<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                            ------------------------

                                   FORM 10-Q

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

                 For the quarterly period ended March 31, 2001

                                       or

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

                        Commission File Number 000-26793

                          BIGSTAR ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
                          Delaware                                    [13-3395258]
              (State or other jurisdiction of                         (IRS Employer
               incorporation or organization)                    Identification Number)
</TABLE>

<TABLE>
<S>                                                          <C>
     19 Fulton Street - 5th Floor - New York, New York                    10038
          (Address of Principal Executive Offices)                     (Zip Code)
</TABLE>

                                 (212) 981-6300
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                Yes [X]  No [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, $0.001 par value, as of the latest practicable date:

     7,956,115 shares of common stock as of May 10, 2001

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<PAGE>   2

                          BIGSTAR ENTERTAINMENT, INC.

                                   FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 2001

                                     INDEX

<TABLE>
<CAPTION>
                                                              Page No.
                                                              --------
<S>                                                           <C>
                                PART I
                        FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Balance Sheets at March 31, 2001 (unaudited)
  and December 31, 2000.....................................      2
Consolidated Statements of Operations for the three-month
  periods ended March 31, 2001 (unaudited) and March 31,
  2000 (unaudited)..........................................      3
Consolidated Statements of Cash Flows for the three-month
  periods ended March 31, 2001 (unaudited) and March 31,
  2000 (unaudited)..........................................      4
Notes to Condensed Consolidated Financial Statements........      5
Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations.................      9

                               PART II
                          OTHER INFORMATION
Item 1.  Legal Proceedings..................................     15
Item 2.  Changes in Securities and Use of Proceeds..........     15
Item 3.  Defaults Upon Senior Securities....................     15
Item 4.  Submission of Matters to a Vote of Security
  Holders...................................................     15
Item 5.  Other Information..................................     16
Item 6.  Exhibits and Reports on Form 8-K...................     16
Signatures..................................................     17
</TABLE>

                                        1
<PAGE>   3

                                     PART I
                             FINANCIAL INFORMATION

Item 1.  Financial Statements

                             BIGSTAR ENTERTAINMENT

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               March 31,      December 31,
                                                                  2001            2000
                                                              ------------    ------------
                                                              (Unaudited)
<S>                                                           <C>             <C>
ASSETS:
Cash and cash equivalents...................................  $  3,641,936    $  5,373,100
Accounts receivable, net of allowance.......................        44,235         267,648
Prepaids and other current assets...........................       313,537         565,655
                                                              ------------    ------------
  Total current assets......................................     3,999,708       6,206,403
                                                              ------------    ------------
Property and equipment, net.................................       992,535       1,228,709
Other assets................................................        83,089         126,290
                                                              ------------    ------------
Total assets................................................  $  5,075,332    $  7,561,402
                                                              ============    ============
LIABILITIES:
Accounts payable............................................  $    790,867    $  1,359,470
Accrued expenses............................................       330,729         692,740
Accrued payroll costs.......................................        34,525         209,241
                                                              ------------    ------------
  Total current liabilities.................................     1,156,121       2,261,451
                                                              ------------    ------------
MINORITY INTEREST...........................................       178,993         178,993
STOCKHOLDERS' EQUITY:
Common Stock................................................        10,187          10,187
Treasury Stock..............................................       (81,225)        (24,083)
Additional paid-in capital..................................    47,919,819      47,919,819
Accumulated Deficit.........................................   (44,108,563)    (42,784,965)
                                                              ------------    ------------
Total stockholders' equity..................................     3,740,218       5,120,958
                                                              ------------    ------------
Total liabilities and stockholders' equity..................  $  5,075,332    $  7,561,402
                                                              ============    ============
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        2
<PAGE>   4

