American Entertainment Group Inc – ‘ARS’ for 12/31/95

As of:  Friday, 5/24/96   ·   For:  12/31/95   ·   Accession #:  912057-96-10797   ·   File #:  0-22174

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Annual Report to Security Holders
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: ARS         Annual Report to Security Holders                     40    164K 

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1995 ANNUAL REPORT

 FOR

AMERICAN ENTERTAINMENT GROUP, INC.

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American Entertainment Group, Inc.
   160 Bedford Road, Suite 306
Toronto, Ontario, Canada M5R 2K9

__________________________________

ANNUAL REPORT FOR 
 THE FISCAL YEAR ENDED DECEMBER 31, 1995
__________________________________

Dear Shareholders:                                                              

 Fiscal 1995 has been an unusual and exceptional year in the development
of our company.  The strategic plan initiated by your Board regarding the       
scope, assets, revenues and earnings of our company began to show results at    
the end of the fiscal year. We closed the financing transaction with  Banque    
National de Paris on behalf of our client, VIP Phone Club. This one             
transaction assures profitability for our company in the coming fiscal year.    
In addition we expect to close the Peter A. Wray and Future Arts Limited        
acquisitions after the annual meeting, which will mean that our company will    
be in the forefront of media technology development.                            

By virtue of the Board's actions and these transactions, American     
Entertainment Group, Inc. can now be categorized as an emerging growth          
company, with a select variety of potentially profitable subsidiaries.          
Our unique combination of companies provide a synergistic environment,          
structured to capitalize upon immediate and future accelerating sources         
of revenues, with corollary advances in assets and earnings; advances           
that could favorably impact upon the price of the company's shares.             

We believe that American Entertainment Group, Inc., is positioned to  
become a quality growth company, developing valuable assets for capital         
appreciation on a corporate, as well as shareholder level.  The benefits of     
the company's strategic alliances are proving to be far reaching in             
accomplishments and potential profits.                                          

We look forward to a bright, profitable fiscal year ahead.            

       Very truly yours,

 Joel Wagman
Chairman  

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AMERICAN ENTERTAINMENT GROUP, INC.

 GENERAL DEVELOPMENT OF BUSINESS

American Entertainment Group, Inc. (the "Company") is a development stage       
Colorado corporation that is engaged in the business of developing and          
marketing entertainment-related goods and services. The Company was             
originally incorporated in Colorado as C & M Capital Corp. ("C & M") to         
evaluate, structure and complete a merger with, or acquisition of, prospects    
consisting of private companies, partnerships and sole proprietorships.         

 In July, 1986, C & M sold 17,500,000 Units, each Unit consisting of one
share of no par value common stock and ten common stock purchase warrants       
(the "Units") at $ 0.01 per Unit, for total proceeds of $ 157,500 (after        
sales commissions) in a public offering. C & M was a development stage          
company with no substantial operations. Most of C & M's efforts were focused    
on finding an appropriate acquisition candidate.                                

  In March, 1993, C & M reverse split its common stock on the basis of one
share for every one thousand shares previously outstanding. As a result of      
the reverse split, there was a total of 700,000 common shares outstanding.      

On March 15, 1993, C & M exchanged 6,300,000 common shares for one    
hundred percent of the issued and outstanding shares of Corporatel              
International, Inc. ("Corporatel"), a private Delaware corporation, in a        
tax-free stock-for-stock exchange.  As a result of the share exchange, the      
shareholders of Corporatel owned approximately ninety percent of the Company    
as of March 15, 1993.  Also, as a result of the share exchange, Corporatel      
became a wholly-owned subsidiary of the Company.                                

  Until the exchange of shares with Corporatel in 1993, the Company had no
material assets, having spent all of the net proceeds of its public offering    
in the intervening years since 1986.  After the exchange, the assets,           
liabilities, management and proposed operations of the Company all became       
those of Corporatel.                                                            

On December 26, 1992, Corporatel executed an agreement with two       
companies for the purchase, in perpetuum, of certain rights to a film library   
which included, but were not limited to, Informercial rights. A dispute arose   
between the seller of these rights and the Company. After examining the         
situation, the Company  decided that these rights, which had been carried on    
the books of the Company at historical cost, had no remaining value and wrote   
them off as of December 31, 1995.                                               

 On May 17, 1993, the Company changed its name to American Entertainment
Group, Inc.                                                                     

The Company has not been subject to any bankruptcy, receivership or   
similar proceeding.                                                             

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In March, 1994, the Company entered into an Agreement with Baton      
Broadcasting Incorporated, an Ontario corporation whose stock is traded on      
the Toronto and Montreal Stock Exchanges ("Baton"),  for the mutual             
commercial exploitation of the Company's Film Library inventory by Baton and    
the Company. Both parties have agreed to cooperate and coordinate their         
efforts to license, distribute, and otherwise commercially exploit both the     
Film Library inventory and new programs which may derive therefrom. The         
Company will provide its Film Library inventory. Baton will provide its         
production and duplication facilities. Subject to Baton providing telecast      
time for the Company's direct response commercials on Baton's television        
stations, Baton also has the non-exclusive right to telecast films from the     
Film Library inventory for unlimited runs in perpetuity without any payment     
to the Company. The agreement otherwise provides a schedule for the             
allocation between the parties of costs and all royalties, fees, and other      
receipts derived from the use of the second Film Library inventory.  In         
November of 1995, Baton and the Company terminated this agreement.              

The Company entered into an Agreement dated April 1, 1994, with Glen  
Southern, Inc., a Mississippi corporation, and Harborough Properties Inc., an   
Ontario corporation, for the acquisition by the Company of a total of           
$4,500,000 worth of income producing real properties, in consideration of the   
issuance of common shares of the Company and the assumption by the Company of   
mortgages totalling $3,300,000.  The final Agreement was subject to a number    
of conditions respecting closing, including (among other matters), the          
voiding of the transaction by the companies at their option if all consents     
and approvals from regulatory authorities could not be obtained, and the        
completion of due diligence by both parties. This transaction did not close,    
and the parties to the Agreements settled all issues between them by issuance   
of the Warrants and 150,000 restricted common shares.                           

On November 5, 1994, the Company entered into an agreement with       
Klassical Klassics Ltd. (Klassical), a Canadian corporation, to sell 5,000      
dubbed film masters for an aggregate sale price of $7,000,000.  The proceeds    
of the sales were to be paid concurrent with the delivery of the dubbed film    
masters, which was anticipated to occur during 1995.  The agreement called      
for the Company to pay a transaction commission, as well as incentive and       
other fees throughout the seven year term of the contract. It further           
provided rights for conversion of any portion of the outstanding cash           
obligation amounts to common shares of the Company at rates commencing at $     
3.00 per share in 1995 and increasing regularly by $.50 in each subsequent      
year. Klassical Klassics has been unable to fulfill its obligations under       
this agreement, and the Company deems it to be of no further force and effect.  

On November 23, 1994, the Company entered into an agreement with the  
Anscombe Group of Buffalo, New York to create a new cable classic television    
network to be called the Classic Entertainment Network.  This agreement has     
expired and is no longer in effect.                                             

  On January 28, 1995, Geo Vision International Corp. entered into a joint
venture Agreement with the Company to develop, commercially exploit and         
market a collection of the Company's classic motion pictures and television     
series entitled the American Classics Collection                                

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(the "Collection") through production and broadcast/cablecast by Direct         
Response Marketing to achieve sale and distribution of video tapes of the       
Collection via a continuity revenue program. This agreement has expired and     
is of no further effect.                                                        

On February 4, 1995, the Company entered into an agreement with       
MediaLinx Interactive Inc. for the purpose of delivery of the product of its    
film library for test purposes by telephone communication to television sets    
(Video-on-Demand).                                                              

 MediaLinx Interactive Inc. (MediaLinx) is a company established for the
purpose of delivering to the public goods and services by telephone             
transmission within Canada to television sets (Video-on-Demand)  The Company    
is a participant in such test and will supply a limited amount of titles for    
such purpose.                                                                   

On February 6, 1995, the Company executed an agreement with Young Lee 
Trading Company of Concord, Ontario, Canada, regarding the marketing and sale   
of the product of the Company's second film library for both retail and         
broadcast purposes within South Korea, and other south-east Asian markets.      
This agreement has expired and is of no further effect.                         

 On February 25, 1995, the Company executed an agreement with Jaffa Road
LIV Limited Partnership (a Canadian entity).  This agreement has now expired.   

On March 3, 1995, the Company executed a letter of intent to acquire  
SunWest Media Marketing Group, Inc. and SunWest Media Group, Inc., privately    
owned, U.S. based, production and video distribution companies, that            
specialize in historical and educational productions. This letter of intent     
has now expired.                                                                

  On March 22, 1995, the company entered into a preliminary agreement with
MT Asia, Inc. of Manilla in the Phillipine Republic (MT) (a Phillipine          
corporation) respecting the sale to MT of 5,000 dubbed masters comprising the   
motion picture and television series titles of the Company's film library.      
This preliminary agreement has expired.                                         

NARRATIVE DESCRIPTION OF BUSINESS                                     

GENERAL                                                               

From inception to March 15, 1993, C & M searched for mergers or       
acquisitions with entities which C & M management believed would be             
advantageous to its shareholders.  C & M carried no inventories or accounts     
receivable during this period, except for the accounts receivable relating to   
Kala-O-Mine Industries, Inc., which is discussed below. No independent market   
surveys were conducted to determine the demand for C & M's products and         
services. During this period, C & M carried on no operations and generated no   
revenues.                                                                       

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On November 12, 1986, C & M loaned $100,000 to Kala-O-Mine Industries,
Inc.  The note was due November 12, 1987.  The note had no interest rate.  As   
consideration for the loan, Kala-O-Mine Industries, Inc., assigned a 75%        
interest in an oil lease located in Southwestern Colorado. C & M allowed the    
lease to expire in February, 1990 after receiving poor initial test results     
and because C & M lacked sufficient funds to further develop the lease.         

