<PAGE>   1

================================================================================


                     U. S SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

         [X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended      April 30, 1999
                                        -------------------------


         [ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                  EXCHANGE ACT

         For the transition period from                  to
                                        ---------------     -------------

              Commission file number    000-20759
                                      ------------

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                  (FORMERLY AMERICAN ARTISTS FILM CORPORATION)
        (Exact name of small business issuer as specified in its charter)

                  MISSOURI                                  58-1950450
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                      Identification No.)

                          6600 PEACHTREE DUNWOODY ROAD
                             BUILDING 600, SUITE 250
                             ATLANTA, GEORGIA 30328
                    (Address of principal executive offices)


                                 (770) 390-9180
                            Issuer's telephone number

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes  X   No
    ---     ---

         State the number of shares outstanding of each of the issuer's classes
of common equity: 5,024,460 shares of Class A Common Stock, $.001 par value per
share, and 3,030,801 shares of Class B Common Stock, $.001 par value per share,
were outstanding at June 2, 1999.

         Transitional Small Business Disclosure Format:    Yes     No   X
                                                               ---     ---

================================================================================


<PAGE>   2


                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                   FORM 10-QSB
                                    CONTENTS

<TABLE>
<S>             <C>                                                                                                  <C>
PART I - FINANCIAL INFORMATION
------------------------------


ITEM 1.  FINANCIAL STATEMENTS

Condensed Consolidated Financial Statements:

                Balance sheets at April 30, 1999 and July 31, 1998.........................................           F-1/F-2

                Statements of operations for the three months and nine months ended April 30, 1999
                and April 30, 1998 ........................................................................               F-3

                Statements of cash flows for the nine months ended April 30,
                1999 and April 30, 1998 ...................................................................               F-4

                Notes to Condensed Consolidated Financial Statements.......................................          F-5/F-10

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF Operation.........................................         F-11/F-15

PART II - OTHER INFORMATION
---------------------------

ITEM 2.  CHANGES IN SECURITIES .............................................................................             F-15

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...................................................................             F-15

SIGNATURES..................................................................................................             F-16
</TABLE>





<PAGE>   3


PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        April 30,             July 31,
                                                       ----------            ----------
                                                          1999                  1998
                                                       ----------            ----------
<S>                                                    <C>                   <C>
ASSETS

CASH                                                   $   16,721            $   35,568

ACCOUNTS RECEIVABLE                                        17,851                99,998

FILM COSTS, NET OF ACCUMULATED AMORTIZATION             1,466,016             1,230,231

PROPERTY AND EQUIPMENT, NET                                15,839                28,221

ADVANCES TO OFFICERS                                      180,913               253,012

OTHER                                                      11,000                    --
                                                       ----------            ----------

                                                       $1,708,340            $1,647,030
                                                       ==========            ==========
</TABLE>

          See accompanying notes to condensed consolidated financial statements.



                                      F-1

<PAGE>   4

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       April 30,                July 31,
                                                                      -----------             -----------
                                                                          1999                    1998
                                                                      -----------             -----------
<S>                                                                   <C>                     <C>
LIABILITIES
LINE OF CREDIT                                                        $        --             $    52,549
ACCOUNTS PAYABLE                                                          494,181                 392,421
ACCRUED EXPENSES                                                           79,483                  68,206
ACCRUED INTEREST                                                          112,531                   3,820
ACCRUED ACCOUNTING AND LEGAL                                              122,904                 161,816
DEFERRED REVENUES                                                          73,594                      --
COMMON STOCK ISSUABLE                                                          --                  45,313
NOTES PAYABLE                                                             347,591                 406,426
NOTES PAYABLE/RELATED PARTIES                                             950,352                 620,500
                                                                      -----------             -----------
TOTAL LIABILITIES                                                       2,180,636               1,751,051
                                                                      -----------             -----------

MINORITY INTERESTS                                                        740,474                 545,610

CONTINGENCIES

CAPITAL DEFICIT
PREFERRED STOCK, $.001 PAR - SHARES AUTHORIZED 10,000,000;
  NONE ISSUED                                                                  --                      --
COMMON STOCK, $.001 PAR:
 CLASS A - SHARES AUTHORIZED 20,000,000; ISSUED AND
  OUTSTANDING 4,944,702 AND 3,157,789                                       4,945                   3,158
 CLASS B - SHARES AUTHORIZED 20,000,000; ISSUED AND
  OUTSTANDING 3,110,559 AND 3,282,472                                       3,111                   3,282
ADDITIONAL PAID-IN CAPITAL                                              4,593,681               3,916,933
DEFERRED STOCK COMPENSATION                                              (184,616)                     --
ACCUMULATED DEFICIT                                                    (5,629,891)             (4,573,004)
                                                                      -----------             -----------
TOTAL CAPITAL DEFICIT                                                  (1,212,770)               (649,631)
                                                                      -----------             -----------

                                                                      $ 1,708,340             $ 1,647,030
                                                                      ===========             ===========
</TABLE>

          See accompanying notes to condensed consolidated financial statements.