                          BIGSTAR ENTERTAINMENT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                              Three Months     Three Months
                                                                  Ended           Ended
                                                                March 31,       March 31,
                                                                  2001             2000
                                                              -------------    ------------
<S>                                                           <C>              <C>
NET SALES...................................................   $   765,266     $ 4,206,538
COST OF REVENUES............................................       583,765       4,011,708
                                                               -----------     -----------
  Gross profit..............................................       181,501         194,830
OPERATING EXPENSES
  Sales and marketing.......................................        35,805       3,585,616
  General and administrative................................       985,905       1,568,435
  Website and software development..........................       533,170       2,354,568
                                                               -----------     -----------
  Total operating expenses..................................     1,554,880       7,508,619
                                                               -----------     -----------
  Loss from operations......................................    (1,373,379)     (7,313,789)
INTEREST INCOME, net........................................        49,781         281,831
                                                               -----------     -----------
  Net Loss..................................................   $(1,323,598)    $(7,031,958)
PER SHARE INFORMATION:
  Net loss per share --
     Basic and diluted......................................   $     (0.15)    $     (0.70)
                                                               ===========     ===========
  Weighted average common shares outstanding --
     Basic and diluted......................................     8,654,528      10,107,597
                                                               ===========     ===========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        3
<PAGE>   5

                          BIGSTAR ENTERTAINMENT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                              Three Months    Three Months
                                                                 Ended           Ended
                                                               March 31,       March 31,
                                                                  2001            2000
                                                              ------------    ------------
<S>                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss..................................................  $(1,323,598)    $(7,031,958)
  Adjustments to reconcile note loss to net cash used in
     operating activities --
  Depreciation and amortization.............................      211,631         242,653
  Allowance for doubtful accounts...........................      (30,544)         30,000
  Non-cash common stock option and warrant expenses.........           --         295,978
  Amortization of investment discount.......................                      (41,320)
  Changes in assets and liabilities --
     Accounts receivable....................................      253,957        (150,333)
     Prepaids and other current assets......................      252,118        (250,453)
     Other non current assets...............................       43,201           4,400
     Accounts payable and accrued expenses..................   (1,105,330)        303,792
                                                              -----------     -----------
     Net cash used in operating activities..................   (1,698,565)     (6,597,241)
                                                              -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital Expenditures......................................           --        (347,454)
  Sale equipment............................................       24,543              --
  Redemption of Investments.................................           --       3,000,000
                                                              -----------     -----------
     Net cash provided in investing activities..............       24,543       2,652,546
                                                              -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock....................           --         508,064
  Treasury stock............................................      (57,142)             --
                                                              -----------     -----------
     Net cash (used in) provided by financing activities....      (57,142)        508,064
                                                              -----------     -----------
     Net increase (decrease) in cash and cash equivalents...   (1,731,164)     (3,436,631)
                                                              -----------     -----------
CASH AND CASH EQUIVALENTS, beginning of period..............  $ 5,373,100     $17,422,817
                                                              -----------     -----------
CASH AND CASH EQUIVALENTS, end of period....................  $ 3,641,936     $13,986,186
                                                              ===========     ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING ACTIVITIES:
  Warrants issued for future services.......................  $        --     $    41,667
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        4
<PAGE>   6

                          BIGSTAR ENTERTAINMENT, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Overview and Summary of Significant Accounting Policies:

  Overview

     BigStar Entertainment, Inc. (the "Company") is an online retailer of filmed
entertainment products and a provider of information about the filmed
entertainment industry and its products. Through our website bigstar.com, we
sell more than 45,000 videos and digital video discs or DVDs, including feature
films, children's movies and educational, health and fitness, and instructional
videos and provide information on these products.

     In addition to selling filmed entertainment, bigstar.com features more than
4,500 biographies, 2,200 movie stills and 400 star interviews. Bigstar.com also
hosts our BigStar Broadband Theater. This feature offers visitors to our website
the ability to stream and view on their computer more than 7,500 movie trailers
and 21 feature films. We believe that BigStar Broadband Theater provides one of
the largest selections of streaming movie trailers and films available on the
Internet.

