<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                  FORM 10-QSB
 
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
                    FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998
 
                                         OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                            ------------------------
 
                              MODERN RECORDS, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
 
<TABLE>
<S>                                       <C>
              CALIFORNIA                                95-3404374
   (STATE OR OTHER JURISDICTION OF                   (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)
</TABLE>
 
                             468 NORTH CAMDEN DRIVE
                                  THIRD FLOOR
                        BEVERLY HILLS, CALIFORNIA 90210
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
 
                                 (310) 285-5370
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                            ------------------------
 
     Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [ ]  No [X]
 
     The number of shares outstanding of the issuer's Common Stock, no par
value, as of July 31, 1998 was 22,183,171.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
              MODERN RECORDS, INC. QUARTERLY REPORT ON FORM 10-QSB
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PART I. FINANCIAL INFORMATION
  Item 1. Financial Statements
     Balance Sheets as of July 31, 1998 and October 1997....   3
     Statements of Operations for the three and nine months
      ended July 31, 1998 and 1997..........................   4
     Statements of Cash Flow for the three and nine months
      ended July 31, 1998 and 1997..........................   5
     Notes to Financial Statements..........................   6
  Item 2. Management's Discussion and Analysis of Financial
  Condition and Results
            of Operations...................................   7
PART II. OTHER INFORMATION
  Item 1. Legal Proceedings.................................   8
  Item 2. Changes in Securities and Use of Proceeds.........   8
  Item 4. Submission of Matters to a Vote of Security
     Holders................................................   8
  Item 6. Exhibits and Reports on Form 8-K..................   9
</TABLE>
 
                                        2
<PAGE>   3
 
                                    PART I.
 
ITEM 1. FINANCIAL INFORMATION
 
                              MODERN RECORDS, INC.
 
                                 BALANCE SHEET
                       JULY 31, 1998 AND OCTOBER 31, 1997
                          (EXPRESSED IN U.S. DOLLARS)
                     (UNAUDITED -- PREPARED BY MANAGEMENT)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               JULY 31,      OCTOBER 31,
                                                                 1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>
CURRENT
  Cash......................................................  $     1,653    $    15,417
  Receivables...............................................       94,838             --
  Other current assets......................................       10,654
                                                              -----------    -----------
          Total current assets..............................      107,145         15,417
                                                              -----------    -----------
Deferred record master cost, net............................      175,478        225,478
                                                              -----------    -----------
                                                              $   282,623    $   240,895
                                                              ===========    ===========
 
                        LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
  Bank overdraft............................................  $     9,477    $        --
  Accounts payable and accrued liabilities..................      195,942        347,454
  Loans payable.............................................       64,546         18,393
  Deferred compensation.....................................      250,000        100,000
                                                              -----------    -----------
          Total current liabilities.........................      519,965        465,847
                                                              -----------    -----------
Loans from related parties, non-interest bearing with no
  stated terms of repayment.................................       34,045        525,012
Recoupable advances.........................................       50,000         50,000
Deferred revenue............................................           --        141,574
                                                              -----------    -----------
          Total liabilities.................................      604,010      1,182,433
                                                              -----------    -----------
SHAREHOLDERS' DEFICIENCY
  Preferred stock, authorized 20,000,000 shares, none issued
  Common stock, authorized: 40,000,000 shares, no par value
  Issued: 22,183,171 shares (1998) (1997 -- 14,657,770
     shares)................................................    2,234,324      1,351,342
  Accumulated deficit.......................................   (2,555,711)    (2,292,880)
                                                              -----------    -----------
          Total shareholders' deficiency....................     (321,387)      (941,538)
                                                              -----------    -----------
                                                              $   282,623    $   240,895
                                                              ===========    ===========
</TABLE>
 
                                        3
<PAGE>   4
 
                              MODERN RECORDS, INC.
 
