U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-KSB

(Mark One)

[X] 	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

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

For the transition period from _______ to __________

Commission File Number 0-29657

AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION

(Name of small business issuer in its charter)



|Delaware                                                       | 33-0727323                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

8500 Leslie Street, Suite 500

Thornhill, Ontario, Canada L3T 7M8

(Address of principal executive offices) (Zip Code)



Issuer's telephone number: (905) 731-9775

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock $0.0001 par value

(Title of class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

State the issuer's revenues for its most recent fiscal year:  $0.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days:  The aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant, as of November 11, 2003 was $115,021 based upon the closing bid price of $0.021 per share as reported by the trading and market services of the Pink Sheets, LLC.

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date:  As of November 11, 2003, the Registrant had 22,116,515 common shares outstanding.

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

This Form 10-KSB contains certain forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995. For this purpose any statements contained in this Form 10-KSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe,"  "anticipate," "estimate" or  "continue" or comparable terminology is intended to identify forward-looking statements.  These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within the Company's control.  These factors include but are not limited to economic conditions generally and in the industries in which the Company may participate; competition within the Company's chosen industry, including competition from much larger competitors; technological advances and failure by the Company to successfully develop business relationships.

PART I

Item 1.  Description of Business

Corporate History

American Entertainment and Animation Corporation, f/k/a American Electric Automobile Company, Inc. (the "Company") was formed in the State of Delaware on May 9, 1996.

Electric Car Operations

The Company was originally formed to go into the business of developing and marketing electric automobiles.  On June 15, 1996 the Company acquired all of the outstanding stock of California Electric Automobile Co., Inc. ("CEAC"), a California corporation formed on November 14, 1995, in consideration for 1,050,000 shares of the Company's common stock. Of the 1,050,000 shares, 900,000 were held in escrow pending the exercise of CEAC's option to purchase the assets and business of San Diego Electric Automobile Company ("SDEAC").  On October 17, 1996 the Company exercised its option to purchase the assets and business of SDEAC.  The purchase price was the 900,000 shares of AEAC's common stock held in escrow from the previous acquisition of CEAC.

Chinese Electric Automobile Operations

On May 18, 1996, the Company entered into an agreement with China Electric Automobile Company of Hong Kong, Ltd. ("CEHK") in which each exchanged approximately 5% of their outstanding common stock for the other company's stock.  The object of the relationship was the pursuit of business opportunities and product development using the company's combined resources.  On February 12, 1997, the Company entered into an agreement with CEHK to form a joint venture named American Electric Automobile Company (Asia), Inc. ("AEAA"), a California corporation, to engage in various electric vehicle related businesses, including design, production and trading in electric vehicles and related parts.  The Company received forty-five percent of the ownership of AEAA and CEHK received the remaining fifty-five percent ownership.

On January 31, 2001, the Company sold its interest in AEAA to Edward F. Myers for $100.  Mr. Myers was the former Chairman of the Company.  After careful consideration, the Board of Directors of the Company decided that it would be in the Company's best interest to discontinue its investment into Asia. The inherent risks involved in doing business in China, the difficulty in monitoring the situation, as well as the continued monetary investment into Asia that would have been required led the Board to the decision to discontinue its investment in Asia.

Investment by Bisell Investments, Inc.

Originally, the Company was unsuccessful in its electric automobile business.  As a result, on August 23, 2000, the Company entered into a Letter Agreement under which it agreed to issue 3,250,000 shares of restricted common shares to Bisell Investments Inc. ("Bisell") for a total investment of $275,000.  On September 13, 2000 pursuant to the August 23, 2000 Letter of Agreement, the Company accepted the resignations of Edward F. Myers, Betty N. Myers and Gary Degano as directors and officers.  The Company then appointed Pierre Quilliam as a director, President and CEO; Stephen M. Cohen as director, Secretary and Treasurer; and Denise Quilliam as a director. Edward F. Myers, Betty N. Myers and Gary Degano remained as officers and directors of CEAC until they resigned on February 16, 2001.  On that date Pierre Quilliam was appointed Chairman of CEAC, Stephen M. Cohen was appointed Secretary and Treasurer and Glenn Roach was appointed President and elected to the Board of Directors of CEAC.

On February 23, 2001, the Company moved from its facility in San Diego to a new facility in Temecula, California, which was managed by Glenn Roach.  The facility was being used for conversion of Electric Vehicles and for prototype development of the Electric Boats.  In late 2001, the Company ran out of funds to develop and operate its business, and efforts to raise capital to continue business were not successful.  As a result, the Company terminated operations in January 2002.

Cyper Entertainment, Inc.

On February 28, 2002, the Company entered into an agreement to purchase 100% of the shares of Cyper Entertainment Inc. ("Cyper"), a Korean corporation (the "Acquisition Agreement") in consideration for 20,000,000 shares of restricted common stock of the Company.  Cyper was in the business of manufacturing and distributing 3D digital animation, multi-media and entertainment related products.  On April 17, 2002, the Company completed the acquisition of Cyper.

On May 31, 2002, the Company accepted the resignations of Pierre Quilliam, Stephen Cohen and Denise Quilliam as Directors and Officers of the Company. Simultaneously, the Company appointed Duk Jin Jang, Marc Hazout, Jason Chung and John Chung to the Board of Directors. Mr. Jang was named Chairman, Mr. Hazout was named President and CEO, and Jason Chung was named Chief Financial Officer and Treasurer.  Messrs. Jang, Chung and Chung were appointed by the shareholders of Cyper.  Mr. Hazout was appointed by the former controlling shareholders of the Company.

On July 16, 2002, the Company amended its Certificate of Incorporation to increase the number of shares of common stock that it is authorized to issue to 150,000,000, and to change its name to "American Entertainment and Animation Corporation."

The Acquisition Agreement provided that Cyper and its controlling shareholders were obligated to provide funds for the Company's administration, as well as auditing and legal fees, and further provided that the Company had a right to rescind the transaction in the event of a default by Cyper and its controlling shareholders. On September 4, 2002, Mr. Hazout, acting on behalf of the Company, notified Cyper that the Agreement was terminated and rescinded due to Cyper's defaults, as well as based on certain misrepresentations made by Cyper in connection with the Acquisition Agreement.  As a result of the termination, Mr. Hazout requested that the Company's transfer agent cancel the 20,000,000 shares issued to Cyper's shareholders, and removed the directors appointed by Cyper under the authority granted in the Acquisition Agreement.  Mr. Hazout then appointed Pierre Quilliam to the Board of Directors and named him Chairman of the Company.  On September 21, 2002, Pierre Quilliam resigned as director and Chairman of the Company.

On March 7, 2003, the Company filed an action in the Court of Chancery in the State of Delaware for a declaration that the agreement to acquire the shares of Cyper was validly rescinded and that the 20,000,000 common shares issued pursuant to the transaction were validly cancelled.  On April 28, 2003, the Company reached a settlement with the shareholders of Cyper, who agreed to accept $20,000 cash, marketable securities in an unrelated company with a fair market value of approximately $42,500, and 250,000 common shares of the Company in full settlement and satisfaction of any claim to the 20,000,000 shares originally issued to them under the Acquisition Agreement. The cash and marketable securities in the unrelated company were loaned to the Company by Marc Hazout.

