations,  with this  investment,  the Company has received  periodic
distributions.  Such  distributions  totaled  $1,055,000 and $925,000 during the
calendar years ended December 31, 2004 and 2003,  respectively.  The Company has
received  all of its  initial  capital  and  priority  return  and now  receives
distributions from the Border Grill based on its 49% interest.

Branded Content Division

      General. On April 16, 2003, the Company acquired  substantially all of the
assets and business and certain of the liabilities of YaYa,  LLC.  Consideration
paid in acquiring the YaYa, LLC assets,  business and  liabilities  consisted of
824,811  shares of  Company  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 Company  common stock on April 16, 2003.  YaYa, a
wholly-owned  subsidiary of the Company,  was formed specifically to acquire the
YaYa, LLC assets, business and liabilities purchased and to continue YaYa, LLC's
business and operations.

      On December 31, 2003, the Company acquired substantially all of the assets
and business  and certain of the  liabilities  of Hypnotic and began  operations
January 1, 2004.  Hypnotic has been  structured as a wholly-owned  subsidiary of
AVMC.

      AVMC  acquired  from  Enigma its  television,  branded  entertainment  and
distribution   operations  and  specific  intellectual  property,   including  a
short-film  library,  plus an  ownership  interest  in two  feature  films and a
television development and production arrangement with Warner Bros. TV. Together
with Warner Bros.,  Hypnotic currently executive co-produces a television series
for the FOX broadcasting network, "The O.C."

      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 the Company has 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.


                                       4
<PAGE>

      Services and  discontinued  operations.  Effective  January 1, 2004,  AVMC
combined the YaYa operations and the Hypnotic branded  entertainment  operations
into its Branded Content  division.  During 2004, the Branded  Content  division
generated revenue from production of content in various media, advisory services
and  hosting and  reporting  services.  The  division's  client  base  primarily
included Fortune 500 companies that are expanding  traditional marketing methods
to  incorporate  the  current  trend of  integrating  brands into the content of
various media as well as developing relevant content that supports the company's
individual brands.  Branded Content employees provided the creative development,
solution ideation, and project management for the individual projects. Sales and
hosting services were outsourced to various outside parties.

      During  December  2004,  AVMC  closed its  Branded  Content  division  and
terminated the related staff and consulting positions.

Film and TV Production Division

      Services.  The Film  and TV  Production  division  develops  and  produces
traditional  film and TV properties.  While the Film and TV Production  division
continues  to  develop  TV pilots  and  other  commercial  properties,  its 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.  Film  and  TV  Production
employees provide the executive  co-production services for the FOX broadcasting
network weekly television series. In addition, the division's employees develop,
propose and manage  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 the Film and TV
Production division.

      Competition.  The Film and TV Production division's primary competition is
from other independent  production studios. These independent production studios
vary in size and in services  provided.  The Film and TV  Production  division's
primary source of differentiation is its ability to provide internal  production
services  for the  Branded  Content  division  as well as to provide  production
services to external customers.

      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 the  co-executive  producer fees
generated  from the  television  series,  "The  O.C.,"  but  exclude  Hypnotic's
`back-end' interest in "The O.C."

Filmed Entertainment Division

      General.  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.

      Services.  Wellspring  is a  distributor  of  world  cinema  and  wellness
programming.  Wellspring's  assets include a film library with approximately 750
titles  distributed  via its home video,  direct  response,  worldwide sales and
theatrical units. Film library titles are generally acquired from third parties.
These assets comprise the Filmed Entertainment division.

      From  February 3, 2004  through  December  31,  2004,  the home video unit
revenues  represented  50.5% of the total  revenues  generated  from the  Filmed
Entertainment  division.  Home video unit revenues are  generated  from sales to
national retailers.


                                       5
<PAGE>

      The direct  response  unit  generates  sales of home videos  directly from
customers through its "The Video Collection"  catalog.  Prior to September 2004,
on a quarterly  basis, an expanded  catalog was designed,  printed and mailed to
the unit's  customer  base.  In  addition,  a smaller  version of the  quarterly
catalog was mailed on a monthly basis.  During September 2004, due to increasing
catalog postage and printing costs, the Company revised its previous monthly and
quarterly  mailings to a single catalog mailing  campaign during the final three
months of 2004.

      The worldwide unit licenses  television  broadcasting  rights primarily in
North America,  Europe,  Asia and Latin  America.  From February 3, 2004 through
December 31, 2004,  worldwide  revenues also were generated from an agreement to
provide high definition programming on selected existing film library titles.

      The theatrical unit releases and distributes  films to "art houses," which
primarily are located in major metropolitan areas. From February 3, 2004 through
December 31, 2004, the  theatrical  unit has premiered ten films in various U.S.
cities.

      Film Title Life Cycle.  During  2004,  the Filmed  Entertainment  Division
acquired 47 titles for  distribution  within its various  units.  A film title's
life  cycle  may  include  theatrical  release,  home  video,  pay-per-view  and
video-on-demand, pay television and international release. On average, this life
cycle can occur over twelve months.

      The process of acquiring a specific  film title  generally  involves  AVMC
management,  as well as theatrical,  home video and acquisition  management from
the Filmed  Entertainment  division.  An analysis of the  specific  film title's
projected  revenues from each unit,  estimated  prints and  advertising  ("P&A")
costs and  anticipated  film  cost are  reviewed  and  approved  at the  various
management levels.

      Internal  labor and  independent  contractors.  The  Filmed  Entertainment
division  employees  acquire the film  titles and manage the various  divisional
units. Independent contractors are not commonly utilized.

      Competition.  Film  distribution  is a highly  competitive  business.  The
Filmed  Entertainment  division's primary  competition is from other independent
film  distribution  companies.  These companies  compete for: (a) acquisition of
prominent world cinema titles;  (b) retail and direct response  customers;  and,
(c) theatrical audiences.

      Trademarks.   The  Filmed   Entertainment   division  currently  uses  the
Wellspring Media, Inc. and non-fiction  films, inc.  trademarks for distribution
of its titles to domestic and international customers.

      Subsequent  sale. 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 sale.

Company Employees

      As of April 21,  2005,  the Company  has eight  employees,  including  its
President and Chief Executive Officer,  Chief Accounting Officer and Film and TV
Production division executives and employees retained in the Genius transaction.
As of March  22,  2005,  the  Company  has also  retained  AVMC's  former  Chief
Financial  Officer,  Controller,  Accounting Manager and one accounting staff as
consultants.

The Post-Disposition of AVMC Operations and Assets of the Company

      AVMC  constituted all of the operating  assets of the Company for the year
ended December 31, 2004. The Company  disposed of AVMC to Genius effective March
21, 2005. In connection with such disposition, Genius transferred certain assets
and liabilities held by Hypnotic, and certain liabilities of Wellspring, back to
the Company.

      The assets of the Company  following  the  disposition  of AVMC  primarily
consist of the following:

o     7,000,000  shares of GNPI stock,  of which  5,675,000  are  available  for
      placement by the Company;


                                       6
<PAGE>

o     The assets of the Film and TV Production  division retained by the Company
      in  connection  with the  disposition  of  AVMC,  which  assets  generated
      approximately  $638,000 of  revenues  during the year ended  December  31,
      2004;

o     Cash and cash equivalents;

o     A 49%  membership  interest in the  Restaurant  Investee that operates the
      Border Grill, which generated  approximately $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 which holds a 10% interest in Games Media,
      LLC, a joint venture that promotes video gaming touring  festivals,  which
      generated nominal revenues during the year ended December 31, 2004;

o     A claim against the Table Mountain Tribe; and

o     Various other assets, including prepaid expenses,  furniture and fixtures,
      and a deferred income tax benefit.

      The liabilities of the Company following the disposition of AVMC primarily
consist of the following:

o     Contingent liabilities of Hypnotic under its employment agreement with two
      individuals;

o     Liabilities  relating to  accounts  payable of  Wellspring  assumed by the
      Company in connection with the disposition of AVMC totaling  approximately
      $1,100,000 (which may be offset by the sale of Wellspring inventory valued
      at $300,000);

o     A  contingent  liability  relating  to the  Company's  guaranty of certain
      promissory notes of AVMC in the aggregate principal amount of $3,200,000;

o     Contingent  liabilities relating to the Company's leased premises formerly
      utilized by AVMC.

o     Any tax  liability  resulting  from the 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, including office leases,
      and  direct  costs  associated  with  the  disposition  of  AVMC  and  any
      placecment of the GNPI stock.

      The  listing  of  the  Company's  assets  and  liabilities  following  the
disposition  of AVMC set  forth  above is merely a summary  of such  assets  and
liabilities. The Company intends, in accordance with federal securities laws, to
file an amendment to the Company's  Current  Report on Form 8-K (Date of Report:
March 21,  2005),  filed with the SEC on March 25,  2005,  that will include pro
forma  financial  information  concerning  the  Company,  giving  effect  to the
disposition  of AVMC as of dates to be  specified  in such pro  forma  financial
information.  Readers  are urged to review the Form 8-K/A  following  its filing
with the SEC for a complete  listing of the Company's  assets and liabilities at
such  specified  dates and giving  effect to the  disposition  of AVMC;  and the
listing of the Company's  assets and  liabilities  following the  disposition of
AVMC as set forth above is  qualified in its  entirety to the  information  that
shall be provided in the pro forma  financial  information to be included in the
Form 8-K/A.

      The Company anticipates that the Film and TV Production division assets it
retained  following the AVMC disposition  will derive operating  revenues from a
number of sources, including:

o     Creating and developing content, primarily for television, which will then
      be marketed to television networks;

o     The  television  network hit "The O.C." was created by Hypnotic and Warner
      Bros. for the Fox network and is generating  monthly  production  fees for
      Hypnotic  (Genius is only entitled to the "back-end"  fee associated  with
      the revenues generated if and when the series is syndicated);

o     The  ability  to  create  television  commercials  for  clients;

o     Creates  video  content,  including  producing a Yoga  exercise  video for
      distribution to retail outlets;

o     An overhead arrangement with Sony Pictures which allows Sony to have first
      refusal on all Hypnotic-created TV content; and

o     Association  with two  employees  who have many years of experience in the
      television and film industries; one was a senior executive with NBC (David
      Bartis)  and the  other is a notable  film  director,  with  film  credits
      including "The Bourne Identity" and the soon-to-be  released film "Mr. and
      Mrs. Smith," starring Brad Pitt and Angelina Jolie (Douglas Liman).


                                       7
<PAGE>

      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.  A total of  5,625,000
shares of Genius  common  stock is  currently  available  for  placement  by the
Company.  The closing  sale price per share of Genius  common stock on April 27,
2005 was $1.82,  although the Company  believes it will place the Genius  common
stock in private  transactions  at a discount to market of no greater  than 15%.
The Company anticipates  receiving proceeds from the placement of such shares of
Genius  common  stock,  net of fees  in  connection  with  such  placement,  the
investment  banking  fee related to the AVMC sale and monies  necessary  to fund
escrow accounts established in connection with the AVMC disposition.  Additional
funds will be made  available to the Company from  placement of shares of Genius
common stock  initially  placed into escrow and/or if monies used to fund escrow
accounts are released from such escrow  accounts,  as well as from placed shares
issued  upon  exercise  of the  1,400,000  warrants  received  by the Company in
connection with the disposition of AVMC.

      The Company  intends to use a significant  portion of such net proceeds to
seek appropriate merger and acquisition candidates,  including those that may or
may not compliment the  operations of the Film and TV Production  division.  The
Company is currently  working with a  nationally-recognized  investment  banking
firm to identify appropriate merger and acquisition candidates.  This investment
banking firm acted as the  Company's  investment  banking  advisor in connection
with the disposition of AVMC.

Item 2. Description of Property

      Through  September 30, 2003, the Company's  executive offices were located
in approximately 1,000 square feet of shared office space at 7674 West Lake Mead
Blvd.,  Suite 108, Las Vegas,  Nevada,  89128. The Company did not pay a monthly
rent for use of the premises nor was there an agreement for any future payments.
The fair value of this office space arrangement is believed not to be material.

      Effective  October 1, 2003, the Company relocated its executive offices to
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
lease amount of approximately $3,000 and expires on August 31, 2007.

      Through April 2004, YaYa's executive offices were located in approximately
4,600  square feet of office  space at 12300  Wilshire  Blvd.,  Suite #400,  Los
Angeles,  California,  90025. The month-to-month  lease agreement provided for a
monthly  lease amount of  approximately  $11,000.  During  April 2004,  the YaYa
employees were relocated to the AVMC administrative offices.

      Through  January  2004,  YaYa  also  had a  satellite  sales  office  with
approximately  1,000 square feet of office space  located at 333 Hudson  Street,
Suite  #104,  New  York  City,  New  York,  10013.  The  New  York  City  office
month-to-month   lease  agreement   provided  for  a  monthly  lease  amount  of
approximately  $3,000.  During January 2004, the employees were relocated to the
Hypnotic offices.

      At the December 31, 2003 acquisition  date,  Hypnotic's  executive offices
were located at 80 South Street,  New York, New York, 10038. The lease agreement
provided for a monthly base lease amount of approximately $15,000 and expired on
April 30, 2004. Upon  expiration of this lease,  the employees were relocated to
the Wellspring executive and administrative offices.

      At the December 31, 2003 acquisition date,  Hypnotic's  production offices
were located at 1520 Cloverfield  Blvd.,  Santa Monica,  California,  90404. The
lease  agreement  provided  for a monthly  base  lease  amount of  approximately
$11,000 and  expired on August 31,  2004.  Upon  expiration  of this lease,  the
employees were relocated to the AVMC administrative offices.

      AVMC's executive offices are located in approximately 3,000 square feet of
office space at 1547 18th Street,  Santa Monica,  California,  90404.  The lease
agreement,  with an inception  date of January 20, 2004,  provides for a monthly
base lease amount of approximately $10,000 and expires on January 20, 2005.


                                       8
<PAGE>

      The AVMC lease agreement for its administrative offices commenced on April
15, 2004.  The AVMC  administrative  offices  include two adjoining  spaces with
approximately  7,500 square feet within each space.  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,  net on the  December 31, 2004  consolidated  balance
sheets.

      Wellspring's  executive  and  operations  offices  are located on two full
floors of a building sited at 419 Park Avenue South, New York, New York,  10016.
The lease  agreement  provides for a monthly base lease amount of  approximately
$32,000 and expires in April 2008. In addition to executive,  in-house  counsel,
and  administrative  staffing,  these offices also include staffing for the home
video, worldwide and cinema divisions.

      Wellspring's   direct  response  offices  are  located  at  5900  Wilshire
Boulevard,  Los Angeles,  California,  90036. The lease agreement provides for a
monthly base lease amount of approximately $3,000 and expires in June 2006.

      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.
However,  Genius may occupy the  Wellspring  executive  and  operations  offices
located in New York, for a transitional period of 90 days, upon reimbursement of
the Company's actual monthly rental cost. Failure to vacate the New York offices
at the  expiration  of 90 days will result in Genius being  obligated to pay the
Company an amount  equal to 1.5 times the  Company's  actual  cost under the New
York lease.

      In May 1997, the Company  acquired  approximately  40 acres of undeveloped
land in North Las Vegas,  Nevada for  approximately  $3,500,000 in cash.  During
September  2003, the Company entered into an "Agreement for Purchase and Sale of
Real Property and Escrow  Instructions" (the "Property  Agreement") for the sale
of the  approximately  40 acres of  undeveloped  land.  The  Property  Agreement
provided for a $7,000,000 purchase price with the Buyer responsible for the real
estate broker  commission  fees. On January 30, 2004, the Company  completed the
sale for  $7,007,000 in cash  (excluding  legal and  consulting  costs  totaling
$33,000). The Company recognized a pre-tax gain of approximately $3,423,000 upon
consummation of this land sale transaction.

Item 3. Legal Proceedings

      For a discussion of the Company's litigation with the Table Mountain Tribe
see "Item 1. Description of Business - Table Mountain Casino."

      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

      Not applicable.



                                       9
<PAGE>


PART II

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

Common Stock Prices

      The Company's  common stock is traded on The NASDAQ  SmallCap Stock 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 NASDAQ SmallCap Market.  The prices represent
inter-dealer quotations,  without retail mark-up,  mark-down or commission,  and
may not necessarily represent actual transactions:

<TABLE>
<CAPTION>
Period                                                        High Bid      Low Bid
------                                                        --------      -------
<S>                                                           <C>          <C>
Year Ended July 31, 2003:

         August 1, 2002 - October 31, 2002                    $   1.98     $   1.24
         November 1, 2002 - January 31, 2003                  $   2.00     $   1.37
         February 1, 2003 - April 30, 2003                    $   1.90     $   1.32
         May 1, 2003- July 31, 2003                           $   2.11     $   1.55

Transition Period and Year Ended December 31, 2004:

         August 1, 2003 - October 31, 2003                    $   1.87     $   1.87
         November 1, 2003 - December 31, 2003                 $   2.90     $   2.80
         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
</TABLE>

      On April 21,  2005,  the  closing  sale price per share for the  Company's
common stock was $1.65.

      The Company received a letter from the Listing  Qualifications  Department
of The Nasdaq Stock Market, dated April 19, 2005, notifying the Company that its
securities  will be  delisted  from The Nasdaq  Stock  Market at the  opening of
business on April 28, 2005 unless the Company  requested a hearing in accordance
with  Nasdaq's  Marketplace  Rules.  The stated reason for the delisting was the
Company's  failure to file the Annual  Report on Form 10-KSB for the fiscal year
ended  December  31,  2004  in  accordance  with  Nasdaq's  Marketplace  Rule 43
10(c)(14).