                                      F-2
<PAGE>   5


                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                               Three Months Ended April 30,                 Nine Months Ended April 30,
                                             ---------------------------------           ---------------------------------
                                                 1999                  1998                  1999                  1998
                                             -----------           -----------           -----------           -----------
<S>                                          <C>                   <C>                   <C>                   <C>
REVENUES
Commercial production                        $     4,870           $   406,577           $    26,870           $ 2,313,615
Film revenues                                         --                    --                25,000                    --
                                             -----------           -----------           -----------           -----------

                                                   4,870               406,577                51,870             2,313,615
                                             -----------           -----------           -----------           -----------

COSTS AND EXPENSES
Cost of commercial production                      3,184               376,338                14,463             1,714,477
Film cost amortization                                --                    --                23,035                    --
Consulting expenses                              253,434                33,801               253,434               116,571
Selling, general and administrative              212,864               454,785               712,103             1,167,535
                                             -----------           -----------           -----------           -----------

                                                 469,482               864,924             1,003,035             2,998,583
                                             -----------           -----------           -----------           -----------

LOSS FROM OPERATIONS                            (464,612)             (458,347)             (951,165)             (684,968)

Interest expense                                 (36,469)              (12,758)             (105,722)              (30,319)
                                             -----------           -----------           -----------           -----------

NET LOSS                                     $  (501,081)          $  (471,105)          $(1,056,887)          $  (715,287)
                                             ===========           ===========           ===========           ===========

NET LOSS PER SHARE - BASIC AND
  DILUTED                                    $      (.07)          $      (.07)          $      (.16)          $      (.11)
                                             ===========           ===========           ===========           ===========
WEIGHTED AVERAGE COMMON
  SHARES                                       7,501,928             6,327,230             6,815,817             6,411,221
                                             ===========           ===========           ===========           ===========
</TABLE>

          See accompanying notes to condensed consolidated financial statements.

                                      F-3

<PAGE>   6





                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Nine Months Ended April 30,
                                                             -------------------------------
                                                                 1999                1998
                                                             -----------           ---------
<S>                                                          <C>                   <C>
OPERATING ACTIVITIES
  Net loss                                                   $(1,056,887)          $(715,287)
  Adjustments to reconcile net loss to cash used in
   operating activities:
   Film costs amortization                                        23,035                  --
   Depreciation and amortization                                  10,750              41,446
   Stock compensation                                            253,434                  --
   Loss on disposal of assets                                      1,632                  --
   Changes in assets and liabilities:
     Accounts receivable                                          82,147             253,118
     Film costs additions                                       (258,820)           (122,326)
     Other assets                                                 61,099             (33,139)
     Accounts payable                                            101,760              (1,814)
     Accrued expenses                                             81,077             (54,297)
     Deferred revenues                                            73,594                  --
                                                             -----------           ---------
Cash used in operating activities                               (627,179)           (632,299)

INVESTING ACTIVITIES
Capital expenditures                                                  --              (2,321)
                                                             -----------           ---------

FINANCING ACTIVITIES
Borrowings under line of credit, net                             (52,549)             67,686
Repayment of notes payable                                       (51,335)           (513,968)
Borrowings under notes payable                                   322,352             647,500
Issuance of minority interests                                   194,864             325,343
Issuance of common stock                                         195,000             100,000
                                                             -----------           ---------
Cash provided by financing activities                            608,332             626,561

NET DECREASE IN CASH                                             (18,847)             (8,059)

                                                             -----------           ---------
CASH, beginning of period                                         35,568              31,379
                                                             -----------           ---------
CASH, end of period                                          $    16,721           $  23,320
                                                             ===========           =========
</TABLE>

          See accompanying notes to condensed consolidated financial statements.

                                      F-4

<PAGE>   7

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements are unaudited, but
in the opinion of management, contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. Results of operations
and cash flows for the interim three month and nine month periods are not
necessarily indicative of what the results of operations and cash flows will be
for an entire fiscal year. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended July 31, 1998. Certain amounts in the condensed
consolidated balance sheets and statements of operations have been reclassified
for comparative purposes.

         In February 1999, the Company legally effected a change in name from
"American Artists Film Corporation" to "American Artists Entertainment
Corporation." This name change had been previously approved by the shareholders
of the Company in January 1998.

NOTE 2 - FIRST LIGHT ENTERTAINMENT CORPORATION ("FIRST LIGHT")

         Through the end of fiscal 1998 the Company conducted its contract
commercial production operations through its First Light subsidiary. First Light
suffered a significant decline in revenues during the fourth quarter of fiscal
1998, and as a result incurred an operating loss. In October 1998, the Company
decided to temporarily cease First Light's operations while it evaluated the
form and direction of its future contract commercial production operations. That
study is ongoing and the Company has not yet determined whether it will renew
these operations, and if so whether it will do so under the First Light name,
through American Artists Films, or through another entity.