Art and Film Business

On December 3, 2002, the Company purchased from Tempest Artwork Ltd. the exclusive option to acquire the rights to produce a feature film or television production based on the original portrait of William Shakespeare by John Sanders. The purchase price of the option was $60,000, and was for a period of one year.  The option price is $30,000 plus royalties on various revenue streams that would be derived from the final production.  At this time, the Company does not have funding to produce the final production, and accordingly has no plans to exercise the option at this time.

On May 28, 2003, the Company signed a letter of intent with Words and Pictures Productions, Inc. to co-produce a full-length 3D animated feature film based on the Uncle Mugsy animated character. To date, the Company has not signed a formal contract relating to the subject matter of the letter of intent.

The Company continues in its attempts to acquire another suitable business.  However, there is no assurance that the Company will be successful in raising capital or in locating a suitable acquisition candidate, or that the terms of any such transaction will be favorable to existing shareholders.

Competition

The Company is and will continue to be a limited competitor in the business of seeking business opportunities with private companies. A large number of established and well-financed entities, including venture capital and management buyout firms, are active in mergers and acquisitions of companies that may be desirable business opportunity candidates for us. Nearly all such entities have significantly greater experience and financial resources, technical expertise and managerial capabilities than us. Consequently, the Company will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business opportunity.

Government Regulation

The proposed business activities described herein classify the Company as a "Blank Check" company. Many states have enacted statutes, rules and regulations limiting the sale of securities of "blank check" companies in their states.

Intellectual Property

The Company has no patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts that management believes have any value.

Employees

The Company has no full or part-time employees, other than Marc Hazout, the Company's sole officer and director.  Mr. Hazout is employed pursuant to an Employment Agreement.  Because the Company is not in active operations at this time, Mr. Hazout only devotes part-time to the performance of services for the Company on an as-needed basis.

Risk Factors

An investment in the Company's shares are subject to the following risk factors:

NO REVENUE AND MINIMAL ASSETS.  The Company has no revenues or earnings from operations.  The Company has no significant assets or financial resources.  The Company will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the consummation of a business combination.  This may result in the Company incurring a net operating loss which will increase continuously until the Company can consummate a business combination with a profitable business opportunity.  There is no assurance that the Company can identify such a business opportunity and consummate such a business combination.

SPECULATIVE NATURE OF COMPANY'S PROPOSED OPERATIONS.  The success of the Company's proposed plan of operation will depend to a great extent on the operations, financial condition and management of the identified business opportunity.  While management intends to seek business combinations with entities having established operating histories, there can be no assurance that the Company will be successful in locating candidates meeting such criteria.  In the event the Company completes a business combination, of which there can be no assurance, the success of the Company's operations may be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond the Company's control.

SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND COMBINATIONS.  The Company is and will continue to be an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions of small private entities.  A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for the Company.  Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than the Company and, consequently, the Company will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination.  Moreover, the Company will also compete in seeking merger or acquisition candidates with numerous other small public companies.

CONFLICTS OF INTEREST - GENERAL.    The officers and directors are associated with other firms and are involved in a range of business activities that may have business dealings with the Company at some point in time.  Due to these affiliations and the fact that some officers are expected to devote only a portion of their time to the business of the Company, there are potential inherent conflicts of interest in their acting as directors and as officers.  Each of the officers and directors is or may become an officer, director, controlling shareholder, partner or participant in other entities engaged in a variety of businesses.  These existing and potential conflicts of interest are irreconcilable and could involve the participating officers and directors in litigation brought by the Company's shareholders or by the shareholders of other entities with which the officers and directors are currently, or may become, affiliated.  To help alleviate this position somewhat, management has adopted a policy of full disclosure with respect to business transactions with any entity in which any or all of the officers or directors are affiliated, either directly or indirectly.  An officer or director may continue any business activity in which such officer or director engaged prior to joining the Company.

REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION.  Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"), requires companies subject thereto to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one or two years, depending on the relative size of the acquisition.  The time and additional costs that may be incurred by some target entities to prepare such statements may significantly delay or essentially preclude consummation of an otherwise desirable acquisition by the Company.  Acquisition prospects that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the reporting requirements of the 1934 Act are applicable.

LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION.  The Company has neither conducted, nor have others made available to it, results of market research indicating that market demand exists for the transactions contemplated by the Company.  Moreover, the Company does not have, and does not plan to establish, a marketing organization.  Even in the event demand is identified for a merger or acquisition contemplated by the Company, there is no assurance the Company will be successful in completing any such business combination.

LACK OF DIVERSIFICATION.  The Company's proposed operations, even if successful, will in all likelihood result in the Company engaging in a business combination with only one business opportunity.  Consequently, the Company's activities will be limited to those engaged in by the business opportunity which the Company merges with or acquires.  The Company's inability to diversify its activities into a number of areas may subject the Company to economic fluctuations within a particular business or industry and therefore increase the risks associated with the Company's operations.

REGULATION.  Although the Company will be subject to regulation under the Securities Exchange Act of 1934, management believes the Company will not be subject to regulation under the Investment Company Act of 1940, insofar as the Company will not be engaged in the business of investing or trading in securities.  In the event the Company engages in business combinations that result in the Company holding passive investment interests in a number of entities, the Company could be subject to regulation under the Investment Company Act of 1940.  In such event, the Company would be required to register as an investment company and could be expected to incur significant registration and compliance costs. The Company has obtained no formal determination from the Securities and Exchange Commission as to the status of the Company under the Investment Company Act of 1940 and, consequently, any violation of such Act would subject the Company to material adverse consequences.

PROBABLE CHANGE IN CONTROL AND MANAGEMENT.  A business combination involving the issuance of the Company's common stock will, in all likelihood, result in shareholders of a private company obtaining a controlling interest in the Company.  Any such business combination may require management of the Company to resign as members of the Board of Directors of the Company. The resulting change in control of the Company could result in removal of one or more present officers and directors of the Company and a corresponding reduction in or elimination of their participation in the future affairs of the Company.

REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING BUSINESS COMBINATION. The Company's primary plan of operation is based upon a business combination with a private concern which, in all likelihood, would result in the Company issuing securities to shareholders of such private company.  The issuance of previously authorized and unissued common stock of the Company would result in reduction in percentage of shares owned by present and prospective shareholders of the Company and would most likely result in a change in control or management of the Company.

REQUIREMENT OF AUDITED FINANCIAL STATEMENTS MAY DISQUALIFY BUSINESS OPPORTUNITIES.  Management of the Company believes that any potential business opportunity must provide audited financial statements for review, and for the protection of all parties to the business combination.  One or more attractive business opportunities may choose to forego the possibility of a business combination with the Company, rather than incur the expenses associated with preparing audited financial statements.

Item 2.  Description of Property

The Company subleases space at 8500 Leslie Street, Suite 500, Markham, Ontario, Canada, for its corporate offices. The Company pays $2,800 per month plus applicable taxes.

Item 3.  Legal Proceedings

The Company was not the subject of any pending or threatened legal proceedings as of November 11, 2003.

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

No matters were voted upon by the stockholders during the fourth quarter of the fiscal year, as required to be reported upon by the Company in response to this Item 4.

PART II

Item 5.  Market for Common Equity and Other Shareholder Matters

The Company's common stock is registered with the United States Securities and Exchange Commission under section 12(g) of the Securities Exchange Act of 1934.  The Company's stock is traded on the Pink Sheets under the symbol "AEAN."  From January 1, 2001 to July 16, 2002, the Company's common stock traded under the symbol "AEAC."  On or about July 16, 2002, the Company's trading symbol changed as a result of the change in the Company's name its current name.