                            STATEMENTS OF OPERATIONS
           FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1998 AND 1997
                          (EXPRESSED IN U.S. DOLLARS)
                     (UNAUDITED -- PREPARED BY MANAGEMENT)
 
<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED JULY 31,     NINE MONTHS ENDED JULY 31,
                                        ----------------------------    --------------------------
                                            1998            1997           1998           1997
                                        ------------    ------------    -----------    -----------
<S>                                     <C>             <C>             <C>            <C>
REVENUE
  Modern/Atlantic agreement...........  $   124,463     $   118,657     $   236,412    $   185,424
  Modern/Platinum agreement...........           --              --          65,345             --
  Other...............................           --              --             300             --
                                        -----------     -----------     -----------    -----------
          Total revenue...............      124,463         118,657         302,057        185,424
                                        -----------     -----------     -----------    -----------
Cost of sales.........................       56,768              --         116,083             --
                                        -----------     -----------     -----------    -----------
Gross profit..........................       67,695         118,657         185,974        185,424
                                        -----------     -----------     -----------    -----------
EXPENSES
  Accounting and legal................       38,076              --          62,013          1,300
  Automobile..........................        1,263            (119)          4,629          3,469
  Consulting fees.....................        2,300             500           3,032          5,800
  Insurance...........................        2,981          (4,208)          5,628             --
  Promotions and public relations.....        6,539              --          32,465             --
  Office and miscellaneous............        9,250           4,556          43,300          4,556
  Rent................................       10,876              --          31,828          1,200
  Salaries............................       60,334          (2,959)        181,437         56,601
  Security registration and filing
     costs............................        3,159              --           4,484             --
  Telephone...........................        6,430          (4,872)         19,990          4,937
  Travel and entertainment............       13,821            (650)         59,999            900
                                        -----------     -----------     -----------    -----------
          Total expenses..............      155,029          (7,752)        448,805         78,763
                                        -----------     -----------     -----------    -----------
Net income (loss).....................  $   (87,334)    $   126,409     $  (262,831)   $   106,661
                                        ===========     ===========     ===========    ===========
Weighted average number of common
  shares outstanding..................   18,924,282      11,592,770      15,302,233     11,592,770
                                        ===========     ===========     ===========    ===========
Income (Loss) per share...............  $        --     $      0.01     $     (0.02)   $      0.01
                                        ===========     ===========     ===========    ===========
</TABLE>
 
                                        4
<PAGE>   5
 
                              MODERN RECORDS, INC.
 
                            STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
                     (UNAUDITED -- PREPARED BY MANAGEMENT)
 
<TABLE>
<CAPTION>
                                                                1998         1997
                                                              ---------    --------
<S>                                                           <C>          <C>
CASH PROVIDED BY (USED FOR)
OPERATIONS
  Net income (loss).........................................  $(262,831)   $106,661
  Amortization of recoverable production costs..............     50,000          --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
  (Increase) decrease in receivables........................    (94,838)         --
  (Increase) decrease in other current assets...............    (10,654)         --
  Increase (decrease) in accounts payable and accrued
     liabilities............................................   (148,753)   (112,644)
  Increase (decrease) in deferred compensation..............    150,000          --
  Increase (decrease) in deferred revenue...................   (141,574)    (87,053)
                                                              ---------    --------
                                                               (458,650)    (93,036)
                                                              ---------    --------
FINANCING
  Bank overdraft............................................      9,477       3,907
  Issuance of common shares.................................    882,982          --
  Increase (decrease) in loans from related parties.........   (472,573)     39,129
  Increase in recoupable advances...........................         --      50,000
  Increase (decrease) in loans payable......................     25,000          --
                                                              ---------    --------
                                                                444,886      93,036
                                                              ---------    --------
Increase (decrease) in cash.................................    (13,764)         --
Cash at beginning of period.................................     15,417          --
                                                              ---------    --------
Cash at end of period.......................................  $   1,653    $     --
                                                              =========    ========
</TABLE>
 
                                        5
<PAGE>   6
 
                              MODERN RECORDS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
                                 JULY 31, 1998
 
 1. BASIS OF PRESENTATION
 
     The interim financial statements presented have been prepared by Modern
Records, Inc. (the "Company" or "Modern") without audit and, in the opinion of
the management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of (a) the results of operations for the three and nine
months ended July 31, 1998 and 1997, (b) the financial position at July 31, 1998
and (c) the cash flows for the three and nine months ended July 31, 1998 and
1997. Interim results are not necessarily indicative of results for a full year.
 