         Although the Company has temporarily ceased the operations of First
Light, it continues to consolidate its accounts. The Company is presently
deferring the payment of First Light's liabilities, which consist primarily of
its accounts payable which amounted to $108,931 at April 30, 1999 and $108,431
at June 2, 1999.

         As a result of the Company's decision to temporarily cease First
Light's operations, Ms. Vivian Jones, the president of First Light and a
director and co-president of the Company, tendered her resignation in October
1998.



                                      F-5



<PAGE>   8




                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3 - NOTES PAYABLE

         Notes payable consisted of the following:

<TABLE>
<CAPTION>
                                                                          April 30,           July 31,
                                                                      --------------------------------------
                                                                             1999                1998
                                                                      --------------------------------------
         <S>                                                          <C>                        <C>
         Line of credit with a bank, guaranteed by
         certain members of the board of directors,
         interest at the prime rate (7.75% at April
         30, 1999) plus 1% and due quarterly,
         principal due July 1998                                               $150,000           $225,000

         Unsecured note payable to shareholder,
         interest at the prime rate (7.75% at April
         30, 1999) plus 1%, due on demand                                        75,000             75,000

         Unsecured note payable to shareholder,
         interest at the prime rate (7.75% at April
         30, 1999) plus 1%, due December 1998                                    53,550             53,550

         Secured note payable to shareholder,
         interest at prime rate (7.75% at April 30,
         1999) plus 1%, due on demand, but no later
         than September 1999.                                                    32,878                  -

         Unsecured installment note payable to bank,
         interest at 8.75%, $3,000 due monthly in
         principal and interest, principal due
         November 1998                                                           25,977             41,750

         Secured installment note, collateralized by
         equipment and tradename of First Light, due
         with interest at 4.37% in quarterly
         installment of $5,593 through                                           10,186             11,126
         August 1998
                                                                               ---------------------------
                                                                               $347,591           $406,426
                                                                               ===========================
</TABLE>

         (a) The Company was unable to renew its $225,000 line of credit with
         the bank at July 31, 1998. In December 1998, one of the guarantors paid
         the bank $75,000 in settlement of his principal portion of the line of
         credit. The Company has not executed a note agreement with this
         individual relative to this transaction. A balance of $150,000 remains
         outstanding as of April 30, 1999 and the Company is currently
         discussing various repayment options with the bank. The Company made
         the quarterly interest payment due on this line of credit in October
         1998, however, has not made the quarterly interest payments due January
         1999 and April 1999.

         (b) At April 30, 1999, the Company was in arrears for the final two
         full quarterly installments, due May 1 and August 1, on its secured
         installment note.

         (c) In September 1998 and January 1999, a shareholder extended loans to
         the Company in the amount of $42,500. The Company re-paid $9,622 of
         these loans in April 1999. These notes are secured, bear interest at
         the prime rate plus 1% and are due on demand but no later than
         September 1, 1999. The Company has pledged as security a portion of its
         interest in the ordinary LLC shares of False River, LLC to the extent
         that any principal and accrued interest remain unpaid at maturity under
         these note agreements.


                                      F-6

<PAGE>   9


                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         (d) At April 30, 1999, the Company was in arrears for the payment of
         principal and interest in the amount of $9,000 in relation to its
         unsecured installment note payable to bank. This note had a maturity
         date of November 1998.

NOTE 4 -  NOTES PAYABLE/RELATED PARTIES

         Notes payable to related parties consisted of the following:

<TABLE>
<CAPTION>
                                                            April 30,           July 31,
                                                          ---------------------------------
                                                               1999               1998
                                                          ---------------------------------
         <S>                                              <C>                   <C>
         Unsecured notes due to certain member of the
         board of directors, due on demand but no
         later than September 1999, interest at the
         prime rate (7.75% at April 30, 1999) plus 1%          $ 438,500          $ 370,500

         Unsecured notes due to certain members of
         the board of directors, due on demand,
         interest at the prime rate (7.75% at April
         30, 1999) plus 1%                                       150,000            150,000

         Unsecured notes due to certain member of the
         board of directors, due on demand, interest
         at the prime rate (7.75% at April 30, 1999)
         plus 1%                                                 137,000                  -

         Line of credit with member of the board of
         directors, interest at the prime rate (7.75%
         at April 30, 1999) plus 1%, due monthly,
         principal due April 1999                                100,000            100,000

         Unsecured note due to certain members of the
         board of directors, due on demand, but no
         later than September 1999, interest at the
         prime rate (7.75% at April 30, 1999) plus 1%             37,588                  -


         Secured note due to certain officers, due on
         demand, but no later than September 1999,
         interest at the prime rate (7.75% at April
         30, 1999) plus 1%                                        12,264                  -

         Amount due to certain member of the board of
         directors                                                75,000                  -
                                                          ---------------------------------
                                                               $ 950,352          $ 620,500
                                                          =================================
</TABLE>

         (a) During the period from August 1998 to October 1998, a member of the
         board of directors extended loans to the Company amounting to $68,000,
         in the aggregate. These amounts are unsecured, bear interest at the
         prime rate plus 1% and are due on demand but no later than September 1,
         1999.