      The  Company  had  previously  received  a letter,  also from the  Listing
Qualifications Department of The Nasdaq Stock Market, dated April 12, 2005, that
advised the Company of Nasdaq's  concern that the Company  lacked a  sustainable
on-going  business  in  view  of its  recently  consummated  disposition  of the
American  Vantage Media  Corporation  subsidiary,  as disclosed in the Company's
Current  Report on Form 8-K (Date of  Report:  March 21,  2005),  filed with the
Securities and Exchange  Commission on March 25, 2005. The April 12, 2005 letter
noted that the  Company  may be deemed by Nasdaq to be a "public  shell,"  which
raised potential  public interest  concerns for Nasdaq and made it necessary for
Nasdaq to review the Company's  eligibility for continued  listing on The Nasdaq
Stock Market under Nasdaq's Marketplace Rules 4300 and 4330(a)(3). The April 12,
2005 letter then  requested  that the Company  provide Nasdaq with the Company's
specific  plan  for  future  operations  and  compliance  with  all of  Nasdaq's
continued  listing  requirements  in accordance with Nasdaq's  Marketplace  Rule
4330(c).

      A hearing on both matters has been scheduled with a Listing Qualifications
Panel of The Nasdaq Stock Market for May 19, 2005.

      A delisting  of the  Company's  common  stock from The Nasdaq Stock Market
could  adversely  affect  the  ability  of  investors  to  conduct  transactions
involving  the  Company's  common  stock and the market  price of the  Company's
common stock.

Holders

      On April 21, 2005 there were 863 holders of record of the 5,729,107 shares
of the Company's common stock outstanding.


                                       10
<PAGE>

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

      During  December  2004,  the Company  issued  25,000  shares of its common
stock,  at a market  value of $57,000,  based on the quoted  market price of the
common  stock  on the  date  of  issuance,  to an  investment  banking  firm  as
consideration  for its  agreement to act as financial  advisor to the Company on
various financing matters. The Company believes that the issuance of such shares
was exempt from the registration  requirements of the Securities Act pursuant to
the provisions of Section 4(2) of the Securities Act.

Equity Compensation Plan Information

      The following table sets forth, as of December 31, 2004:

o     the number of shares of Company  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).

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                            (A)                          (B)                           (C)
Plan Category                   Number of securities to be    Weighted-average exercise      Number of securities
                                  issued upon exercise of       price of outstanding        remaining available for
                                   outstanding options,         options, warrants and        future issuance under
                                    warrants and rights                rights              equity compensation plans
                                                                                             (excluding securities
                                                                                            reflected in column (A)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Equity compensation plans                   1,114,001                   $2.16                        564,999
approved by security holders

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

Total                                       1,139,001                   $2.15                        564,999
------------------------------- ---------------------------- ---------------------------- ----------------------------
</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.


                                       11
<PAGE>

Acquisitions of Common Stock

      Reference is made to the  discussion  contained in Items 10 and 12 of this
Annual Report on Form 10-KSB for  information  regarding  options and restricted
stock  tentatively  accounted for as outstanding  in connection  with a proposed
employment agreement with an executive officer.

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    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    Dependence on existing management,

             o    Television viewer habits,

             o    Demand for the Film and TV  Production  division's  television
                  and film projects,

             o    Trends within the gaming and restaurant industries,

             o    Management's   ability  to  identify  and  acquire  additional
                  companies   and  ability  to   successfully   integrate   such
                  acquirees, if any, into the Company's existing operations,

             o    Management's ability to combine the various operations so that
                  they may work together and grow successfully,

             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. 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.


                                       12
<PAGE>

      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  condensed  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,  has a 49% minority interest in a Restaurant  Investee that owns and
operates the Border Grill  Restaurant in Las Vegas,  Nevada.  The Company has no
management  responsibilities  in connection with the Restaurant  Investee or its
operations.  As a result, and in accordance with generally  accepted  accounting
principles,  the Company  excludes  the accounts of the  Restaurant  Investee in
reporting its operating results.  Rather, the Company records the results of its
investment in the Restaurant Investee using the equity method of accounting.

      Inventories.  Inventories are stated at the lower of cost or market,  with
cost being  determined  using the average  cost  method.  Inventories  primarily
consist of packaging  materials  and finished  goods that include DVDs and video
tapes.

      Allowance for uncollectible  accounts receivable.  Certain Branded Content
and Film and TV Production accounts receivable balances are based on contractual
agreements that primarily are with Fortune 1000 companies.  The Company does not
believe there is 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 does periodically analyze each client account,  and, when it becomes
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 Filmed  Entertainment  segment  sales,  the Company  records a monthly
accrual for bad debt expense based upon  historical  collections  experience and
other factors. The monthly accrual and individual customer accounts are reviewed
periodically to ensure overall reasonableness and collectibility. If the Company
determines that amounts owed from customers are uncollectible,  such amounts are
charged against the allowance for doubtful accounts.

      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.

      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  loss  from  discontinued
operations in the accompanying consolidated statement of operations for the year
ended December 31, 2004.


                                       13
<PAGE>

      With respect to goodwill  related to the December 31, 2003  acquisition of
the Hypnotic operations,  a valuation of the carrying value of such goodwill was
performed  as of December  31, 2004 in  conjunction  with the annual  impairment
analysis. As a result of this analysis, management determined that no impairment
of the Hypnotic goodwill had occurred. Any future impairment analyses could have
an adverse impact on the Company's  financial results for the period(s) in which
the impairment charges are recorded.

      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 Company's  revenues for the year ended December
31, 2004 were generated by its subsidiary, AVMC. For the year ended December 31,
2004,  AVMC revenues were generated from by its two reporting  segments,  Filmed
Entertainment  and Film and TV  Production.  Revenues  from  advisory  services,
development of custom software  applications and hosting and reporting  services
previously   disclosed  as  the  standalone  YaYa  operations  are  included  in
discontinued operations for the Branded Content segment.

      Filmed Entertainment revenues are generated through its home video, direct
response, worldwide sales (television) and theatrical units.

      Filmed  Entertainment  revenues  generated  from the home  video or direct
response  sales of DVDs and  video  tapes,  net of an  allowance  for  estimated
returns, are 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 are derived from licensing
agreements,  are recognized  when there is persuasive  evidence that a licensing
arrangement  exists,  that the film is  complete  and has been  delivered  or is
available for immediate and unconditional  delivery, that the license period has
begun and the licensee can begin  exploitation  or exhibition  of the film,  the
license  fee is fixed or  determinable,  and  collection  of the  license fee is
reasonably  assured.  License  fees for Filmed  Entertainment  are  amortized to
expense in the same ratio that current  period actual revenue bears to estimated
remaining unrecognized ultimate revenue as of the beginning of the current year.
Management  regularly  reviews and revises,  when necessary,  its total ultimate
revenue  estimates,  which may  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.  No assurance can be given that  unfavorable  changes to revenue
estimates will not occur, which may result in significant  write-downs affecting
the Company's  results of operations and financial  condition.  Film advertising
and  marketing  costs are expensed the first time the  advertising  takes place,
unless the advertising is recoupable  according to the contract,  and then it is
recorded as other current assets.

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

      Branded Content  revenues  primarily are derived from executed  agreements
for programming development,  producing licensed custom software applications or
advisory services.  Revenues from long-term  contracts that include  programming
development or producing  licensed  custom software  applications  generally are
recognized using the percentage-of-completion method, except when collectibility
is not  reasonably  assured  in  which  case  profit  is  recognized  using  the
installment  method. The percentage of completion is determined based upon labor
hours expended compared to total expected  development hours.  Development hours
associated  with  the  production  of the  core  software  are  included  in the
measurement  of the  contract's  progress  toward  completion as the software is
customized.  Hours  contemporaneously  expended for routine  enhancements of the
core software,  however,  are excluded from the calculation.  Revenues from less
significant or short-term arrangements to develop software modifications,  which
are typically performed for recurring  customers,  generally are recognized when
the services are complete.


                                       14
<PAGE>

      Advisory   service  fees  are  generally   recognized  based  on  contract
milestones as time is incurred.  Licensing fee revenues are  recognized  ratably
over the term of the license,  except that they are recognized  immediately when
the  Company  has no further  services  to provide  to the  licensee.  Technical
service fees are recognized ratably over the term of the contract.

      The  Film and TV  Production  revenues  primarily  are  generated  from an
agreement to provide  executive  co-producer  services for a television  series.
These revenues are generally recognized when services are provided.

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

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

      Film  library  amortization.  License  fees for Filmed  Entertainment  are
amortized to expense in the same ratio that current  period actual revenue bears
to estimated remaining  unrecognized ultimate revenue as of the beginning of the
current year.  Management  regularly  reviews and revises,  when necessary,  its
total ultimate  revenue  estimates,  which may 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.  Results of  operations  in future years depend upon
the amortization of the film costs.  Periodic  adjustments in amortization rates
may  significantly  affect  these  results.  No  assurance  can  be  given  that
unfavorable  changes to revenue  estimates  will not occur,  which may result in
significant  write-downs  affecting  the  Company's  results of  operations  and
financial condition.

      Capitalized film costs,  net.  Estimated  recoupable costs to prepare film
programming,   paid  on  behalf  of  the  licensors,  have  been  classified  as
capitalized film costs, net in the consolidated balance sheets. Film advertising
and  marketing  costs are expensed the first time the  advertising  takes place,
unless the advertising is recoupable  according to the contract,  and then it is
capitalized   to  other  film   costs.   Management   evaluates   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  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.  Evaluating the value
of these assets is necessarily based on the Company's  judgment.  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 materially  adverse  effect upon its
results of operations or financial condition. See Note 11 - Income taxes.

      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 is reasonably  estimable.  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>

Results of Operations

      Change in Fiscal Year. On February 2, 2004,  the Board of Directors of the
Company  approved a change in the Company's  fiscal year ending July 31, subject
to Internal  Revenue  Service ("IRS")  approval.  The IRS approved the change in
fiscal year on April 12,  2004.  The Company  filed a report for the  five-month
transition  period from  November  1, 2003  through  December  31, 2003 with the
Securities and Exchange  Commission on March 18, 2004. The results of operations
and cash flows for the transition period August 1, 2003 to December 31, 2003 are
also included in this Annual  Report on Form 10-KSB.  The new fiscal year begins
on  January 1 and ends on  December  31 of each  year,  effective  with the year
ending December 31, 2004.

      Overview.  Effective  July 29,  2002,  the  Company  initiated  a complete
corporate  restructuring  that  resulted in the  severance of all  executive and
administrative  staff,  with the exception of its Chief  Executive  Officer.  In
addition,  the Company  terminated  its  month-to-month  lease for its executive
offices and significantly  reduced other administrative  expenses.  During April
2003, the Company hired its Chief Accounting Officer.

      On April 16, 2003, the Company,  through its wholly-owned subsidiary YaYa,
acquired  substantially  all of the  assets  and  business  and  certain  of the
liabilities of YaYa, LLC. The results of operations for YaYa from April 16, 2003
through December 31, 2004, are included in the consolidated financial statements
for the applicable periods.

      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, the YaYa standalone operating results for Fiscal 2003 and the
five months ended December 31, 2003, and the Branded Content  operating  results
for Fiscal  2004 have been  retroactively  adjusted  to account  for the Branded
Content division as discontinued operations for all periods presented.

      On December 31, 2003, the Company acquired substantially all of the assets
and business and certain of the  liabilities  of Enigma,  dba Hypnotic and began
operations  effective  January  1,  2004.  Hypnotic  has  been  structured  as a
wholly-owned  subsidiary of AVMC.  The results of  operations  for Hypnotic from
January 1, through December 31, 2004 are included in the consolidated  financial
statements for the twelve months ended December 31, 2004.

      On February 3, 2004, AVMC acquired all of the outstanding  common stock of
Wellspring  and began  operating  Wellspring  effective  February  3, 2004.  The
results of operations for Wellspring from February 3, through  December 31, 2004
are included in the  consolidated  financial  statements  for the twelve  months
ended December 31, 2004.

      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  to the Company  include
co-executive producer fees generated from the television series, "The O.C.," but
exclude Hypnotic's  `back-end'  interest in "The O.C." The assets transferred to
the Company  represent  primarily the  operations of the TV and Film  Production
division.

Twelve Months Ended December 31, 2004 ("Fiscal  2004")  Compared With the Twelve
Months Ended July 31, 2003 ("Fiscal 2003")

      Sales and  services.  AVMC's  revenues are  generated  from two  reporting
segments:  Filmed  Entertainment and Film and TV Production operated through its
Wellspring and Hypnotic  subsidiaries,  respectively.  In total,  these segments
generated  revenues of $17,128,000  and $638,000 for Fiscal 2004,  respectively,
and $0 for Fiscal 2003.  The Branded  Content  segment  revenues are included in
loss from  discontinued  operations  (net of taxes) for  Fiscal  2004 and Fiscal
2003.

      Filmed  Entertainment  revenues are generated  through  AVMC's home video,
direct response,  worldwide sales  (television) and theatrical units. The Filmed
Entertainment segment, primarily representing assets acquired in the February 3,
2004   Wellspring   acquisition,   derives   revenues  in  connection  with  the
distribution of world cinema and wellness programming.  Accordingly, the segment
had no revenues in the 2003 periods. The segment's assets include a film library
with approximately 750 titles.


                                       16
<PAGE>

      For the period from February 3, 2004 through  December 31, 2004,  the home
video unit generated revenues totaling  $8,798,000.  Revenues are generated from
home video sales to national retailers.

      For the period from February 3, 2004 through December 31, 2004, the direct
response unit generated  revenues  totaling  $5,774,000.  Revenues are generated
from  sales of home  videos  sold  directly  to  customers  through a "The Video
Collection"  catalog.  On a quarterly  basis,  an expanded  catalog is designed,
printed  and  mailed to the  unit's  customer  base.  A smaller  version  of the
quarterly catalog is generally mailed on a monthly basis.

      Revenues  totaling  $1,694,000  were  generated  from the worldwide  sales
(television) unit for the February 3, 2004 through December 31, 2004 period. The
unit licenses television broadcasting rights primarily in North America, Europe,
Asia and Latin America.

      The theatrical unit releases and distributes  films to "art houses," which
primarily are located in major metropolitan areas. From February 3, 2004 through
December 31, 2004,  the theatrical  unit premiered  eleven films in various U.S.
cities.  For the period from  February 3, 2004 through  December  31, 2004,  the
films generated total revenues of $862,000.

      The Film and TV Production  segment revenues  primarily are generated from
an agreement to provide executive  co-producer  services on a television series.
These  revenues,  totaling  $638,000  and $0 for Fiscal  2004 and  Fiscal  2003,
respectively, are generally recognized in installments as services are provided.

      Cost of sales  and  services.  Fiscal  2004  cost of sales  and  services,
totaling $11,143,000,  primarily consisted of royalties fees and amortization of
the film library of  $2,575,000,  inventory  costs for the home video and direct
response DVD and video tape sales of $2,599,000, film print costs for theatrical
releases of $1,908,000,  fulfillment  costs of $1,221,000,  and related internal
labor and materials  costs  associated with providing the Film and TV Production
segment services.

      Selling,  general  and  administrative  expenses.   Selling,  general  and
administrative  expenses for Fiscal 2004  increased  $13,261,000  or 984.5% from
Fiscal  2003.  This  increase  primarily  is the result of the December 31, 2003
acquisition  of  Hypnotic,  January  2004  establishment  of the AVMC  corporate
operations, and February 3, 2004 acquisition of Wellspring.  From August 1, 2002
through April 15, 2003,  the Company had limited  operations,  only one employee
and  one   consultant,   as  compared  to  expanded   business   operations  and
approximately 50 employees at December 31, 2004.

      During Fiscal 2004, the Company incurred payroll and payroll-related costs
totaling  $5,150,000  and  $469,000,  respectively,  as compared to $345,000 and
$13,000 for Fiscal 2003.  The  increased  payroll  costs  primarily  reflect the
increase  in  employee  staffing  resulting  from the  Hypnotic  and  Wellspring
acquisitions and establishment of AVMC's operations.

      For the period from February 3, 2004 through  December 31, 2004,  the Film
Entertainment's direct response unit incurred catalog design, printing, customer
list rental and postage costs  totaling  $2,001,000.  On a quarterly  basis,  an
expanded catalog is designed,  printed and mailed to the unit's customer base. A
smaller version of the quarterly catalog is generally mailed on a monthly basis.

      Consulting fees for Fiscal 2004 totaled  $493,000  compared to $92,000 for
Fiscal 2003. From January 1, 2004 through February 28, 2004, the Company's Board
Vice-Chairman  Stephen K. Bannon received  consulting fees of $10,000 per month.
From March 1, 2004 through  December  31, 2004,  Mr.  Bannon's  consulting  fees
varied from $15,000 to $29,000 per month for an aggregate total of $277,000. For
Fiscal 2003, Mr. Bannon received $60,000 in consulting fees.

      Business and  employee-related  insurance costs increased from $66,000 for
Fiscal 2003 to $606,000  for Fiscal  2004.  The  $540,000  increase in insurance
costs for Fiscal 2004  reflects  the  acquisitions  of the  AVMC-group  business
operations  with a  related  increase  in  employees  and  business  properties.
Business  insurance  policies cover general  liability,  directors and officers,
property, production, and other liabilities.

      Legal  expenses  for Fiscal  2004 and Fiscal  2003  totaled  $597,000  and
$279,000,  respectively. Legal fees incurred during Fiscal 2004 and 2003 include
monthly legal retainers paid to the Company's SEC and corporate  counsels,  fees
incurred  related to sales  contracts and fees  relating to the Company's  legal
proceedings  with the Table Mountain  Tribe.  Such legal expenses do not include
legal fees related to consummated acquisitions.


                                       17
<PAGE>

      The Company's  office  rental  expense  increased  from $0 to $920,000 for
Fiscal  2004.  At December  31,  2004,  the  Company  has rental  leases for one
location in Las Vegas,  Nevada,  one  location in New York City,  New York,  one
location  in  Los  Angeles,  California  and  two  locations  in  Santa  Monica,
California at a total annual base rental cost of approximately $840,000.