The following table summarizes the low and high prices for the company's common stock for each of the calendar quarters for the fiscal years ended December 31, 2001 and 2002.

|               | 2001 | 2002
|-------------- | ---- | ----
|               | High | Low 
|First Quarter  | 0.10 | 0.03
|Second Quarter | 0.27 | 0.03
|Third Quarter  | 0.08 | 0.02
|Fourth Quarter | 0.05 | 0.05

The high and low quotes on the Company's common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  There were 76 shareholders of record of the common stock as of December 31, 2002. This number does not include an indeterminate number of shareholders whose shares are held by brokers in "street name." The Company has not declared any cash dividends on its Common Stock during its fiscal years ended on December 31, 2001 or 2002.

During the fourth quarter of 2002, the Company issued 2,233,333 shares of common stock to its sole officer and director in consideration for $47,000.  The shares were issued in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Certain Forward-Looking Information

This Form 10KSB contains certain  "forward-looking statements" as such term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases.  Without limiting the generality of the foregoing, words such as "may",  "will", "expect", "believe",  "anticipate",  "intend", "could", "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements.

Results of Operation

During the years ended December 31, 2002 and 2001, the Company did not have any revenues.

During the years ended December 31, 2002 and 2001, the Company incurred operating expenses of $409,144 and $314,352, respectively. The Company incurred higher operating expenses in 2002 as compared to 2001 as a result of increased corporate activity resulting from the Company's agreement to acquire Cyper and subsequent rescission of the agreement.

During the years ended December 31, 2002 and 2001, the Company incurred net other income (expense) of ($101,730) and ($6,025), respectively.  The significant increase in other expense in 2002 as compared to 2001 was the result of a one-time charge of $80,000 taken in connection with the Company's settlement of claims arising out of its agreement to acquire Cyper and subsequent rescission.

During the years ended December 31, 2002 and 2001, the Company reported a net loss of ($570,874) and ($339,546), respectively.

Liquidity and Capital Resources

As of December 31, 2002, the Company had no cash, current assets of $10,885 and current liabilities of $312,907, for a working capital deficit of ($302,022).  Included in current liabilities are accounts payable and accrued expenses of $196,343 and accrued compensation to the Company's sole director and officer of $115,500.   The Company is currently dependent on loans from its sole director and officer to pay routine expenses, and the issuance of its common stock to satisfy expenses.

Going Concern

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying financial statements, the Company incurred a large net operating loss in the year ended December 31, 2002, and had significant unpaid accounts payable and accrued liabilities. These factors create an uncertainty about the Company's ability to continue as a going concern.  The Company's new management has provided operating capital to the Company and has developed a plan to raise additional capital.  The ability of the Company to continue as a going concern is dependent on the success of this plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements are attached hereto as Exhibit A.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

On August 31, 2001, the Board of Directors of the Company elected to terminate Weinberg and Company, P.A. ("Weinberg") as its independent auditors, and to retain Moore Stephens, P.C. ("Moore") as its independent auditors.  Weinberg's report for the year ended December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, and was not modified as to uncertainty, audit scope, or accounting principles, other than the qualification of the financial statements as having been prepared on a going concern basis. For the fiscal years ended December 31, 2000 and 1999, and the interim period from January 1, 2001 to August 31, 2001, the date the relationship ended, there were no disagreements with Weinberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the former accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. The Company has authorized Weinberg to respond fully to the inquiries of the successor accountant concerning its dismissal. Prior to retaining Moore, the Company did not consult with Moore regarding the application of accounting principles as to a specified or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements.

On October 31, 2003, the Board of Directors of the Company elected to terminate Moore as its independent auditors, and to retain Moore Stephens Cooper Molyneux LLP ("MSCM") as its independent auditors.  The Company terminated Moore because its application for approval by the Public Company Accounting Oversight Board had not been approved, and therefore it was unable to sign the Company's audit reports. Moore's report for the year ended December 31, 2001 did not contain an adverse opinion or disclaimer of opinion, and was not modified as to uncertainty, audit scope, or accounting principles, other than the qualification of the financial statements as having been prepared on a going concern basis. For the fiscal year ended December 31, 2001, and the subsequent periods preceding December 31, 2002, there were no disagreements with Moore on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the former accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. The Company has authorized Moore to respond fully to the inquiries of the successor accountant concerning its dismissal. Prior to retaining MSCM, the Company did not consult with MSCM regarding the application of accounting principles as to a specified or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth certain information concerning directors, executive officers and key employees of the Company:

|Name           | Age | Position                                       
|-------------- | --- | -----------------------------------------------
|Marc M. Hazout | 38  | President, Chief Executive Officer and Director

The term of office of each director of the Company ends at the next annual meeting of the Company's stockholders or when such director's successor is elected and qualifies.  No date for the annual meeting of stockholders is specified in the Company's bylaws or has been fixed by the Board of Directors.  Pursuant to the Company's bylaws, the date of the annual meeting is to be determined by the current Board of Directors. Except as otherwise indicated below, no organization by which any officer or director previously has been employed is an affiliate, parent, or subsidiary of the Company.

During 2002, the Board of Directors held 11 meetings.

The following information sets forth the backgrounds and business experience of the directors and executive officers:

Marc M. Hazout has been President, Chief Executive Officer and a director of the Company since June 1, 2002. From 1985 to 1987, Mr. Hazout was the Canadian licensee and franchisee for a multinational clothing manufacturer and retailer. From 1987 to 1991, Mr. Hazout established a private label apparel manufacturing and retailing company. From 1991 to 1998, Mr. Hazout developed, owned and operated entertainment complexes in Toronto. Mr. Hazout attended The Canadian Securities Institute from 1998-2000 and in 1999 worked as an equity trader for Swift Trade Securities Inc. in Toronto. Since 1998, Mr. Hazout has been President and C.E.O. of Travellers International Inc., an investment and merchant banking firm headquartered in Toronto. Mr. Hazout studied International Relations and Economics at York University in Toronto from 1983 to 1985. Mr. Hazout completed the Real Estate Licensing Course at Humber College in Toronto in 1984.

Section 16(a) Beneficial Ownership Reporting Compliance

During 2002, Marc Hazout failed to file a Form 4 or 5 reporting his disposition of 1,000,000 shares of common stock in April 2002 or his acquisition of 2,233,333 shares of common stock acquired in late 2002.  Mr. Hazout is filing a Form 5 to report the transactions.

Stephen Cohen failed to file a Form 4 or 5 reporting his acquisition of shares resulting from the exercise of options and for management services rendered, and his disposition of certain of those shares.  Mr. Cohen is filing a Form 5 to report the transactions.

Denise Quilliam failed to file a Form 4 or 5 reporting her acquisition of shares resulting from the exercise of options and for director's services rendered.

Pierre Quilliam failed to file a Form 4 or 5 reporting his acquisition of 1,000,000 shares of common stock in February 2002.

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the Company's Chief Executive Officers during the last three fiscal years and other officers who received compensation in excess of $100,000 during any of the last three fiscal years. In accordance with Item 402(a)(5), the Company has omitted certain columns from the table required by Item 402(b).