         (b) In August 1998, an officer extended a loan to the Company in the
         amount of $26,264. This note is secured, bears interest at the prime
         rate plus 1% and is due on demand but no later than September 1, 1999.
         The Company has pledged as security a portion of its interest in the
         ordinary LLC shares of False River, LLC to the extent that any
         principal and accrued interest remain unpaid at maturity under this
         note agreement. In March 1999, the officer converted $25,000 of this
         note into one unit of the Company's private placement.


                                      F-7

<PAGE>   10

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

         (c) During the period from December 1998 to January 1999, a member of
         the board of directors extended loans to the Company amounting to
         $137,000, in the aggregate. These amounts are unsecured, bear interest
         at the prime rate plus 1% and are due on demand.

         (d) In February 1999, an officer extended a loan to the Company in the
         amount of $11,000. This note is secured, bears interest at the prime
         rate plus 1% and is due on demand but no later than September 1, 1999.
         The Company has pledged as security a portion of its interest in the
         ordinary LLC shares of False River, LLC to the extent that any
         principal and accrued interest remain unpaid at maturity under this
         note agreement.

         (e) In February 1999, a member of the board of directors extended a
         loan to the Company in the amount of $10,000. This loan is unsecured,
         bears interest at the prime rate plus 1% and is due on demand, but no
         later than September 1, 1999.

         (f) In April 1999, a member of the board of directors extended a loan
         to the Company in the amount of $27,588. This loan is unsecured, bears
         interest at the prime rate plus 1% and is due on demand, but no later
         than September 1, 1999.

NOTE 5 - FALSE RIVER, LLC

         During the period from August 1998 to February 1999, False River sold
additional shares of its preferred distribution LLC shares for proceeds
amounting to $194,864. An officer and certain members of the board of directors
purchased $164,864 of these preferred distribution LLC share interests.

NOTE 6 - CONSULTING AGREEMENTS

         In February 1999, the Company entered into two consulting agreements
("Consulting Agreements") with two entities for the performance of certain
strategic financial planning services and consulting in the areas of filmed
entertainment and large screen video display operations. The Consulting
Agreements called for these entities to provide these services over a period of
six month in exchange for 1,200,000 shares of the Company's Class A common
stock, in the aggregate.

         The Company recognized deferred stock compensation, which is presented
as a reduction of stockholders' equity, at the contract execution date based
upon the market value of the shares at that date. The Company is amortizing the
deferred compensation, which is adjusted monthly for changes in the market value
of unearned shares, ratably over the six month life of the contract.



                                      F-8

<PAGE>   11



                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 7 - STOCKHOLDERS' EQUITY

         (a) Changes in the Company's Class A and Class B common stock during
         the nine months ended April 30, 1999 were as follows:


<TABLE>
<CAPTION>
                                                     --------------------------------------------------------------------
                                                                          Class A          Class B        Additional
                                                         Shares         Common Stock     Common Stock  Paid-in Capital
                                                     --------------------------------------------------------------------
          <S>                                        <C>                <C>              <C>           <C>
          Issuance of 25,000 shares of Class A
          common stock related to acquisition of
          Millennium LLC shares                           25,000               25                -        $ 45,288

          Issuance of 1,200,000 shares of Class A
          common stock related to consulting
          agreements                                   1,200,000            1,200                -         436,850

          Issuance of 390,000 shares of Class A
          common stock related to sale of 7.8
          private placement units                        390,000              390                -         194,610

          Conversions of Class B shares to Class A
          shares                                         171,913              172             (172)              -
                                                                 -------------------------------------------------
                                                                            1,787             (172)      $ 676,748
                                                                 =================================================
</TABLE>


         (b) In October 1998, the Company commenced a private placement of
         units, at $25,000 per unit, comprised of 50,000 shares of the Company's
         Class A common stock. The units also includes a warrant to purchase
         25,000 shares of Class A common stock at $1.30 per share, exercisable
         through December 2001. The Company received proceeds amounting to
         $195,000 from the sale of 7.8 units during the nine months ended April
         30, 1999. A member of the board of directors and an officer of the
         Company purchased two of these units, in the aggregate.

         (c) In December 1998, the Company re-priced the exercise price of
         certain stock options that had been previously granted under its
         employee stock option plan. The Company re-priced these options as
         follows: 1) 52,345 stock options granted between November 21, 1995 and
         December 8, 1997 with exercise prices ranging from $1.45 to $3.75 were
         re-priced to an exercise price of $1.00, and 2) 272,844 stock options
         granted between November 21, 1995 and December 8, 1997 with exercise
         prices ranging from $1.45 to $3.75 were re-priced to an exercise price
         of $.50. Neither the Chief Executive Officer nor President of the
         Company had any stock options affected by this re-pricing.