      In addition,  certain general and  administrative  expenses  (i.e.,  sales
commissions,  internet charges,  telephone, etc.) also increased for Fiscal 2004
due to the YaYa, Hypnotic and Wellspring acquisitions,  as well as establishment
of the AVMC corporate operations.

Non-operating Income

      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 approximately  $3,400,000 upon
consummation of this land sale transaction.

      Net  interest  and other  (expense)  income  for the twelve  months  ended
December  31, 2004  totaled  $(107,000)  as compared to $120,000  for the twelve
months ended July 31, 2003. The increase in interest expense was impacted by the
issuance of $4,000,000 in secured negotiable and non-negotiable  notes issued in
connection with the Company's  February 3, 2004  acquisition of Wellspring.  The
notes bear interest at 7% per annum,  payable quarterly,  and mature on February
3, 2006.  Also, in  conjunction  with the  Wellspring  acquisition,  the Company
assumed  the  Atlantic  Line of  Credit.  The  Altantic  Line of  Credit  had an
outstanding  balance of  $2,349,000  at December 31, 2004.  The Atlantic Line of
Credit has a floating interest rate of 2.75% above Atlantic's prime lending rate
(8.0% at December 31,  2004).  Further,  effective  June 30,  2004,  the Company
arranged with SouthwestUSA a $2,500,000  credit facility.  The SouthwestUSA Line
of Credit is secured by a certificate of deposit with a stated  interest rate of
1.75%  and  maturity  date of June 30,  2005.  The  SouthwestUSA  Line of Credit
interest rate is a floating rate of 0.5% above SouthwestUSA's prime lending rate
(which was 5.75% at December 31,  2004).  At December 31, 2004,  the Company had
borrowings of $2,300,000 under the SouthwestUSA Line of Credit.

      Non-operating  income  for the  twelve  months  ended  December  31,  2004
includes  $317,000 of  liabilities,  assumed in the December  31, 2003  Hypnotic
acquisition,    that   were   subsequently    eliminated   through   contractual
renegotiations.

      During Fiscal 2004,  the Company  recognized a tax benefit of  $2,006,000,
primarily related to the periods' losses from continuing operations.

Equity in income of unconsolidated investees, net

      Income from the  Company's  unconsolidated  Restaurant  Investee  ("Border
Grill Restaurant")  increased from $445,000 in Fiscal 2003 to $588,000 in Fiscal
2004.  The Company  believes  that this increase is primarily due to the January
2003 opening of the Mandalay  Bay Hotel and Casino's  approximately  one million
square foot convention  center. The Border Grill Restaurant is located in a main
traffic area near the Mandalay Bay Hotel and  Casino's  convention  center.  The
Company has no day-to-day  management  responsibilities  in connection  with the
Restaurant  Investee or its  operations.  As a result,  and in  accordance  with
generally accepted accounting  principles,  the Company excludes the accounts of
the Restaurant Investee in reporting its operating results.  Rather, the Company
records the  results of its  investment  in the  Restaurant  Investee  using the
equity method of accounting. The Company has received all of its initial capital
and priority return and now receives  distribution from the Restaurant  Investee
based on its 49% interest.

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 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,  the YaYa  standalone  operating  results for
Fiscal 2003 and the five months ended December 31, 2003, and the Branded Content
operating  results for Fiscal 2004 have been  retroactively  adjusted to account
for the Branded  Content  division as  discontinued  operations  for all periods
presented.


                                       18
<PAGE>

      Branded Content sales and services.  Branded Content generated revenues of
$1,886,000  and $576,000 for Fiscal 2004 and Fiscal  2003.  The Branded  Content
segment  revenues  are  included in loss from  discontinued  operations  (net of
taxes) for Fiscal 2004 and Fiscal 2003. For Fiscal 2004, these revenues included
$1,282,000  primarily  generated  from  an  agreement  to  develop  and  provide
executive producer services for a new television show featuring the brand of the
Company's  client;   $306,000   generated  from  web  services,   licensing  and
merchandising  fees;  and  advisory  and other  services  performed  for various
Fortune 1000 companies that generated revenues of $298,000. Fiscal 2003 revenues
were generated by YaYa for advisory and other services.

      Revenues  from  advisory   services,   development   of  custom   software
applications  and hosting and  reporting  services  previously  disclosed as the
standalone  YaYa  operations  were  included  in  the  Branded  Content  segment
revenues.  Revenues from development and related services obtained in connection
with the December 31, 2003  Hypnotic  acquisition  are also  included in Branded
Content segment.

      Branded  Content cost of sales and  services.  Fiscal 2004 and Fiscal 2003
cost of  sales  and  services  totaling  $994,000  and  $337,000,  respectively,
primarily  consisted of internal labor costs,  consultants and web hosting costs
required to generate the Branded Content  segment's  advisory and other services
revenues.

      Branded Content selling,  general and  administrative  expenses.  Selling,
general and  administrative  expenses increased from $773,000 for Fiscal 2003 to
$1,387,000 for Fiscal 2004  (excluding the $2,939,000  impairment of goodwill as
discussed below).

      During  Fiscal 2004,  the Branded  Content  segment  incurred  payroll and
payroll-related costs totaling $550,000 and $36,000,  respectively,  as compared
to $422,000 and $42,000 for Fiscal 2003. The increased  payroll costs  primarily
reflect  the  increase  in  employee   staffing   resulting  from  the  Hypnotic
acquisition and establishment of AVMC's operations.

      For Fiscal 2004,  AVMC paid a consultant  $29,000 per month for management
services related to its Branded Content segment. The consultant's  services were
terminated effective November 30, 2004.

      Legal  expenses  for  Fiscal  2004 and Fiscal  2003  totaled  $16,000  and
$48,000, respectively. Legal fees incurred during Fiscal 2004 and 2003 primarily
include fees incurred related to sales contracts and fees.

      During  December 2004, the Company's  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.

      In addition, certain general and administrative expenses (i.e., insurance,
internet  charges,  telephone,  etc.) also  increased for Fiscal 2004 due to the
YaYa and Hypnotic acquisitions.

Five Months Ended December 31, 2003 Compared With the Five Months Ended December
31, 2002

      Readers are referred to the subsection  entitled  "Results of Operations -
For the Two and Five Months Ended  December 31, 2003,  Compared With the Two and
Five Months Ended  December 31,  2002,"of "Item 2.  Management's  Discussion and
Analysis  or Plan of  Operations"  in the  Company's  Transition  Report on Form
10-QSB/A  for the five months  ended  December  31,  2003.  The YaYa  standalone
operating  results  for the five  months  ended  December  31,  2003  have  been
retroactively adjusted as loss from discontinued operations (net of tax).


                                       19
<PAGE>

Liquidity and Capital Resources

      As of  December  31,  2004,  the  Company  had cash  and cash  equivalents
totaling  $1,944,000.  The Company  also had working  capital of  $2,963,000  at
December 31, 2004,  as compared  with working  capital of $8,714,000 at July 31,
2003.  Included in the  calculation of the Fiscal 2004 working  capital are cash
and cash equivalents totaling $1,944,000 and a restricted certificate of deposit
in the amount of  $2,500,000.  The  $5,751,000  net decrease in working  capital
primarily is the result of the following:

       o    Net  proceeds  from the January  30, 2004 sale of the land  totaling
            $7,007,000,

       o    Cash consideration and direct acquisition costs totaling  $4,165,000
            for the February 3, 2004 Wellspring acquisition,

       o    An increase in net accounts  receivable of $4,192,000  primarily due
            to the Wellspring acquisition,

       o    Acquisition  of film  library  distribution  rights and payments for
            advances totaling $5,756,000 for Fiscal 2004,

       o    An  increase in accounts  payable and accrued  liabilities  totaling
            $6,504,000   primarily  due  to  the  February  3,  2004  Wellspring
            acquisition,

       o    Assumption  of the  Atlantic  Bank Line of Credit (in the  principal
            amount of $2,349,000  at December 31, 2004) in  connection  with the
            Wellspring acquisition,

       o    An increase in current deferred tax assets totaling $4,517,000 which
            were primarily generated from net operating losses, and

       o    A net operating loss from continuing  operations totaling $7,985,000
            and a net loss from discontinued operations totaling $1,978,000 (net
            of a tax  benefit  of  $1,523,000).  The net loss from  discontinued
            operations  includes a charge for  impairment  of goodwill  totaling
            $2,939,000 relating to the YaYa assets, for Fiscal 2004.

      Net cash used in operating  activities  was  $9,295,000 for Fiscal 2004 as
compared to net cash used in operating  activities  of $443,000 for Fiscal 2003.
The increase primarily reflects expanded business operations  resulting from the
December  2003  Hypnotic  acquisition,  February  2004  Wellspring  acquisition,
acquisition of film library distribution rights and payments for film advances.

      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 for  acquisitions  and capital
distributions  from the Restaurant  Investee.  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. The notes bear interest at 7%
per annum,  payable quarterly,  and mature on February 3, 2006. Cash utilized in
the  Wellspring  acquisition  is  classified  as an  investing  activity  in the
consolidated  statements of cash flows. As noted below, these notes were assumed
by the purchaser of AVMC effective March 21, 2005.

      During  Fiscal  2004  and  Fiscal  2003,  the  Company   received  capital
distributions  from the Restaurant  Investee  totaling  $1,055,000 and $800,000,
respectively.  The  Operating  Agreement  of the  Restaurant  Investee  does not
provide for guaranteed capital  distributions.  Therefore,  future distributions
from the Restaurant Investee are subject to fluctuation.

      Net cash provided by financing  activities  was $1,850,000 For Fiscal 2004
as compared to $0 for Fiscal 2003. The Fiscal 2004 financing activities includes
primarily net  borrowings  on the Atlantic  Line of Credit and the  SouthwestUSA
Line of Credit.  As noted below,  the Atlantic Line of Credit was assumed by the
purchaser of AVMC effective March 21, 2005. The SouthwestUSA  Line of Credit was
completely  satisfied on April 1, 2005 by the  surrender of the  certificate  of
deposit securing the line of credit.

      Effective November 12, 2004 the Company engaged Jefferies & Company,  Inc.
("Jefferies"),  an international investment banking and institutional securities
firm with a focus on emerging growth companies,  to provide  financial  advisory
services  for the Company in  connection  with,  but not  limited to,  merger or
acquisition activities, strategic partnerships and financing alternatives.


                                       20
<PAGE>

      Effective  March 21, 2005, the Company  entered into and  consummated  the
transaction  contemplated  by an  Agreement  and Plan of  Merger  ("Agreement"),
pursuant to which the Company disposed of all of the outstanding common stock of
AVMC to  Genius  Products,  Inc.  ("Genius").  The  consideration  paid  for the
outstanding  shares of AVMC common stock was  7,000,000  shares of Genius common
stock and warrants to purchase an additional  1,400,000  shares of Genius common
stock. Concurrent with the effectiveness of the Agreement,  the Atlantic Line of
Credit principal balance of $2,349,000 was paid in full by Genius.

      Of the  7,000,000  shares  of GNPI  common  stock  acquired  from  Genius,
5,675,000 shares are not subject to pledges or other restrictions.  As such, the
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).

      The Genius common stock is traded on the  over-the-counter  bulletin board
(OTCBB)  under the symbol  "GNPI." On April 21, 2005,  the closing bid price for
the  Genius  stock was $1.80.  Based on the April 21,  2005  closing  bid price,
placement of the 5,675,000  shares could result in estimated  gross  proceeds of
$10,215,000 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;  or, (ii) Genius  entering into
another  transaction  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  5,675,000  shares of GNPI  stock.  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).

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

Long-Term Financial Obligations

      Concurrent with the effectiveness of the Genius Agreement,  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.  However, Genius may occupy the Wellspring executive and
operations  offices  located in New York, for a transitional  period of 90 days,
upon  reimbursement  of the Company's  actual  monthly  rental cost.  Failure to
vacate the New York offices at the  expiration  of 90 days will result in Genius
being  obligated to pay the Company an amount  equal to 1.5 times the  Company's
actual cost under the New York lease.

      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, 2004.  YaYa's only remaining  potential  source of cash flow, at
December 31, 2004,  is its 10% equity  interest in an  unconsolidated  investee.
However, to-date, the unconsolidated investee has provided no cash distributions
to its equity members.

Impact of Inflation

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


                                       21
<PAGE>

Factors That May Affect Future Results

      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 to the Company
encompass  the prior Film and TV  Production  division  operations  of  Hypnotic
including  co-executive  producer fees generated from the television series "The
O.C.," but  excluded  Hypnotic's  `back-end'  interest  in "The O.C." The assets
transferred to the Company primarily represent the operations of the TV and Film
Production  segment including the segment's  employees.  During Fiscal 2004, the
Film and TV Production  segment  incurred a net operating loss of $720,000.  The
Film and TV Production segment generates revenues from relatively few contracts.
A decline in the size or number of these contracts  could  adversely  affect its
future operations.  In addition,  despite the Company's efforts to increase Film
and TV Production  segment revenues and/or decrease the segment operating costs,
there is no assurance that the Film and TV Production segment will be successful
in its efforts to attain profitability in Fiscal 2005.

      Related to the Genius  transaction,  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.
However,  Genius may occupy the  Wellspring  executive  and  operations  offices
located in New York, for a transitional period of 90 days, upon reimbursement of
the Company's actual monthly rental cost. Failure to vacate the New York offices
at the expiration of 90 days will result in Genius being obligated for 1.5 times
the Company's actual cost under the New York lease. The total annual base rental
cost for all facilities lease obligations is approximately $840,000.

      The Company is holding the  5,675,000  shares of Genius  common  stock not
subject to pledges or other restrictions. As such, the 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).

      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 Post-Disposition of AVMC Operations and Assets of the Company

      AVMC  constituted all of the operating  assets of the Company for the year
ended December 31, 2004. The Company  disposed of AVMC to Genius effective March
21, 2005. In connection with such disposition, Genius transferred certain assets
and liabilities held by Hypnotic, and certain liabilities of Wellspring, back to
the Company.

      The assets of the Company  following  the  disposition  of AVMC  primarily
consist of the following:

o     7,000,000  shares of GNPI stock,  of which  5,675,000  are  available  for
      placement by the Company;

o     The assets of the Film and TV Production  division retained by the Company
      in  connection  with the  disposition  of  AVMC,  which  assets  generated
      approximately  $638,000 of  revenues  during the year ended  December  31,
      2004;

o     Cash and cash equivalents;

o     A 49%  membership  interest in the  Restaurant  Investee that operates the
      Border Grill, which generated  approximately $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 which holds a 10% interest in Games Media,
      LLC, a joint venture that promotes video gaming touring  festivals,  which
      generated nominal revenues during the year ended December 31, 2004;

o     A claim against the Table Mountain Tribe; and

o     Various other assets, including prepaid expenses,  furniture and fixtures,
      and a deferred income tax benefit.


                                       22
<PAGE>

      The liabilities of the Company following the disposition of AVMC primarily
consist of the following:

o     Contingent liabilities of Hypnotic under its employment agreement with two
      individuals;

o     Liabilities  relating to  accounts  payable of  Wellspring  assumed by the
      Company in connection with the disposition of AVMC totaling  approximately
      $1,100,000 (which may be offset by the sale of Wellspring inventory valued
      at $300,000);

o     A  contingent  liability  relating  to the  Company's  guaranty of certain
      promissory notes of AVMC in the aggregate principal amount of $3,200,000;

o     Contingent  liabilities relating to the Company's leased premises formerly
      utilized by AVMC.

o     Any tax  liability  resulting  from the 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, including office leases,
      and direct costs associated with the disposition of AVMC and any placement
      of the GNPI stock.

The listing of the Company's assets and liabilities following the disposition of
AVMC set forth  above is merely a summary of such  assets and  liabilities.  The
Company  intends,  in  accordance  with  federal  securities  laws,  to  file an
amendment to the Company's Current Report on Form 8-K (Date of Report: March 21,
2005),  filed  with the SEC on March  25,  2005,  that  will  include  pro forma
financial information  concerning the Company,  giving effect to the disposition
of AVMC as of dates to be  specified  in such pro form a financial  information.
Readers are urged to review the Form 8-K/A following its filing with the SEC for
a complete  listing of the Company's  assets and  liabilities  at such specified
dates and  giving  effect to the  disposition  of AVMC;  and the  listing of the
Company's assets and liabilities  following the disposition of AVMC as set forth
above is qualified in its entirety to the information  that shall be provided in
the pro forma financial information to be included in the Form 8-K/A.

      The Company anticipates that the Film and TV Production division assets it
retained  following the AVMC disposition  will derive operating  revenues from a
number of sources, including:

o     Creating and developing content, primarily for television, which will then
      be marketed to television networks;

o     The  television  network hit "The O.C." was created by Hypnotic and Warner
      Bros. for the Fox network and is generating  monthly  production  fees for
      Hypnotic  (Genius is only entitled to the "back-end"  fee associated  with
      the revenues generated if and when the series is syndicated);

o     The  ability  to  create  television  commercials  for  clients;

o     Creates  video  content,  including  producing a Yoga  exercise  video for
      distribution to retail outlets;

o     An overhead arrangement with Sony Pictures which allows Sony to have first
      refusal on all Hypnotic-created TV content; and

o     Association  with two  employees  who have many years of experience in the
      television and film industries; one was a senior executive with NBC (David
      Bartis)  and the  other is a notable  film  director,  with  film  credits
      including "The Bourne Identity" and the soon-to-be  released film "Mr. and
      Mrs. Smith," starring Brad Pitt and Angelina Jolie (Douglas Liman).