On October 15, 1987, C & M notified Kala-O-Mine that the $100,000 loan
was due on November 12, 1987, and that there would be no extensions on the      
loan.  C & M subsequently filed suit against Kala-O-Mine Industries, Inc. in    
an attempt to collect the principal sum of $100,000, attorneys fees, and        
costs of collection.  C & M obtained a judgement against Kala-O-Mine            
Industries, Inc. in August, 1988.  The judgement was assigned by C & M in       
1992.                                                                           

On March 15, 1993, the Company acquired one hundred percent of the    
issued and outstanding common shares of Corporatel International, Inc.          
("Corporatel"), a private Delaware corporation.  Corporatel, which is now a     
wholly-owned subsidiary of the Company, was created in April, 1992, to          
develop, market and sell entertainment related goods and services via           
television.                                                                     

OPERATIONS                                                            

Based upon the Company's film library, the Company has entered into   
several agreements pertaining to both the development and commercial            
exploitation of the film library. The Company has commenced the marketing and   
sale of its film library product to both mass market and general retailers.     
The Company also plans to sell videos of motion pictures derived from its       
films by means of joint ventures with broadcasters and by Video-on-Demand       
telephone-linked-transmission.                                                  

On September 13, 1995, the Company entered into a letter of Intent to 
acquire all of the business interest, both personal and corporate, of Mr.       
Peter A. Wray.  These interests consist of computerized software for image      
and animation (and integrated processes in connection therewith) relative to    
the creation and manipulation of motion pictures and associates uses.           
Pursuant to an Agreement entered into between the Company and Peter A. Wray     
dated January 15, 1996, all of Mr. Wray's interests regarding the foregoing,    
in a company known as Imaginetics Inc. has been purchased by the Company in     
consideration of the sum of $US 500,000 which sum is evidenced by a             
Promissory Note payable in preferred shares of the Company.                     

On October 17, 1995, the Company entered into a Letter of Intent to   
acquire certain cartoon cels pertaining to "Teenage Mutant Ninja Turtles", as   
well as other cartoon characters.  These cels are to be acquired from a         
private individual owner for the proposed purchase price of $5,000,000,         
consisting of $50,000 in cash and the remainder in the form of the company's    
common stock valued at $5.00 per share. This purchase, which was to close on    
or before December 15, 1995, was subject to appropriate due diligence by the    
parties, including a valuation opinion as to the cels.  Although this Letter    
of Intent has expired, a further Letter of Intent was entered into between      
the Company and Future Arts Limited, which was dated March 15, 1996.            

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  "The Letter of Intent dated March 15, 1996, sets forth the terms related
to the purchase of cels relating to "Care Bears". The purchase of the cels is   
payable by way of a promissory note in the principal sum of $US 5,000,000,      
which note is further payable in preferred shares of the Company".  The new     
scheduled closing of the transaction is July 20, 1996.                          

Pursuant to Agreements respectively dated November 28, 1995, November 
29, 1995, January 30, 1996, and February 27, 1996,  the Company via its         
wholly owned Canadian subsidiary, American Entertainment Limited (AEL),         
granted a license to VIP Phone, Inc. (VIP Phone), a Delaware corporation with   
headquarters in Baltimore, Maryland, to market, sell and distribute the         
company's film library consisting of 5,000 vintage motion picture and           
television series episodes. These Agreements were contingent upon the company   
and AEL arranging financing with an international banking source regarding      
VIP Phone's accounts receivable. A commitment regarding a revolving line of     
credit in the sum of $US 5,000,000 was received by AEL from Banque Nationale    
de Paris (Canada) (BNP) on February 21, 1996, and the transactions respecting   
both the financing and the licensing were completed on March 22, 1996.          

On February 4, 1995, the Company entered into an agreement with       
MediaLinx Interactive Inc. for the purpose of delivery for test purposes of     
the product of its library by telephone communication to television sets        
(Video-on-Demand).                                                              

 MediaLinx Interactive Inc. (MediaLinx) is a company established for the
purpose of delivering to the public goods and services by telephone             
transmission within Canada to television sets (Video-on-Demand)  The Company    
is a participant in such test and will supply a limited amount of titles for    
such purpose.                                                                   

On February 6, 1995, the Company executed an agreement with Young Lee 
Trading Company of Concord, Ontario, Canada, regarding the marketing and sale   
of the product of the Company's film library for both retail and broadcast      
purposes within South Korea, and other south-east Asian markets. This           
agreement has expired and is of no further effect.                              

ACQUISITIONS                                                          

On June 25, 1993, the Company acquired a film library which has       
approximately 5,000 titles. The Company acquired ownership of this film         
library from an unaffiliated third party in an arms-length transaction for a    
total consideration of $2,000,000, with the purchase price to be paid by a      
note payable in the amount of $1,000,000, which has been discounted based       
upon an imputed interest rate of 8% payable over a period of  approximately     
four years, along with the issuance of 400,000 shares of the Company's common   
stock valued at $1,000,000. The June 25, 1993. Agreement originally set out a   
purchase price of $5.00 per share, subject to a provision requiring a           
subsequent adjustment as to the said price per share. By an amendment to the    
Agreement dated October 26, 1993, the June 25th Agreement adjustment of the     
price per share was deleted. This amendment to the June 25th Agreement fixed    
the purchase price at $2.50 per share. The per share                            

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price was arrived at by bargaining between two independent parties. All other   
terms and conditions of the June 25th Agreement remain the same.                

In connection with the June 25th Agreement, the Company has had an    
independent evaluation performed relating to the 5,000 English language         
titles acquired under the Agreement. The independent evaluator was Mr. Arthur   
Pickens. He was selected by the Board of Directors to evaluate the film         
library  and concluded that the evaluated amount is at least $5,000,000.        

On June 17, 1993, the Company entered into a Consulting Agreement with
Interfran Systems Canada, Inc. ("Interfran"), which is not affiliated in any    
way except as to this Agreement, to develop franchises for Company video        
stores. Under the terms of the Agreement, Interfran will provide various        
services, including market and feasibility studies, operations and systems      
reviews, marketing and promotion support, franchise recruiting and such other   
activities as may be necessary to establish the Company's franchise system.     
The fee for the contemplated services is the sum of $1,300 in cash, the         
issuance of 44,915 shares of the Company's common stock, valued at $.50 per     
share, and the payment of the greater of $4,000 or 40% of the Company's         
license fee for the issuance of each franchise that Interfran establishes for   
the Company. The per share price was arrived at by bargaining between two       
independent parties and was based upon the value of other sales for common      
stock at the time. To date, no services have been performed nor have any        
shares been issued under this Consulting Agreement.                             

On September 13, 1995, the Company entered into a letter of Intent to 
acquire all of the business interest, both personal and corporate, of Mr.       
Peter A. Wray.  These interests consist of computerized software for image      
and animation (and integrated processes in connection therewith) relative to    
the creation and manipulation of motion pictures and associates uses.           
Pursuant to an Agreement entered into between the Company and Peter A. Wray     
dated January 15, 1996, all of Mr. Wray's interests regarding the foregoing,    
in a company known as Imaginetics Inc. has been purchased by the Company in     
consideration of the sum of $US 500,000 which sum is evidenced by a             
Promissory Note payable in preferred shares of the Company.                     

ORGANIZATION                                                          

The Company has recently consolidated its internal operations.  As of 
December 31, 1995, revenues from all divisions were $634,523.                   

The Commercial Production Division                                              

This division was operated by Chaos International, Inc. (Chaos), a    
Canadian wholly owned subsidiary of the Company, which produces television      
commercials for national advertisers.                                           

Neither Chaos nor the Company itself own any production equipment or  
facilities.                                                                     

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  As of December 31, 1995, this division has generated revenues in the sum
of $634,523.  On August 1, 1995, the Company discontinued operations of this    
division as a result of a change in corporate philosophy. No future             
operations are anticipated at this time.                                        

The Feature Film Division                                             

This division was operated by Chaos Productions, Inc. (CPI), a wholly 
owned subsidiary of the Company, which was responsible for U.S. and             
international feature film productions.  In the next fiscal year, the Company   
will operate the division directly.                                             

The plan for this division is to concentrate on films budgeted between
the sums of $3,000,000 and $6,000,000 primarily intended for distribution via   
national "movie" cable channels, such as "HBO", "Showtime", or other similar    
programmers. Additionally, this division will seek world-wide distribution of   
such feature films.                                                             

Company policy is not to invest its own funds into the production of  
feature films but to act in the capacity of an Executive Producer in            
consideration of a fee, percentage of gross royalties, and other benefits.      

Cable Television Division and Video-On-Demand                         

On November 23, 1994, the Company entered into an agreement with the  
Anscombe Group of Buffalo, New York to create a new cable classic television    
network to be called the Classic Entertainment Network.  This agreement has     
expired and is no longer in effect.                                             

On February 4, 1995, the Company entered into an agreement with       
MediaLinx Interactive Inc. for the purpose of delivering the product of its     
film library for test purposes by telephone transmission to television sets     
(Video-on-Demand).                                                              

 MediaLinx Interactive Inc. (MediaLinx) is a company established for the
purpose of delivering to the public goods and services by telephone             
transmission within Canada to television sets (Video-on-Demand)  The Company    
is a participant in such test and will supply a limited amount of titles for    
such purpose.                                                                   

Overseas and Foreign Markets Division                                 

On February 6, 1995, the Company executed an agreement with Young Lee 
Trading of Concord, Ontario, Canada, regarding the marketing and sale of the    
product of the film library for both retail and broadcast purposes within       
South Korea and other south east Asia countries.  This agreement has expired    
and is of no further effect.                                                    

OPERATIONS                                                            

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From inception until December 31, 1995, the Company and all of its  
subsidiaries and divisions have produced $2,007,349 in revenues.                

It is the belief of management that the Company will continue, through
itself, and by its subsidiaries, to develop agreements which will allow the     
Company to begin generating substantial revenues during the current and         
future fiscal years.  The first priority of the Company during this current     
fiscal year will be to establish and penetrate viable markets with its          
products and services.  However, the total fiscal impact cannot be determined   
at this time.                                                                   

In addition, the Company plans to augment its business operations by  
acquiring established operating private companies which are in businesses       
compatible with the Company. The Company plans an ongoing program of mergers    
and acquisitions, in addition to its primary business focus. As of the date     
hereof, except with regard to Imaginetics, Inc., the Company has not entered    
into any formal agreements with any acquisition candidates.                     