NOTE 8 - EARNINGS PER SHARE

         The Company adopted the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," effective January 31, 1998,
and restated the earnings per share amounts for prior periods. The restatement
did not have any material affect on previously presented earnings per share
amounts.

         Basic and diluted earnings per share are computed on the basis of net
income or loss divided by the weighted average number of common shares (Class A
and Class B) outstanding during the relevant period. Diluted earnings per share
excludes the effects of stock options and warrants (and is therefore the same as
basic earnings per


                                      F-9

<PAGE>   12

                   AMERICAN ARTISTS ENTERTAINMENT CORPORATION
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

share) as their effects would be anti-dilutive due to the net loss. There were
2,305,318 and 2,284,455 anti-dilutive common stock options and common stock
warrants outstanding at April 30, 1999 and 1998, respectively.

NOTE 9 - RELATED PARTY TRANSACTIONS

         The Company had the following other related party transactions during
the nine months ended April 30, 1999:

         (a) In December 1998, the Company extended the due dates of all of its
         notes issued in connection with certain advances to officers. The due
         dates were extended from December 1998 to December 1999.

         (b) In February 1999, the Company issued a member of the board of
         directors a warrant to purchase 100,000 shares of the Company's Class A
         common stock as additional consideration for his commitment to invest
         $50,000 in False River, LLC. The warrant is exercisable at $.20 per
         share, through January 2004.

         (c) In March 1999, a voting agreement (the "Agreement") that obligated
         for four significant shareholders to vote their shares as a block,
         according to the majority vote of the shares subject to the Agreement,
         was terminated the parties. The shareholders subject to this Agreement
         included a member of the board of directors and two officers of the
         Company.

NOTE 10 - SUBSEQUENT EVENTS

         The Company completed the following transactions subsequent to April
30, 1999:

         (a) In May 1999, the Company received $16,000 from the sale of .6 units
         in the private placement of the Company's Class A common stock. The
         purchaser of this fractional unit was an officer of the Company.

         (b) In May 1999, an officer and a member of the board of directors of
         the Company extended loans to the Company amounting to $43,500, in the
         aggregate. These amounts are unsecured, bear interest at the prime rate
         plus 1% and are due on demand.






                                      F-10

<PAGE>   13



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         RESULTS OF OPERATIONS

         NINE AND THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THE NINE AND
THREE MONTHS ENDED APRIL 30, 1998

         Revenues for the first nine months of fiscal 1999 decreased as compared
to revenues for the first nine months of fiscal 1998, as a result of a
significant decrease in the level of commercial production revenues during the
nine months ended April 30, 1999.

         Commercial production revenues were $26,870 for the first nine months
of fiscal 1999, representing a decrease of $2,286,745 or 98.8% from commercial
production revenues of $2,313,615 for the first nine months of fiscal 1998.
Commercial production revenues decreased by $401,707 to $4,870 for the three
months ended April 30, 1999 from $406,577 for the three months ended April 30,
1998.

         The decrease in commercial production revenues reflected the suspension
of commercial production activities in October 1998. Through the end of fiscal
1998 the Company conducted its contract commercial production operations through
its First Light Entertainment Corporation ("First Light") subsidiary. First
Light suffered a significant decline in revenues during the fourth quarter of
fiscal 1998, and as a result incurred a significant operating loss. In October
1998, the Company decided to temporarily cease First Light's operations while it
evaluated the form and direction of its future contract commercial production
operations. That study is ongoing and the Company has not yet determined whether
it will renew these operations, and if so whether it will do so under the First
Light name, through American Artists Films, or through another entity.

         Commercial production costs, as a percentage of related revenues, were
53.8% for the nine months ended April 30, 1999 as compared to 74.1% for the nine
months ended April 30, 1998. Commercial production costs, as a percentage of
related revenues, were 65.4% for the three months ended April 30, 1999 as
compared to 92.6% for the three months ended April 30, 1998. These decreases in
commercial production costs, relative to revenues, in the first three and nine
months of fiscal 1999 were primarily the result of the completion of
corporate/industrial video projects that yielded higher gross profit margins as
compared to larger scale television commercial projects completed during similar
periods in fiscal 1998.

         Gross profits for commercial production were $12,407 and $599,138 for
the nine months ended April 30, 1999 and 1998, respectively. Gross profits for
commercial production were $1,686 and $30,239 for the three months ended April
30, 1999 and 1998, respectively.

         Film revenues were $25,000 for the first nine months of fiscal 1999 as
compared to no film revenues for the first nine months of fiscal 1998. These
revenues were related to the release of a small film project during the first
quarter of fiscal 1999. There were no film revenues for the three months ended
April 30, 1999 and 1998, respectively. Film cost amortization of $23,035 during
the nine months ended April 30, 1999 related to the recognition of film revenues
during the same period.