     As a result of operating losses incurred by the Company's businesses for
the quarter ended March 31, 2001, the significant decline in market value of
Internet-based companies, and the difficulty in raising additional capital for
such companies, the Company announced in September 2000 that it had retained a
financial advisor to review the recoverability of the amounts invested and
projected to be invested into its retail operations and direct marketing
division, Advaya. The Company and its financial advisors determined that a sale
of Advaya's assets was in the best interests of the Company's stockholders.
Accordingly, the assets related to this business were sold in December 2000 at a
loss of $952,616.

     Given the factors noted above, the Company and its financial advisors are
also currently evaluating the disposition of all or part of BigStar's current
e-commerce platform. We are considering ending some or all of the current
functionality of our website, or selling the website, with a view to conserving
our cash and redeploying BigStar's remaining assets into businesses which have
the potential for achieving profitability sooner with potentially higher returns
on investment. Potential business lines being contemplated by BigStar management
include, but are not limited, to the sale of online film marketing data,
electronic payments processing, third party site development, as well as other
technology development efforts. BigStar may also decide to merge or sell assets
to third parties in these or other businesses in an effort to maximize
stockholder value. There can be no assurances that the sale of the bigstar.com
site platform, or parts thereof, will be consummated or that efforts to conserve
our cash will be successful. Furthermore, there may not be suitable business
opportunities into which we may invest our remaining resources or that any such
opportunity will ultimately be successful.

  Basis of Presentation

     The consolidated balance sheets as of March 31, 2001 and December 31, 2000,
and the consolidated statements of operations and cash flows for the three
months ended March 31, 2001 and March 31, 2000 have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). These March 31, 2001 unaudited consolidated financial statements have
been prepared on the same basis as the December 31, 2000 audited financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
financial information included, in accordance with generally accepted accounting
principles. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC rules and
regulations. The results of operations for the interim period ended March 31,
2001 are not necessarily indicative of the results which may be reported for any
other interim period or for the year ending December 31, 2001.

     Certain amounts in the prior period have been reclassified to conform to
the current period's presentation.

                                        5
<PAGE>   7
                          BIGSTAR ENTERTAINMENT, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

  Use of Estimates

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

  Revenue Recognition

     Revenue consists of sales of filmed entertainment in popular formats,
primarily videos, and DVDs, over the Company's websites and online advertising
and promotional revenues. The Company recognizes revenue from its website when
the products are shipped to customers and when advertisements and promotional
items are served and marketing promotions delivered. Outbound shipping and
handling charges are also included in net sales. In accordance with the Emerging
Issues Task Force Issue ("EITF") 00-14 "Accounting For Certain Sales
Incentives," ("EITF 00-14") revenues for the three-month periods ended March 31,
2001 and March 31, 2000 include sales to customers who used $9,641 and
$1,024,053 respectively, of coupons for discounts on their purchases of filmed
entertainment products. Previously, the cost of these coupons was included in
sales and marketing expenses; however, all prior period financial statements
presented have been reclassified to conform to the current period's
classification. Revenue from gift certificates is recognized upon product
shipment following redemption. Provision is made for the estimated effect of
sales returns where right-of-return privileges exist. Returns of product from
customers are accepted in accordance with standard industry practice. The
Company provides an allowance for sales returns based on historical returns
experience.

     For the three months ended March 31, 2001 and March 31, 2000, net sales
included barter revenues of 8.9% and 4.5%, respectively The Company places an
advertisement on its customers' websites in exchange for placing its customers'
advertisements on the Company's website. Revenues from these transactions are
based upon the Company's "cost per thousand impressions", utilized in similar
transactions, and the number of impressions delivered. Revenues are recognized
ratably over the term of the contract. Barter expenses, which approximate barter
revenues, are recorded in sales and marketing expenses in the accompanying
consolidated statements of operations (unaudited).

  Cost of Revenues

     Cost of Revenues includes the cost of the filmed entertainment product, as
well as shipping and handling costs and the cost of promotional items
distributed to customers with purchases. In accordance with EITF 00-14, the cost
of revenues for the quarters ended March 31, 2001 and March 31, 2000 include
$439 and $155,919 respectively in promotional items. Previously, the cost of
these promotional items was included in sales and marketing expenses; however,
all prior period financial statements presented have been reclassified to
conform to the current period's classification.