Summary Compensation Table

|                                       |                               | Annual Compensation                         | Long-Term Compensation                                   
|-------------------------------------- | ----------------------------- | ------------------------------------------- | ---------------------------------------------------------
|Name and Principal Position            | Year                          | Salary ($)                                  | Other annual compensation ($)                            
|                                       |                               |                                             |                                                          
|Marc Hazout, CEO, Director             | 2002           2001      2000 | 115,500     --               --             | 17,010              --                       --          
|                                       |                               |                                             |                                                          
|Pierre Quilliam, CEO, Director (2)     | 2002           2001      2000 | --                   --                  -- | --                        --                          -- 
|                                       |                               |                                             |                                                          
|Stephen Cohen, Secretary, Director (2) | 2002           2001      2000 | --                --               --       | --                         --                        --  
|                                       |                               |                                             |                                                          
|Edward Myers, Chairman                 | 2002           2001      2000 | --                 --                  --   | --                        --                         --  
|                                       |                               |                                             |                                                          
|Gary DeGano, Secretary, Director       | 2002           2001      2000 | --                 --               --      | --                         --                         -- 
|                                       |                               |                                             |                                                          
|Glenn Roach, President of CEAC         | 2002           2001      2000 | --                  --                  --  | --                         --                          --



(1) The securities underlying these options are the shares of the Company's Common Stock, $0.0001 par value.

(2) Messrs. Quilliam and Cohen's compensation for 2001 and 2000 has been restated from the amounts previously reported to reflect the rescission of restricted shares issued for management services in 2000 and 2001, and the replacement of those shares with warrants to purchase shares of common stock.  See Certain Relationships and Related Transactions.

Option/SAR Grants in Last Fiscal Year

|Name            | Number of Securities Underlying Options/SARs Granted (#) | % of Total Options/SARs Granted to Employees in Fiscal Year (1) | Exercise Price or Base Price ($/Sh) | Expiration Date
|--------------- | -------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------- | ---------------
|Pierre Quilliam | 154,000                                                  | 5%                                                              | $0.05                               | January 2, 2006
|Pierre Quilliam | 233,332                                                  | 7%                                                              | $0.03                               | April 1, 2006  
|Pierre Quilliam | 187,500                                                  | 6%                                                              | $0.04                               | July 1, 2006   
|Pierre Quilliam | 280,000                                                  | 9%                                                              | $0.025                              | October 2, 2006
|Pierre Quilliam | 750,000                                                  | 23%                                                             | $0.02                               | March 25, 2007 
|Stephen Cohen   | 154,000                                                  | 5%                                                              | $0.05                               | January 2, 2006
|Stephen Cohen   | 233,332                                                  | 7%                                                              | $0.03                               | April 1, 2006  
|Stephen Cohen   | 187,500                                                  | 6%                                                              | $0.04                               | July 1, 2006   
|Stephen Cohen   | 280,000                                                  | 9%                                                              | $0.025                              | October 2, 2006
|Stephen Cohen   | 750,000                                                  | 23%                                                             | $0.02                               | March 25, 2007 



(1) The warrants were issued on April 2, 2002 in replacement of restricted shares with an equal value that were issued in 2001 and 2002.  See Certain Relationships and Related Transactions.

Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

|Name            | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Options/SARs at Fiscal Year End (#) | Value of Unexercised in the Money Options/SARs at Fiscal Year End ($)
|--------------- | ------------------------------- | ------------------ | ------------------------------------------------------------------- | ---------------------------------------------------------------------
|Pierre Quilliam | 1,516,432                       | $716,756           | 0                                                                   | 0                                                                    
|Stephen Cohen   | 1,516,432                       | $716,756           | 0                                                                   | 0                                                                    



(1) Messrs. Quilliam and Cohen each exercised 1,604,832 options to purchase common stock with a weighted average exercise price of $0.0275 per share.  The options were exercised on a cashless basis while the common stock had a market value of $0.50 per share, which resulted in payment of the options consideration by the cancellation of 88,400 options.

Employment Agreements

On July 10, 2002, the Company entered into an Employment Agreement with Marc Hazout. The Employment Agreement provides that Mr. Hazout shall be employed by the Company for a term of three years, and is entitled to a base salary of $252,000 per year. Mr. Hazout is also entitled to a commission on sales generated by him consistent with the Company's commission policy for all sales personnel.   Further, he is entitled to 8 weeks paid holiday and 14 personal days, sick leave, medical and group insurance, participation in pension or profit sharing plans of the Company, and a car allowance of up to $3,000 per month. In the event of a termination of the Employment Agreement without cause by the Company, he will be entitled to severance equal to 100% of his remaining base salary under the Employment Agreement, plus an amount equal to 100% of the base salary plus full medical coverage for 12 months following the termination date. The Employment Agreement contains provisions prohibiting him from competing with the Company or soliciting customers or employees from the Company for a period of one year following the termination of his employment.

Compensation of Directors

The Company's past policy has been to pay its non-management directors $500 in restricted common stock for each board meeting attended.  In addition, directors are reimbursed for any reasonable expenses incurred in the connection with attendance at board or committee meetings or any expenses generated in connection with the performance of services on the behalf of the Company.  The Company currently has only one director, who is also the chief executive officer of the Company.  The Company is currently exploring acquisition possibilities.  The Company anticipates that its policy on director compensation will change when and if it makes a material acquisition.

The Company does not have an audit, compensation or nominating committee of its Board. During the 2002 fiscal year, the Company issued 40,833 restricted shares to one non-management director for director services.   The Company later replaced 33,333 of the shares issued for director services in 2002 with an option to purchase 50,000 shares of common stock at $0.02 per share.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of October 17, 2003, with respect to the beneficial ownership of the Company's Common Stock by (i) each executive officer and director of the Company, (ii) all directors and executive officers of the Company as a group, and (iii) any person who is known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company's common stock.

|Name and Address of Beneficial Owner                                                                                             | Amount and Nature ofBeneficial Ownership | Percent ofClass (1)
|-------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | -------------------
|Marc Hazout (2)                                          8500 Leslie Street, Suite 500                Thornhill, Ontario L3T 7M8 | 10,865,833                               | 49.1%              
|                                                                                                                                 |                                          |                    
|Pierre Quilliam (3)                                        3630 Edenbourgh Pl.                               Marietta, GA 30066  | 5,773,506                                | 26.1%              
|                                                                                                                                 |                                          |                    
|Officers and Directors                                                                                                           | 10,865,833                               | 49.1%              



(1) Based on 22,116,515 shares issued and outstanding as of November 11, 2003.

(2) Based on 10,865,833 shares owned by Travellers International, Inc., a company owned by Mr. Hazout.

(3) Based on 2,728,850 shares owned by Mr. Quilliam, 97,916 shares owned by his wife, and 2,946,740 shares owned by Bisell Investments, Inc., a company owned by Mr. Quilliam.