         The Company has entered into a development agreement, as amended,
related to one film project and has deferred film revenues amounting to $60,345
pending completion of the project. These deferred revenues are reflected as a
liability in the condensed consolidated balance sheet at April 30, 1999.

         Selling, general and administrative ("SG&A") expenses decreased
$455,432, or 39.0%, to $712,103 for the nine months ended April 30, 1999 from
$1,167,535 for the nine months ended April 30, 1998. These decreases were
primarily the result of a cessation of operations at First Light($221,290), a
reduction in the level of capital formation activities($108,487) and the
departure of several employees from the Company's LSVD operations($59,024).

         Selling, general and administrative ("SG&A") expenses decreased
$241,921, or 53.2%, to $212,864 for the three months ended April 30, 1999 from
$454,785 for the three months ended April 30, 1998. These decreases were
primarily the result of a cessation of operations at First Light($102,664), the
departure of several employees from the Company's LSVD operations($35,793) and a
reduction in the level of capital formation activities($27,114).

                                      F-11
<PAGE>   14


         Consulting expenses increased $136,863 to $253,434 for the nine months
ended April 30, 1999 from $116,571 for the nine months ended April 30, 1998 and
increased $219,633 to $253,434 for the three months ended April 30, 1999 from
$33,801 for the three months ended April 30, 1998. These increases were
primarily a result of two consulting agreements that were entered into during
the third quarter of fiscal 1999. (See Note 6).

         Interest expense increased to $105,722 for the first nine months of
fiscal 1999 from $30,319 for the first nine months of fiscal 1998 and increased
to $36,469 for the three months ended April 30, 1999 from $12,758 for the three
months ended April 30, 1998. These increases were the result of an increase in
outstanding debt during the first nine months of fiscal 1999.

         As a result of the foregoing factors the Company incurred a net loss of
$1,056,887 for the first nine months of fiscal 1999 as compared to a net loss of
$715,287 for the first nine months of fiscal 1998 and incurred a net loss of
$501,081 for the three months ended April 30, 1999 as compared to a net loss of
$471,105 for the three months ended April 30, 1998.

         LIQUIDITY AND CAPITAL RESOURCES

         The Company's strategic goal has been to finance its operating (i.e.
selling, general and administrative) expenses from the gross profits generated
by its television film, contract production operations and proposed LSVD
operations, while utilizing equity financing, pre-production license revenues,
and co-producer contributions to finance the production of feature films. Using
this strategy, the Company seeks to reduce or eliminate the burden of
significant operating losses and negative cash flows, while retaining the
potential for significant profits and positive cash flows from successful
feature films. The success of such a strategy is, however, dependent on the
Company's ability to control operating expenses, to obtain sufficient, and
sufficiently profitable, commercial production contracts and television film
projects, and to fully develop its LSVD operations.

         Operating cash flows were a negative $627,179 for the nine months ended
April 30, 1999 and were primarily the result of the net loss caused by the
significant decline in the level of commercial production revenues and the
related gross profit, therefrom. This negative cash flow was financed by the
cash inflows from financing activities described below.

         The Company may experience negative operating cash flows in periods
when television film and commercial production revenues fail to cover SG&A
expenses. Cash flows may also be negative in periods of profitable operations if
growth in the Company's level of operations causes costs to rise in advance of
collections and the increase is not offset by increases in accounts payable or
accrued expenses. Negative operating cash flows, from either cause, will
constrain the Company's liquidity, and necessitate the use of debt or equity
financing.

         Cash provided by financing activities amounted to $608,332 for the nine
months ended April 30, 1999. During the first nine months of fiscal 1999, the
Company raised $322,352 (partially offset by $51,335 in repayments) in
borrowings under notes payable from members of the board of directors, officers
and a shareholder. Additionally, the Company raised $194,864 from the issuance
of minority interests in False River, LLC to fund film cost additions to the
feature film project, False River.

         The Company's consolidated financial statements have been prepared on
the basis of the continuation of the Company as a going concern, which
contemplates the realization of assets and the settlement of liabilities in the
normal course of business. The consolidated financial statements do not reflect
any adjustments which might be necessary if the Company were to be unable to
continue as a going concern.

         Since its inception, the Company has experienced a history of operating
losses and constrained cash flows, and has been unable to fully implement its
business plan due to insufficient capital resources. In the first nine months of
fiscal 1999, the Company incurred a net loss of $1,056,887, and negative
operating cash flows of $627,179, due to a lack of revenues in its contract
commercial production operations and the expenses incurred in pursuing its film
and LSVD projects. At April 30, 1999 the Company had a deficit in stockholders'
equity of $1,212,770 and a significant working capital deficit. The Company was
unable to meet certain debt service requirements both during fiscal 1998 and in
the first nine months of fiscal 1999. A significant portion of notes payable and
notes payable to related parties, which amount to $1,297,943, is due on demand
or matures in fiscal 1999, and the Company is in arrears on and has been unable
to renew its $225,000 bank line of credit. Since April 30, 1999, the Company has


                                      F-12

<PAGE>   15

obtained $43,500 through additional loans, from an officer and member of the
board of directors, which for the most part have been used to fund operations.
As a result, at June 2, 1999 the Company's total indebtedness under notes
payable and notes payable to related parties, net of debt repayments, has
increased to $1,332,943, of which a substantial portion is due on demand or
matures in fiscal 1999.