      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.  A total of  5,625,000
shares of Genius  common stock is currently  available  for sale by the Company.
The closing  sale price per share of Genius  common  stock on April 27, 2005 was
$1.82,  although the Company  believes it will place the Genius  common stock in
private transactions at a discount to market of no greater than 15%. The Company
anticipates  receiving  proceeds  from the  placement  of such  shares of Genius
common  stock net of fees in  connection  with such  placement,  the  investment
banking  fee  related  to the AVMC  sale and  monies  necessary  to fund  escrow
accounts  established in connection with the AVMC disposition.  Additional funds
will be made  available to the Company from placement of shares of Genius common
stock initially placed into escrow and/or if monies used to fund escrow accounts
are  released  from such escrow  accounts,  as well as from  placement of shares
issued  upon  exercise  of the  1,400,000  warrants  received  by the Company in
connection with the disposition of AVMC.


                                       23
<PAGE>


      The Company  intends to use a significant  portion of such net proceeds to
seek appropriate merger and acquisition  candidates  including those that may or
may not compliment the  operations of the Film and TV Production  division.  The
Company is currently  working with a  nationally-recognized  investment  banking
firm to identify appropriate merger and acquisition candidates.  This investment
banking firm acted as the  Company's  investment  banking  advisor in connection
with the disposition of AVMC.

Qualitative and Quantitative Disclosures About Market and Interest Rate Risk

      Except for  exceeding  insured  deposit  limits  (which  deposits  totaled
approximately  $4,112,000  at  December  31,  2004),  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 or  otherwise.  At December  31,  2004,  the
Company's  cash and cash  equivalents  approximate  their fair values due to the
short-term nature of these instruments.

      The Atlantic Line of Credit has a floating rate of 2.75% above  Atlantic's
prime lending rate (which was 8.0% at December 31, 2004). The SouthwestUSA  Line
of Credit  interest rate is a floating rate of 0.5% above  SouthwestUSA's  prime
lending rate (which was 5.75% at December  31,  2004).  Based on a  hypothetical
one-percentage-point  increase or decrease in interest  rates,  annual  interest
expense  would have  increased  or  decreased,  respectively,  by  approximately
$46,000.  At  December  31,  2004  approximately  $4,600,000  of  the  Company's
outstanding indebtedness will bear interest at floating rates.

      During  the  next  12  months,   the  Company  may  enter  into  financing
arrangements which would expose it to interest rate risk.

      The Company has guaranteed the  obligations  arising under certain secured
negotiable promissory notes and a secured non-negotiable promissory note of AVMC
in the aggregate  principal amount of $3,300,000  pursuant to a Guaranty,  dated
March 18,  2005,  with the holders of such  promissory  notes.  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% per
annum,  payable quarterly,  and mature 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
following the sale of AVMC to Genius on March 21, 2005. The promissory notes are
included in the notes  payable  balance in the  consolidated  balance  sheets at
December 31, 2004.

Item 7. Financial Statements

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

      The Audit  Committee of the Board of  Directors,  presently  consisting of
three  independent  directors  (as  such  term is  applied  to  Company's  whose
securities  are  quoted on The  Nasdaq  Stock  Market)  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, the effectiveness of the accounting control
system and other  matters  relating to the  financial  affairs of the Company as
they deem appropriate.

      On  February 2, 2004,  the Board of  Directors  of the Company  approved a
change in the Company's  fiscal year ending July 31, subject to Internal Revenue
Service ("IRS")  approval.  The IRS approved such change in fiscal year on April
12,  2004.  The new fiscal  year  begins on January 1 and ends on December 31 of
each year, effective with the fiscal year ending December 31, 2004. As such, the
following  consolidated  financial  statements  include  the year ended July 31,
2003, five months ended December 31, 2003 and the year ended December 31, 2004.


                                       24
<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 sheet of American Vantage
Companies and its subsidiaries  (the "Company") as of December 31, 2004, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows  for the year  ended  December  31,  2004 and for the  five  months  ended
December 31, 2003.  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, 2004,  and the results of their  operations and
their cash flows for the year ended  December  31,  2004 and for the five months
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States of America.

As  discussed in Note 17 to the  financial  statements,  on March 21, 2005,  the
Company sold all of the outstanding  stock of its subsidiary,  American  Vantage
Media Corporation to Genius Products, Inc.

Deloitte & Touche LLP
Las Vegas, Nevada
May 6, 2005


                                       25
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Audit Committee
American Vantage Companies
Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of American Vantage
Companies and  Subsidiaries  (the Company) as of July 31, 2003,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the year ended July 31, 2003. 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  audits 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, audits 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,  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 July 31, 2003, and the results of their  operations and their
cash flows for the year ended  July 31,  2003,  in  conformity  with  accounting
principles generally accepted in the United States of America.

Las Vegas, Nevada
March 25, 2004


                                       26
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      December 31,         July 31,
                                                                         2004                2003
                                                                      -----------        -----------
ASSETS

Current assets:
<S>                                                                   <C>                <C>
      Cash and cash equivalents                                       $ 1,944,000        $ 8,454,000
      Restricted certificate of deposit                                 2,500,000                 --
      Accounts receivable, net, current portion                         4,758,000            767,000
      Inventories                                                       1,311,000                 --
      Deferred income tax asset                                         4,517,000                 --
      Other                                                               311,000            395,000
                                                                      -----------        -----------
                                                                       15,341,000          9,616,000

Film inventory, net                                                     8,218,000                 --
Capitalized film costs, net                                             3,362,000                 --
Furniture and equipment, net                                              346,000            216,000
Accounts receivable, less current portion                                 201,000                 --
Land held for development or sale                                              --          3,544,000
Investments in unconsolidated investees                                   715,000          1,323,000
Deferred income tax asset                                                 921,000            287,000
Goodwill                                                                  574,000          2,926,000
Other, net                                                                492,000             80,000
                                                                      -----------        -----------
                                                                      $30,170,000        $17,992,000
                                                                      ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable                                                $ 5,784,000        $   295,000
      Lines of credit                                                   4,649,000                 --
      Accrued liabilities                                               1,187,000            172,000
      Deferred income tax liability                                            --             33,000
      Customer deposits                                                   363,000            296,000
      Deferred revenue                                                    395,000            106,000
                                                                      -----------        -----------
                                                                       12,378,000            902,000
                                                                      -----------        -----------

Notes payable                                                           4,523,000            523,000
                                                                      -----------        -----------

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 and 5,690,667 shares issued and outstanding,
        respectively                                                       57,000             57,000
      Additional paid-in capital                                        5,769,000          4,963,000
      Retained earnings                                                 7,443,000         11,547,000
                                                                      -----------        -----------
                                                                       13,269,000         16,567,000
                                                                      -----------        -----------
                                                                      $30,170,000        $17,992,000
                                                                      ===========        ===========
</TABLE>

                 See notes to consolidated financial statements


                                       27
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          Twelve Mos. Ended    Five Mos. Ended     Twelve Mos. Ended
                                                          December 31, 2004   December 31, 2003       July 31,2003
                                                            ------------         ------------         ------------
<S>                                                         <C>                  <C>                  <C>
Revenues, net
      Home video and direct response sales                  $ 14,572,000         $         --         $         --
      Other sales and services                                 3,194,000                   --                   --
                                                            ------------         ------------         ------------
                                                              17,766,000                   --                   --
Cost of sales and services
      Home video and direct response sales                     7,455,000                   --                   --
      Other sales and services                                 3,688,000                   --                   --
                                                            ------------         ------------         ------------
                                                              11,143,000                   --                   --
                                                            ------------         ------------         ------------
Gross profit                                                   6,623,000                   --                   --
                                                            ------------         ------------         ------------

Selling, general and administrative
      Payroll and payroll-related                              5,619,000              302,000              358,000
      Provision for bad debt                                     744,000                   --                   --
      Depreciation and amortization                              268,000                7,000                9,000
      Other                                                    7,529,000              277,000              629,000
      Related parties                                            448,000              119,000              351,000
                                                            ------------         ------------         ------------
                                                              14,608,000              705,000            1,347,000
                                                            ------------         ------------         ------------
Operating loss                                                (7,985,000)            (705,000)          (1,347,000)
                                                            ------------         ------------         ------------

Non-operating income (expense)
      Interest and other (expense) income, net                  (107,000)             626,000              120,000
      Gain on sale of land                                     3,423,000                   --                   --
                                                            ------------         ------------         ------------
                                                               3,316,000              626,000              120,000
                                                            ------------         ------------         ------------

Loss before income tax benefit                                (4,669,000)             (79,000)          (1,227,000)
Income tax benefit                                             2,006,000               18,000              206,000
Equity in income of unconsolidated investees, net                624,000              122,000              468,000
                                                            ------------         ------------         ------------
Income (loss) from continuing operations                      (2,039,000)              61,000             (553,000)

Loss from discontinued operations (net of tax
      benefit of $1,523,000, $130,000, and $186,000)          (1,978,000)            (148,000)            (362,000)
                                                            ------------         ------------         ------------

Net loss                                                    $ (4,017,000)        $    (87,000)        $   (915,000)
                                                            ============         ============         ============

Net loss per share -- basic and diluted:
      Continuing operations                                 $      (0.35)        $       0.01         $      (0.11)
      Discontinued operations                                      (0.34)               (0.03)               (0.07)
                                                            ------------         ------------         ------------
                                                            $      (0.69)        $      (0.02)        $      (0.18)
                                                            ============         ============         ============

Weighted average number of common shares
    and common share equivalents                               5,755,000            5,691,000            5,106,000
                                                            ============         ============         ============
</TABLE>

                 See notes to consolidated financial statements


                                       28
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                Common stock                   Additional
                                       -------------------------------           Paid-in            Retained
                                         Shares             Par Value            Capital            Earnings
                                       -----------         -----------         -----------        -----------
<S>                                    <C>                 <C>                 <C>                <C>
Balance, July 31, 2002                   4,865,856         $    49,000         $ 3,324,000        $12,462,000

Issuance of common stock shares            824,811               8,000           1,155,000

Issuance of options                                                                484,000

Net loss                                                                                             (915,000)
                                       -----------         -----------         -----------        -----------

Balance, July 31, 2003                   5,690,667              57,000           4,963,000         11,547,000

Issuance of warrants                                                               750,000

Net loss                                                                                              (87,000)
                                       -----------         -----------         -----------        -----------

Balance, December 31, 2003               5,690,667              57,000           5,713,000         11,460,000

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

Exercise of options                         13,440                                 (38,000)

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

Balance, December 31, 2004               5,729,107         $    57,000         $ 5,769,000        $ 7,443,000
                                       ===========         ===========         ===========        ===========
</TABLE>

                 See notes to consolidated financial statements


                                       29
<PAGE>

AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                    Twelve Mos. Ended     Five Mos. Ended     Twelve Mos. Ended
                                                                    December 31, 2004    December 31, 2003     July 31, 2003
                                                                    -----------------    -----------------     -------------
<S>                                                                 <C>                  <C>                  <C>
Operating activities
       Net cash used in operating activities                            $(9,295,000)        $   (99,000)        $   443,000
                                                                        -----------         -----------         -----------

Investing activities
       Purchase of furniture and equipment                                 (195,000)            (25,000)            (27,000)
       Proceeds from sale of furniture and equipment                             --              10,000                  --
       Proceeds from sale of land                                         7,007,000                  --                  --
       Cash acquired from acquisitions                                       89,000             187,000               9,000
       Cash paid for acquisitions, including other direct costs          (4,179,000)            (97,000)           (207,000)
       Advances to YaYa, LLC                                                     --                  --          (1,110,000)
       Capitalization of YaYa                                                    --                  --              (1,000)
       Purchase certificate of deposit                                   (2,500,000)                 --                  --
       Purchase standby letter of credit                                   (350,000)                 --                  --
       Net proceeds from U.S. treasury bills, at maturity                        --                  --           7,785,000
       Proceeds from notes receivable                                        20,000                  --                  --
       Cash used in discontinued operations                                (186,000)           (177,000)           (798,000)
       Cash distribution from unconsolidated restaurant investee          1,055,000             375,000             800,000
                                                                        -----------         -----------         -----------

       Net cash provided by investing activities                            761,000             273,000           6,451,000
                                                                        -----------         -----------         -----------

Financing activities
       Net borrowings on lines of credit                                  1,850,000                  --                  --
                                                                        -----------         -----------         -----------

       Net cash provided by financing activities                          1,850,000                  --                  --
                                                                        -----------         -----------         -----------

Net (decrease) increase in cash and cash equivalents                     (6,684,000)            174,000           6,894,000

Cash and cash equivalents, at beginning of period                         8,628,000           8,454,000           1,560,000
                                                                        -----------         -----------         -----------

Cash and cash equivalents, at end of period                             $ 1,944,000         $ 8,628,000         $ 8,454,000
                                                                        ===========         ===========         ===========
</TABLE>

                 See notes to consolidated financial statements


                                       30
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Change in fiscal year end. On February 2, 2004,  the Board of Directors of
American Vantage Companies approved a change in the Company's fiscal year ending
July 31, subject to Internal Revenue Service ("IRS") approval.  The IRS approved
the  change in fiscal  year on April 12,  2004.  The new fiscal  year  begins on
January 1 and ends on December 31 of each year,  effective  with the year ending
December 31, 2004.

      Nature of business and business activities.  Between May 20, 1999 to April
16,  2003,   American  Vantage  Companies  and  its  wholly-owned   subsidiaries
(collectively,  the "Company") did not have significant business operations.  On
April 16,  2003,  the  Company  acquired  substantially  all of the  assets  and
business  and  certain of the  liabilities  of YaYa,  LLC  ("YaYa").  YaYa is an
"end-to-end"  interactive  solutions provider,  specializing in the creation and
provision of  advertiser-driven  interactive games and marketing  solutions.  In
addition  to  advertising  applications,  YaYa  creates  internet  games for its
clients  to  be  utilized  in   employee-training   programs  and  for  internal
communications  solutions.  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.
Accordingly,  no AVMC  revenues or  expenses  are  included in the  consolidated
financial statements for the five months ending December 31, 2003.

      AVMC acquired from Enigma its television, branded content and distribution
operations and specific  intellectual  property,  including a short-film library
plus an ownership interest in two feature films.

      On February 3, 2004, AVMC acquired all of the outstanding  common stock of
Wellspring Media, Inc. ("Wellspring"), and began operating Wellspring as of that
date.  Wellspring  is a  distributor  of world cinema and wellness  programming.
Wellspring's  assets  include  a film  library  with  approximately  750  titles
distributed via its home video, direct response,  worldwide sales and theatrical
divisions.

      The  Company,  through  a  wholly-owned  subsidiary,  also has a  minority
interest in an unconsolidated investee (the "Restaurant Investee") that owns and
operates a restaurant  in a casino hotel located on the Las Vegas  "Strip".  The
Company has no day-to-day  management  responsibilities  in connection  with the
Restaurant Investee and its operations.

      Through  YaYa,  the Company has a minority  interest in an  unconsolidated
investee (the "YaYa Investee") that promotes "video game touring festivals." The
Company has no day-to-day  responsibilities in connection with the YaYa Investee
and its 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.
Accordingly,  the Company's  consolidated  statements  of  operations  have been
retroactively   adjusted  to  account  for  the  Branded   Content   segment  as
discontinued  operations for all periods  presented in accordance  with SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets."

      Effective March 21, 2005, the Company sold all of the  outstanding  common
stock of AVMC to Genius  Products,  Inc.  ("Genius"  or  "GNPI").  See Note 17 -
Subsequent events.


                                       31
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      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 the Restaurant  Investee and instead
records  its  investment  using the equity  method of  accounting  (based on its
equity in the Restaurant  Investee's  net assets,  which is 49% and the terms of
the Restaurant Investee's operating agreement).

      The Company also  excludes  the accounts of its YaYa  Investee and instead
records its investment using the equity method of accounting based on its equity
in the YaYa Investee's net assets,  which is 10% at December 31, 2004 and 36% at
December 31, 2003 and July 31, 2003.

      Use of estimates.  The  preparation of financial  statements in conformity
with  accounting  principles  generally  accepted in the United States  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.

      Concentration of credit risk. The Company is subject to  concentrations of
credit risk associated with cash and cash  equivalents and accounts  receivable.
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
$1,155,000 and $8,300,000, at December 31, 2004 and July 31, 2003, respectively.

      No customer  accounted  for 10% or more of the  Company's net revenues for
the year ended  December  31, 2004,  five months ended  December 31, 2003 or the
year ended July 31, 2003.

      Revenue  recognition.  The Company's  revenues for the year ended December
31, 2004 were generated by its subsidiary, AVMC. For the year ended December 31,
2004,  AVMC  revenues  were  generated  by its two  reporting  segments:  Filmed
Entertainment  and Film and TV  Production.  Revenues  from  advisory  services,
development of custom software  applications and hosting and reporting  services
previously disclosed as the standalone YaYa subsidiary's operations are included
in discontinued operations for the Branded Content segment.

      Filmed Entertainment revenues are generated through its home video, direct
response, worldwide sales (television) and theatrical units.

      Filmed  Entertainment  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 which is included in accounts  receivable,  net in the
December 31, 2004  consolidated  balance sheet, are generally  recognized at the
time of shipment.

      In accordance with Statement of Position 00-2, "Accounting by Producers or
Distributors  of Films",  Filmed  Entertainment  revenues which are derived from
licensing  agreements,  are recognized when there is persuasive  evidence that a
licensing  arrangement  exists, that the film is complete and has been delivered
or is available  for  immediate  and  unconditional  delivery,  that the license
period has begun and the licensee can begin  exploitation  or  exhibition of the
film, the license fee is fixed or determinable and collection of the license fee
is reasonably  assured.  License fees for Filmed  Entertainment are amortized to
expense in the same ratio that current  period actual revenue bears to estimated
remaining unrecognized ultimate revenue as of the beginning of the current year.
Management  regularly  reviews and revises,  when necessary,  its total ultimate
revenue  estimates,  which may  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.  No assurance can be given that  unfavorable  changes to revenue
estimates will not occur, which


                                       32
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

may  result in  significant  write-downs  affecting  the  Company's  results  of
operations and financial  condition.  Film  advertising  and marketing costs are
expensed the first time the advertising  takes place,  unless the advertising is
recoupable  according to the contract,  and then it is recorded as other current
assets.