     The balance sheet presented as of October 31, 1997 has been derived from
the financial statements that have been audited by the Company's independent
public accountants. The financial statements and notes are condensed as
permitted by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-KSB.
 
                                        6
<PAGE>   7
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
OVERVIEW
 
     The Company produces, licenses, acquires, markets and distributes high
quality recorded music for a variety of musical formats.
 
     In May of 1997, Stephen Randall ("Randy") Jackson acquired a controlling
interest in the Company with the intent of repositioning the Company as a
forward thinking, dynamic independent label in the recording industry. During
the remainder of 1997 and throughout 1998, the Company focused on establishing a
more solid financial base while developing strategic initiatives capable of
realizing the Company's objectives.
 
     The primary source of revenue to the Company has been the production and
release of recorded music. The Company has been closely associated with the work
of recording artist Stevie Nicks, who was one of the Company's founders.
Although Ms. Nicks is no longer under contract with the Company, her works
continue to provide the dominant source of revenue. Limited revenue in the
period was driven by the continuing sales of Stevie Nicks' "Enchanted" Album; a
three CD box set which is a shared release with Atlantic Records.
 
     In June 1998, R&B artist Abel Mason signed a five album contract with
Modern after an introduction from Randy Jackson's brother Marlon Jackson. Mr.
Mason's romantic vocal style will be showcased in his first Modern album
expected to be released in the summer of 1999.
 
RESULTS OF OPERATIONS
 
     NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED JULY 31, 1997
 
     Gross revenues increased $116,633 or 62.9% to $302,057 for the nine months
ended July 31, 1998 compared to the same period in 1997. This increase reflects
the revenue sharing from the Atlantic agreement with Stevie Nicks and the
successful selling of her three CD box set "Enchanted," which was released in
May 1998. Sales results of the Jeffrey Osborne Christmas album were
disappointing as a result of delayed marketing and promotional efforts.
 
     Cost of revenues increased to $116,083 for the nine month period ended July
31, 1998 compared to $0 for the same period in 1997. This increase is due to
costs associated with the J. Osborne album. Gross profit improved $550 or .30%
to $185,424 for the nine months ended July 31, 1998 reflecting the flow through
of profit from the Atlantic agreement with Stevie Nicks.
 
     Selling, marketing and general administrative expenses increased in 1998
over the corresponding third quarter of 1997 by $370,042 to $448,805 reflecting
the costs associated with the ongoing work with new artist Abel Mason whose
first album is expected be released in the summer of 1999, legal and accounting
services required to gain new financing for Modern and a developing
infrastructure including payroll, rent, and communications.
 
     The net loss from continuing operations for the nine months ended July 31,
1998 totaled $262,831 compared to a gain of $106,661 for the same period the
prior year. This decrease is due to significant expense growth.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's current revenue stream is derived in large part from sales of
Stevie Nicks' albums. The Company's current management, headed by Mr. R. Jackson
who acquired a 47% equity interest in the Company in 1997, intends to pursue a
growth strategy that is centered on signing additional artists to the Modern
label, advancing funds for production of new albums, marketing albums released
on the Modern label and retaining a team of talented executive officers with
experience in the entertainment industry. Revenues from the Company's existing
product are insufficient to fund this strategy since the strategy will require
significant expenditures before additional revenues are generated. The Company's
implementation of its growth strategy is dependent on the Company's ability to
obtain additional debt, equity and other financing. There can be no assurance
that such financing will be available to the Company on favorable terms, if at
all.
 
                                        7
<PAGE>   8
 
                          PART II -- OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
     None
 
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
 
UNREGISTERED SECURITIES
 
     In June and July 1998, the Company issued 425,000 shares of Common Stock to
Stig Hans Johan Grandin pursuant to the exercise of stock options with an
exercise price of C$0.15 per share, for total proceeds of C$63,750. The Company
believes that the issuance of the shares upon exercise of Mr. Grandin's options
were exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act because the exercise of the options did not
involve a public offering. Mr. Grandin is an accredited investor. In addition,
the Company believes that the sales of the units were exempt from the
registration requirements of the Securities Act because the units were not
offered or sold in the United States and Mr. Grandin is not a U.S. person.
 