         These conditions raise substantial doubt concerning the Company's
ability to continue as a going concern. To continue in operations and pursue its
business plan, the Company must over the short-term raise additional capital and
reduce expenditures so as to be able to fund its operations and the payment of
those items of indebtedness that cannot be restructured or deferred, and over
the longer term must raise the capital necessary to complete a portion of its
film and LSVD projects and generate profits and positive cash flows therefrom.

         Management has developed a plan to address these requirements. The
elements of the short-term plan include the following:

         RAISE ADDITIONAL CAPITAL

         - Private placement offering. In October 1998, the Company commenced a
         $500,000 private placement offering of units comprised of the Company's
         Class A common stock and a common stock purchase warrant. The Company
         has raised $211,000 from the sale of 8.4 units through June 2, 1999.

         - Pursue other sources of capital. Subsequent to year end, the Company
         engaged several firms to assist it in its capital raising efforts. To
         date these firms have introduced the Company to a number of potential
         capital sources and the Company is continuing to seek new financing
         opportunities through these firms.

         - Borrowings from directors and stockholders. Subsequent to July 31,
         1998, the Company obtained loans from certain members of the board of
         directors and certain stockholders. The Company will attempt to
         continue to make use, if available, of these borrowings on a short-term
         basis while it pursues other capital.

         REDUCE OPERATING EXPENSES AND NET LOSSES

         - Temporary cessation of contract commercial production operations. As
         previously discussed, in October 1998 the Company temporarily ceased
         its contract commercial production operations, which had suffered a
         decline in revenues and a net loss in the last quarter of fiscal 1998.
         The Company is evaluating the form and direction of its future contract
         commercial production operations. While such operations are suspended,
         the Company estimates that it will realize cost savings of
         approximately $30,000 per month.

         - Voluntary salary reductions. In March 1998 the Company requested that
         all employees voluntarily reduce their salary levels. All employees
         participated in this voluntary reduction.

         - Reduce staffing levels. The Company has reduced its staffing levels
         subsequent to July 31, 1998, principally through attrition, and has the
         ability to temporarily eliminate certain other positions, without
         suffering short-term revenue losses, if cash flow conditions require.
         Management will therefore continue to monitor and if necessary adjust
         staffing levels for certain projects to match cash flow availability.

         - Maximize short-term cash inflows from film projects. As previously
         discussed, the Company's False River film was screened as part of a
         special screening series in February 1999. Such screening marked the
         beginning of a process aimed at exposing the film to potential
         distributors. The Company has submitted False River for entry into
         several select film festivals, however, it has been unsuccessful in its
         attempt to gain entry into any of these film festivals.

         Management plans to continue to apply for entry into certain select
         film festivals and also plans to supplement its strategy for obtaining
         distribution by making direct contact with a number of potential
         distributors.

         The Company will, in negotiating with distributors, seek a license
         and/or sales agreement that maximizes the immediate or near-term cash
         payment it receives and offers the Company commitments for additional
         projects, in return for accepting a lesser than normal, or no,
         participation in the revenues or residual

                                      F-13



<PAGE>   16

         payments from the distribution of the film. A larger initial cash
         payment would allow the Company to both fund its operating expenses and
         finance the completion of certain other film projects, which then in
         turn could generate cash flows over the longer term.

         Presently, the Company plans to continue this approach to the
         distribution of False River for an additional six months, and
         anticipates that the entire six month period may be required to obtain
         distribution. If these efforts are unsuccessful the Company will
         examine other approaches to recovering its investment in False River.

         The elements of management's longer term plan include:

         - Revised approach to LSVD financing. Through fiscal 1998 the Company
         has been attempting to obtain traditional debt or equity financing for
         its proposed LSVD operations. Recently, the Company modified its
         approach, and is now also seeking joint venture/strategic alliance
         partners among larger companies in related businesses. The Company
         believes that this approach may be more likely to attract the financing
         necessary to commence the proposed LSVD operation in Atlanta, which in
         turn would provide cash flows for operations and the pursuit of other
         LSVD and film projects.

         Based upon its efforts under this new approach, the Company has entered
         into a preliminary discussion of terms for funding of the construction
         and operation of the initial LSVD operation in Atlanta, Georgia. There
         can be no assurance that management will be able to negotiate an
         agreement upon terms acceptable to the Company.

         - Series programming relationship. The Company has increased its
         efforts to pursue relationships with cable television networks for the
         production of a series of programs, as a means of providing the Company
         with a more predictable backlog of projects and potential revenues. The
         Company is continuing its discussions for several specific series with
         one large cable network and is in the preliminary stages of presenting
         series topics to this cable network.