MARKETS                                                               

The Company's marketing plan is focused on national and international 
sales respecting the product and development of its film library. This plan     
will be the primary focus for the Company as prior described herein.            

  During the present fiscal year, the Company's primary marketing has been
through management's personal and corporate contacts. Commission sales          
representatives of the Company are also utilized in order to perform various    
direct and mass marketing functions as may be required by the Company.          

RAW MATERIALS                                                         

  The Company principally uses finished goods in its operations, which are
readily available.  Therefore, raw materials are not a material factor in the   
Company's operations.                                                           

CUSTOMERS AND COMPETITION                                             

General                                                               

The principal customers of the Company are the end users of the       
Company's products and services throughout the United States, Canada and        
other global markets. There are a number of companies which sell similar        
competing products and services as those of the Company. To the extent that     
the Company is unable to interest users to accept its goods and services, the   
Company will have difficulty in either achieving its goals and objectives, or   
of ever becoming profitable.                                                    

Divisions of the Company                                              

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The Company's competitive business conditions and its position in each
of its divisions is expected to be substantially the same. The Company          
expects competition to be intense.  Further, the market for all of the          
Company's products and services is still relatively new and probably has        
limited barriers to entry for other competing operations. Consequently, the     
Company cannot predict the size of the market for any of its products or        
services. The number of competitors are expected to be substantial, although,   
at this time, the Company has not identified its principal competitors.         

BACKLOG                                                               

At December 31, 1995, the Company had no backlogs.                    

EMPLOYEES                                                             

At as of the date hereof, the Company has 6 full-time employees which 
consist of 5 members of management and  one staff employee. The Company's       
employees are not represented by any union or collective bargaining group,      
and there is no history of any labor problems, or disputes. The Company does    
not have the human resources at present to fulfill its complete business        
plan, and expects to hire additional employees in the future.                   

PROPRIETARY INFORMATION                                               

 The Company's film library relates to public domain motion pictures and
television series episodes. However, when selling video products derived        
therefrom, as between the Company and its purchasers, such purchases are        
proprietary property since they relate to specific film masters.                

GOVERNMENT REGULATION                                                 

The Company is not subject to any material governmental regulation or 
approvals.                                                                      

RESEARCH AND DEVELOPMENT                                              

    The Company has not spent any material amount in research and development.

ENVIRONMENTAL COMPLIANCE                                              

  The Company is not subject to any material costs for compliance with any
environmental laws.                                                             

SUBSEQUENT EVENTS                                                     

Pursuant to Agreements respectively dated November 28, 1995, November 
29, 1995, January 30, 1996, and February 27, 1996,  the Company via its         
wholly owned Canadian                                                           

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subsidiary, American Entertainment Limited (AEL), granted a license to VIP      
Phone, Inc. (VIP Phone), a Delaware corporation with headquarters in            
Baltimore, Maryland, to market, sell and distribute the company's film          
library consisting of 5,000 vintage motion picture and television series        
episodes. These Agreements were contingent upon the company and AEL arranging   
financing with an international banking source regarding VIP Phone's accounts   
receivable. A commitment regarding a revolving line of credit in the sum of     
$US 5,000,000 was received by AEL from Banque Nationale de Paris (Canada)       
(BNP) on February 21, 1996, and the transactions respecting both the            
financing and the licensing were completed on March 22, 1996.                   

On October 17, 1995, the Company entered into a Letter of Intent to   
acquire certain cartoon cels pertaining to "Teenage Mutant Ninja Turtles", as   
well as other cartoon characters.  These cels are to be acquired from a         
private individual owner for the proposed purchase price of $5,000,000,         
consisting of $50,000 in cash and the remainder in the form of the company's    
common stock valued at $5.00 per share. This purchase, which was to close on    
or before December 15, 1995, was subject to appropriate due diligence by the    
parties, including a valuation opinion as to the cels.  Although this Letter    
of Intent has expired, a further Letter of Intent was entered into between      
the Company and Future Arts Limited, which was dated March 15, 1996.            

  "The Letter of Intent dated March 15, 1996, sets forth the terms related
to the purchase of cels relating to "Care Bears". The purchase of the cels is   
payable by way of a promissory note in the principal sum of $US 5,000,000,      
which note is further payable in preferred shares of the Company". The new      
scheduled closing of the transaction is May 31, 1996.                           

PRINCIPAL MARKET OR MARKETS         

From January 1990 until July, 1994, the Company's securities did not  
trade in a public market. Prior to January, 1990 the Company's securities       
traded as Units in the over-the-counter market, each Unit consisting of one     
common share and ten warrants to purchase common shares.  All warrants which    
were a part of these Units have expired prior to the reporting periods herein.  

Since July, 1994, the Company's common shares have traded Over The    
Counter on the National Association of Securities Dealers' Bulletin Board.      
Market makers and other dealers provide bid and ask quotations for the          
Company's common stock. The Bulletin Board symbol is AETG.                      

  The table below illustrates the range of high and low bid quotations for
the Company's common shares, as tracked by NASD during each reporting period    
since the Company's common shares began trading. These bid price market         
quotations represent prices between dealers and do not include retail           
mark-up, markdown, or commissions. Therefore, they may not represent actual     
transactions.                                                                   

                                                                [Download Table]

QUARTER ENDING            HIGH      LOW  
--------------            ----      ---  
                                         
March 31, 1995           1.1875    0.4375

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                                                                [Download Table]

                                         

June 30, 1995            1.25      0.39  

September 30, 1995       0.50      0.25  

December 31, 1995        0.30      0.0781

QUARTER ENDING           HIGH       LOW  

SEPTEMBER 30, 1994       2.375      .313 

DECEMBER 31, 1994        1.375      .313 

APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK.                        

 As of December 31, 1995, a total of 14,629,843 common shares are issued
and outstanding. The number of holders of record of the Company's common        
stock as of the date hereof, is approximately one hundred fifty (150).          
However, the Company estimates that it has a significantly greater number of    
shareholders because a substantial number of the Company's shares are held in   
nominee names by the Company's market makers, and in street form.  There are    
also Class A, Class B, Class C,  Class D, Class E,  Class H, Class I, Class J,  
and Class K Warrants outstanding to purchase an aggregate of 4,159,539 common   
shares, as well as options to purchase a total of 10,480,000 common shares.     

DIVIDENDS.                                                            

  Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors.  No dividends on the common       
stock were paid by the Company during the period from January, 1990 to the      
date hereof, nor does the Company anticipate paying dividends in the            
foreseeable future.                                                             

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS.                                                                     

RESULTS OF OPERATIONS                                                           

As of March 15, 1993, the Company concluded the acquisition of        
Corporatel International, Inc., which is a development stage corporation.       
The main thrust of the Company's activities for 1995 was to enter into          
agreements for the purposes of developing and commercially exploiting the       
film library and sales to both distributors and retailers.  This purpose was    
significantly advanced by the transaction, after the close of the fiscal        
year, with The VIP Phone Club, Inc. and the license issued to them regarding    
the film library by one of the Company's subsidiaries. The Company also plans   
to sell its video product via joint ventures and licensing arrangements with    
general broadcast, cable, and satellite generated television stations in        
accordance with its                                                             

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previously developed business plan. To that end, the Company has entered into   
several agreements regarding the development and commercial exploitation of     
the Company's film library inventories.                                         

As of August 1, 1995, the Company's commercial production division,   
Chaos International, Inc., discontinued the production of television            
commercials.  The Company will continue with its plans to develop feature       
motion picture(s) through its film production division. In this regard, the     
areas of both film production and distribution thereof are expected to          
advance in the next fiscal period, including the addition to management of      
expert personnel.                                                               

The Company's business plan calls for the generation of significant   
revenues in the first three years of operations emanating from all of its       
divisions.  However, there can be no guarantee that the Company can achieve     
this goal.                                                                      

As of December 31, 1995, the Company had revenues of $634,523.        

 Since commencement, the Company has devoted the majority of its efforts
to researching and refining its marketing activities with a view to             
developing comprehensive business and merchandising plans that in               
management's opinion, when fully implemented, will result in the successful     
sale and distribution of the Company's goods and services to the general        
public.                                                                         

As prior noted, the Company has successfully completed the acquisition
of a film library. The Company's intention to acquire further film libraries    
in the future will be dependent upon the availability of its financial          
resources to do so. Although to date the Company has generated virtually all    
of its revenue from its commercial production division, it also has commenced   
to obtain revenues from its film library and, furthermore, expects that in      
the coming fiscal year, the majority of its revenues will be derived from       
sales of product based upon its film library and the granting of rights         
regarding the distribution of its film library.                                 

As  its operating results are addressed and new markets are           
appropriately developed such as premium sales and international sales, the      
Company expects to derive a substantial portion of its revenue from product     
sales and licenses associated with its film library. The Company's revenue,     
however, will vary to the extent that the Company is able to satisfy consumer   
preferences. The Company's revenue may also experience variations as a result   
of the demand for a particular film title and entry into specific markets.      
Such demand may be further affected consequent upon a number of factors         
including competitors' products and their pricing policies.                     

As previously noted, on March 22, 1996, the Banque Nationale de Paris 
("BNP") provided financing to AEG Entertainment Limited ("AEL"), a              
wholly-owned Canadian subsidiary of the Company, of a $5,000,000US revolving    
line of credit to be used to finance the accounts receivable of The VIP Phone   
Club, Inc. ("VIP"), a private Delaware corporation, which was part of an        
affiliated group which, in November, 1995 and in January, 1996, assigned its    
accounts receivable to AEL, contingent upon the Company obtaining               
institutional bank financing for the accounts receivable. This extension of     
credit by BNP fulfills that financing contingency. In consideration of          

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obtaining this financing, the Company is to receive a monthly fee equal to 3%   
of the monthly accounts receivable financing advanced by BNP. The maximum       
amount under this line of credit will not exceed 90% of the VIP accounts        
receivable less all monies owed to prior ranking and/or preferred creditors.    
During the term of the financing arrangement, based upon this criteria, the     
average monthly accounts receivable financing is anticipated to be around       
$5,000,000. Additionally, the Company and AEL have granted a license to VIP     
to make available to VIP's telephone subscribers the titles contained in the    
Company's film library.                                                         

  The Company is at an early stage of development and is subject to all of
the risks inherent in the establishment of a new business enterprise. To        
address these risks, the Company must, among other matters, continue to         
research and to successfully market its proposed products, attract, retain      
and motivate qualified personnel and respond to competitive developments.       