  Dependence on Suppliers

     Although the Company has agreements with two independent suppliers to
provide filmed entertainment products and related order fulfillment services, it
has no fulfillment operation or warehouse facility of its own and, accordingly,
is dependent on maintaining its existing fulfillment relationships. There can be
no assurance that the Company will maintain its relationships with these vendors
beyond the term of the existing agreements. Further, should the Company's
relationship with any one of these vendors terminate unexpectedly, it may not be
able to find an alternative, comparable vendor capable of providing fulfillment
services on satisfactory terms to the Company and, therefore, there may be an
adverse effect on the Company's results of operations.

                                        6
<PAGE>   8
                          BIGSTAR ENTERTAINMENT, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

  Net Loss Per Share

     The Company accounts for net loss per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". In accordance with SFAS No.
128, basic earnings per share is computed using the weighted average number or
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares, consist of the incremental common shares issuable upon
the exercise of stock options, and warrants (using the Treasury Stock Method);
common equivalent shares are excluded from the calculation if their effect is
anti-dilutive. Diluted loss per share for the three months ended March 31, 2001,
and March 31, 2000 does not include the impact of 2,203,445 and 2,725,725 and
common stock options and warrants then outstanding, respectively, as the effect
of their inclusion would be anti-dilutive.

  Computer Software Developed for Internal Use

     The Company adheres to the provisions of Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed for Internal Use" ("SOP
98-1"), which provides guidance for determining whether computer software is
internal-use software and on accounting for the proceeds of computer software
originally developed for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use.

     For the three months ended March 31, 2001, the Company did not incur and
therefore did not capitalize any costs relating to the functionality of its
website. For the three months ended March 31, 2000, the Company capitalized
$247,719 of external direct costs related to increased functionality of its
website, which will be amortized over the related useful life of two years. All
costs incurred for upgrades, maintenance, and enhancements, which did not result
in additional functionality, were expensed.

  Comprehensive Income

     The Company adheres to the provisions of SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. Accordingly, the Company's comprehensive net loss is equal
to its net loss for the three months ended March 31, 2001, and the three months
ended March 31, 2000.

  Recent Accounting Pronouncements

     In January 2000, the Company adopted EITF Issue No. 99-17, "Accounting for
the Advertising of Barter Transactions," ("EITF Issue 99-17") which changed the
method by which barter revenues can be recognized as revenue. Barter
transactions entered into after January 20, 2000 are accounted for at fair value
on a one-for-one basis with revenue received by the seller of the advertising
for similar advertising sold for cash. The adoption of EITF Issue 99-17 did not
impact the Company's consolidated financial statements.

     In July 2000, the Company adopted EITF Issue No. 00-2, "Accounting for
Website Development Costs" ("EITF 00-2") which provides guidance on when to
capitalize versus expense costs incurred to develop a website. The adoption of
EITF 00-2 did not have a material impact on the Company's consolidation
financial position or results of operations.

     In May 2000, the Company adopted EITF Issue No. 00-14 which specified the
accounting for and classification of coupons and promotional items. Accordingly,
the cost of coupons redeemed by consumers are deducted in the determination of
net sales and the cost of promotional items distributed to customers with
purchases are included in cost of revenues. Previously, these costs were
included in sales and marketing expense. Accordingly, the financial statements
for the three months ended March 31, 2000 presented have been reclassified to
conform to the current period's classifications.

                                        7
<PAGE>   9
                          BIGSTAR ENTERTAINMENT, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 2 -- Stockholders' Equity

  Repurchase of Shares

     In February 2001, the Company repurchased 1,428,571 shares of common stock
from two former major stockholders for a total of $57,142. These purchases are
reflected in treasury shares.