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

      Branded Content  revenues  primarily are derived from executed  agreements
for programming development, producing licensed custom software applications and
advisory services.  Revenues from long-term  contracts that include  programming
development or producing  licensed  custom software  applications  generally are
recognized using the percentage-of-completion method, except when collectibility
is not  reasonably  assured  in  which  case  profit  is  recognized  using  the
installment  method. The percentage of completion is determined based upon labor
hours expended compared to total expected  development hours.  Development hours
associated  with  the  production  of the  core  software  are  included  in the
measurement  of the  contract's  progress  toward  completion as the software is
customized.  Hours  contemporaneously  expended for routine  enhancements of the
core software,  however,  are excluded from the calculation.  Revenues from less
significant or short-term arrangements to develop software modifications,  which
are typically performed for recurring  customers,  generally are recognized when
the services are complete.

      Advisory   service  fees  generally  are  recognized   based  on  contract
milestones as time is incurred.  Licensing fee revenues are  recognized  ratably
over the term of the license  except that they are recognized  immediately  when
the  Company  has no further  services  to provide  to the  licensee.  Technical
service fees are recognized ratably over the term of the contract.

      The  Film and TV  Production  revenues  primarily  are  generated  from an
agreement to provide  executive  co-producer  services for a television  series.
These revenues are generally recognized as services are provided.

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

      Revenues  for the five months  ended  December 31, 2003 and the year ended
July 31,  2003 were  entirely  derived  from YaYa Media  operations,  consist of
licensing,  advisory  services and games hosting and  reporting.  See discussion
above concerning treatment of Branded Content revenues and Note 3 - Discontinued
operations.

      Net revenues represent sales to external customers. Intercompany revenues,
if any, have been eliminated and are immaterial for separate disclosure.

      Film  library  amortization.  License  fees for Filmed  Entertainment  are
amortized to expense in the same ratio that current  period actual revenue bears
to estimated remaining  unrecognized ultimate revenue as of the beginning of the
current year.  Management  regularly  reviews and revises,  when necessary,  its
total ultimate  revenue  estimates,  which may 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.  Results of  operations  in future years depend upon
the amortization of the film costs.  Periodic  adjustments in amortization rates
may  significantly  affect  these  results.  No  assurance  can  be  given  that
unfavorable  changes to revenue  estimates  will not occur,  which may result in
significant  write-downs  affecting  the  Company's  results of  operations  and
financial condition.


                                       33
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Allowance for uncollectible  accounts receivable.  Certain Branded Content
and Film and TV Production accounts receivable balances are based on contractual
agreements that primarily are with Fortune 1000 companies.  The Company does not
believe there is 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 does periodically analyze each client account,  and, when it becomes
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 Filmed  Entertainment  segment  sales,  the Company  records a monthly
accrual for bad debt expense based upon  historical  collections  experience and
other factors. The monthly accrual and individual customer accounts are reviewed
periodically to ensure overall reasonableness and collectibility. If the Company
determines that amounts owed from customers are uncollectible,  such amounts are
charged against the allowance for doubtful accounts.

      Inventories.  Inventories are stated at the lower of cost or market,  with
cost being  determined  using the average  cost  method.  Inventories  primarily
consist of packaging  materials  and finished  goods that include 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, a  wholly-owned  subsidiary of 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 142),  goodwill and intangible assets with indefinite lives are no
longer being amortized but instead are evaluated for impairment periodically, or
when events indicate that an impairment could exist. As required by SFAS 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.  At September 30,
2004,  the  goodwill  related  to the April  16,  2003  acquisition  of the YaYa
operations totaled $2,939,000. With respect to goodwill related to the YaYa, LLC
assets,  the operations of the Branded Content  segment were  discontinued as of
December 31, 2004. As a result, and in


                                       34
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. No impairment test of goodwill was performed at July 31, 2003
given the three and a half month YaYa operating period.

      Stock-based  compensation.  The Company accounts for stock-based  employee
compensation  (see Note 10 -  Stockholders'  equity) using the  intrinsic  value
method in  Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock
Issued to Employees.  Historically, the Company has granted stock options to its
employees  with an exercise price equal to the market value at 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  Statement  of  Financial  Accounting
Standards 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 Months        Five Months         Twelve Months
                                                               Ended              Ended                Ended
                                                            December 31,        December 31,          July 31,
                                                               2004                2003                2003
                                                            -----------         -----------         -----------
                                                            (unaudited)         (unaudited)         (unaudited)
<S>                                                         <C>                 <C>                 <C>
Net loss, as reported                                       $(4,017,000)        $   (87,000)        $  (915,000)
    Deduct:  Total stock-based employee compensation
    expense determined under fair value based method           (566,000)            (14,000)           (104,000)
                                                            -----------         -----------         -----------

Pro forma net loss                                          $(4,583,000)        $  (101,000)        $(1,019,000)
                                                            ===========         ===========         ===========

Pro forma net loss per share -- basic and diluted           $     (0.80)        $     (0.02)        $     (0.20)
                                                            ===========         ===========         ===========
</TABLE>

      The  weighted-average  grant-date  fair value of the  options  granted was
$3.73, $2.80 and $1.37 per option for the twelve months ended December 31, 2004,
five months ended  December 31, 2003 and the twelve  months ended July 31, 2003,
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:

<TABLE>
<CAPTION>
                                            Twelve Months         Five Months         Twelve Months
                                                Ended                Ended                Ended
                                          December 31, 2004    December 31, 2003      July 31, 2003
                                          -----------------    -----------------      -------------
<S>                                       <C>                  <C>                    <C>
Expected stock price volatility               138% - 140%            140%               144% - 146%
Expected option lives (years)                    10                   10                   10
Expected dividend yield                           0                    0                    0
Risk-free interest rates                        4.5%                 1.3%                 1.3%
</TABLE>


                                       35
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      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  1,114,000 and 1,025,000  shares,
respectively,  of common  stock at December  31,  2004,  997,000  and  1,025,000
shares,  respectively,  of common stock at December  31,  2003,  and 737,000 and
25,000 shares, respectively, of common stock at July 31, 2003, were not included
in the computation of basic and diluted loss per common share because the effect
would be anti-dilutive.

      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 $1,458,000,  $0 and $0,  respectively,  for the twelve months
ended  December  31, 2004,  five months  ended  December 31, 2003 and the twelve
months ended July 31, 2003.

      Income taxes.  The Company  accounts for income taxes under the provisions
of Statement of Financial  Accounting  Standards 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.  Evaluating the value of these
assets  is  necessarily  based  on  the  Company's  judgment.   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.

      Reclassifications. Certain amounts as previously reported for the December
31,  2003 and July 31, 2003  periods  have been  reclassified  to conform to the
current year presentation.

      New accounting pronouncements.  In December 2003, the Financial Accounting
Standards  Board  ("FASB")  issued  Interpretation  No.  46,  "Consolidation  of
Variable Interest  Entities ("FIN 46"),  clarifying FIN 46 and exempting certain
entities from the  provision of FIN 46R.  Generally,  application  of FIN 46R is
required in  financial  statements  of public  entities  that have  interests in
structures  commonly referred to as special-purpose  entities for periods ending
after December 15, 2003, and, for other types of variable  interest entities for
periods ending after March 15, 2004. FIN 46R addresses consolidation by business
enterprises  of  variable  interest  entities  that  either:  (1)  do  not  have
sufficient  equity  investment  at risk to  permit  the  entity to  finance  its
activities without additional subordinated financial support, or (2) the Company
will hold a significant  variable  interest in, or have significant  involvement
with,  an  existing   variable  interest  entity.  At  December  31,  2004,  the
requirements  of  FIN46R  had no  impact on the  Company's  financial  position,
results of operations or cash flows.

      In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment,"
which establishes  accounting  standards for all transactions in which an entity
exchanges its equity instruments for goods or services.  SFAS No. 123(R) focuses
primarily on accounting for  transactions  with  employees,  and carries forward
without change prior guidance for  share-based  payments for  transactions  with
non-employees.


                                       36
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      SFAS No. 123(R)  eliminates the intrinsic value  measurement  objective in
APB  Opinion 25 and  generally  requires  the  Company  to  measure  the cost of
employee services received in exchange for an award of equity  instruments based
on the fair value of the award on the date of the grant.  The standard  requires
grant date fair value to be estimated using either an option-pricing model which
is consistent  with the terms of the award or a market observed price, if such a
price  exists.  Such cost must be  recognized  over the period  during  which an
employee is required to provide service in exchange for the award (generally the
vesting  period).  The standard also requires the Company to estimate the number
of  instruments  that will  ultimately  be issued,  rather than  accounting  for
forfeitures as they occur.

      The Company is required  to apply SFAS No.  123(R) to all awards  granted,
modified  or settled as January 1, 2006.  The  Company is also  required  to use
either the "modified prospective method" or the "modified retrospective method."
Under the modified  prospective method, the Company must recognize  compensation
cost for all awards  granted after adoption of the standard and for the unvested
portion of previously-granted awards that are outstanding on that date.

      Under the  modified  retrospective  method,  the Company  must restate its
previously-issued  financial  statements  to  recognize  the amounts  previously
calculated and reported on a pro forma basis,  as if the prior standard had been
adopted. See Note 10 - Stockholders' equity.

      Under both methods, the Company is permitted to use either a straight-line
or an  accelerated  method to  amortize  the cost as an expense  for awards with
graded vesting. The standard permits and encourages early adoption.

      The  Company  has not yet  determined:  (1)  whether it will  elect  early
adoption; (2) if it elects early adoption, at what date; (3) whether the Company
will  use  the  modified  prospective  method  or  elect  to  use  the  modified
retrospective   method;   and,  (4)  whether  the  Company  will  elect  to  use
straight-line amortization or an accelerated method.  Additionally,  the Company
cannot  predict  with  reasonable  certainty  the number of options that will be
unvested and outstanding on January 1, 2006.

      Accordingly,  the Company  cannot  currently  quantify with  precision the
effect  that this  standard  will have on its  financial  position or results of
operations  in the future,  except that the Company  probably  will  recognize a
greater  expense  for any awards  that may be  granted in the future  than under
current guidance.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets"  ("SFAS No.  153").  SFAS No. 153 amends APB Opinion No. 29 to eliminate
the  exception  for  nonmonetary  exchanges  of  similar  productive  assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not  have  commercial  substance.  SFAS No.  153  specifies  that a  nonmonetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the exchange.  SFAS No. 153 is
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005.  The Company  believes  that its adoption will not have any
significant impact on the Company's financial position, results of operations or
cash flows.

Note 2 - Acquisitions

      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.


                                       37
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      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:

<TABLE>
<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:


                                       38
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<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  represents the results of
operations of the Company as if the Wellspring,  Hypnotic and YaYa  acquisitions
had occurred at August 1, 2002 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:



                                       39
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                       Twelve Months          Five Months           Twelve Months
                                                          Ended                  Ended                  Ended
                                                       December 31,           December 31,             July 31,
                                                           2004                   2003                   2003
                                                       ------------           ------------           ------------
                                                        (unaudited)            (unaudited)            (unaudited)
<S>                                                    <C>                    <C>                    <C>
Revenues, net                                          $ 21,368,000           $ 13,184,000           $ 29,243,000
                                                       ============           ============           ============

Net loss                                               $ (6,813,000)          $ (1,626,000)          $ (6,376,000)
                                                       ============           ============           ============

Net loss per common share - basic and diluted          $      (1.18)          $      (0.29)          $      (1.25)
                                                       ============           ============           ============
</TABLE>

      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 or that may be obtained in the future.

Note 3 - 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.
Accordingly,  the Company's  consolidated  statements  of  operations  have been
retroactively   adjusted  to  account  for  the  Branded   Content   segment  as
discontinued  operations for all periods  presented in accordance  with SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets."

      Loss from discontinued operations for the Branded Content segment consists
of the following:

<TABLE>
<CAPTION>
                                            Twelve Months          Five Months          Twelve Months
                                                Ended                 Ended                 Ended
                                          December 31, 2004     December 31, 2003       July 31,2003
                                             -----------           -----------           -----------
<S>                                          <C>                   <C>                   <C>
Revenues                                     $ 1,886,000           $   953,000           $   576,000
Cost of sales and services                       994,000               334,000               337,000
                                             -----------           -----------           -----------

Gross profit                                     892,000               619,000               239,000
                                             -----------           -----------           -----------

Selling, general and administrative            4,326,000               832,000               773,000
Non-operating income (expense)                   (67,000)              (65,000)              (14,000)
Income tax benefit                             1,523,000               130,000               186,000
                                             -----------           -----------           -----------

Loss from discontinued operations            $(1,978,000)          $  (148,000)          $  (362,000)
                                             ===========           ===========           ===========
</TABLE>


      Selling,   general  and  administrative   expenses  include  the  loss  on
impairment of YaYa goodwill of $2,939,000  for the twelve months ended  December
31, 2004. No balance sheet accounts were affected by the discontinued operations
for the Branded Content segment.


                                       40
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Accounts receivable, net

      Accounts receivables, net consist of:


<TABLE>
<CAPTION>
                                                           December 31,           July 31,
                                                               2004                  2003
                                                           -----------           -----------
<S>                                                        <C>                   <C>
Gross accounts receivable                                  $ 6,272,000           $   833,000
Less allowances for doubtful accounts and returns           (1,313,000)              (66,000)
                                                           -----------           -----------

Total accounts and other receivables, net                    4,959,000               767,000
Less long-term portion                                        (201,000)                   --
                                                           -----------           -----------

Total accounts receivable, net, current portion            $ 4,758,000           $   767,000
                                                           ===========           ===========
</TABLE>

      Bad debt  expense  of  $898,000  (including  $154,000  generated  from the
Branded Content segment included in the loss from discontinued operations on the
Company's consolidated  statements of operations),  $0, and $0 were recorded for
the twelve months ended  December 31, 2004,  five months ended December 31, 2003
and the twelve months ended July 31, 2003,  respectively.  Sales returns expense
of $1,736,000,  $0, and $0 were recorded as an offset against gross revenues for
the twelve months ended  December 31, 2004,  five months ended December 31, 2003
and the twelve months ended July 31, 2003, respectively.

Note 5 - Film inventory, net

<TABLE>
<CAPTION>
                                       December 31, 2004                              July 31, 2003
                             ------------------------------------          ------------------------------------
                             Gross Carrying          Accumulated           Gross Carrying          Accumulated
                                Amount               Amortization              Amount              Amortization
                             -------------          -------------          -------------          -------------
<S>                          <C>                    <C>                    <C>                    <C>
Film inventory, net          $  10,657,000          $   2,439,000          $          --          $          --
                             =============          =============          =============          =============
</TABLE>


      The aggregate  film inventory  amortization  expense for the twelve months
ended December 31, 2004 was  $2,439,000,  as compared to $0 expense for the five
months ended December 31, 2003 and the twelve months ended July 31, 2003.

      The film inventory is amortized over a period ranging  primarily from five
to seven years.  At December 31, 2004 and July 31, 2003,  the film inventory has
unamortized costs of $8,218,000 and $0.

      The  Company  estimates  approximately  20% of its  film  library,  net of
accumulated  amortization  will be amortized  during the one-year  period ending
December 31, 2005. At December 31, 2004, the film library  represents films that
have been released or are available for release. No films are in production,  in
development or preproduction.

      The Company also estimates 53% of its unamortized  film costs for released
films,  excluding  acquired  film  libraries,   will  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,  is estimated
to occur in 2014.


                                       41
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Furniture and equipment, net

<TABLE>
<CAPTION>
                                                       December 31,         July 31,
                                                           2004                2003
                                                        ---------           ---------
<S>                                                     <C>                 <C>
Computer equipment                                      $ 604,000           $ 225,000
Furniture and fixtures                                    107,000              35,000
Office equipment                                           57,000              31,000
Production equipment                                       21,000                  --
Leasehold improvements                                     56,000                  --
                                                        ---------           ---------

                                                          845,000             291,000
Less accumulated depreciation and amortization           (499,000)            (75,000)
                                                        ---------           ---------

                                                        $ 346,000           $ 216,000
                                                        =========           =========
</TABLE>

      The aggregate  depreciation and amortization expense for the twelve months
ended  December  31, 2004 was $291,000  (including  $44,000  generated  from the
Branded Content segment included in the loss from discontinued operations on the
Company's consolidated statements of operations), as compared to $32,000 expense
for the five months ended  December  31, 2003 and $39,000 for the twelve  months
ended July 31, 2003.

Note 7 - Investments in unconsolidated investees

      The  Company,  through  a  wholly  owned  subsidiary,  has a 49%  minority
interest in an unconsolidated  investee that owns and operates a restaurant in a
casino hotel  located on the Las Vegas  "Strip."  The Company has no  day-to-day
management  responsibilities  in connection with the Restaurant Investee and the
Restaurant  Investee's  operations.  The Company  excludes  the  accounts of the
Restaurant  Investee and instead records its investment  using the equity method
of  accounting,  as adjusted to reflect the terms of the  Restaurant  Investee's
operating  agreement  regarding  allocation  of  profits  and  losses  among the
Restaurant Investee's members.