 The Company believes that it will generate significant revenues in 1996
and that the industry's significant growth potential will create demand for     
its products and services that will contribute to continued revenue growth in   
ensuing periods.  As reflected in the "Description of Business" herein, the     
major cost components associated with the Company's revenues (with the          
exception of its media costs), are variable in nature and the Company           
believes that sufficient revenues will be obtained in order to meet both        
media costs and the Company's general overhead. The Company's fixed costs for   
the coming year are estimated to be approximately $1,075,000, which includes    
general overhead (of approximately $500,000), salaries ($525,000) and rent on   
its offices ($50,000). Moreover, the Company believes that as its revenues      
increase in subsequent periods, its profitability will also respond             
accordingly.                                                                    

The Company has utilized a five year time period to amortize the costs
of the rights associated with the film library.                                 

Amortization of these costs as to the film library has been determined
based upon the  straight line method over a five year period. Amortization as   
to the film library has been based upon the straight-line method over a five    
year period. Utilizing this methodology, 60% of the film library costs will     
be amortized over the first three years, with the remaining unamortized costs   
being amortized over the final two years of the amortization period.            

The Company is currently analyzing all of its various divisions to    
determine what changes can be made to allow the Company to become profitable    
on an ongoing basis. This analysis includes, but is not limited to,             
discontinuing certain portions of the business, streamlining other portions     
of the business, increasing marketing efforts, expanding the most potentially   
profitable portions of the Company's current operations, and seeking            
acquisition candidates. A the present time, the Company has no material         
commitments for capital expenditures in the next twelve months but plans to     
obtain additional capital in view of its prior operating losses. The Company    
may seek capital for its purposes through a combination of borrowings, equity   
offerings, and internally generated profits, if any.                            

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LIQUIDITY AND CAPITAL RESOURCES                                                 

  For the period ending December 31, 1995, and December 31, 1994, cash and
cash equivalents of approximately $315 and $33,000 were available to the        
Company to move forward in the various stages of its development plans. The     
Company expects to require additional capital of approximately $1,075,000       
throughout next fiscal year, which it will use for all of its operating         
divisions. The Company will generate such capital through revenues and a        
combination of  private placements, bank operating lines of credit, and         
potential operating profits.                                                    

Prior to its acquisition of Corporatel the Company had no substantial 
operations and thus had no working capital requirements. As of the fiscal       
year ends for 1993, 1994, and 1995, the Company had no significant capital      
expenditures.                                                                   

 The Company does not intend to pay dividends in the foreseeable future.

DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE      

The Company did not have any disagreements on accounting and financial
disclosures with its present accounting firm during the reporting period.       

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY       

The Directors and Executive Officers of the Company, their ages and   
positions held in the Company as of December 31,  1995 are as follows:          

                                                                [Download Table]


NAME                          AGE                     POSITION HELD            
----                          ---                     -------------            
                                                                               
Joel Wagman                   63             Chief Executive Officer/President 
                                             Chairman of the Board             

J.R.Y. Hugo                   63             Vice Chairman and Director        

Allan P. Chapman              57             Vice President/Distribution/      
                                             Director                          

Samuel C. Paul                62             Chief Accounting Officer/Treasurer
                                             Director                          

Jon D. Bridgman               53             Vice President, Corporate         
                                             Affairs/Director                  

Dirk Peper                    68             Chief Financial Officer           

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The Company's Directors will serve in such capacity until the next    
annual meeting of the Company's shareholders and until their successors have    
been elected and qualified.  The Officers serve at the discretion of the        
Company's Directors.  There are no family relationships among the Company's     
officers and directors nor are there any arrangements or understandings         
between any of the directors or officers of the Company or any other person     
pursuant to which any officer or director was or is to be selected as an        
officer or director.                                                            

JOEL WAGMAN.  Mr. Wagman has been the Chairman of the Board of Directors,       
Chief Executive Officer and a Director since March, 1993. On October 18,        
1995, Mr. Wagman became President of the Company.  Mr. Wagman received his      
Bachelor of Arts Degree (BA), in 1955 from the University of Toronto            
(Toronto, Ontario).                                                             

Mr. Wagman is also a graduate of Osgoode Hall Law School (LL.B. York  
University, Toronto, Canada)(1959).  Mr. Wagman was appointed a "Queens         
Counsel" in 1971.  During the past five years, Mr. Wagman has been engaged in   
and with corporations dealing with merchandising - telecommunications -         
television.                                                                     

From September 1987 to July 1991, Mr. Wagman served as President and  
Chief Executive Officer of the Telecommerce Corporation (at that time, a        
Canadian public reporting company).  While Mr. Wagman was President and CEO     
of Telecommerce, it was engaged in data-telecommunications relating to the      
marketing and sale of goods and services via Regional Bell Operating            
Companies (RBOC's).                                                             

From August, 1991 until December, 1991, Mr. Wagman served as President
of Corporatel America, Inc., a non-related U.S. private company, engaged in     
the production of non-entertainment related Infomercials and the sale of        
goods and services thereby.  From January, 1992, until the date hereof, Mr.     
Wagman has at various times served on a full-time basis as President, Chief     
Executive Officer and Chairman of the Board of Corporatel International, Inc.   
(a subsidiary of American Entertainment Group, Inc.).                           

J.R.Y. HUGO.  Mr. Hugo has been the Vice Chairman and a Director since 1994.    
He has been in the corporate and finance business since 1989. Prior to that     
time, he was a practicing attorney in the corporate and securities area in      
Toronto. He obtained undergraduate degrees from the University of Toronto and   
his law degree from Osgoode Hall Law School in Toronto.                         

ALLAN P. CHAPMAN.  Mr. Chapman became a Vice President and Director of the      
Company in September, 1995. During the past thirty-four years, Mr. Chapman      
has been associated with the Baton Broadcasting organization in various         
capacities, including Vice President, Managing Director, and President of       
Glen-Warren Productions Limited, a wholly-owned subsidiary of Baton             
Broadcasting Incorporated and the largest full-service production company in    
Canada. From 1992 until he joined the Company, he was President of BBS          
Entertainment.  Mr. Chapman attended  the University of Western Ontario.        

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SAMUEL C. PAUL.  Mr. Paul has been a Director of the Company since March,       
1994 and the Secretary/Treasurer since 1995.  Mr. Paul graduated from           
McMaster University (Hamilton, Ontario, Canada) in 1958 with a degree in        
Economics and Business.  In 1962, Mr. Paul received a Chartered Accountant      
designation (C.A.), having completed post graduate work at Queens University,   
(Kingston, Ontario, Canada).                                                    

Mr. Paul's career spans practicing both in public accounting firms and
in various management positions within the electronics and construction         
industry. Until his retirement from public accounting practice in March 1994,   
Mr. Paul had been a founding member of the chartered accounting firm of Paul    
and Paul, of Toronto, Ontario, Canada, specializing in financial and            
consulting services to small and medium sized clients, both of a private and    
public nature.                                                                  

JON D. BRIDGMAN. Mr. Bridgman has been a Vice President and Director of the     
Company since September, 1995.  Mr. Bridgman has been involved in the           
investment industry for over thirty years and has experience with three major   
Canadian brokerage firms and a U.S. insurance company. He has been a            
co-founder of five businesses and a Director of two public companies in         
Canada: Eclipse Capital, Inc. and Rampart Mercantile, Inc. From 1992 to 1993,   
he was Executive Vice President of Rampart Mercantile, Inc. From 1994 until     
he became associated with the Company, he was President and Chief Executive     
Officer of United Mercantile, Inc. From 1993 to 1994, he was Executive Vice     
President of Rampart Mercantile, Inc. From 1991 to 1992, he was Director of     
US marketing for Eco Corporation. From 1988 to 1992, he owned J. Bridgman       
Consulting, a corporate finance consulting firm. He has attended Concordia      
University of  Montreal, Quebec and the University of Manitoba.                 

DIRK PEPER. Mr. Peper has been the Chief Financial Officer since August 16,     
1995. Mr. Peper was appointed a Director of the Company on August 10, 1995      
and resigned as a Director on September 27, 1995 and Chief Financial Officer    
on April 2, 1996. From 1992 until he joined the Company, he was a Management    
Consultant with Canadian Executive Overseas Services. From 1988 to 1992, he     
served as Senior Vice President (Special Projects) for Central Capital          
Corporation. From May, 1978 to April, 1988, Mr. Peper was the Treasurer of      
the Ontario Hydro Electric Power Commission.  From October, 1974 to May,        
1978, hew served as Treasurer and Commissioner of Finance of the Regional       
Municipality of Peel(Province of Ontario). From May, 1967 to September, 1974,   
he was Deputy Minister of Finance for the Province of Newfoundland and          
Labrador. From 1963 to 1967, he was a Senior Management Consultant with Peat,   
Marwick, Mitchell & Company. He was educated at Queensland University,          
Brisbane, Australia.                                                            

FORM 10-KSB                                                                     

A copy of the Form 10-KSB filed with the U.S. Securities and Exchange 
Commission is available to any shareholder upon written request to:             

Corporate Secretary                                                   
American Entertainment Group, Inc.                                    
160 Bedford Road, Suite 306                                           
Toronto, Ontario, Canada M5R 2K9                                      

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SHAREHOLDER INFORMATION                                                         
Corporate Offices:                                                    
160 Bedford Road, Suite 306                                           
Toronto, Ontario, Canada M5R 2K9                                      

Independent Auditor:                                                  
Rollins & Associates, P.C.                                            
1201 Peachtree Street, N.E.                                           
400 Colony Square, Suite 1500                                         
Atlanta, Georgia 30361                                                
Transfer Agent:                                                       
Securities Transfer Corp                                              

SPECIAL ANNUAL MEETING                                                          

Stockholders of the Company are invited to attend the Special Annual  
Meeting of Shareholders of the Company at 10:00 a.m. local time, on July 11,    
1996, at 11355 Chester Road, Sharonville, Ohio 45246.                           