Note 3 -- Going Concern

     The Company's independent public accountants issued a qualified opinion on
the consolidated financial statements as of and for the year ended December 31,
2000 as they determined that there was substantial doubt concerning our ability
to continue as a going concern for the 12 months following December 31, 2000.
The Company has also been notified by its independent public accountants that if
the Company's financial condition does not significantly improve during 2001,
the Company will receive a qualified opinion on its December 31, 2001
consolidated financial statements as well.

                                        8
<PAGE>   10

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

     Except for historical information, the statements in this Form 10-Q report
(including, without limitation, the discussion under the heading "Results of
Operations") contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, and the risks discussed
under the caption, "Item 2. Risk Factors That May Affect Results of Operations
and Financial Condition." The following discussion should be read in conjunction
with the Company's financial statements and the related notes to those
statements and the other financial information appearing elsewhere in this Form
10-Q. Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Risk Factors" and the audited financial
statements and related footnotes included herein and in the Company's Form 10-K
filed April 2, 2001.

Overview

     BigStar was incorporated in March 1998. We began offering products for sale
on our website, www.bigstar.com in May 1998. Until that time, our operating
activities related primarily to the development of the bigstar.com website.

     Since our inception, we have incurred significant operating losses. These
losses primarily result from development costs associated with building our
websites and order processing systems, and marketing, advertising and promotion
expenses and the continued operation of our business. As of March 31, 2001, we
had an accumulated deficit of $44,108,563. As a result, we expect to continue
incurring operating and net losses and negative cash flow from operations, while
we consider strategy alternatives for the Company.

Results of Operations

     The three months ended March 31, 2001 and March 31, 2000.

     Net Sales.  Net sales were $765,266 for the quarter ended March 31, 2001
compared to $4,206,538 for the quarter ended March 31, 2000. Net sales reflect
sales of filmed entertainment products, net of returns, and include shipping and
handling charges, as well as advertising and promotional revenues for the
quarter ended March 31, 2001. The Company recognized $82,505 and $757,227 in
advertising and promotional revenues, including $68,500 and $235,000 in barter
advertising revenues, for the quarters ended March 31, 2001 and March 31, 2000,
respectively. Sales are recognized upon the shipment of filmed entertainment
products. Revenues for the three-month periods ended March 31, 2001 and March
31, 2000 include sales to customers who used $9,641 and $1,024,053,
respectively, of coupons for discounts on their purchases of filmed
entertainment products. Previously, the cost of these coupons was included in
sales and marketing expenses; however, all prior period financial statements
presented have been reclassified to conform to the current period's
classification. Sales for the quarters ended March 31, 2001 and 2000,
respectively, consisted of both the videocassette and DVD formats. The decrease
in sales of filmed entertainment products primarily reflects a significant
decrease in units sold due to lower unit volumes of both videocassettes and
DVDs. The reduction in advertising and promotional revenues reflects lower rates
and overall lower advertising sales. We are unable to anticipate future orders
or the acquisition of additional customers due to the changing dynamics of
online retailing. Customer orders and customer acquisitions have traditionally
been dependent on marketing and promotional programs. During 2000, the Company
significantly reduced its sales and marketing activities. No significant
spending for marketing and promotional programs occurred for the quarter ended
March 31, 2001 and no significant spending is anticipated through the end of
2001 which could result in the continuing of our downward trend of acquiring new
customers and orders. In addition, the Company revised its pricing policies
during the year 2000 in order to achieve higher gross margins on sales of filmed
entertainment products which could also impact the level of customer orders and
customer acquisitions prospectively.

     Cost of Revenues.  Cost of revenues were $583,765 for the quarter ended
March 31, 2001 compared to $4,011,708 for the quarter ended March 31, 2000.
Gross profit for the quarter ended March 31, 2001 was
                                        9
<PAGE>   11

$181,501, resulting in a gross margin of 23.7%. Gross profit for the quarter
ended March 31, 2000 was $194,830, resulting in a gross margin of 4.6%. Cost of
revenues includes the cost of merchandise sold and outbound shipping and
handling charges and the cost of promotional items distributed to customers with
purchases. Promotional items for the quarters ended March 31, 2001 and March 31,
2000 were $439 and $155,919, respectively. Previously, the cost of these
promotional items was included in sales and marketing expenses; however, all
prior period financial statements presented have been reclassified to conform to
the current period's classification. The increase in the gross profit for the
quarter ended March 31, 2001 as compared to the quarter ended March 31, 2000
reflects selling prices on videos and DVDs that reflect smaller discounts from
their suggested retail prices, a large reduction in the use of coupons as a
promotional cost and lower shipping and handling costs as a percentage of
selling prices.