     As set forth above, the Company believes that the sale of its unregistered
securities described above qualified for an exemption from the registration
requirements of the Securities Act, although the Company did not qualify under
the applicable "safe harbor" provision of the exemption with respect to such
sale and, as a result, there can be no assurance that such sale was exempt. If
the sale of the Company's securities was not made pursuant to a valid exemption,
the purchaser of securities in such sale (and purchasers of securities in other
sales, if any, that would be integrated with the non-exempt sales under the
Commission's integration rules) may have a right to rescind his purchase. The
Company believes it is unlikely that the purchaser of securities from the
Company would pursue a claim to rescind his purchase because, such purchaser
acquired the securities for a purchase price significantly lower than the
current market price of the Company's Common Stock. Even if any such claim were
pursued, the Company believes that it would prevail on the grounds that the sale
was exempt from the registration requirements of the Securities Act.
Consequently, the Company believes that any asserted claim for non-compliance
with the registration provisions of the Securities Act would not materially
affect the Company's financial position or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     (a) An Annual Meeting of Stockholders was held June 26, 1998.
 
     (b) 1. The Stockholders voted to elect the following directors to serve
until the Annual Meeting of Stockholders in 1999, as provided in the Bylaws of
the Company with the following votes:
 
<TABLE>
<S>                                        <C>
Stephen Randall Jackson
     For: 8,224,201                        Withheld: 0
Jackie Jackson
     For: 6,482,500                        Withheld: 0
Johan Grandin
     For: 8,224,201                        Withheld: 0
David Peteler
     For: 1,621,700                        Withheld: 6,482,501
Lawrence Gallo
     For: 6,482,500                        Withheld: 0
</TABLE>
 
                                        8
<PAGE>   9
 
     2. The Stockholders voted to authorize the Directors to grant to the
officers, employees and other insiders of the Company incentive stock options,
until the Annual Meeting of Stockholders in 1999, with the following votes:
 
           For: 8,221,501                              Against: 2,700
 
     3. The Stockholders voted to approve a private placement of up to 6,120,401
shares of Common Stock of the Company, representing 20% of the issued and
outstanding shares of Common Stock of the Company, at a price of $0.15 per share
with the following votes:
 
           For: 8,221,501                              Against: 2,700
 
     4. The Stockholders voted to approve the transfer of up to 2,550,000 escrow
shares in the capital stock of the Company from Paul Fishkin to Randy Jackson
with the following votes:
 
           For: 8,221,700                              Against: 2,501
 
     5. The Stockholders voted to (i) increase the number of authorized Common
Stock of the Company to 40,000,000 (ii) authorize 20,000,000 shares of preferred
stock and (iii) provide the Board of Directors with the authority to issue
preferred shares at any time in the future upon such terms and conditions as may
be determined by the Board of Directors with the following votes:
 
             For: 8,224,201                              Against: 0
 
     6. The Stockholders voted to amend Section 3.1 of the Bylaws of the Company
to increase the authorized number of Directors to no less than four (4) no more
than seven (7) with the following votes:
 
             For: 8,224,201                              Against: 0
 
     7. The Stockholders voted to approve the appointment of Ellis Foster as the
auditor of the Company to hold office until the next Annual General Meeting and
that the Directors of the Company be authorized to fix the compensation to be
paid to the auditor with the following votes:
 
                       For:  8,224,201       Against:  0
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
(A) EXHIBITS
 