Equity Compensation Plan Information

The following table provides information as of December 31, 2002 about our compensation plans under which shares of stock have been authorized:

|Plan Category                                                 | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance (c)
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------
|Equity compensation plans approved by security holders:       |                                                                                                 |                                                                                 |                                                                 
|None                                                          | --                                                                                              | --                                                                              | --                                                              
|Equity compensation plans not approved by security holders:   |                                                                                                 |                                                                                 |                                                                 
|2002 Employee, Consultant and Advisor Stock Compensation Plan | 4,000,000                                                                                       | 3,559,580                                                                       | 440,420                                                         
|2002 Stock Option Plan                                        | 4,000,000                                                                                       | 0                                                                               | 4,000,000                                                       
|Total                                                         | 8,000,000                                                                                       | 3,559,580                                                                       | 4,440,420                                                       

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Pierre Quilliam, Denise Quilliam and Stephen Cohen

As of December 31, 2001, the Company had been invoiced for administration and bookkeeping services from 87807 Canada Ltd. and Bisell Investment Group Inc. in the amount of $27,994.62.  87807 Canada Ltd. is controlled by Denise Quilliam and Bisell Investment Group, Inc. is controlled by Pierre Quilliam.On May 13, 2002, the Company issued 116,118 shares of its common stock to Pierre Quilliam in consideration of $23,223.69 owed to Bisell Investment Group, Inc. and 87807 Canada, Ltd., which was the remaining amount owed on this indebtedness.

During the last two years, the Company issued the following shares of restricted stock to both Pierre Quilliam and Stephen Cohen for management services:

|Date of Issuance | No. of Shares | Period of Services      | Market Value of Shares
|---------------- | ------------- | ----------------------- | ----------------------
|January 31, 2001 | 77,000        | 9/13/2000 to 12/31/2000 | $7,700                
|April 2, 2001    | 116,666       | 1/31/2001 to 3/31/2001  | $7,000                
|July 2, 2001     | 93,750        | 4/1/2001 to 6/30/2001   | $7,500                
|October 4, 2001  | 140,000       | 7/1/2001 to 9/30/2001   | $7,000                
|March 26, 2002   | 500,000       | 10/1/2001 to 3/31/2002  | $15,000               
|May 13, 2002     | 30,000        | 4/1/2002 to 5/31/2002   | $6,000                



During the last two years, the Company issued the following shares of restricted stock to Denise Quilliam, the wife of Pierre Quilliam, for director services:

|Date of Issuance | No. of Shares | Date of Meetings                                  | Market Value of Shares
|---------------- | ------------- | ------------------------------------------------- | ----------------------
|April 2, 2001    | 8,333         | April 2, 2001                                     | $500                  
|July 2, 2001     | 6,250         | July 2, 2001                                      | $500                  
|October 4, 2001  | 10,000        | October 4, 2001                                   | $500                  
|March 26, 2002   | 33,333        | February 5, 2002 and March 26, 2002               | $1,000                
|May 13, 2002     | 7,500         | February 27, 2002, April 2, 2002 and May 13, 2002 | $1,500                



On April 2, 2002, the Company rescinded the issuance of 1,912,748 shares of common stock that were issued to Pierre Quilliam, Stephen Cohen and Denise Quilliam in 2001 and 2002, and replaced these with warrants to purchase 3,308,830 of common stock shares. The rescission included 879,415 shares issued in 2001 and 775,000 shares issued in 2002. In each case, the warrant was dated as of the date of the original issuance of shares, was exerciseable for cash or on a cashless basis for five years from the date of the warrant, and bore an exercise price of exactly one-half of the value at which the shares were originally issued.  As a result, the value of the warrants equaled the value of the shares originally issued, such that there was no effect on the compensation expense recorded by the Company in 2001 or 2002 from that previously reported.  In the second quarter, the holders exercised each of the warrants on a cashless basis based on the current market price of the common stock of $0.50 per share.  As a result, Pierre Quilliam and Steve Cohen were issued 1,516,432 shares of common stock, and Denise Quilliam was issued 90,416 shares of common stock. During 2002, the Company issued Pierre Quilliam and Steve Cohen 66,300 shares of common stock as a result of a clerical error.  Mr. Cohen returned his shares.  Mr. Quilliam's shares have been recorded as compensation expense at their value on the date of issuance.

On February 27, 2002, the Company purchased the rights of Travellers International Inc. pursuant to its letter of intent dated December 31, 2001 with Cyper International Inc. for 4,000,000 restricted shares of common stock of the Company.  Travellers International, Inc. then gave 1,000,000 of the shares of common stock to Pierre Quilliam in consideration for services rendered between Mr. Hazout, the owner of Travellers International, Inc. and Mr. Quilliam.

Marc Hazout

On February 27, 2002, the Company purchased the rights of Travellers International Inc. pursuant to its letter of intent dated December 31, 2001 with Cyper International Inc. for 4,000,000 restricted shares of common stock of the Company.  Travellers International, Inc. is controlled by Marc Hazout.  Mr. Hazout was not a director or officer of the Company as the time of the transaction, but subsequently became a director and officer.

On November 1, 2002, the Company issued Travellers International, Inc. 1,000,000 shares of common stock of the Company in satisfaction of loans to the Company in the amount of $10,000.

On November 6, 2002, the Company issued Travellers International, Inc. 1,233,333 shares of common stock of the Company in satisfaction of loans to the Company in the amount of $37,000.

In December 2002, Mr. Hazout advanced on behalf of the Company $60,000 to enable it to purchase an option to acquire the theatrical rights to feature film or television production based on the original portrait of William Shakespeare by John Sanders.

On April 28, 2003, the Company entered into a settlement agreement to settle disputes regarding the Company's acquisition of Cyper Entertainment, Ltd., and subsequent rescission, in 2002.  The Company agreed to pay the shareholders $20,000 cash, transfer shares in an unrelated company with a value of $42,500, and issue the shareholders 250,000 shares of the common stock.  Mr. Hazout provided the funds for the settlement, as well as the shares in the unrelated company.  The Company issued 1,388,889 shares of common stock of the Company in settlement of the $62,500 provided by Mr. Hazout that have been reflected in the financial statements as at December 31, 2002.

On May 28, 2003, the Company issued Traveller's International, Inc. 3,500,000 shares of the common stock in settlement of payables of $157,500 due to Mr. Hazout, which included $62,500 of the Cyper settlement.

On October 21, 2003, the Company issued Traveller's International, Inc. 2,000,000 shares of the common stock in settlement of payables of $40,000 due to Mr. Hazout.

The Company is currently accruing $2,800 per month to a company controlled by Mr. Hazout for use of office space and administrative services.

Item 13.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K

1. The financial statements filed as part of this report are listed separately in the Index to Financial Statements.

|Regulation S-B No. | Description                                                                                                                                          
|------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(i)             | Articles of Incorporation (1)                                                                                                                        
|3.1(ii)            | Amendment to Articles of Incorporation (2)                                                                                                           
|3.1(iii)           | By-Laws (1)                                                                                                                                          
|4.1                | Instruments defining the rights of holders (1)                                                                                                       
|11                 | Statement re: computation of per share earnings (3)                                                                                                  
|16.1               | Letter on change in certifying accountants (4)                                                                                                       
|16.2               | Letter on change in certifying accountants (5)                                                                                                       
|22                 | Subsidiaries of the registrant                                                                                                                       
|24                 | Consent of Moore Stephens Cooper Molyneux, LLP                                                                                                       
|31                 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer                                                                                
|32                 | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference from the Form 10-SB filed on February 23, 2000.

(2) Incorporated by reference from the Form 10-SB/A filed on July 17, 2003.

(3) Included within financial statements attached hereto as Exhibit A.

(4) Incorporated by reference from the Form 8-K/A filed on August 31, 2001.

(5) Incorporated by reference from the Form 8-K filed on November 7, 2001.