      The following summarizes the condensed balance sheet at December 31, 2004,
and the statement of operations for the twelve months ended December 31, 2004 of
the Restaurant Investee:

                   Assets                          $1,496,000
                   Liabilities                        473,000
                                                   ----------

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

                   Revenues                        $7,634,000
                   Expenses                         6,424,000
                                                   ----------

                   Income from operations          $1,210,000
                                                   ==========



                                       42
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following summarizes the condensed balance sheet at December 31, 2003,
and the statement of operations  for the five months ended  December 31, 2003 of
the Restaurant Investee:


                   Assets                          $1,670,000
                   Liabilities                        316,000
                                                   ----------

                   Members' capital                $1,354,000
                                                   ==========

                   Revenues                        $2,344,000
                   Expenses                         2,080,000
                                                   ----------

                   Income from operations          $  264,000
                                                   ==========

      The following  summarizes the condensed balance sheet at July 31, 2003 and
the  statement of  operations  for the twelve  months ended July 31, 2003 of the
Restaurant Investee:

                   Assets                          $1,890,000
                   Liabilities                        417,000
                                                   ----------

                   Members' capital                $1,473,000
                                                   ==========


                   Revenues                        $5,510,000
                   Expenses                         4,851,000
                                                   ----------

                   Income from operations          $  659,000
                                                   ==========

      In addition, as a result of the YaYa, LLC asset acquisition,  the Company,
through YaYa, obtained a non-controlling  interest (10% at December 31, 2004 and
36% at December 31, 2003 and July 31, 2003) in an  unconsolidated  investee 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 condensed balance sheet at December 31, 2004
and the  statement of operations  for the twelve months ended  December 31, 2004
(unaudited) of the YaYa Investee:

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

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


                   Revenues                        $2,312,000
                   Expenses                         1,942,000
                                                   ----------

                   Income from operations          $  370,000
                                                   ==========


                                       43
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following summarizes the condensed balance sheet at December 31,
2003 and the statement of operations for the five months ended December 31, 2003
(unaudited) of the YaYa Investee:

                     Assets                        $ 26,000
                     Liabilities                    131,000
                                                   --------

                     Members' deficit              $105,000
                                                   ========

                     Revenues                      $226,000
                     Expenses                       272,000
                                                   --------

                     Loss from operations          $ 46,000
                                                   ========

      The following  summarizes the condensed balance sheet at July 31, 2003 and
the statement of operations  from April 16, 2003 (date of  acquisition)  through
July 31, 2003 (unaudited) of the YaYa Investee:

                    Assets                          $ 38,000
                    Liabilities                       97,000
                                                    --------

                    Members' deficit                $ 59,000
                                                    ========


                    Revenues                        $145,000
                    Expenses                         101,000
                                                    --------

                    Income from operations          $ 44,000
                                                    ========


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 is secured by substantially all of the assets of
Wellspring. The interest rate is 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)  is below the  $4,500,000  maximum,  the Atlantic Line of Credit is
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.
There is no further availability of funds under the Atlantic Line of Credit.

      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 is secured by a certificate of deposit
in the principal amount of $2,500,000.  This certificate of deposit has a stated
interest rate of 1.75% and maturity date of June 30, 2005. The SouthwestUSA Line
of Credit  interest rate is a floating rate of 0.5% above  SouthwestUSA's  prime
lending rate (which was 5.75% at December 31, 2004).  At December 31, 2004,  the
Company  had  an  outstanding   principal   balance  of  $2,300,000   under  the
SouthwestUSA  Line of Credit.  Jeanne  Hood,  a director  of the  Company,  is a
director of SouthwestUSA.

      See Note 17 -- Subsequent events concerning repayment of the Atlantic Line
of Credit and the SouthwestUSA Line of Credit.


                                       44
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Notes payable

      The aggregate  purchase  price for the shares of Wellspring  capital stock
included the issuance 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.

      See  Note 17 --  Subsequent  events  concerning  the  sale of AVMC and its
subsidiaries.

      From the April 16,  2003  acquisition  of the YaYa  business,  the Company
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% 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. YaYa's only remaining potential source of cash flow,
at December 31, 2004, is its 10% equity interest in an unconsolidated  investee.
However, to-date, the unconsolidated investee 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.

      In connection with the April 16, 2003 asset acquisition  agreement between
YaYa, LLC, YaYa and the Company,  the Company issued to YaYa, LLC 824,811 shares
of Company common stock valued at $1.41 per share, based on the closing price of
Company common stock on April 16, 2003. The agreement provided for the Company's
right to repurchase the 824,811 shares of common stock issued as the acquisition
consideration.  This right was  exercisable in the Company's sole  discretion if
YaYa  failed to produce  net income  (determined  without  giving  effect to any
interest charges on the Company's prior loans to YaYa) for the period commencing
on April 16, 2003 and  terminating on April 30, 2004. The right was  exercisable
at an aggregate  purchase price of  $1,155,000.  During August 2004, the Company
determined  that it would not  repurchase  the  824,811  shares of common  stock
issued to YaYa, LLC.

      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 acquired in the acquisition transaction, as directed by the Company's board
of


                                       45
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

      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  repurchased  no shares during the twelve months ended December 31, 2004
or July 31, 2003. 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 options.  At December 31, 2004, December 31, 2003 and July 31, 2003,
the Company has two separate  active stock  option plans with  1,583,334  shares
reserved for 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
adopted  with  500,000  shares  reserved for officers of the Company and 833,334
shares reserved for key employees,  including officers.  The options,  under all
plans,  are  generally  not 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
                                            ------------------------    -------------------------    -------------------------
<S>                                         <C>          <C>              <C>         <C>              <C>         <C>
Common shares reserved for issuance                 500,000                      833,334                     1,583,334
                                            ========================    =========================    =========================

Shares / weighted average exercise price
     Outstanding, July 31, 2002                 11,696    $     1.13       175,972     $     1.48       264,172     $     3.51
     Exercised                                      --            --            --             --            --             --
     Granted                                        --            --            --             --       427,500           1.37
     Canceled / expired                             --            --       (58,668)          2.07       (83,337)          3.48
                                            ----------    ----------    ----------     ----------    ----------     ----------

     Outstanding, July 31, 2003                 11,696          1.13       117,304           1.16       608,335           1.53
     Exercised                                      --            --            --             --            --             --
     Granted                                        --            --            --             --       260,000           2.87
     Canceled / expired                             --            --            --             --            --             --
                                            ----------    ----------    ----------     ----------    ----------     ----------

     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
                                            ==========    ==========    ==========     ==========    ==========     ==========
</TABLE>


                                       46
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                           Employees, Officers
                                                      Officers                   Key Employees               Directors, Others
                                              --------------------------  -------------------------     ----------------------------
<S>                                           <C>          <C>            <C>         <C>              <C>         <C>
Common shares reserved for issuance                    500,000                     833,334                      1,583,334
                                              --------------------------  ----------------------------  ----------------------------
     Options outstanding -- weighted average
       remaining contractual life (years) //
       range of exercise prices                   5.1       $       1.13       5.1       $1.13 - $1.63       7.4       $1.13 - $4.15
                                              ============  ============  =============  =============  =============  =============

     Options exercisable -- weighted average
       remaining contractual life (years) //
       range of exercise prices                   5.1       $       1.13       5.1       $1.13 - $1.63       6.3       $1.13 - $4.15
                                              ============  ============  =============  =============  =============  =============
</TABLE>


      The April 2003 closing of the YaYa, LLC acquisition  transaction  resulted
in the contingent  option  previously  granted to a director on July 12, 2002 to
purchase up to 175,000 shares of the Company's  common stock at $1.41 per share,
and the contingent option previously  granted to the Company's outside corporate
counsel,  a minority  stockholder,  on July 12,  2002 to  purchase  up to 87,500
shares of the  Company's  common stock at $1.41 per share,  to each become fully
exercisable.  These  options  were  granted as  compensation  for serving on the
Company's special advisory group to the board of directors. The special advisory
group was  established on July 12, 2002 to identify,  review and perform initial
due diligence services of potential merger and acquisition  candidates on behalf
of the Company.  Based on the  Black-Scholes  option pricing model,  the Company
initially capitalized  approximately $365,000 as prepaid  acquisition/investment
fee costs. As a result of the Wellspring,  Hypnotic and YaYa, LLC  transactions,
the  Company  reclassified  $235,000,  $30,000,  and  $100,000  respectively  or
approximately  4% of  each  overall  purchase  price,  as  direct  costs  of the
acquisition.  At December 31, 2004,  the Company has $0 in  capitalized  prepaid
acquisition/investment fee costs related to these option grants.

      Warrants.  Pursuant to the December 31, 2003 asset  acquisition  agreement
among  Enigma and the Company,  the Company  issued  Enigma  Warrants to Enigma,
which were valued at $0.75 per 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  "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 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.



                                       47
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Income taxes

      Income tax benefit is comprised as follows:


                Twelve Months       Five Months      Twelve Months
                    Ended             Ended              Ended
                December 31,       December 31,        July 31,
                    2004              2003               2003
                 ----------        ----------         ----------

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

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

Deferred:
  Federal        $1,374,000        $   20,000         $  206,000
  State             632,000            (2,000)                --
                 ----------        ----------         ----------

                 $2,006,000        $   18,000         $  206,000
                 ==========        ==========         ==========

      The total income tax benefit is recorded as follows:

                             Twelve Months       Five Months      Twelve Months
                                 Ended              Ended             Ended
                              December 31,       December 31,       July 31,
                                  2004              2003              2003
                               ----------        ----------        ----------

Continuing operations          $2,006,000        $   18,000        $  206,000
Discontinued operations         1,523,000           130,000           186,000
                               ----------        ----------        ----------

                               $3,529,000        $  148,000        $  392,000
                               ==========        ==========        ==========


      The income tax benefit for the twelve months ended December 31, 2004, five
months ended December 31, 2003 and the twelve months ended July 31, 2003 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:


                                       48
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                     Twelve Months                   Five Months                    Twelve Months
                                         Ended                           Ended                           Ended
                                      December 31,                    December 31,                     July 31,
                                         2004              %             2003              %             2003              %
                                      -----------     -----------     -----------     -----------     -----------     -----------
<S>                                   <C>             <C>             <C>             <C>             <C>             <C>
Statutory federal tax rate            $ 1,375,000              34     $   (15,000)             34     $   259,000              34
Expected state tax, net of federal        450,000              11          (1,000)              2              --               0
Effect of permanent differences           (32,000)             (1)        (11,000)             26         (40,000)             (5)
Employment tax credits                     25,000               1          25,000             (57)             --               0
Other                                     188,000               5          20,000             (47)        (13,000)             (2)
                                      -----------     -----------     -----------     -----------     -----------     -----------

                                      $ 2,006,000              50     $    18,000             (42)    $   206,000              27
                                      ===========     ===========     ===========     ===========     ===========     ===========
</TABLE>

      The components of deferred net tax assets and  liabilities at December 31,
2004 and July 31, 2003 are comprised of:

                                                    December 31,      July 31,
                                                       2004             2003
                                                    ----------       ----------

Tax attributes of unconsolidated investee           $  128,000       $ (134,000)
Reserves, allowances and accruals                      712,000               --
Basis in acquired intangibles (film library)           874,000               --
Net operating loss                                   3,646,000          382,000
Other                                                   78,000            6,000
                                                    ----------       ----------

                                                    $5,438,000       $  254,000
                                                    ==========       ==========

As  of  December  31,  2004,  the  Company  had  available  net  operating  loss
carryforwards for federal and state of $8,410,000 and $8,946,000,  respectively,
which begin to expire in 2022 and 2012, respectively.

Note 12 - Commitments and contingencies

      Operating  lease  commitments.  At December 31, 2004,  the Company  leases
space for its offices under  agreements  with terms ranging from twelve to sixty
months.  Certain  lease  agreements  provide  for  payment of taxes,  insurance,
maintenance and other expenses related to the leased property.  In addition,  in
connection  with the  execution  of an April  2004 lease  agreement,  a $350,000
standby letter of credit 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 is  included in other  assets in the  December  31, 2004  consolidated
balance sheet.



                                       49
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The aggregate future minimum commitments under the operating leases are as
follows:

                                       Twelve Months
                                           Ended
                                       December 31,
                                      ----------------
    2005                                    $ 842,000
    2006                                      827,000
    2007                                      823,000
    2008                                      638,000
    2009                                      105,000
 Thereafter                                        --
                                      ---------------
                                          $ 3,235,000
                                      ===============


      Rent expense for the twelve  months ended  December 31, 2004,  five months
ended  December 31, 2003 and twelve months ended July 31, 2003 totaled  $962,000
(including  $44,000  generated from the Branded Content segment  included in the
loss from discontinued  operations on the Company's  consolidated  statements of
operations), $74,000, and $41,000, respectively.

      See  Note 17 --  Subsequent  events  concerning  the  sale of AVMC and its
subsidiaries.

      Litigation.  In connection with the 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 seeks to recover  payments  totaling more than  $3,150,000 due under
one of the  agreements  and  $790,000  under  another.  The  Company  also seeks
interest, court costs and additional unspecified and to-be-determined consulting
fees that would have been due during the  remainder of the  consulting  contract
term.

      In April  2003,  the Tribe filed a motion to dismiss the case based on its
assertion  that its contracts  with the Company were not properly  authorized by
Tribal authorities, and thereby did not constitute a valid waiver of the Tribe's
sovereign  immunity  to suit.  In May 2003,  the Fresno  County  Superior  Court
determined that the Company was entitled to discovery on the sovereign  immunity
issue and,  only after such  discovery  was  completed,  would the Fresno County
Superior Court conduct further proceedings on the sovereign immunity issue.

      In January  2004,  the  California  Superior  Court granted the motion and
dismissed the Company's complaint. The Company has filed an appeal of this order
with the California Court of Appeal, which has yet to schedule a hearing.

      If the Court of Appeal  overturns the Superior Court  dismissal and allows
the  Company  to  pursue  its  claim  against  the  Tribe,  the Tribe may file a
counterclaim  seeking  to  recover  prior  fees paid to the  Company.  Since the
Company  is  unable  to  determine  its  losses,  if  any,  should  the  Tribe's
counterclaim  be  successful,  no accounting  recognition  has been given to the
matter in the accompanying 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 Tribe civil action, no material actions are currently
pending against the Company.



                                       50
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 - Related party transactions

      Non-employee  directors were paid $95,000,  $44,000 and $83,000 during the
twelve months ended  December 31, 2004,  five months ended December 31, 2003 and
twelve  months  ended July 31, 2003,  respectively,  for serving on the Board of
Directors of the Company.

      In consideration for consulting and management services,  the Company paid
Stephen K. Bannon, a director,  $297,000,  $50,000 and $60,000 during the twelve
months  ended  December 31,  2004,  five months ended  December 31, 2003 and the
twelve months ended July 31, 2003, respectively.

      In consideration for corporate legal and consulting services,  the Company
paid a minority shareholder  approximately  $56,000,  $25,000 and $90,000 during
the twelve months ended  December 31, 2004,  five months ended December 31, 2003
and the twelve months ended July 31, 2003, respectively.

      On  October  25,  2002,  the  Company  granted to Jeanne  Hood,  Steven G.
Barringer and Stephen K. Bannon, non-qualified stock options to purchase 20,000,
20,000 and 25,000,  respectively,  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 or as a chairperson  of a committee
of the Company's board.

      Other  related  party  transactions  are  described  in Note 8 - Lines  of
Credit, Note 10 - Stockholders'  equity (stock options) and Note 17 - Subsequent
events.

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").  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.

      401(k) plan. A 401(k) plan was assumed in the February 3, 2004  Wellspring
acquisition.   Wellspring   employees  meeting   eligibility   requirements  may
contribute to the 401(k) plan in accordance with the Employee  Retirement Income
Security  Act of 1974.  The  Company,  at its  discretion,  may  match  employee
contributions.  The  Company  contributed  $0 during  the  twelve  months  ended
December 31, 2004.

      Retirement   plan.   Company   employees   meeting   certain   eligibility
requirements  participate  in  a  simplified  employee  pension  plan.  Employer
contributions  to the plan are made on a  discretionary  basis and were $82,000,
$17,000 and $49,000 for the twelve months ended  December 31, 2004,  five months
ended December 31, 2003 and twelve months ended July 31, 2003, respectively.


                                       51
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Supplemental cash flow information

<TABLE>
<CAPTION>
                                                                 Twelve Months    Five Months    Twelve Months
                                                                     Ended           Ended           Ended
                                                                  December 31,    December 31,      July 31,
                                                                      2004            2003            2003
                                                                  -----------     -----------     -----------
<S>                                                               <C>             <C>             <C>
Reconciliation of net loss to net cash used
  in operating activities
      Net loss                                                    $(4,017,000)    $   (87,000)    $  (915,000)
      Loss from discontinued operations (net of
        tax benefit of $1,523,000, $130,000, and $186,000)          1,978,000         148,000         362,000
                                                                  -----------     -----------     -----------

      Loss (income) from continuing operations                     (2,039,000)         61,000        (553,000)
      Income from unconsolidated investees                           (624,000)       (122,000)       (468,000)
      Amortization of film library                                  2,439,000              --              --
      Other depreciation and amortization                             269,000           7,000           9,000
      Provision for bad debt expense                                  744,000              --              --
      Provision for capitalized film costs                             75,000              --              --
      Gain on sale of land                                         (3,423,000)             --              --
      Compensation expense from issuance of stock options                  --              --         119,000
      Non-cash reduction of vendor liabilities                       (317,000)             --              --
      Issuance of common stock for investment banking services         56,000              --              --
      Deferred income tax benefit                                  (2,006,000)        (18,000)        141,000
      Change in operating assets and liabilities,
        net of amounts acquired or assumed in acquisitions
        and discontinued operations:
          Accounts receivables, net                                  (256,000)         (1,000)         (7,000)
          Inventories                                                 (93,000)             --              --
          Refundable income taxes                                          --              --       1,100,000
          Other current assets                                        311,000         (92,000)        (35,000)
          Film inventory, net                                      (4,249,000)             --              --
          Other assets                                                117,000          (5,000)             --
          Accounts payable and other current liabilities              206,000          71,000         137,000
          Customer deposits                                           131,000              --              --
          Deferred revenue                                           (636,000)             --              --
                                                                  -----------     -----------     -----------

      Net cash used in operating activities                       $(9,295,000)    $   (99,000)    $   443,000
                                                                  ===========     ===========     ===========
</TABLE>


                                       52
<PAGE>

AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 - Segment reporting

      The Company operates in the entertainment,  media and lifestyle industries
and has determined that its reportable  segments are those that are based on the
Company's methods of internal reporting and management structure.  The Company's
two reportable segments are Filmed Entertainment and Film and TV Production. Our
financial  reporting  systems  present  various data for  management  to run the
business,  including internal  statements of operations that may not be prepared
on a basis consist with U.S. GAAP.  Due to the nature of segment  operations the
Company does not track assets by segment.  The segments are designed to allocate
resources   internally   and  provide  a  framework  to   determine   management
responsibility.  Management  continually  will evaluate the allocation of shared
services and other corporate and infrastructure  costs, as considered necessary,
for internal segment reporting.