<TABLE>
    <S>    <C>
     3.1   Articles of Incorporation of the Company, as amended.*
     3.2   By-laws of the Company, as amended.**
     3.3   Certificate of Amendment of Articles of Incorporation.**
    10.1   Agreement between Company and Atlantic Recording Corporation
           dated July 1, 1979, as amended September 10, 1979, April 30,
           1983, May 1, 1983, August 1, 1983, March 27, 1987, December
           20, 1988, June 29, 1989 and April 22, 1990.*
    10.2   Recording agreement between the Company and Stephanie Nicks
           dated December 4, 1978, as amended December 11, 1978, April
           26, 1979, May 31, 1979, June 27, 1979 and April 26, 1988.*
    10.3   Distribution Agreement between the Company and EMI Records
           Limited dated April 15, 1985, as amended by undated
           amendment and April 6, 1989.*
    10.4   Recording agreement between the Company and Mark Lennon et
           al., dba "Venice", dated June 29, 1989.*
</TABLE>
 
                                        9
<PAGE>   10
<TABLE>
    <S>    <C>
    10.5   Recording agreement between the Company and Thomas J.
           Henrickson et al., dba "Big Trouble", dated November 22,
           1989.*
    10.6   Recording agreement between the Company and Rick Vito dated
           April 22, 1990.*
    10.7   Share Purchase Option Agreement with Paul E. Fishkin, dated
           November 2, 1990.*
    10.8   Share Purchase Option Agreement with John G. Proust and
           Jeffrey C. Ingber, dated January 2, 1991.*
    10.9   Pooling Agreement dated June 26, 1990 among Paul E. Fishkin,
           Stephanie Nicks, Pacific Corporate Services Limited and the
           Company.*
    10.10  Pooling Agreement dated June 26, 1990 among certain
           non-affiliated shareholders, the Company and Pacific
           Corporate Services Limited.*
    10.11  Pooling Agreement dated June 26, 1990 among J. Proust and
           Associates, Inc., Pacific Corporate Services Limited and the
           Company.*
    10.12  Pooling Agreement dated July 5, 1990 among Howard Rosen,
           Pacific Corporate Services Limited and the Company.*
    10.13  Pooling Agreement dated November 2, 1990 among Douglas
           Bleeck, Pacific Corporate Services Limited and the Company.*
    10.14  Management Agreement dated June 26, 1989 between the Company
           and J. Proust and Associates, Inc.*
    10.15  Escrow Agreement dated June 26, 1990 among the Company, Paul
           E. Fishkin, Stephanie Nicks and Pacific Corporate Services
           Limited.*
    10.16  Option to purchase 265,000 shares of Common Stock of the
           Company issued to Randy Jackson, dated July 10, 1998.**
    10.17  Option to purchase 200,000 shares of Common Stock of the
           Company issued to Jackie Jackson, dated July 10, 1998.**
    10.18  Option to purchase 400,000 shares of Common Stock of the
           Company issued to Lawrence W. Gallo, dated July 10, 1998.**
    10.19  Option to purchase 125,000 shares of Common Stock of the
           Company issued to Johan Grandin, dated December 17, 1998.**
    10.20  Option to purchase 125,000 shares of Common Stock of the
           Company issued to Kendrik Packer, dated December 17, 1998.**
    10.21  Loan Agreement dated March 16, 1998 between the Company,
           Randy Jackson and Kendrik Packer.**
    10.22  Employment Agreement dated May 15, 1997 between the Company
           and Randy Jackson.**
    10.23  Recording agreement dated March 1, 1999 between the Company
           and The Jacksons.**
    27.1   Financial Data Schedule.
</TABLE>
 
---------------
 * Incorporated herein by reference to exhibits of the same number in the
   Company's S-1 Registration Statement dated September 9, 1991 (33-40804).
 
** Incorporated herein by reference to exhibits of the same number in the
   Company's Report on Form 10-KSB for the fiscal year ended October 31, 1998.
 
(B) REPORTS ON FORM 8-K
 
     None
 
     Items 3 and 5 are not applicable and have been omitted.
 
                                       10
<PAGE>   11
 
                                   SIGNATURE
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, Modern
Records, Inc. has duly caused this report to be signed by the undersigned
thereunto duly authorized.
 
                                          MODERN RECORDS, INC.
 
                                              /s/ STEPHEN RANDALL JACKSON
                                          --------------------------------------
                                                 Stephen Randall Jackson
                                             Chairman of the Board, President
                                               and Chief Executive Officer
 
Date: April 20, 1999
 
                                       11