     Sales and Marketing Expenses.  Sales and marketing expenses were $35,805
for the quarter ended March 31, 2001 compared to $3,585,616 for the quarter
ended March 31, 2000. Sales and marketing expenses consist primarily of the
costs of advertising, promotion and marketing programs, as well as personnel
costs. Advertising expenses were $ 17,304 and $2,838,498 for the quarters ended
March 31, 2001 and 2000, respectively. The decrease in advertising expenses for
the quarter ended March 31, 2001 reflects reduced advertising purchases,
including offline media as well as the reduction in sales and marketing
personnel. Promotion expenses include the costs of promotional filmed
entertainment products that are made available to customers who agree to receive
notification of future promotions. Shipping charges on promotional filmed
entertainment products are included in cost of sales and the related customer
billings are included in revenues. The cost of promotional filmed entertainment
products and coupons totaled $10,080 and $1,179,973 for the quarters ended March
31, 2001 and 2000, respectively.

     General and Administrative Expenses.  General and administrative expenses
were $985,905 for the quarter ended March 31, 2001 compared to $1,568,435 for
the quarter ended March 31, 2000. General and administrative expenses include
payroll and related expenses for executive, accounting and administrative
personnel, which were $651,794 and $492,529 for the quarters ended March 31,
2001 and 2000, respectively. The increase in these costs is attributable to the
increase in executive personnel costs and the cost of terminating personnel in
the first quarter of 2001 partially offset by lower administrative and
accounting personnel costs. General and administrative expenses also include
professional fees, which were $62,835 and $423,733 for the quarters ended March
31, 2001 and 2000, respectively. The costs of facilities also decreased to
$84,274 from $246,801 for the quarters ended March 31, 2001 and 2000,
respectively reflecting the decrease in office space rented and related supply
costs due to reduction in personnel. Transaction processing fees also decreased
to $23,730 from $247,127 for the quarters ended March 31, 2001 and 2000,
respectively reflecting the decrease in credit card fees as the volume of
transactions processed decreased with the decline in orders noted above.

     Website and Software Development Expenses.  Website and software
development expenses were $533,170 for the quarter ended March 31, 2001 compared
to $2,354,568 for the quarter ended March 31, 2000. Website and administrative
expenses consist of systems and telecommunications services, personnel costs and
related expenses for the design, development and management of our websites.
Personnel costs and related expenses for the design, development and management
of our websites totaled $140,188 and $1,778,900 for the quarters ended March 31,
2001 and 2000, respectively reflecting the decrease in the number of personnel
and related expenses. The costs of systems and telecommunications services,
totaled $382,328 and $444,636 for the quarters ended March 31, 2001 and 2000,
and showed a decline due to the decreased volume of site activity.

     Net Loss.  BigStar's net loss was approximately $1,323,598 for the quarter
ended March 31, 2001 and $7,031,958 for the quarter ended March 31, 2000.
Because of the uncertainty regarding our future profitability, the future tax
benefits of our losses have been fully reserved for and, therefore, no benefit
for the net operating loss has been recorded. Under Section 382 of the Internal
Revenue Code, this operating loss may be limited due to ownership changes.

                                        10
<PAGE>   12

Liquidity and Capital Resources

     Since inception, we have funded our operating cash requirements primarily
through sales of our common stock. During the quarter ended March 31, 2000, we
issued 68,259 shares of common stock upon the exercise of employee stock
options, 48,500 shares of common stock upon the exercise of warrants and 3,692
shares of common stock under the Company's Employee Stock Purchase Plan for net
proceeds of $297,993.