      Selected financial  information for each reportable segment for the twelve
months  ended  December  31, 2004 and July 31,  2003 and the five  months  ended
December 31, 2003 is as follows:


<TABLE>
<CAPTION>
                                             Twelve Months        Five Months        Twelve Months
                                                 Ended                Ended              Ended
                                              December 31,        December 31,         July 31,
                                                  2004                2003               2003
                                              ------------        ------------        ------------
<S>                                           <C>                 <C>                 <C>
Revenues

Filmed Entertainment                          $ 17,128,000        $         --        $         --
Film and TV Production                             638,000                  --                  --
                                              ------------        ------------        ------------

Total consolidated revenues                   $ 17,766,000        $         --        $         --
                                              ============        ============        ============

Operating loss

Filmed Entertainment                          $ (2,243,000)       $         --        $         --
Film and TV Production                            (656,000)                 --                  --
Selling, general and administrative
   expenses, not allocated to segments          (5,086,000)           (705,000)         (1,347,000)
                                              ------------        ------------        ------------

Total consolidated operating loss               (7,985,000)           (705,000)         (1,347,000)

Total consolidated non-operating income          3,316,000             626,000             120,000
                                              ------------        ------------        ------------

Loss before income tax benefit                $ (4,669,000)       $    (79,000)       $ (1,227,000)
                                              ============        ============        ============
</TABLE>

      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.
Accordingly,  the Company's  consolidated  statements  of  operations  have been
retroactively   adjusted  to  account  for  the  Branded   Content   segment  as
discontinued  operations for all periods  presented in accordance  with SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets."


                                       53
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The operating  results for the Branded Content segment are included in the
following schedule for each applicable period:

<TABLE>
<CAPTION>
                                                       Twelve Months      Five Months       Twelve Months
                                                           Ended             Ended             Ended
                                                       December 31,       December 31,         July 31,
                                                           2004               2003              2003
                                                       -----------        -----------        -----------
<S>                                                    <C>                <C>                <C>
Branded Content

Revenues                                               $ 1,886,000        $   953,000        $   576,000
Operating loss (including impairment of goodwill
      totaling $2,939,000)                              (5,319,000)        (1,166,000)        (1,110,000)
Non-operating income                                       (68,000)           (65,000)           (14,000)
Income tax benefit                                       1,523,000            130,000            186,000
                                                       -----------        -----------        -----------

Loss from discontinued operations                      $(1,978,000)       $  (148,000)       $  (362,000)
                                                       ===========        ===========        ===========
</TABLE>

Note 17 - Subsequent events

      Effective  March  21,  2005,  the  Company   consummated  the  transaction
contemplated by an Agreement and Plan of Merger ("Agreement"), pursuant to which
the Company  disposed of all of the outstanding  common stock of AVMC to Genius.
The  consideration  paid for the  outstanding  shares of AVMC  common  stock was
7,000,000  shares of Genius  common stock and warrants to purchase an additional
1,400,000  shares of Genius common stock.  The Genius  warrants are  exercisable
through  March 21, 2010,  at exercise  prices of $2.56 per share with respect to
700,000  shares of Genius  common  stock and $2.78 per share with respect to the
remaining  700,000  shares of Genius common stock.  The Company and Genius fixed
the  terms of the  warrants  pursuant  to a March 2,  2005  Securities  Purchase
Agreement between Genius and certain non-related institutional investors.

      A total of 350,000  shares of Genius common stock  comprising a portion of
the  merger  consideration  are  being  held in  escrow,  pursuant  to an Escrow
Agreement  between  Genius,  City National  Bank and the Company,  to secure the
Company's indemnification obligations under the Agreement. An additional 775,000
shares  of  Genius  common  stock  are  being  held by  Genius,  pursuant  to an
Assumption  of  Obligations  and Pledge  Agreement  (Video  Catalog) (the "Video
Catalog  Assumption  Agreement")  and  an  Assignment,   Assumption  and  Pledge
Agreement (the "Hypnotic  Assignment  and Assumption  Agreement"),  each between
Genius  and the  Company.  These  pledges  of stock were made in order to secure
compliance of the Company's agreements to assume payment obligations relating to
(a) approximately $1,050,000 of accounts payable incurred in connection with the
catalog  operations of  Wellspring,  (b)  potential  severance  obligations,  of
approximately $400,000 under certain AVMC employment agreements,  (c) penalties,
interest and  attorneys'  fees over  $10,000  involving a claim by a licensee of
Wellspring,  covered by  insurance,  relating to a claim against the Company and
AVMC filed with the U.S. Equal Employment  Opportunity  Commission.  The Company
will receive the proceeds,  if any, from the sales of approximately  $300,000 of
film  inventory  relating to the  Wellspring  catalog  business  under the Video
Catalog Assumption Agreement.  The Company has been assigned certain contractual
rights and other assets of Hypnotic under the Hypnotic Assignment and Assumption
Agreements.


                                       54
<PAGE>


AMERICAN VANTAGE COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The  consideration  also  included  assumption  of  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
$3,300,000 of the AVMC promissory notes.

      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.  However,  Genius may occupy the
Wellspring  executive  and  operations  offices  located  in  New  York,  for  a
transitional  period of 90 days,  upon  reimbursement  of the  Company's  actual
monthly rental cost. Failure to vacate the New York offices at the expiration of
90 days will result in Genius being obligated for 1.5 times the Company's actual
cost under the New York lease.

      Immediately  preceding  the  effectiveness  of the  Agreement,  Stephen K.
Bannon, Vice-Chairman of the Company's Board of Directors, and the President and
Chief Executive  Officer of AVMC,  resigned as a director,  Vice-Chairman of the
Company's Board of Directors and all other offices with the Company.

      As a result of this  disposition  of AVMC on March 21, 2005, the Company's
operations  primarily include revenues generated from the Film and TV Production
segment which  includes  co-executive  producer  fees from a television  series.
Other assets of the Company  following the disposition of AVMC primarily include
the  Company's 49% interest in the  Restaurant  Investee and the 10% interest in
the YaYa Investee,  cash and the GNPI  securities  that the Company  received as
consideration for the disposal of AVMC to Genius.

      At  April 1,  2005,  the  Company  paid 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.


                                       55
<PAGE>

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


      On June 10, 2004, the Company appointed  Deloitte & Touche LLP, as its new
auditor beginning August 1, 2003. The audit committee of the Company  authorized
the  termination  of  its  previous  auditors,   Piercy  Bowler  Taylor  &  Kern
("Piercy"),  Certified Public Accountants and Business Advisors,  a professional
corporation,  and the  engagement  of  Deloitte  & Touche  LLP as the  Company's
independent auditors.

      During  the  Company's  two  most  recent  fiscal  years,  there  were  no
disagreements  between the Company and Deloitte & Touche LLP or Piercy,  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 or Piercy's  satisfaction  would have caused  Deloitte &
Touche  LLP  or  Piercy  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,  2004,  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 disclosed.

      There has been no change in the Company's internal controls over financial
reporting  that  occurred  during  the  fourth  fiscal  quarter of 2004 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.

<TABLE>
<CAPTION>
Name                         Age        Position
----                         ---        --------
<S>                          <C>        <C>
Ronald J. Tassinari          61         Founder, Chairman of the Board of Directors, Chief
                                        Executive Officer and President

Audrey K. Tassinari          63         Director

Jeanne Hood                  76         Director (Chairwoman of the Audit Committee)

Steven G. Barringer          49         Director (Corporate Governance Liaison)

Randolph C. Read             52         Director (Chairman of the Compensation Committee)

Anna M. Morrison             49         Chief Accounting Officer
</TABLE>


                                       56
<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
advisory  group  formed to evaluate  mergers and  acquisitions  candidates.  Mr.
Tassinari is the husband of Audrey K. Tassinari, a director of the Company.

      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 with 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.

      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.

      Steven G. Barringer has been 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 the  government  relations firm of MGN, Inc. in Washington,
D.C.  since  November  2000.  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.

      Randolph C. Read was elected to the  Company's  board of  directors on May
20, 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.

      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  for the  Company  as an  outside  consultant.  She was the
President of Morrison Business  Resources,  Inc. and an associate with Resources
Connection, Inc. and Robert Half International, Inc. from 1997 to August 2002.

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 applicable NASDAQ rules and
Rule 10A-3 under the Exchange Act.



                                       57
<PAGE>

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.

      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,  the Company is not aware of
any failures to file reports or report  transactions  in a timely  manner during
the Company's fiscal year ended December 31, 2004.

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, 2004 and 2003 and the fiscal
years  ended  July 31,  2003 and  2002,  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, 2004 and whose total
annual  salary,  bonus and other annual  compensation  earned  during the twelve
months ended December 31, 2004 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.


                                       58
<PAGE>
<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,                Twelve months ended 12/31/04     $ 300,923         $--      $ 41,000    (1)           --
  Chief Executive Officer           Twelve months ended 12/31/03       287,857     100,000        40,000    (2)      275,000   (3)
  and President                      Fiscal year ended 7/31/03         272,473          --        40,000    (2)       25,000   (4)
                                     Fiscal year ended 7/31/02         408,140          --        40,000    (2)       28,470   (5)


Anna M. Morrison,                   Twelve months ended 12/31/04     $ 160,308         $--      $ 41,000    (1)           --
  Chief Accounting Officer          Twelve months ended 12/31/03        92,349      15,000        25,539  (6)(7)      60,000   (8)
                                     Fiscal year ended 7/31/03          33,798          --         8,808  (7)(9)      50,000  (10)
                                     Fiscal year ended 7/31/02              --          --            --                  --


Stephen K. Bannon,                  Twelve months ended 12/31/04           $--         $--     $ 297,083   (11)           --
  AVMC Chief Executive Officer      Twelve months ended 12/31/03            --          --        60,000   (11)      175,000  (12)
                                     Fiscal year ended 7/31/03              --          --        60,000   (11)      200,000  (13)
                                     Fiscal year ended 7/31/02              --          --        20,000   (11)           --


Matthew P. Smith                    Twelve months ended 12/31/04     $ 166,154         $--           $--                  --
  AVMC Chief Financial Officer      Twelve months ended 12/31/03            --          --            --                  --
                                     Fiscal year ended 7/31/03              --          --            --                  --
                                     Fiscal year ended 7/31/02              --          --            --                  --
</TABLE>

----------

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

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

(3)   Represents options 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.

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

(5)   Represents an option to purchase  28,470  shares of the  Company's  common
      stock at an exercise price of $2.49 per share. This option was voluntarily
      canceled by Mr. Tassinari, effective as of July 31, 2002.

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

(7)   Prior to joining the Company, Ms. Morrison was employed by an entity which
      provided  internal  accounting  and  financial  reporting  services to the
      Company.  The Company paid this entity  $21,162  during the twelve  months
      ended  December 31, 2003 and $61,290 during the fiscal year ended July 31,
      2003 for  providing  such  services.  Such amounts are not included in Ms.
      Morrison's annual compensation for these two periods.

(8)   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.



                                       59
<PAGE>

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

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

(11)  Represents  compensation  received as a consultant by the Company's former
      Vice-Chairman  of the board of directors  and Chief  Executive  Officer of
      AVMC.  Immediately  preceding  the  effectiveness  of the  sale of AVMC to
      Genius, Mr. Bannon resigned as a director,  Vice-Chairman of the Company's
      Board of Directors  and all other  offices  with the Company.  See further
      discussion in Employment and Severance Agreements.

(12)  Represents  an option to purchase  175,000 of the  Company's  common stock
      shares at an exercise price of $1.41 per share.

(13)  Represents (i) an option to purchase 25,000 of the Company's  common stock
      shares  at an  exercise  price of $1.26 per  share;  and (ii) an option to
      purchase 175,000 of the Company's common stock shares at an exercise price
      of $1.41 per share.


Option Grants In Last Fiscal Year

      During the twelve  months ended  December 31, 2004 no options were granted
to the  named  executive  officers  listed  in the  Summary  Compensation  Table
contained in the "Executive Compensation" subsection of this Form 10-KSB.

      The following table sets forth:

 o    The number of shares  underlying  options the Company  granted  during the
      twelve  months  ended  December  31,  2003 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, 2003,

 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            25,000                     4.9%                 $ 1.41               April 15, 2013
                               250,000                    49.0%                  2.87             December 10, 2013

Anna M. Morrison               50,000                     9.8%                   1.41               April 15, 2013
                               10,000                     2.0%                   2.87             December 10, 2013

Stephen K. Bannon              175,000                    34.3%                  1.41               April 15, 2013

Matthew P. Smith                  0                       0.0%                     --                     --
</TABLE>



                                       60
<PAGE>

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

      The  table  below  includes  the  number  and  value  of  exercisable  and
unexercisable  stock  options  granted to the  executive  officers  named in the
Summary Compensation Table at the twelve months ended December 31, 2004.

<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               130,555 / 200,000              $97,749 / $0

Anna M. Morrison                   0                   $0                52,000 / 8,000                $70,500 / $0

Stephen K. Bannon                  0                   $0                  200,000 / 0                 $278,250 / $0

Matthew P. Smith                   0                   $0                     0 / 0                       $0 / $0
</TABLE>

----------

(1)   The closing price for the Company's common shares on December 31, 2004 was
      $1.81 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.

Employment and Severance Agreements

      The Company entered into an employment  agreement with Ronald J. Tassinari
in March 1995.  This  agreement  was amended as of July 20, 1995 and on December
21, 2001.  The prior  agreement,  as amended,  had a term  expiring on March 31,
2002, subject to extension for an unlimited number of additional one year terms,
unless  either the  executive  or the Company  provided  30 days' prior  written
notice to the other party prior to the date of  termination  of the then current
term. The Company  entered into a new employment  agreement with Mr.  Tassinari,
effective as of April 1, 2002.

      The April 2002  employment  agreement  provided  for the  option  grant to
purchase  28,470 of the  Company's  common stock  shares.  This option grant was
intended to compensate the executive for not receiving  additional  compensation
under his prior  employment  agreements  relating  to  increases  in a specified
cost-of-living  index. The options were voluntarily canceled by Mr. Tassinari as
of July 31, 2002.

      Ronald J. Tassinari's April 2002 employment agreement,  which provided for
him to serve  as the  Company's  Chief  Executive  Officer  and  President,  was
intended to serve as an interim  agreement with an expiration  date of September
30, 2002, subject to extension to March 31, 2005 under specified  circumstances.
The initial term was extended to November  30, 2002 and,  thereafter  to January
31, 2003,  pursuant to letter agreements  between Mr. Tassinari and the Company.
The April 2002 agreement with Mr. Tassinari provided,  among other matters,  for
(a) an annual base salary of $240,000,  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


                                       61
<PAGE>

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
April 2002  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  April  2002  agreement  also  contained
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  April 2002 employment  agreement  further provided 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 April 2002  agreement  also  provided for  disability
coverage,  including continuing to pay him his base salary and keeping in effect
any incentive  awards during an initial period and then to 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.

      Mr.  Tassinari's April 2002 employment  agreement provided 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 April 2002  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  Ronald  J.
Tassinari  effective February 1, 2003. Mr. Tassinari's  February 2003 employment
agreement provides for him to continue to serve as the Company's Chief Executive
Officer  and  President.  The term of the  February  2003  employment  agreement
expires on January 31, 2006.  The February  2003  agreement  with Mr.  Tassinari
provides,  among  other  matters,  for (a) an  initial  annual  base  salary  of
$300,000,  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 February 2003 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  February 2003  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  February 2003 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 February 2003  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.

      Mr. Tassinari's  February 2003 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,



                                       62
<PAGE>

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 an employment  agreement  with Anna M. Morrison,
the Chief Accounting Officer, as of April 16, 2003, the date on which she became
a full-time employee of the Company.  This agreement has a term expiring on July
31, 2004 (subject to  extension)  and provides for a base salary of $135,000 per
year. Ms.  Morrison  received an option to purchase  50,000 shares of our common
stock, at $1.41 per share, upon entering into the agreement and will be entitled
to the health  insurance  and other  benefits  the  Company  have  traditionally
afforded its executive officers.  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 to her equal
to 35% of her base salary if she is terminated  without cause or she  terminates
her  employment  following  a change in control  of the  Company.  Such  payment
percentage will increase by 5% annually, commencing in August 2004.

      The Company  entered into a new  employment  agreement  with Ms.  Morrison
effective  August 1, 2004.  This  agreement  has a term expiring on December 31,
2005 (subject to extension) and provides for a base salary of $205,000 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.