         - Vice President - Sales and Marketing. The Company recently hired an
         individual to oversee all of its sales and marketing functions and to
         be responsible for developing new client opportunities for all of the
         Company's business segments. This individual has over ten years of
         sales and marketing experience and most recently held positions with
         Chancellor Marketing Group and CBS Broadcasting Corporation. Management
         anticipates that this individual will improve upon the Company's
         revenue producing opportunities on a near-term basis.

         There can be no assurance that any or all of the elements of the
Company's short-term or longer term plans can or will be successfully
implemented. Additionally, even if such initiatives are successful, they may not
be sufficient to alleviate the Company's short-term cash flow and liquidity
problems, or in the long term generate revenues sufficient to sustain profitable
operations. Should the Company fail to alleviate its short-term cash flow and
liquidity problems, or over the longer term achieve profitable operations, the
Company will have to either reduce the scope of its activities or cease its
operations.

YEAR 2000

         The year 2000 issue relates to computer programs and systems that
recognize dates using two digit year data rather than four digit year data. As a
result, such programs and systems may fail or provide incorrect information for
dates after December 31, 1999. If the year 2000 issue were to cause disruption
to the Company's internal information technology systems or to the information
technology systems of entities with whom the Company has commercial
relationships, material adverse effects to the Company's operations could
result.

         The Company's internal computer programs and systems consist of
programs and systems relating to virtually all segments of the Company's
business, including customer database management, marketing, production
budgeting and accounting, financial reporting, investor relations, proposal
generation, cash management and other key information systems. These programs
and systems are primarily comprised of:


                                      F-14

<PAGE>   17

         o Personal computers. These systems are used for all of the Company's
         computer programs and systems.
         o Telecommunications systems. These systems enable the Company to
         manage all its telecommunication services, including incoming/outgoing
         telephone calls and all connections to the Internet.
         o Voicemail systems. These systems are used for receiving and storing
         messages to employees.
         o Ancillary services systems. These include such systems as heating,
         ventilation and air conditioning control systems and security systems.
         o Third party software programs. These programs are used throughout the
         Company in a number of business applications, including word
         processing, spreadsheets, budgeting, financial reporting, proposal
         generation, telecommunications management and Internet access.

         The Company has not yet completed its reviews of these programs and
systems, but does not expect that any remediation relating to such programs and
systems that might be necessary following such reviews will cause the Company to
incur material costs or present implementation challenges that cannot be
addressed prior to the end of calendar 1999. The Company expects to complete its
reviews of these programs and systems during fiscal 1999.

         The computer programs and operating systems used by entities with whom
the Company has commercial relationships also pose potential problems relating
to the year 2000 issue, which may affect the Company's operations in a variety
of ways. These risks are more difficult to assess than those posed by internal
programs and systems and the Company has not yet completed the process of
formulating a plan for assessing them.

         The Company expects to complete the formulation of its plan for
assessing the programs and systems of the entities with whom it has commercial
relationships and the identification of the related risks and uncertainties by
the end of fiscal 1999. Once such assessment and identification has been
completed, the Company intends to resolve any material risks and uncertainties
that are identified by: 1) communicating further with the relevant vendors and
service providers, 2) working internally to identify alternative sourcing, and
3) formulating contingency plans to deal with such material risks and
uncertainties. The Company expects the resolution of such material risks and
uncertainties to be an ongoing process until all year 2000 problems are
satisfactorily resolved.

PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

         The Company commenced a private placement of its Class A common stock
in October 1998. During the quarter ended April 30, 1999, the Company sold 6.2
units with proceeds amounting to $155,000. Each unit is comprised of 50,000
shares of Class A common stock at $.50 per share. The purchaser of a unit also
receives in each unit, without additional consideration, a warrant to purchase
up to 25,000 shares of Class A common stock at $1.30 per share, exercisable
through December 2001. Purchasers of fractional units received a prorated
warrant.

         The Class A common stock was sold by the Company, and on behalf of the
Company by directors and executive officers of the Company without commission or
additional compensation. All sales were for cash. The sales were made in
reliance upon the exemption from registration contained in Regulation D of the
Securities Act of 1933. All of the purchasers were "accredited investors" within
the meaning of Regulation D.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         27.1  Financial Data Schedule

(b)      Reports on Form 8-K

         The following report was filed by the Company on Form 8-K during the
quarter ended April 30, 1999:

                  (a)  Form 8-K filed on March 8, 1999


                                      F-15

<PAGE>   18


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


American Artists Entertainment Corporation




By:  /s/  Steven D. Brown                       June 2, 1999
   ----------------------------------
         Steven D. Brown
         Chief Executive Officer




By:   /s/ Robert A. Martinez                     June 2, 1999
    ---------------------------------

         Robert A. Martinez
         Vice President - Finance and
          Chief Financial Officer



                                      F-16