A Proxy Statement will be sent to shareholders of record as of May 31,
1996.                                                                           

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AMERICAN ENTERTAINMENT GROUP, INC.
 (A DEVELOPMENT STAGE COMPANY)

 CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995 and 1994

WITH

INDEPENDENT AUDITORS' REPORT

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 TABLE OF CONTENTS

                                                                      PAGE
                                                                      ----
CONSOLIDATED FINANCIAL STATEMENTS:                                              

Independent Auditors' Report                                            1 

Consolidated Balance Sheets                                             2 

Consolidated Statements of Operations                                   3 

Consolidated Statements of Changes in Stockholders' Equity (Deficit)    5 

Consolidated Statements of Cash Flows                                   6 

Notes to Consolidated Financial Statements                              7 

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors of                                                    
American Entertainment Group, Inc.                                              
160 Bedford Road, Suite 306                                                     
Toronto, Ontario  M5R 2K9                                                       

We have audited the accompanying consolidated balance sheets of American        
Entertainment Group, Inc. (a development stage company) and subsidiaries as     
of December 31, 1995 and 1994, and the related consolidated statements of       
operations, changes in stockholders' equity (deficit) and cash flows for the    
years then ended and for the period from the date of inception (April 23,       
1992) to December 31, 1995.  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 generally accepted auditing          
standards.  Those standards require that we plan and perform the audit to       
obtain reasonable assurance about whether the financial statements are free     
of material misstatement.  An audit includes examining, on a test basis,        
evidence supporting the amounts and disclosures in the financial statements.    
An audit also includes assessing the accounting principles used and             
significant estimates made by Management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the consolidated financial position of American          
Entertainment Group, Inc. and subsidiaries as of December 31, 1995 and 1994,    
and the consolidated results of their operations and their cash flows for the   
years then ended and from the date of inception (April 23, 1992) to December    
31, 1995, in conformity with generally accepted accounting principles.          

The accompanying financial statements have been prepared assuming that the      
Company will continue as a going concern.  As discussed in Note 14 to the       
financial statements, the Company has suffered recurring losses from            
operations and has a net capital deficiency, which raise substantial doubt      
about its ability to continue as a going concern.  Management's plans           
regarding those matters also are described in Note 14.  The financial           
statements do not include any adjustments that might result from  the outcome   
of this uncertainty.                                                            

Atlanta, Georgia                                                                
March 30, 1996                                                                  

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AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 

CONSOLIDATED BALANCE SHEETS   

DECEMBER 31, 1995 AND 1994  

ASSETS      

                                                                [Download Table]

                                                    1995         1994   
                                                 ----------   ----------
                                                                        
Current assets:                                                         
  Cash                                           $      315    $  32,590

  Trade accounts receivable                             -          1,587

  Inventory (Note 1)                                  7,801        7,728

  Prepaid expenses and deposits                       6,711       16,821
                                                 ----------   ----------

          Total current assets                       14,827       58,726
                                                 ----------   ----------

Property and equipment, at cost (Note 1):                               
  Office furniture and equipment                     16,976       15,874
  Computer equipment                                  9,854        9,854
                                                 ----------   ----------

                                                     26,830       25,728
  Less: accumulated depreciation                     11,315        6,045
                                                 ----------   ----------

          Net property and equipment                 15,515       19,683
                                                 ----------   ----------

Other assets:                                                           
  Film library ownership (Notes 1, 3 and 5)       1,847,478    1,847,478
  Infomercial and other film rights (Note 3)            -        120,000
  Organization costs, less accumulated                                  
    amortization of $9,377 and $6,258 in                                
    1995 and 1994, respectively (Note 1)              6,324        9,443
  Other                                                 -          8,125
                                                 ----------   ----------
          Total other assets                      1,853,802    1,985,046
                                                 ----------   ----------

                                                 $1,884,144   $2,063,455
                                                 ----------   ----------
                                                 ----------   ----------

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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  

                                                                [Download Table]

                                                    1995          1994    
                                                 ----------    ---------- 
                                                                          
Current liabilities:                                                      
  Current portion of long-term debt                                       
    (Notes 3 and 5)                              $  612,982    $  396,123 
  Short-term note payable (Note 4)                      -         115,000 
  Accounts payable                                  535,611       321,820 
  Accrued expenses                                  585,336       547,004 
  Income taxes payable (Notes 1 and 6)                  -             -   
                                                -----------   ----------- 

          Total current liabilities               1,733,929     1,379,947 
                                                -----------   ----------- 

Long-term debt, original face amount of                                   
  $1,000,000, less unamortized discount of                                
  $26,815 and $75,792 in 1995 and 1994,                                   
  respectively, and current portion                                       
  shown above (Notes 3 and 5)                       155,303       373,185 
                                                -----------   ----------- 

Commitments and contingencies (Notes 11 and 12)                           

Stockholders' equity (deficit):                                           
  Common stock, no par value;                                             
    700,000,000 shares authorized;                                        
    14,629,843 and 10,500,319 shares                                      
    issued and outstanding in 1995 and 1994,                              
    respectively (Notes 1, 3, 4, 7, 8, 10,                                
    11 and 12)                                    4,903,289     3,415,441 
  Common stock to be issued                             -         123,637 
  Unearned compensation                             (13,900)      (41,667)
  Foreign currency translation adjustment                                 
    (Note 9)                                        (12,369)       (1,916)
  Deficit accumulated during the develop-                                 
    ment stage                                   (4,882,108)   (3,040,635)
                                                -----------   ----------- 

                                                     (5,088)      454,860 
  Less: Subscriptions receivable                        -        (144,537)
                                                -----------   ----------- 

          Total stockholders' equity (deficit)       (5,088)      310,323 
                                                -----------   ----------- 

                                                 $1,884,144    $2,063,455 
                                                -----------   ----------- 
                                                -----------   ----------- 

The accompanying notes are an integral part of these statements.

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AMERICAN ENTERTAINMENT GROUP, INC.    
AND SUBSIDIARIES      
(A DEVELOPMENT STAGE COMPANY)     

CONSOLIDATED STATEMENTS OF OPERATIONS   

YEARS ENDED DECEMBER 31, 1995 AND 1994, AND 
THE PERIOD FROM THE DATE OF INCEPTION 
(APRIL 23, 1992) TO DECEMBER 31, 1995 

                                                                [Download Table]

                                  CUMULATIVE                           
                                    SINCE                              
                                  INCEPTION       1995         1994    
                                 -----------  -----------  ----------- 
                                                                       
Sales (Notes 1 and 2)            $    36,932  $    20,000  $     4,269 
Cost of sales                         14,317          614        7,240 
                                 -----------  -----------  ----------- 

    Gross profit (loss)               22,615       19,386       (2,971)
                                 -----------  -----------  ----------- 

Operating expenses:                                                    
  General and administrative                                           
    expenses                       4,721,570    1,805,966    1,272,639 
  Interest                           150,168       61,789       52,925 
                                 -----------  -----------  ----------- 

    Total operating expenses       4,871,738    1,867,755    1,325,564 
                                 -----------  -----------  ----------- 

Loss from continuing operations                                        
  before provision for income                                          
  taxes                           (4,849,123)  (1,848,369)  (1,328,535)

Provision for income taxes                                             
  (Notes 1 and 6)                        -            -            -   
                                 -----------  -----------  ----------- 

Loss from continuing operations   (4,849,123)  (1,848,369)  (1,328,535)

Discontinued operations (Note 2):                                      
  Income (loss) from operations                                        
    of discontinued subsidiary       (32,985)       6,896      (14,047)
  Loss on disposal of subsidiary         -            -            -   
                                 -----------  -----------  ----------- 

Gain (loss) on discontinued                                            
  operations                         (32,985)       6,896      (14,047)
                                 -----------  -----------  ----------- 

NET LOSS                         $(4,882,108) $(1,841,473) $(1,342,582)
                                 -----------  -----------  ----------- 
                                 -----------  -----------  ----------- 


The accompanying notes are an integral part of these statements.

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AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)

 CONSOLIDATED STATEMENTS OF OPERATIONS
 (CONTINUED)

 YEARS ENDED DECEMBER 31, 1995 AND 1994, AND
 THE PERIOD FROM THE DATE OF INCEPTION
 (APRIL 23, 1992) TO DECEMBER 31, 1995

                                                                [Download Table]

                                   CUMULATIVE                           
                                     SINCE                              
                                   INCEPTION       1995          1994   
                                   ---------    ----------    --------- 
                                                                        
LOSS PER SHARE:                                                         
  Loss from continuing                                                  
    operations                         $(.59)        $(.15)       $(.14)
  Loss from discontinued                                                
    operations                          (.01)          -            -   
  Loss on disposal of subsidiary         -             -            -   
                                   ---------    ----------    --------- 

  NET LOSS                             $(.60)        $(.15)       $(.14)
                                   ---------    ----------    --------- 
                                   ---------    ----------    --------- 

Weighted average shares                                                 
  outstanding                      8,170,951    12,259,590    9,823,985 
                                   ---------    ----------    --------- 
                                   ---------    ----------    --------- 

The accompanying notes are an integral part of these statements.