     Net cash used in operating activities for the quarter ended March 31, 2001
was primarily due to our net loss of $1,323,598 and a decrease in accounts
payable and accrued expenses of $1,105,330, offset by depreciation and
amortization of $211,631, net of the decrease in accounts receivable of $253,957
and other current and noncurrent assets of $295,319. Net cash used in operating
activities for the quarter ended March 31, 2000 of $6,597,241 was primarily due
to our net loss of $7,031,958 offset by an increase in accounts payable and
accrued expenses of $303,792, depreciation and amortization of $242,653 and
non-cash common stock option and warrant expenses of $295,978, net of the
increase in accounts receivable of $150,333 and other current and noncurrent
assets of $246,053.

     At March 31, 2001 the Company had working capital of $2,843,590 compared to
$13,711,809 at December 31, 2000. The decrease in working capital is primarily
attributable to the reduction in cash and cash equivalents and short-term
investments required to fund our operating losses. At March 31, 2001 compared to
December 31, 2000, the decreases in accounts payable and accrued expenses
resulted primarily from the decrease in purchases of filmed entertainment
products, advertising and promotional products over the preceding quarter. The
decrease in accounts receivable was due to the collection of outstanding
advertising receivables.

     Net cash provided by investing activities for the quarter ended March 31,
2001 of $24,543 was primarily provided by the sale of computer assets.

     Net cash used in financing for the quarter ended March 31, 2001 of $57,142
was due to the repurchase of the Company's common stock from ValueVision, a
former major shareholder.

     We currently have agreements with our principal suppliers under which our
total credit availability is $4,000,000 for the purchase of filmed entertainment
products and related fulfillment costs, with payment terms ranging from 30-60
days.

     At March 31, 2001, BigStar's principal commitments consisted of obligations
under non-cancelable operating leases for real estate and office equipment. The
minimum amounts payable under non-cancelable agreements was approximately
$450,000.

     We have no material commitments for capital expenditures and do not
anticipate any significant future purchases for hardware and related software
for enhancements of our websites during the next 12 months. We do not currently
use derivative financial instruments.

     We do not believe that our existing cash and cash equivalent and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital, operating losses and capital expenditures for the next 12 months. Our
future liquidity and capital requirements will depend upon numerous factors
discussed under the section entitled "Risk Factors That May Affect Our Results
of Operations and Financial Condition." We believe that we will require
additional financing within this time frame but cannot be certain that such
additional funding, if needed, will be available on terms acceptable to us or at
all. We are considering ending some or all of the current functionality of our
website, or selling the website, or parts of it, with a view to conserving our
cash and redeploying BigStar's remaining assets into businesses which have the
potential for achieving profitability sooner with potentially higher returns on
investment. BigStar may also decide to merge or sell assets to third parties in
these or other businesses in an effort to maximize stockholder value. There can
be no assurances that the sale of the bigstar.com site platform, or parts
thereof, will be consummated or that efforts to conserve our cash will be
successful. Furthermore, there may not be suitable business opportunities into
which we may invest our remaining resources or that any such opportunity will
ultimately be successful.

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<PAGE>   13

Seasonality and Revenue Fluctuations

     BigStar's limited operating history and rapid growth make it difficult to
ascertain the effects of seasonality on our business other than the holiday
increases generally experienced by most retailers. Any seasonal fluctuations in
sales of filmed entertainment products may affect our sales. Fluctuations in
revenue also may result from the timing of hit releases on videocassettes and
DVD.

Risk Factors That May Affect Results of Operations and Financial Condition

     We Have A Limited Operating History And Have Incurred Significant
Losses.  We commenced operations in March 1998. To date, our costs have greatly
exceeded the revenues we have generated. As of March 31, 2001, our accumulated
deficit was $44,108,563. If we continue our present business, we expect that our
operating expenses will continue to exceed our revenues for the foreseeable
future. As a result, we will need to generate significantly more revenues to
achieve profitability. We may not be able to do so. We will also require
additional financing. We may not be able to obtain the financing or obtain it on
terms acceptable to us. If revenues grow slower than we anticipate, or if
operating expenses exceed our expectations or cannot be reduced accordingly, or
if we cannot obtain additional financing, our business, operating results and
financial condition may be materially harmed.