      Stephen K. Bannon, a named executive  officer in the Summary  Compensation
Table contained in the "Executive Compensation" subsection of this Annual Report
on Form 10-KSB,  received  periodic  consulting fees of $10,000 per month during
the months of July 2003 through December 2003, for his services as vice-chairman
of the  Company's  board of  directors  and  chairman of the  Company's  special
advisory  group to the board of directors.  Mr.  Bannon's  consulting  fees were
increased to $29,167 per month,  effective March 1, 2004, in connection with his
assumption  of the  position  of Chief  Executive  Officer of AVMC.  The Company
commenced  negotiations  with Mr. Bannon and his  representatives  in early 2004
with the aim of entering into a definitive  employment agreement for Mr. Bannon.
In June 2004,  the Company and Mr. Bannon  tentatively  agreed to certain of the
terms to be included in his employment agreement. These tentative terms included
(i) an annual base salary of $350,000,  (ii) a performance-based  option program
contingent upon the Company's future stock price,  (iii) an option grant subject
to achieving  future  operating  results as to be determined by the compensation
committee of the  Company's  board of directors and (iv) the issuance of 120,000
restricted  shares of Company  common  stock with  vesting  terms to be based on
employment tenure to be determined.  The issuance of such options and restricted
stock were to be subject to  forfeiture  related  to Mr.  Bannon  continuing  to
provide  services  to the Company on a  full-time  basis under the  contemplated
employment  agreement.  Although no definitive agreement had been reached on all
of the terms of Mr. Bannon's employment agreement and compensation under such an
employment  agreement,  commencing as of June 2, 2004, the Company accounted for
the options and  restricted  stock  contemplated  to be delivered to Mr.  Bannon
under the yet-to-be completed employment agreement as outstanding. No definitive
employment  agreement  had been agreed to by the  Company or  executed  with Mr.
Bannon  as  of  December  31,  2004.  Mr.  Bannon  resigned  as a  director  and
vice-chairman of, and all other offices with, the Company immediately  preceding
the  effectiveness  of the sale of AVMC to Genius in March 2005.  As a result of
the failure to enter into a definitive  employment  agreement with Mr. Bannon by
December 31, 2004 and Mr. Bannon's  resignation as a director and officer of the
Company, the Company did not treat the options and restricted stock contemplated
to be delivered  to Mr.  Bannon  under the  proposed  terms of his  non-executed
employment agreement as outstanding at December 31, 2004.



                                       63
<PAGE>

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 21, 2005:

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.

<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)                           10.5
Audrey K. Tassinari (4).........................................         620,329 (2) (5)                           10.5
Rosalind Davidowitz (6).........................................         547,747 (7)                                9.6
Engex, Inc. (8).................................................         474,500 (9)                                8.3
Jay H. and Sharyn Brown (10)....................................         348,211 (11)                               6.1
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  (12).............         336,505 (2)                                5.9
Blueridge Associates  (2).......................................         324,178 (2)                                5.5
Anna M. Morrison (13)...........................................          86,300 (14)                               1.5
Jeanne Hood (15)................................................          77,501 (2) (16)                           1.3
Steven G. Barringer (17)........................................          45,000 (2) (18)                           0.8
Randolph C. Read (19)...........................................          25,000 (2) (20)                           0.4

All executive officers and directors as a group
   (six persons) (21)...........................................       1,678,941 (2)(22)                           27.7
</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,  a  director  of the
      Company.

(2)   White Rock Partners ("White Rock") and Krest LLC ("Krest"), along with the
      other  creditors of YaYa, LLC ("YaYa") who received the remaining  488,306
      shares of Company common stock upon the  dissolution of YaYa (as discussed
      in Note (12) below),  including  Blueridge  Associates  LLC  ("Blueridge")
      which  received  324,178  shares,  have  granted  the  Company's  board of
      directors a limited  power to direct how they are to vote their  aggregate
      824,811  shares of Company  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. We believe 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 record date,  although
      such shares are  included in the  aggregate  amount held by all  executive
      officers and directors as a group.  The address for Blueridge is c/o Maron
      & Sandler,  1250  Fourth  Street - Suite 550,  Santa  Monica,  California,
      90401.


                                       64
<PAGE>

(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
      200,000 shares of Company 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.

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

(7)   According to the Schedule 13G/A of Rosalind  Davidowitz filed with the SEC
      on  February  9,  2005,  Ms.  Davidowitz  claims to have sole  voting  and
      dispositive  powers with respect to 547,747 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  (10)  for  further  information  concerning  Ms.
      Davidowitz's  ownership  interest  in Engex,  another  stockholder  of the
      Company, and other related matters.

(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.  Morton'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 (8) for further  information  with
      respect  to Mr.  Davis' and Ms.  Davidowitz's  ownership  interest  in the
      Company's outstanding common stock.



                                       65
<PAGE>

(10)  These  stockholders  hold 260,711 shares of Company common stock of record
      as  tenants-in-common.  Mr. Brown  provides  legal services to us and is a
      member of the advisory group we 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.

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

(12)  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.

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

(14)  Includes  52,000 shares of Company  common stock issuable upon exercise of
      an option granted to Ms. Morrison, which shares are exercisable within the
      next 60 days.

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

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

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

(18)  Represents 45,000 shares of Company common stock issuable upon exercise of
      options granted to Mr. Barringer,  which shares are exercisable within the
      next 60 days.


                                       66
<PAGE>

(19)  Mr. Read became a director of the Company on May 20, 2003.

(20)  Includes  25,000 shares of Company  common stock issuable upon exercise of
      an option  granted to Mr. Read,  which shares are  exercisable  within the
      next 60 days.

(21)  Includes only current executive officers and directors.

(22)  Includes  those  shares   beneficially  owned  by  the  Company's  current
      executive  officers and  directors,  as set forth in notes (1), (4), (13),
      (15), (17) and (19).

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.

Item 12. Certain Relationships and Related Transactions

      As compensation for serving on the Company's board or as a board committee
chair,  on October 25,  2002,  the  Company  granted to Jeanne  Hood,  Steven G.
Barringer and Stephen K. Bannon, non-qualified stock options to purchase 20,000,
20,000 and 25,000 shares, respectively, of the Company's common stock each at an
exercise price of $1.26 per share. The options became exercisable on the date of
grant and  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.

      In  connection  with the  execution of their  employment  agreements,  the
Company  granted to Ronald J.  Tassinari and Anna M. Morrison,  qualified  stock
options to purchase  25,000 and 50,000  shares,  respectively  of the  Company's
common  stock  each at an  exercise  price of $1.41 per share.  Mr.  Tassinari's
shares  became  exercisable  on the date of grant.  One-half  of Ms.  Morrison's
shares became exercisable on the date of grant and the remaining one-half became
exercisable on April 16, 2004. Both option grants expire ten years from the date
of grant.

      The April 16, 2003 closing of the YaYa, LLC asset acquisition  resulted in
the  options  previously  granted  to  Stephen K.  Bannon on July 12,  2002,  to
purchase up to 175,000  shares of the Company's  common stock at $1.41 per share
and the option previously  granted to Jay H. Brown on July 12, 2002, to purchase
up to 87,500  shares of the  Company's  common  stock at $1.41 per share to each
become fully exercisable. Until March 21, 2005, Mr. Bannon was the Vice-Chairman
of the Board of  Directors.  Mr. Brown is a  beneficial  owner of more than five
percent  of  the  Company's   common  stock.   These  options  were  granted  as
compensation for future and past services while serving on the Company's special
advisory  group to the  Board of  Directors.  The  special  advisory  group  was
established  on July 12,  2002,  to  identify,  review and  perform  initial due
diligence  services of potential merger and acquisition  candidates on behalf of
the Company.  The options have a ten-year  exercise  term and an exercise  price
equal to the closing price of the common stock on July 12, 2002.

      Mr. Brown, received $56,000,  $25,000 and $90,000 during the twelve months
ended  December  31,  2004,  fie months  ended  December 31, 2003 and the twelve
months ended July 31, 2003,  respectively,  in consideration  for consulting and
legal services he performed for the Company's benefit.

      Stephen K. Bannon also received  periodic  consulting  fees of $10,000 per
month during the months of July 2003 through  December 2003, for his services as
vice-chairman  of the Company's board of directors and chairman of the Company's
special advisory group to the board of directors.  Mr. Bannon's  consulting fees
were increased to $29,167 per month, effective March 1, 2004, in connection with
his assumption of the position of Chief  Executive  Officer of AVMC. The Company
commenced  negotiations  with Mr. Bannon and his  representatives  in early 2004
with the aim of entering into a definitive  employment agreement for Mr. Bannon.
In June 2004,  the Company and Mr. Bannon  tentatively  agreed to certain of the
terms to be included in his employment agreement. These tentative terms included


                                       67
<PAGE>

(i) an annual base salary of $350,000,  (ii) a performance-based  option program
contingent upon the Company's future stock price,  (iii) an option grant subject
to achieving  future  operating  results as to be determined by the compensation
committee of the  Company's  board of directors and (iv) the issuance of 120,000
restricted  shares of Company  common  stock with  vesting  terms to be based on
employment tenure to be determined.  The issuance of such options and restricted
stock were to be subject to  forfeiture  related  to Mr.  Bannon  continuing  to
provide  services  to the Company on a  full-time  basis under the  contemplated
employment  agreement.  Although no definitive agreement had been reached on all
of the terms of Mr. Bannon's employment agreement and compensation under such an
employment  agreement,  commencing as of June 2, 2004, the Company accounted for
the options and  restricted  stock  contemplated  to be delivered to Mr.  Bannon
under the yet-to-be completed employment agreement as outstanding. No definitive
employment  agreement  had been agreed to by the  Company or  executed  with Mr.
Bannon  as  of  December  31,  2004.  Mr.  Bannon  resigned  as a  director  and
vice-chairman of, and all other offices with, the Company immediately  preceding
the  effectiveness  of the sale of AVMC to Genius in March 2005.  As a result of
the failure to enter into a definitive  employment  agreement with Mr. Bannon by
December 31, 2004 and Mr. Bannon's  resignation as a director and officer of the
Company, the Company did not treat the options and restricted stock contemplated
to be delivered  to Mr.  Bannon  under the  proposed  terms of his  non-executed
employment agreement as outstanding at December 31, 2004.

      In consideration for consulting and management services,  the Company paid
Mr. Bannon $297,000, $50,000 and $60,000 during the twelve months ended December
31, 2004,  five months ended  December 31, 2003 and the twelve months ended July
31, 2003, respectively.

      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.

      See  subsection  entitled   "Employment  and  Severance   Agreements"  for
discussions of the April 2002 employment agreement the Company entered into with
Ronald J. Tassinari,  the options granted to this executive  officer pursuant to
such  employment  agreements  and, the  subsequent  voluntary  cancellations  of
certain of such options in July 2002. Also see subsection  entitled  "Employment
and  Severance  Agreements"  for  discussion  of the April 2003 and August  2004
employment  agreements  the Company  entered into with Anna M.  Morrison and the
options granted to this executive 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. (13)

            2.2         Asset Purchase Agreement, dated December 31, 2003, among
                        American  Vantage Media  Corporation,  American  Vantage
                        Companies and Enigma Media, Inc. (14)

            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. (12)

            4.2         American Vantage Companies Common Stock Purchase Warrant
                        to Enigma  Media,  Inc.  (Certificate  No.  A-1),  dated
                        December 31, 2003. (14)

            4.3         American Vantage Companies Common Stock Purchase Warrant
                        to Enigma  Media,  Inc.  (Certificate  No.  A-2),  dated
                        December 31, 2003. (14)

            10.1        American  Casino  Enterprises,  Inc. 1991 Officers Stock
                        Option Plan, as amended. (1)

            10.2        American  Casino  Enterprises,  Inc. 1992 Employee Stock
                        Option Plan. (1)



                                       68
<PAGE>

            10.3        American  Casino  Enterprises,  Inc.  1996 Stock  Option
                        Plan. (7)

            10.4        Management  Consultant  Contract,  dated March 27, 1993,
                        between  the  Company  and the  Table  Mountain  Band of
                        Indians. (2)

            10.5        Employment  Agreement,  dated July 20, 1995, between the
                        Company and Ronald J. Tassinari. (2)

            10.7        Letter Agreement,  dated September 11, 1995, between the
                        Company and Table Mountain Rancheria. (7)

            10.8        Settlement  Agreement,  dated February 1, 1996,  between
                        the   Company   and   the   National    Indian    Gaming
                        Commission. (7)

            10.9        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. (7)

            10.10       Consulting  Agreement,  dated February 1, 1996,  between
                        the Company and Table Mountain Rancheria. (7)

            10.11       Amendment to Consulting Agreement,  dated June 26, 1997,
                        between the Company and Table Mountain Rancheria. (9)

            10.12       Joint Venture  Agreement,  dated as of February 1, 1996,
                        between the Company and the Table Mountain Rancheria.(7)

            10.13       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). (7)

            10.14       Lease,  dated June 10,  2003,  between  the  Company and
                        Durango Trop, L.L.C. (17)

            10.15       Operating  Agreement  for Border  Grill Las Vegas,  LLC,
                        dated  November 12, 1998, by and between  TT&T,  LLC and
                        Vantage Bay Group, Inc. (8)

            10.16       Employment Agreement, dated as of April 1, 2002, between
                        American Vantage Companies and Ronald J. Tassinari. (12)

            10.17       Employment  Letter  Agreement  dated September 27, 2002,
                        between  Ronald  J.   Tassinari  and  American   Vantage
                        Companies. (12)

            10.18       Letter agreement, dated July 31, 2002, between Ronald J.
                        Tassinari and American Vantage Companies. (21)

            10.19       Employment  Agreement,  dated as of  February  1,  2003,
                        between  Ronald  J.   Tassinari  and  American   Vantage
                        Companies. (17)

            10.20       Employment Agreement, dated April 16, 2003, between Anna
                        M. Morrison and American Vantage Companies. (17)

            10.21       Voting  Agreement,  dated as of April  16,  2003,  among
                        YaYa, LLC and American Vantage Companies. (13)

            10.22       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. (15)



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<PAGE>

            10.23       Secured  Negotiable Note, dated February 3, 2004, in the
                        principal   amount   of   $1,076,704    issued   to   Al
                        Cattabiani.(15)

            10.24       Secured  Negotiable Note, dated February 3, 2004, in the
                        principal  amount  of  $65,472  issued  to  Carl  Seldin
                        Koerner. (15)

            10.25       Secured  Negotiable Note, dated February 3, 2004, in the
                        principal  amount of  $965,712  issued to Clara  Spalter
                        Miller. (15)

            10.26       Secured  Negotiable Note, dated February 3, 2004, in the
                        principal amount of $965,712 issued to Lee Miller. (15)

            10.27       Secured  Non-Negotiable Note, dated February 3, 2004, in
                        the   principal   amount  of   $200,000   issued  to  Al
                        Cattabiani. (16)

            10.28       Guaranty,  dated February 3, 2004, by Wellspring  Media,
                        Inc. (15)

            10.29       Security   Agreement,   dated   February  3,  2004,   by
                        Wellspring  Media,  Inc.  in  favor  of  Lee  Miller  as
                        security agent. (15)

            10.30       Stock Pledge  Agreement,  dated  February 3, 2004,  from
                        American  Vantage  Media  Corporation  to Lee  Miller as
                        pledge agent. (15)

            10.31       Employment  Agreement,  dated  as  of  August  1,  2004,
                        between   Anna  M.   Morrison   and   American   Vantage
                        Companies.*

            10.32       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). (18)

            10.33       Assumption of Obligations  and Pledge  Agreement  (Video
                        Catalog), dated March 21, 2005, between American Vantage
                        Companies and Genius Products, Inc. (18)

            10.34       Assignment, Assumption and Pledge Agreement, dated March
                        21, 2005,  between American Vantage Companies and Genius
                        Products, Inc. (18)

            10.35       Resale  and  Voting  Agreement,  dated  March 21,  2005,
                        between American Vantage  Companies and Genius Products,
                        Inc. (18)

            10.36       Registration  Rights  Agreement,  dated March 21,  2005,
                        between American Vantage  Companies and Genius Products,
                        Inc. (18)

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

            14.1        Code of Ethics, dated as of July 31, 2003. (17)

            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. *



                                       70
<PAGE>

            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-K for
      July 31, 1992.

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

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

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

(5)   Incorporated  by reference  from the Company's  Current Report on Form 8-K
      filed on February 2, 1996.

(6)   Incorporated  by reference  from the Company's  Current Report on Form 8-K
      filed on July 2, 1996.

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

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

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

(10)  Incorporated  by reference  from the Company's  Current Report on Form 8-K
      filed on June 26, 2001.

(11)  Incorporated  by reference  from the Company's  Current Report on Form 8-K
      filed on September 18, 2002.

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

(13)  Incorporated  by reference  from the Company's  Current Report on Form 8-K
      filed on April 16, 2003.

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

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

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

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

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




                                       71
<PAGE>

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, 2004 and 2003 for the
categories of services indicated.

         Category                            2004                2003
         ----------------------            --------            --------

         Audit fees (1)                    $182,000            $ 34,000
         Audit-related fees (2)               9,000              16,000
         Tax fees (3)                        22,000               9,000
         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.



                                       72
<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: May 5, 2005

                                    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,           May 5, 2005
-----------------------             Director (Principal Executive)
Ronald J. Tassinari


/s/ Anna M. Morrison                Chief Accounting Officer                         May 5, 2005
--------------------                (Principal Financial Officer)
Anna M. Morrison


/s/ Steven G. Barringer             Director                                         May 5, 2005
-----------------------
Steven G. Barringer


/s/ Jeanne Hood                     Director                                         May 5, 2005
----------------------
Jeanne Hood


/s/ Randolph C. Read                Director                                         May 5, 2005
--------------------
Randolph C. Read


/s/ Audrey K. Tassinari             Director                                         May 5, 2005
-----------------------
Audrey K. Tassinari
</TABLE>


                                       73