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AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES
 IN STOCKHOLDERS' EQUITY (DEFICIT)

 PERIOD FROM THE DATE OF INCEPTION
 (APRIL 23, 1992) TO DECEMBER 31, 1995

                                                        [Enlarge/Download Table]

                                                                                                        DEFICIT   
                                                                      COMMON              FOREIGN     ACCUMULATED 
                                                 COMMON STOCK         STOCK    UNEARNED   CURRENCY    DURING THE  
                                                 OUTSTANDING          TO BE     COMPEN-  TRANSLATION  DEVELOPMENT 
                                              SHARES      AMOUNTS     ISSUED    SATION   ADJUSTMENT      STAGE    
                                           -----------  ----------  ---------  --------  -----------  ----------- 
                                                                                                                  
Balance at April 23, 1992 (Inception)              -    $      -    $     -    $    -     $    -      $       -   

  Issuance of common stock                   4,280,000         150        -         -          -              -   
  NET LOS                                          -           -          -         -          -          (89,500)
                                           -----------  ----------  ---------  --------   --------    ----------- 

Balance at December 31, 1992                 4,280,000         150        -         -          -          (89,500)

  Issuance of common stock                   4,069,140   2,719,197        -         -          -              -   
  Common stock issued in reverse                                                                                  
    acquisition                                700,000         -          -         -          -              -   
  Common stock subscribed                          -           -       62,086       -          -              -   
  Foreign currency translation adjustment          -           -          -         -          (40)           -   
  NET LOSS                                         -           -          -         -          -       (1,608,553)
                                           -----------  ----------  ---------  --------   --------    ----------- 

Balance at December 31, 1993                 9,049,140   2,719,347     62,086       -          (40)    (1,698,053)

  Issuance of common stock                   1,451,179     696,094     (8,449)      -          -              -   
  Common stock subscribed                          -           -       70,000       -          -              -   
  Unearned compensation related to                                                                                
    issuance of stock for services                 -           -          -     (75,000)       -              -   
  Amortization of unearned compensation            -           -          -      33,333        -              -   
  Foreign currency translation adjustment          -           -          -         -       (1,876)           -   
  NET LOSS                                         -           -          -         -          -       (1,342,582)
                                           -----------  ----------  ---------  --------   --------    ----------- 

Balance at December 31, 1994                10,500,319  $3,415,441    123,637   (41,667)    (1,916)    (3,040,635)

  Issuance of common stock                   4,129,524   1,487,848        -         -          -              -   
  Common stock subscribed                          -           -     (123,637)      -          -              -   
  Unearned compensation related to                                                                                
    issuance of stock for services                 -           -          -     (13,900)       -              -   
  Amortization of unearned compensation            -           -          -      41,667        -              -   
  Foreign currency translation adjustment          -           -          -         -      (10,453)           -   
  NET LOSS                                         -           -          -         -          -       (1,841,473)
                                           -----------  ----------  ---------  --------   --------    ----------- 
Balance at December 31, 1995                14,629,843  $4,903,289  $     -    $(13,900)  $(12,369)   $(4,882,108)
                                           -----------  ----------  ---------  --------   --------    ----------- 
                                           -----------  ----------  ---------  --------   --------    ----------- 

                                            SUBSCRIP-                                                             
                                              TIONS                                                               
                                           RECEIVABLE       TOTAL                                                 
                                           -----------   -----------                                              
                                                                                                                  
Balance at April 23, 1992 (Inception)      $     -       $       -                                                

  Issuance of common stock                      (150)            -                                                
  NET LOSS                                       -           (89,500)                                             
                                           ---------     -----------                                              

Balance at December 31, 1992                    (150)        (89,500)                                             

  Issuance of common stock                   (12,745)      2,706,452                                              
  Common stock issued in reverse                                                                                  
    acquisition                                  -               -                                                
  Common stock subscribed                    (61,586)            500                                              
  Foreign currency translation adjustment        -               (40)                                             
  NET LOSS                                       -        (1,608,553)                                             
                                           ---------     -----------                                              

Balance at December 31, 1993                 (74,481)      1,008,859                                              

  Issuance of common stock                       (56)        687,589                                              
  Common stock subscribed                    (70,000)            -                                                
  Unearned compensation related to                                                                                
    issuance of stock for services               -           (75,000)                                             
  Amortization of unearned compensation          -            33,333                                              
  Foreign currency translation adjustment        -            (1,876)                                             
  NET LOSS                                       -        (1,342,582)                                             
                                           ---------     -----------                                              

Balance at December 31, 1994                (144,537)        310,323                                              

  Issuance of common stock                       -         1,487,848                                              
  Common stock subscribed                    144,537          20,900                                              
  Unearned compensation related to                                                                                
    issuance of stock for services               -           (13,900)                                             
  Amortization of unearned compensation          -            41,667                                              
  Foreign currency translation adjustment        -           (10,453)                                             
  NET LOSS                                       -        (1,841,473)                                             
                                           ---------     -----------                                              
Balance at December 31, 1995               $     -       $    (5,088)                                             
                                           ---------     -----------                                              
                                           ---------     -----------                                              


The accompanying notes are an integral part of these statements.

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AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 YEARS ENDED DECEMBER 31, 1995 and 1994, and
 THE PERIOD FROM THE DATE OF INCEPTION
 (APRIL 23, 1992) TO DECEMBER 31, 1995

                                                        [Enlarge/Download Table]

                                                    CUMULATIVE                             
                                                      SINCE                                
                                                    INCEPTION        1995          1994    
                                                   -----------   -----------   ----------- 
                                                                                           
Cash flows from operating activities:                                                      
  NET LOSS                                         $(4,882,108)  $(1,841,473)  $(1,342,582)
    Adjustments to reconcile net loss                                                      
      to net cash used by operating                                                        
      activities:                                                                          
        Depreciation and amortization                   20,692         8,389         7,491 
        Interest portion of amount due                                                     
          for film library                              47,101        31,322        12,178 
        Common stock issued for services             1,794,444       958,017       147,969 
        Foreign currency translation                   (12,369)      (10,453)       (1,876)
        Changes in:                                                                        
          Trade accounts receivable and inventory       (7,801)        1,514        13,270 
          Prepaid expenses and deposits                 (6,711)       10,110        37,567 
          Accounts payable and other                 1,269,367       400,543       489,005 
                                                   -----------   -----------   ----------- 

Net cash used by operating activities               (1,777,385)     (442,031)     (636,978)
                                                   -----------   -----------   ----------- 

Cash flows from investing activities:                                                      
  Purchase of infomercial and other film rights       (120,000)          -             -   
  Purchase of property and equipment                   (26,830)       (1,102)       (8,674)
  Decrease (increase) in other assets                  110,549       128,125        (1,875)
                                                   -----------   -----------   ----------- 

Net cash provided (used) by investing activities       (36,281)      127,023       (10,549)
                                                   -----------   -----------   ----------- 

Cash flows from financing activities:                                                      
  Proceeds from issuance of common stock (net of                                           
    stock issue costs of $4,000 in 1994)             1,775,275       315,078       497,953 
  Increase in short-term note payable                  115,000           -         115,000 
  Repayment of long-term debt                         (126,294)      (32,345)      (67,395)
  Increase (decrease) in due to officer                 50,000           -         (50,000)
                                                   -----------   -----------   ----------- 

Net cash provided by financing activities            1,813,981       282,733       495,558 
                                                   -----------   -----------   ----------- 

NET INCREASE (DECREASE) IN CASH                            315       (32,275)     (151,969)

Cash, at the beginning of the period                       -          32,590       184,559 
                                                   -----------   -----------   ----------- 

Cash, at the end of the period                     $       315   $       315   $    32,590 
                                                   -----------   -----------   ----------- 
                                                   -----------   -----------   ----------- 

The accompanying notes are an integral part of these statements.

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AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

  The accompanying consolidated financial statements include the
accounts of American Entertainment Group, Inc. (a development stage company)    
(the "Company"), a Colorado corporation incorporated on October 17, 1985, and   
its wholly-owned subsidiaries, Corporatel International, Inc., Chaos            
International, Inc., Chaos Productions, Inc. and AEG Entertainment, Ltd.  All   
intercompany transactions and accounts have been eliminated in consolidation.   

Nature of Operations:  The Company was formed primarily to  
evaluate, structure and complete a merger with, or acquisition of,              
prospective private entities.  The Company's Chaos subsidiary, which            
functions as executive producer of television commercials, entered into         
contracts and began operations in 1993 (See Note 2). However, the Company's     
main activities to December 31, 1995 have been primarily developmental and      
exploratory in nature, with no principal operations to that date.               

       The accounting policies employed by the Company are consistent with
generally accepted accounting principles.  In instances where more than one     
generally accepted accounting principle may be applied, the Company has         
adopted the one that it believes most accurately and fairly reflects the        
circumstances.                                                                  

A.  Assets and liabilities, revenues and expenses are recorded using the        
accrual basis of accounting.  Revenues from executive producer fees for 
 the Company's Chaos subsidiary are recognized at the point of substantial
 completion of the contract.  At December 31, 1995 and 1994, there were no
contracts in progress (See Note 2).                                     

B.  Inventory is stated at the lower of first-in, first-out (FIFO) cost or      
market value.                                                           

C.  Property and equipment are stated at cost.  Expenditures for renewals and   
improvements that significantly add to productive capacity or extend the
 useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to current operations.  When depreciable properties 
are retired or otherwise disposed of, the cost and related accumulated  
depreciation are eliminated from the accounts of the Company and the    
resultant gain or loss is reflected in the Company's statement of       
operations during the applicable period.                                

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                       

For financial statement purposes, depreciation of property and equipment
is computed principally using the straight-line method of depreciation  
over the following estimated useful lives:                              

                                                                [Download Table]

                                          ESTIMATED 
          DESCRIPTION                   USEFUL LIVES
------------------------------          ------------
                                                    
Office furniture and equipment             5 years  
Computer equipment                         5 years  

For income tax purposes, qualified property and equipment placed in     
 service after December 31, 1986 are depreciated by accelerated methods as
prescribed under the Tax Reform Act of 1986 and the Revenue             
Reconciliation Act of 1993, and, to the extent practicable, expensed    
under Internal Revenue Code Section 179.                                

D.  Film library ownership will be amortized under the straight-line method     
over a five year period.   On a periodic basis, the Company will assess 
the adequacy of the five year life and will adjust this life if         
necessary.  At December 31, 1995, no amortization has been recorded to  
date since the Company is still in the development stage and full       
operations have not yet commenced.                                      

E.  On a periodic basis, the film library ownership asset will be  reviewed to  
assess whether an impairment of this asset has occurred.  If it is      
probable that estimated undiscounted future net cash flows will be less 
than the net book value of the asset, an impairment will be deemed to   
have occurred and losses will be recorded in the current period as a    
result of this impairment.  For purposes of this analysis, "future net  
 cash flows" is measured by the gross revenues generated by the asset, net
of all significant costs associated with these revenues, mainly costs of
production, broadcasting and distribution.                              

F.  Organization costs, which consist of legal and accounting fees incurred in  
connection with establishing the Company, are being amortized by the    
straight-line method over five years.                                   