(b) Reports on Form 8-K: None

ITEM 14. CONTROLS AND PROCEDURES

The Company believes that it has sufficient internal controls and procedures for a company that is not engaged in active operations.  When and if the Company acquires or commences active operations, the Company anticipates instituting internal controls and procedures sufficient for the nature and scale of operations at that time.



SIGNATURES

In accordance with Section 13 of 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

|                         | AMERICAN ENTERTAINMENT AND
ANIMATION CORPORATION, INC.
|------------------------ | ------------------------------------------------------
|Dated: November 12, 2003 | /s/ Marc Hazout                                       
|                         | Marc Hazout, President and Chief Executive Officer    

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

|Dated: November 12, 2003 | /s/ Marc Hazout      
|------------------------ | ---------------------
|                         | Marc Hazout, Director



EXHIBIT A







AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002



AMERICAN ENTERTAINMENT AND ANIMATION CORP.

AND SUBSIDIARY





|Report of Independent Auditors                                                                                                                     | 1     
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Consolidated Balance Sheet at December 31, 2002                                                                                                    | 2     
|Consolidated Statement of Operations for the years ended December 31, 2002, 2001 and for the period June 15, 1996 [Inception] to December 31, 2002 | 3     
|Consolidated Statement of Stockholders' Deficit for the period June 15, 1996 [Inception] to December 31, 2002                                      | 4     
|Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and for the period June 15, 1996 [Inception] to December 31, 2002 | 5     
|Notes to Consolidated Financial Statement                                                                                                          | 6 - 12





Report of Independent Auditors

To the Board of Directors and Stockholders of

American Entertainment and Animation Corporation

We have audited the accompanying consolidated balance sheet of American Entertainment and Animation Corporation and subsidiary [a development stage company] as at December 31, 2002 and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year ended December 31, 2002 and for the period from June 15, 1996 [inception] to December 31, 2002.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the cumulative data from June 15, 1996 to December 31, 2001.  That cumulative data was audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts in the cumulative data through December 31, 2001, is based solely on the report of other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Entertainment and Animation Corporation and subsidiary [a development stage company] as of December 31, 2002 and the results of their operations and their cash flows for the year ended December 31, 2002 and for the period from June 15, 1996 (inception) to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, the Company has recurring losses from operations and has a net capital deficiency.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans are also described in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Moore Stephens Cooper Molyneux LLP

Chartered Accountants

Toronto, Canada

November 12, 2003



American Entertainment and Animation CorpORATION and Subsidiary

[A Development Stage Company]

Consolidated BALANCE SHEET

DECEMBER 31, 2002

|ASSETS                                                                                                   |                    
|-------------------------------------------------------------------------------------------------------- | -------------------
|                                                                                                         |                    
|CURRENT ASSETS                                                                                           |                    
|Prepaid expenses                                                                                         | $   7,765          
|Advances receivable - related parties                                                                    | 3,120              
|Total Current Assets                                                                                     | 10,885             
|                                                                                                         |                    
|TOTAL ASSETS                                                                                             | $           10,885 
|                                                                                                         |                    
|                                                                                                         |                    
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                    |                    
|                                                                                                         |                    
|CURRENT LIABILITIES                                                                                      |                    
|Bank overdraft                                                                                           | $             1,064
|Accounts payable and accrued expenses                                                                    | 196,343            
|Accrued officer compensation                                                                             | 115,500            
|                                                                                                         |                    
|Total Current Liabilities                                                                                | 312,907            
|                                                                                                         |                    
|COMMITMENTS AND CONTINGENCIES [Note 11]                                                                  |                    
|                                                                                                         |                    
|STOCKHOLDERS' DEFICIT                                                                                    |                    
|Preferred stock, $0.0001 par value, 20,000,000 shares authorized, none issued and outstanding.           | -                  
|Common stock, $0.0001 par value, 150,000,000 shares authorized,18,005,404 shares issued and outstanding. | 1,801              
|Additional paid-in capital                                                                               | 1,420,074          
|Deficit accumulated during development stage                                                             | (1,723,897)        
|TOTAL STOCKHOLDERS' DEFICIT                                                                              | (302,022)          
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                              | $           10,885 



The accompanying notes are an integral part of these consolidated financial statements.

American Entertainment and Animation CorpORATION and Subsidiary

[A Development Stage Company]

Consolidated Statements of Operations

|                                                     | For the years ended December 31, | For the period from June 15, 1996 [Inception] to
|---------------------------------------------------- | -------------------------------- | ------------------------------------------------
|                                                     | 2002                             | 2001                                            
|NET REVENUE                                          | $                  -             | $                -                              
|                                                     |                                  |                                                 
|COST OF REVENUES                                     | -                                | 19,169                                          
|Development expense                                  | 60,000                           | -                                               
|                                                     |                                  |                                                 
|GROSS MARGIN                                         | (60,000)                         | (19,169)                                        
|                                                     |                                  |                                                 
|OPERATING EXPENSES                                   |                                  |                                                 
|Legal and professional fees                          | 59,209                           | 74,995                                          
|Management and directors' fees - related party       | 299,000                          | 138,400                                         
|Consulting expense                                   | 14,289                           | 5,490                                           
|Advertising expense                                  | 4,187                            | 130                                             
|General and administrative                           | 32,459                           | 95,337                                          
|TOTAL OPERATING EXPENSES                             | 409,144                          | 314,352                                         
|LOSS FROM OPERATIONS                                 | (469,144)                        | (333,521)                                       
|OTHER INCOME (EXPENSES)                              |                                  |                                                 
|Interest income - related parties                    | 1,315                            | 8,251                                           
|Interest expense - related parties                   | (997)                            | (4,615)                                         
|Settlement with Cyper Entertainment, Inc.            | (80,000)                         | -                                               
|Loss on disposal of asset                            | (6,160)                          | (9,211)                                         
|Loss on investment                                   | -                                | -                                               
|Other (expense) income                               | (15,888)                         | (450)                                           
|TOTAL OTHER INCOME [EXPENSES]                        | (101,730)                        | (6,025)                                         
|                                                     |                                  |                                                 
|NET LOSS                                             | $   (570,874)                    | $  (339,546)                                    
|                                                     |                                  |                                                 
|Net loss per common share - basic and diluted        | $         (0.05)                 | $        (0.05)                                 
|                                                     |                                  |                                                 
|Weighted average number of common shares outstanding | 12,145,726                       | 6,407,625                                       



The accompanying notes are an integral part of these consolidated financial statements.

AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION AND SUBSIDIARY

[A DEVELOPMENT STAGE COMPANY]

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE PERIOD FROM JUNE 16, 1996 [INCEPTION] TO DECEMBER 31, 2002

|                                                                                          | Common Stock | Common Stock To be issued | Additional Paid-in | Accumulated            | Subscription         | Stockholders'       
|----------------------------------------------------------------------------------------- | ------------ | ------------------------- | ------------------ | ---------------------- | -------------------- | --------------------
|                                                                                          | Shares       | Amount                    | Shares             | Amount                 | Capital              | Deficit             
|                                                                                          |              |                           |                    |                        |                      |                     
|Issuance of stock to founders for services                                                | 55,000       | $                  6      | -                  | $                    - | $                159 | $                  -
|Issuance of stock to founder for cash                                                     | 333,334      | 33                        |                    |                        | 967                  |                     
|Issuance of stock for investment in CEHK                                                  | 50,000       | 5                         |                    |                        | 37,495               |                     
|Issuance of stock to purchase subsidiary                                                  | 350,000      | 35                        |                    |                        | 70                   | (1,060)             
|Issuance of stock for cash                                                                | 13,333       | 1                         |                    |                        | 9,999                |                     
|Net loss, 1996                                                                            |              |                           |                    |                        |                      | (14,198)            
|Balance, December 31,1996                                                                 | 801,667      | $                80       | -                  | $                    - | $           48,690   | $      (15,258)     
|                                                                                          |              |                           |                    |                        |                      |                     
|Issuance of stock for vehicle                                                             | 33,333       | 3                         |                    |                        | 24,997               |                     
|Issuance of stock for cash                                                                | 37,333       | 4                         |                    |                        | 28,896               |                     
|Issuance of stock for services                                                            | 46,333       | 5                         |                    |                        | 34,745               |                     
|Net loss, 1997                                                                            |              |                           |                    |                        |                      | (142,622)           
|Balance, December 31, 1997                                                                | 918,666      | $                92       | -                  | $                    - | $         137,328    | $    (157,880)      
|                                                                                          |              |                           |                    |                        |                      |                     
|Issuance of stock for vehicle                                                             | 10,667       | 1                         |                    |                        | 7,999                |                     
|Issuance of stock for cash                                                                | 58,667       | 6                         |                    |                        | 49,995               |                     
|Net loss, 1998                                                                            |              |                           |                    |                        |                      | (54,404)            
|Balance, December 31, 1998                                                                | 988,000      | $                99       | -                  | $                    - | $         195,322    | $    (212,284)      
|                                                                                          |              |                           |                    |                        |                      |                     
|Issuance of stock for cash                                                                | 151,918      | 15                        |                    |                        | 56,759               |                     
|Issuance of stock for debt                                                                | 16,000       | 2                         |                    |                        | 8,773                |                     
|Issuance of stock for services                                                            | 36,000       | 3                         | 298,667            | 30                     | 126,467              |                     
|Forgiveness of debt of related party                                                      |              |                           |                    |                        | 23,000               |                     
|Net loss, 1999                                                                            |              |                           |                    |                        |                      | (181,898)           
|Balance, December 31, 1999                                                                | 1,191,918    | $              119        | 298,667            | $                  30  | $         410,321    | $    (394,182)      
|                                                                                          |              |                           |                    |                        |                      |                     
|Cancel stock returned to company                                                          | (10,667)     | (1)                       |                    |                        | (3,999)              |                     
|Issuance of stock for cash                                                                | 4,296,666    | 430                       |                    |                        | 667,070              |                     
|Cancel shares for non-payment                                                             | (442,433)    | (44)                      |                    |                        | (165,868)            |                     
|Issuance of stock for services                                                            | 653,667      | 65                        | (298,667)          | (30)                   | 28,365               |                     
|Forgiveness of debt reclassification                                                      |              |                           |                    |                        | (23,000)             |                     
|Net loss, 2000                                                                            |              |                           |                    |                        |                      | (419,296)           
|Balance, December 31, 2000                                                                | 5,689,151    | $              569        | -                  | $                    - | $         912,889    | $    (813,478)      
|                                                                                          |              |                           |                    |                        |                      |                     
|Shares for services                                                                       | 879,415      | 88                        |                    |                        | 59,814               |                     
|Cash received for subscription receivable                                                 |              |                           |                    |                        |                      |                     
|Shares issued for Consulting Agreement                                                    | 300,000      | 30                        |                    |                        | 29,970               |                     
|Other adjustment                                                                          |              |                           |                    |                        |                      | 1                   
|Net loss, 2001                                                                            |              |                           |                    |                        |                      | (339,546)           
|Balance - December 31, 2001                                                               | 6,868,566    | $              687        | -                  | $                    - | $      1,002,673     | $ (1,153,023)       
|                                                                                          |              |                           |                    |                        |                      |                     
|Shares issued for private placement                                                       | 400,000      | 40                        |                    |                        | 17,960               |                     
|Shares issued for services - related party                                                | 1,100,833    | 110                       |                    |                        | 32,390               |                     
|Shares issued for the reverse acquisition of Cyper                                        | 20,000,000   | 2,000                     |                    |                        |                      |                     
|Shares issued in relation to the reverse acquisition of Cyper                             | 4,000,000    | 400                       |                    |                        | 119,600              |                     
|Shares cancelled in lieu of issuance of warrants for past services rendered               | (1,912,748)  | (191)                     |                    |                        | -                    |                     
|Stock warrants issued for services - related party                                        |              |                           |                    |                        | 31,000               |                     
|Stock warrants exercised by management                                                    | 3,255,880    | 326                       |                    |                        |                      |                     
|Shares issued for the settlement of related party advances                                | 116,118      | 12                        |                    |                        | 23,212               |                     
|Cancellation of shares issued in prior years                                              | (65,467)     | (7)                       |                    |                        | 7                    |                     
|Shares issued for the settlement of accounts payable for services performed               | 370,000      | 37                        |                    |                        | 66,619               |                     
|Shares issued for the settlement of related party advances                                | 2,233,333    | 223                       |                    |                        | 46,777               |                     
|Shares rescinded for the cancellation of the reverse acquisition of Cyper                 | (20,000,000) | (2,000)                   |                    |                        |                      |                     
|Issuance of stock for settlement of Cyper reverse acquisition                             | 250,000      | 25                        |                    |                        | 17,475               |                     
|Shares issued for the settlement of advances made to the Company for the Cyper settlement | 1,388,889    | 139                       |                    |                        | 62,361               |                     
|Net loss, 2002                                                                            |              |                           |                    |                        |                      | (570,874)           
|Balance - December 31, 2002                                                               | 18,005,404   | $           1,801         |                    | $                    - | $      1,420,074     | $ (1,723,897)       



The accompanying notes are an integral part of these consolidated financial statements.



AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION AND SUBSIDIARY

[A DEVELOPMENT STAGE COMPANY]

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                            | For the years ended
December 31, | For the period from June 15, 1996 [Inception] to
|--------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------------
|                                                                            | 2002                             | 2001                                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |                                  |                                                 
|Net loss                                                                    | $   (570,874)                    | $  (339,546)                                    
|Adjustments to reconcile net loss to net cash used in operating activities: |                                  |                                                 
|Depreciation and amortization                                               | -                                | 4,638                                           
|Impairment of investment                                                    | -                                | -                                               
|Writedown of assets                                                         | 6,156                            | 14,351                                          
|Writedown of inventory                                                      | -                                | 19,169                                          
|Settlement of Cyper reverse acquisition                                     | 80,000                           | -                                               
|Settlement of debt, net                                                     | -                                | 550                                             
|Stock based on compensation, management fees - related party                | 183,500                          | 89,901                                          
|(Increase) decrease in:                                                     |                                  |                                                 
|Advances receivable - related parties                                       | -                                | (45,571)                                        
|Inventories                                                                 | -                                | -                                               
|Prepaid expense                                                             | (720)                            | 6,168                                           
|Other                                                                       | 135                              |                                                 
|Increase (decrease) in:                                                     |                                  |                                                 
|Accounts payable and accrued expenses                                       | 110,854                          | 116,083                                         
|Accrued officer compensation                                                | 115,500                          |                                                 
|Advances payable - related parties                                          | 55,730                           | 41,991                                          
|Income taxes payable                                                        | -                                | (800)                                           
|Net Cash Used in Operating Activities                                       | (19,719)                         | (93,066)                                        
|                                                                            |                                  |                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |                                  |                                                 
|Investment in subsidiaries                                                  | -                                | -                                               
|Proceeds from sale equipment                                                | -                                | 500                                             
|Acquisition of property and equipment                                       | -                                | (1,316)                                         
|Net Cash Used in Investing Activities                                       | -                                | (816)                                           
|                                                                            |                                  |                                                 
|CASH FLOWS FRON FINANCING ACTIVITIES                                        |                                  |                                                 
|Payment of notes payable                                                    | -                                | (16,419)                                        
|Proceeds from issuance of notes payable                                     | -                                | -                                               
|Cash overdraft                                                              | 1,064                            | (13,899)                                        
|Proceeds from subscription receivables - net                                | -                                | -                                               
|Proceeds from issuance of common stock - net                                | 18,000                           | 124,748                                         
|Net Cash Provided by Financing Activities                                   | 19,064                           | 94,430                                          
|                                                                            |                                  |                                                 
|Net increase (decrease) in Cash                                             | (655)                            | 548                                             
|Cash - beginning of period                                                  | 655                              | 107                                             
|Cash - end of period                                                        | $                  -             | $           655                                 