G.  The preparation of financial statements in conformity with generally        
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities  
and disclosure of contingent assets and liabilities at the date of the  
financial statements and the reported amounts of revenues and expenses  
during the reporting period.  Actual results could differ from those    
estimates.                                                              

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                       

H.  Net loss per common share is calculated by dividing net loss by the weighted
average common shares actually outstanding plus the shares that would be
 outstanding assuming exercise of dilutive stock warrants and options, all
of which are considered to be common stock equivalents.  The stock      
options and warrants described in Notes 7 and 8 are antidilutive and    
therefore not included in the calculation of loss per share in 1995 and 
1994.                                                                   

I.  Certain reclassifications have been made to the 1994 financial statements   
to conform to the 1995 presentation.                                    

2.  DISCONTINUED OPERATIONS                                                     

       On August 1, 1995, the Company discontinued operations of its Chaos
International, Inc. subsidiary.  This subsidiary (a Canadian corporation)       
functioned as executive producer of television commercials and began            
operations in 1993.  Due to a change in corporate philosophy, this subsidiary   
was discontinued in August, 1995.  The Company incurred no material gain or     
loss on the discontinuance of this subsidiary.  Operating results of the        
Chaos subsidiary for the seven months ended July 31, 1995 are shown             
separately in the accompanying statement of operations.  The statement of       
operations for 1994 has been restated and operating results of the Chaos        
subsidiary are also shown separately.  Net sales of the Chaos subsidiary for    
1995 and 1994 are approximately $635,000 and $1,246,000, respectively.  These   
amounts are not included in sales of the Company in the accompanying            
statements of operations.                                                       

3.  INFOMERCIAL AND OTHER FILM RIGHTS AND FILM LIBRARY OWNERSHIP                

  The Company, through its predecessor Corporatel International,
Inc., executed an agreement on December 26, 1992 with two companies, both of    
which are stockholders of the Company, for the purchase, in perpetuum, of       
certain rights to a film library.  The purchase price of the rights was         
established at $4,200,000, payable in cash in the amount of $120,000 on or      
before February 28, 1993, and by the issuance of 80,000 shares of               
Corporatel's common stock, valued at $4,080,000.  These film rights were        
recorded on the books of the Company at $120,000, which is the cash paid to     
date.                                                                           

 In June, 1993, the Company received notice from a third party
asserting some discrepancies in the title to the infomercial rights.  The       
Company has decided that it will no longer be cost effective to pursue the      
enforcement of this agreement due to time constraints and legal fees that       
would be involved.  Management will continue to negotiate for the refund of     
the $120,000 downpayment, but believes the likelihood of its return is          
remote.  Therefore, the infomercial and other film rights asset is deemed to    
have no remaining value and has been written off at December 31, 1995.          

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3.  INFOMERCIAL AND OTHER FILM RIGHTS AND FILM LIBRARY OWNERSHIP (CONTINUED)    

  On June 25, 1993, and as amended in October, 1993, the Company
entered into an agreement to purchase a film library consisting of five         
thousand (5,000) English language titles for a total purchase price of          
$2,000,000.  The purchase price is to be paid by a non-interest bearing note    
payable in the amount of $1,000,000, which has been discounted based on an      
imputed interest rate of 8%, payable over a period of approximately four        
years, and by the issuance of 400,000 shares of the Company's common stock,     
valued at $1,000,000.                                                           

    An independent evaluation of this film library performed in 1993
concluded that the fair market value of the film library was greater than the   
purchase price of $2,000,000.  The film library has been recorded on the        
Company's books net of imputed interest on the non-interest bearing note        
payable mentioned above. An independent evaluation of the above film library    
indicates no impairment of the film library as of the balance sheet date.       

4.  SHORT-TERM NOTE PAYABLE                                                     

      At December 31, 1994, the Company had outstanding a note payable
to a trust in the amount of $115,000.  This note payable, dated June 15,        
1994, accrues interest at 7% annually and became due in full in December,       
1994. As a part of the note agreement, the note payable is convertible into     
common stock of the Company at a price per share of $.50.  Also, as a part of   
the conversion, the trust would receive warrants which would entitle it to      
purchase one additional share of common stock per warrant at a price of $1.50   
per share. In January, 1995, the trust elected to exercise the convertible      
provision of the note and received approximately 240,000 shares and 240,000     
warrants in converting the entire note payable, including accrued interest,     
that was payable at year end.                                                   

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5.  LONG-TERM DEBT                                                              

The Company's long-term debt at December 31, 1995 and 1994 is 
summarized as follows:                                                          

                                                        [Enlarge/Download Table]

                         DESCRIPTION                                   1995      1994  
                         -----------                                 --------  --------
                                                                                       
Non-interest bearing note payable to a corporation, face amount of                     
$1,000,000, due in equal monthly installments of approximately                         
$20,000, which includes  interest,through August, 1997,                                
secured by a film library                                            $795,100  $845,100
Less: unamortized discount based on an  imputed interest rate of 8%    26,815    75,792
                                                                     --------  --------
Total long-term debt                                                  768,285   769,308

Less current portion                                                  612,982   396,123
                                                                     --------  --------

Long-term debt less current portion                                  $155,303  $373,185
                                                                     --------  --------
                                                                     --------  --------

The note payable is due at the rate of $200 per one inch film 
master, for a total of 5,000 film masters, and is to be paid at the time they   
are received by the Company.  It is the intent of Management to receive the     
maximum number of film masters available each month, which is specified in      
the note agreement as 100.  At December 31, 1995, approximately $205,000 has    
been paid in connection with actual film masters received to date.              
Management expects the balance of the loan to be repaid in full by August,      
1997.                                                                           

      The aggregate amounts of principal payments due on long-term debt at
December 31, 1995 are as follows:                                               

                                                                [Download Table]

        YEAR                       AMOUNTS 
        ----                       --------
                                           
        1996                       $612,982
        1997                        155,303
                                   --------
Total long-term debt               $768,285
                                   --------
                                   --------

      The fair value of the Company's long-term debt is estimated based on
the current rates offered to the Company for debt of the same remaining         
maturities.  At December 31, 1995 and 1994, the fair value of the long-term     
debt approximate the amounts recorded in the financial statements.              

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6.  INCOME TAXES                                                                

The Company has reported no income taxes currently payable for the years
ended December 31, 1995 and 1994 as a result of incurring net operating         
losses and utilizing net operating loss carryforwards.                          

A reconciliation of income tax at the statutory rate to the 
Company's effective rate for the years ended December 31, 1995 and 1994 is as   
follows:                                                                        

                                                                [Download Table]

                  DESCRIPTION                      1995   1994 
                  -----------                      ----   ---- 
                                                               
Federal income tax at statutory rate               34.0%  34.0%

State income tax, net of Federal tax benefit        3.6    3.6 

Benefit of net operating loss carryforward        (37.6) (37.6)
                                                  -----  ----- 
        Income tax expense                            -      - 
                                                  -----  ----- 
                                                  -----  ----- 

       The Company determines deferred tax assets and liabilities based on
the difference between the financial statement and tax bases of assets and      
liabilities as measured by the enacted tax rates which will be in effect when   
these differences reverse.  Deferred tax assets are reduced by a valuation      
allowance if, based on the weight of available evidence, it is more likely      
than not that some portion or all of the deferred tax assets will not be        
realized.                                                                       

    The deferred tax asset at December 31, 1995 and 1994 consists of
the following:                                                                  

                                                                [Download Table]

           DESCRIPTION                    1995        1994   
           -----------                -----------  --------- 
                                                             
Net operating loss carryforward       $ 1,430,000  $ 843,000 

Valuation allowance                    (1,430,000   (843,000)
                                      -----------  --------- 
       Deferred tax asset             $       -    $     -   
                                      -----------  --------- 
                                      -----------  --------- 

      As of December 31, 1995, the Company has a U.S. net operating loss
carryforward of approximately $3,800,000 for which no financial statement       
benefit has been recognized.  The U.S. net operating losses expire between      
the years 2007 and 2010.  Future recognition of these carryforwards will be     
reflected if the Company has sufficient earnings before the expiration of the   
respective loss carryforwards.                                                  

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7.  STOCK OPTIONS                                                               

During 1995 and 1994, common stock options were issued to 
employees and officers of the Company under various compensation agreements.    
All stock options were issued at no less than market value at the time of       
grant.  Also, during 1995, the Company elected to reduce the exercise price     
on 4,000,000 options, which were held by Directors of the Company, from $2.00   
per share in 1994 to an average of $1.00 per share in 1995, expiring on         
January 1, 1998. A summary of common stock options outstanding at December      
31, 1995 and 1994 is as follows:                                                

                                                                [Download Table]

                                1995                1994       
                         -----------------   ------------------
                           NUMBER  AVERAGE    NUMBER    AVERAGE
                             OF     OPTION      OF      OPTION 
   DESCRIPTION            OPTIONS   PRICE     OPTIONS    PRICE 
   -----------           --------- -------   ---------  -------
                                                               
Beginning of year        9,655,567  $ 1.27   5,585,567  $  .73 

Granted                  3,200,000    1.05   4,600,000    1.80 

Exercised                  (40,000)    .01    (330,000)   .001 

Expired                 (2,335,567)   1.10    (200,000)    .50 
                        ----------  ------   ---------  ------ 
End of year             10,480,000  $ 1.01   9,655,567  $ 1.27 
                        ----------  ------   ---------  ------ 
                        ----------  ------   ---------  ------ 

8.  STOCK WARRANTS                                                              

       During 1995 and 1994, the Company issued several classes of stock
warrants in conjunction with the issuance of common stock and in conjunction    
with the rescinding of a prior agreement to purchase real estate.  Also, in     
1995, the Board of Directors elected to extend all series "A", "B", and "C"     
warrants for an additional one year period expiring on December 31, 1996, and   
reduced the average exercise price from $2.22 per share in 1995 to $1.15 per    
share in 1996.                                                                  

        In addition, callable provisions were instituted by the Company in
which under certain conditions the Company has the right to buy back the "A",   
"B" and "C" warrants at prices ranging from $1.06 per share to $1.50 per        
share.  No warrants were exercised in 1995 and 1994.  During 1995, 79,000       
Class "B" warrants and 1,489,539 Class "F" warrants expired.  During 1994,      
600,000 Class "A" warrants and 120,000 Class "B" warrants expired.              

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8.  STOCK WARRANTS (CONTINUED)                                                  

     The following table reflects the Company's issued and outstanding
warrants as of December 31, 1995:                                               

                                                                [Download Table]

                              NUMBER OF    EXERCISE   EXPIRATION
            DESCRIPTION        WARRANTS     PRICE        DATE   
            -----------       ---------    --------   ----------
                                                                
        Class "A" warrants    1,056,350       $1.38     12-31-96
        Class "B" warrants    1,325,000       $ .88     12-31-96
        Class "C" warrants      458,189       $1.38     12-31-96
        Class "D" warrants      150,000       $2.50     12-31-98
        Class "E" warrants      250,000       $1.81     12-31-98
        Class "H" warrants      225,000       $1.00      4-15-97
        Class "I" warrants      275,000       $2.00      4-15-97
        Class "J" warrants      350,000       $2.75     10-15-98
        Class "K" warrants       70,000       $1.00      8-21-96
                              ---------                         
Total warrants outstanding    4,159,539                         
                              ---------                         
                              ---------                         

9.  FOREIGN CURRENCY TRANSLATION                                                

     The financial statements of the Company's non-U.S. subsidiary are
translated into U.S. dollars in accordance with Statements of Financial         
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation."   Net       
assets of certain non-U.S. subsidiaries whose "functional" currencies are       
other than the U.S. dollar are translated at current rates of exchange.         
Income and expense items are translated at the average exchange rate for the    
year.  The resulting translation adjustments are recorded directly into a       
separate component of stockholders' equity.  Certain other translation gains    
and losses continue to be reported in net income and were not significant in    
any year.                                                                       

10. RELATED PARTY TRANSACTIONS                                                  

       During 1995, 25,000 shares of the Company's common stock, valued at
$11,250, were issued to a wife of a Director of the Company for consulting      
services performed.                                                             

       During 1995, 55,000 shares of the Company's common stock, valued at
$24,750, were issued to Directors of the Company for consulting services        
performed.                                                                      

      During 1995, certain Directors of the Company made advances to the
Company for working capital purposes.  These advances, along with accrued       
salaries due to these Directors, were assigned by the Directors to third        
parties. These assigned debts of the Company were repaid to these third         
parties during 1995 by the issuance of 2,216,824 shares of the Company's        
common stock valued at $702,956.                                                

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10. RELATED PARTY TRANSACTIONS (CONTINUED)                                      

       In 1995, the Company reduced the exercise prices on options held by
certain Directors of the Company (See Note 7).                                  

During 1995, a Director of the Company was granted under an 
employment agreement options to purchase 800,000 shares of the Company's        
common stock at a price of $.50 per share through January 1, 1997, and          
options to purchase 1,000,000 shares of the Company's common stock at an        
average price of $1.00 per share through January 1, 1998.                       

During 1995, a Director of the Company was granted under an 
employment agreement options to purchase 800,000 shares of the Company's        
common stock at an average price of $1.13 per share through November 30, 1999.  

In 1994, consulting services in the amount of $166,908 were 
provided by certain entities whose shareholders were also directors of the      
Company.                                                                        

11. COMMITMENTS AND CONTINGENCIES                                               

    The Company has executed various non-cancelable operating leases
for its office space and various equipment.  Future minimum rental payments     
due under these leases at December 31, 1995 are approximately as follows:       

                                                                [Download Table]

             YEAR                        AMOUNTS
             ----                        -------
                                                
             1996                        $24,000
             1997                          5,000
             1998                          4,000
                                         -------
Total minimum lease commitments          $33,000
                                         -------
                                         -------

 Rent expense under these leases was approximately $58,000 and
$39,000 in 1995 and 1994, respectively.                                         

      The Company has executed employment agreements with certain of its
officers effective through March 16, 2000.  Under the terms of the              
agreements, the officers will receive salaries ranging from $60,000 to          
$170,000 annually.                                                              

Commencing with the Company's year ended December 31, 1994, 
officers and employees will be eligible to receive additional compensation in   
an amount to be determined at the discretion of Management, to a maximum        
aggregate amount of 12% of the Company's consolidated pre-tax operating         
profits.                                                                        

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11. COMMITMENTS AND CONTINGENCIES (CONTINUED)                                   

As specified in their employment agreements, three executive
officers have the option to each purchase 800,000 shares of the Company's       
common stock at a price of $.50 per share through January 1, 1997.  In          
addition, all three officers also have the option to each purchase an           
additional 1,000,000 shares of the Company's common stock at prices ranging     
from $.50 per share to $2 per share through January 1, 1998.  Also, a fourth    
executive officer owns options to purchase 800,000 shares of the Company's      
common stock at an average price of $1.13 per share through November 30, 1999.  

       On October 17, 1995, the Company entered into a letter of intent to
purchase all the rights, title and interest to certain cartoon cels as owned    
by a U.S. based company.  The purchase price has been established at            
$5,000,000, to be paid by the issuance of restricted preferred stock of the     
Company, the number of shares to be determined at a later date.  These          
preferred shares shall include a convertible provision to common stock of       
$5.00 per share.  In addition, the Company has agreed to redeem  preferred      
stock, valued at $50,000, provided the Company obtains a listing on the         
NASDAQ exchange.  The execution of this agreement is pending due diligence      
work to be performed by both of the parties. If not executed, the agreement     
will expire on May 31, 1996.                                                    

12. SUBSEQUENT EVENTS                                                           

On January 15, 1996, the Company entered into an agreement to 
purchase a privately-owned U.S. based company which is in the business of       
developing proprietary image products for the motion picture industry.  The     
purchase price has been established at $500,000, which will be paid by the      
exchange of restricted preferred shares of the Company, the number of shares    
to be determined at a later date, for all of the outstanding shares of the      
acquired company.  These preferred shares are to be created and approved in     
the future by the Company's shareholders.                                       

 As of the report date, this agreement is still subject to the
delivery of certain documents and the completion of due diligence work by       
both parties.  If not executed, the agreement will expire on May 15, 1996.      

In February, 1996, a wholly-owned subsidiary of the Company 
finalized an agreement with a U.S. based company to grant this company the      
non-exclusive rights to market, sell and distribute a product of the            
Company's film library to the general public. In consideration of granting      
this license, the Company is to receive the assignment of all accounts          
receivable due to this non-related company.  Both the license granted by the    
Company and the assignment of the accounts receivable are conditional upon      
the Company obtaining from an institutional banking source financing of the     
non-related company's accounts receivable.                                      

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ARS
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12. SUBSEQUENT EVENTS (CONTINUED)                                               

     In consideration of the financing, the Company will receive a fee
equal to 3% of each new advance made, subject to a maximum advance amount of    
$5,000,000.  On February 21, 1996, the Company received a commitment from a     
bank to provide the financing.  Under this agreement, the Company, one of       
its subsidiaries, and other third party entities and persons, will be liable    
for a maximum amount of $5,000,000.                                             

13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                           

                                                                [Download Table]

                                              1995      1994  
                                            --------  --------
                                                              
Cash paid for interest and income taxes                       
 is approximately as follows:                                 
   Interest                                 $ 33,000  $ 42,000
   Income taxes                             $    -    $    -  

  During 1995 and 1994, the Company issued 2,693,389 and 242,979
shares, respectively, of the Company's common stock, valued at $958,017 and     
$147,969, respectively in lieu of cash payment for compensation and             
consulting fees.                                                                

   During 1995, the Company issued 592,779 shares of the Company's
common stock, valued at $148,378, in lieu of cash payment for prior year        
accrued salaries and consulting fees.                                           

  During 1995, the Company issued 50,000 shares of the Company's
common stock, valued at $15,000, in lieu of cash for commissions related to     
the issuance of stock.                                                          

  In January, 1995, a note payable to a trust, including accrued
interest, in the total amount of approximately $120,000 was converted into      
approximately 240,000 shares of the Company's common stock.                     

14. GOING CONCERN                                                               

The accompanying financial statements have been prepared in 
conformity with generally accepted accounting principles, which contemplates    
continuation of the Company as a going concern.  However, the Company has       
sustained substantial operating losses in recent years.  In addition, the       
Company has used substantial amounts of working capital in its operations.      
Further, at December 31, 1995, current liabilities exceed current assets by     
$1,719,102.                                                                     

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ARS
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14. GOING CONCERN (CONTINUED)                                                   

     In view of these trends, the Company is in the process of seeking
additional working capital through various private placements.  Also, the       
Company has entered into various contracts which will generate net revenues     
in its future operations.  Management believes that actions presently being     
taken to provide working capital can be effectively implemented and will        
allow the Company to continue as a going concern.                               

-18-  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘ARS’ Filing		Date		First		Last			Other Filings
		3/16/00		37
		11/30/99		37		38
		1/1/98		35		38
		1/1/97		37		38
		12/31/96		35					10KSB,  NT 10-K
		7/20/96		7
		7/11/96		19					PRE 14A
		5/31/96		12		38
Filed on:		5/24/96							PRE 14A
		5/15/96		38					10QSB
		4/2/96		18
		3/30/96		22
		3/22/96		7		14
		3/15/96		6		12
		2/27/96		7		11
		2/21/96		7		39
		1/30/96		7		11
		1/15/96		6		38
For Period End:		12/31/95		2		39
		12/15/95		6		12
		11/29/95		7		11
		11/28/95		7		11
		10/18/95		17
		10/17/95		6		38
		9/27/95		18
		9/13/95		6		8
		8/16/95		18
		8/10/95		18
		8/1/95		9		31
		7/31/95		31
		3/22/95		5
		3/3/95		5
		2/25/95		5
		2/6/95		5		9
		2/4/95		5		9
		1/28/95		4
		12/31/94		16		37
		11/23/94		4		9
		11/5/94		4
		6/15/94		32
		4/1/94		4
		12/31/93		27
		10/26/93		7
		6/25/93		7		32
		6/17/93		8
		5/17/93		3
		3/15/93		3		13
		2/28/93		31
		12/31/92		27
		12/26/92		3		31
		4/23/92		22		28
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