The accompanying notes are an integral part of these consolidated financial statements.



AMERICAN ENTERTAINMENT AND ANIMATION CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. The Company
2. Cyper Entertainment, Inc.
3. Going Concern
4. Summary of Significant Accounting Policies

1. Principles of Consolidation
2. Use of Estimates
3. Cash and Cash Equivalents
4. Property and Equipment
5. Income Taxes
6. Advertising Expense
7. Loss per share of Common Stock
8. Impairment
9. Stock-based Compensation
10. Foreign Currency Transactions
11. Development Expense

Development expenses are charged to the consolidated statement of operations when incurred. The Company considers that uncertainties inherent in the research and development of its animation products preclude it from capitalizing such costs. This treatment includes upfront and milestone payments made to third parties in connection with collaborations. Development expense for the year ended December 31, 2002 and 2001, were $60,000 and $0, respectively.

1. Related Parties

- In 2002 the Company issued 2,233,333 common shares, valued at approximately $47,000, for advances of approximately $43,900 from a related party company whose officer and shareholder is a shareholder of the Company. The overpayment of approximately $3,100 has been recorded as an Advance receivable - related party. The Company believes it will fully utilize this advance during the first quarter of 2003.
- During the year ended December 31, 2002, a related party company whose officer and shareholder is a shareholder of the Company incurred the liability associated with the Cyper settlement on behalf of the Company.  On May 28, 2003, the Company issued 3,500,000 shares of its common stock valued at $157,500 to the related party company.  The amount settled included $62,500 owed for the Cyper settlement, as well as $95,000 of other advances owed to the shareholder. [Note 12]
- During the year ended December 31, 2002, the Company issued approximately 1,100,833 shares of its common stock, valued at approximately $32,500, for management fees and directors' fees provided by former officers and shareholders of the Company.
- During the year ended December 31, 2002, the Company agreed to rescind 1,912,748 shares of its common stock issued for services provided by former officers and directors, and in lieu of these shares issued warrants to purchase common stock of the Company. Subsequently during the second quarter the warrants were exercised by these former officers.
- During the year ended December 31, 2002, the Company issued 116,118 of its common stock valued, at approximately $23,200, to settle related party advances from a shareholder who is also a former officer of the Company and from companies whose shareholder is a former officer of the Company.
- During the year ended December 31, 2002, the Company issued 4,000,000 of its common stock in relation to the Cyper reverse acquisition agreement. These shares were issued to a company that is controlled by a person who later became an officer and director of the Company.  These shares were valued at approximately $120,000. [Note 2]  The company that received the shares then gave 1,000,000 of the shares to a then current officer and director of the Company in consideration for services rendered between the two parties.
- The Company is party to a month-to-month lease for office space for approximately $2,800 per month with a company owned by an officer and shareholder of the Company.  Rental expense under this lease for the year ended December 31, 2002 was approximately $7,300.

1. Concentration of Credit Risk
2. Income Taxes
3. Fair Value of Financial Instruments
4. Statement of Cash Flows Supplemental Disclosures

- During the year ended December 31, 2002, the Company issued 2,349,451 shares of its common stock in lieu of approximately $70,200 cash in settlement of related party advances.
- During the year ended December 31, 2002, the Company issued 370,000 shares of its common stock for the settlement of approximately $66,600 of payables due to vendors for services performed.
- For the year ended December 31, 2002 and 2001, there were no cash payments for income taxes and no cash was paid for accrued interest.
- During the year ended December 31, 2002, the Company issued 4,000,000 shares to an entity in relation to the Cyper transaction.  The owner of the entity subsequently became a director and officer of the Company.  The entity then gave 1,000,000 of the shares of common stock to a then officer and director of the Company in consideration for services rendered between the two parties.
- For the years ended December 31, 2002 and 2001 the Company issued to management 1,100,833 and 1,179,415 shares of common stock, respectively, for services rendered by an officer and former officers and directors valued at $112,500 and $89,901, respectively.
- During the year ended December 31, 2002 the Company issued warrants to purchase 1,550,000 shares of common stock to former officers and directors for management and director's fees in replacement of 1,033,333 shares previously issued to the officers and directors in 2002. During the year ended December 31, 2002 the Company issued warrants to purchase 1,758,830 shares of common stock to former officers and directors for management and director's fees in replacement of 879,415 shares previously issued to the officers and directors in 2001. The warrants are dated as of the respective days on which the shares were originally issued. The shares were issued as payment to former officers' salaries and directors' fees. The terms of the warrants are such that there is no effect on the compensations and fees originally recorded.  The warrants were exercised during the second quarter of 2002.

1. Litigation
2. Commitments and Contingencies
3. Subsequent Events

- On March 7, 2003, the Company commenced proceedings in the Court of Chancery in the State of Delaware for a declaration that the agreement to acquire the shares of Cyper was validly rescinded and that the 20,000,000 common shares issued pursuant to the transaction were validly cancelled.
- On April 28, 2003, the Company reached a settlement with the shareholders of Cyper, who agreed to accept cash of $20,000, marketable securities with a fair market value of approximately $42,500, and 250,000 common shares of the Company in exchange for the 20,000,000 common shares. The cash and marketable securities were loaned to the Company by an officer and shareholder of the Company.  The settlement generated a total cost of approximately $80,000, which has been recorded in the December 31, 2002 statement of operations in other income and expenses.
- On May 22, 2003, the Company signed a letter of intent with Words and Pictures Productions Inc, a Florida-based company to acquire the intellectual and property rights and to co produce a full-length 3D animated feature film.
- On May 28, 2003, the Company issued 3,500,000 of its common shares, valued at $157,500, for the settlement of a payable due to an officer and director [Notes 2 and 5]. [A change in capital structure is presented retroactively in the statement of stockholders deficit. The issuance and the subsequent cancellation of the 20,000,000 common shares to Cyper have been included in the stockholders deficit for the period from June 15, 1996 [Inception] to December 31, 2002].
- On October 21, 2003, the Company issued 2,000,000 of its common shares, valued at $40,000, for the settlement of advances due to an officer and director in the amount of $40,000.

1. Reclassification

Certain amounts in the December 31, 2001 financial statements have been reclassified to conform to the December 31, 2002 presentation.