     We have recently been delisted from the Nasdaq National Market. The Nasdaq
National Market helps provide investors with liquidity. Without the liquidity
and governance provided by a Nasdaq National Market listing, investors may be
reluctant to provide the Company financing that will be required to continue our
operations.

     We received a qualified opinion on our financial statements as of and for
the year ended December 31, 2000. Our independent public accountants issued a
qualified opinion on our financial statements as they concluded that there was
substantial doubt concerning our ability to remain in operation past the 12
months following December 31, 2000. As described more fully in the notes to our
10-K consolidated financial statements, they questioned the Company's ability to
continue operations past 12 months given our deteriorating financial condition.

     We generated substantial revenues from advertising and promotions on our
website. The online advertising market is currently very depressed and the
traffic to our site has decreased with the reduction in our promotional
spending. Because the online advertising market is not expected to become very
robust in the near future, and the traffic to our site will probably not
increase without significant advertising, it is doubtful that we will be able to
continue supplementing our sales of filmed entertainment products with
advertising and promotional revenues. The lack of substantial advertising and
promotional revenues could materially impact our financial conditions.

     We may seek to dispose of all or parts of our current e-commerce platform.
As a result of our continuing operating losses, the significant decline in
market value of Internet-based companies, and the difficulty in raising
additional capital for such companies, we are currently evaluating the
disposition of all or parts of our e-commerce platform with a view to conserving
our cash and redeploying BigStar's remaining assets into businesses which have
the potential for achieving profitability sooner with potentially higher returns
on investment. There can be no assurances that the sale of the bigstar.com
platform or parts thereof will be consummated or that efforts to conserve our
cash will be successful. Furthermore there may not be suitable business
opportunities into which we may invest our remaining resources or that any such
opportunity will be ultimately successful.

     Our Success Depends On The Continued Growth Of Online Commerce.  If online
commerce does not continue to grow or be accepted or grows or is accepted more
slowly than expected, our business will be materially harmed. A number of
factors could slow the growth of online commerce, including the following:

     - the network infrastructure required to support a substantially larger
       volume of transactions may not be developed;

     - government regulation may increase;

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<PAGE>   14

     - telecommunications capacity problems may result in slower response times;
       and

     - consumers may have concerns about the security of online commerce
       transactions.

     We Compete With Other Online Retailers And Traditional Filmed Entertainment
Retailers Who May Be More Successful Than We Are In Attracting And Retaining
Customers.  The retail filmed entertainment industry is intensely competitive.
If we are unable to successfully compete against other retailers of filmed
entertainment products, our business, operating results and financial condition
would be materially harmed.

     Price competition in our industry is also intense, and price is one of the
principal factors on which consumers base their purchasing decisions. Price
competition may reduce our gross margins, which could materially harm our
business, operating results and financial condition. Some of our competitors use
aggressive pricing policies to build market share.

     Some also have adopted business models that include selling filmed
entertainment products for less than their product cost and not charging
customers for shipping and handling. Software applications are also available
that can determine which online site has the lowest price for a particular title
which could direct customers to our competitors' websites.

     Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have. In addition, we believe some of our
competitors devote substantially more resources to website and systems
development than we do.

     Our Reliance On E-Mail Marketing Could Leave Us Vulnerable If Consumers
Reject This Marketing Technique Or Additional Governmental Regulation
Arises.  E-mail marketing is a significant part of our growth strategy. If the
acceptance or use of e-mail marketing is limited by consumer fear of e-mail
computer viruses or additional government regulation, it could harm our
business.

     To date, Congress has not enacted any legislation regulating commercial
e-mail, but a number of bills are pending. One proposed law would prohibit
online operators from sending most unsolicited commercial e-mail where the
operators have no existing or personal relationship with the recipient and the
e-mail is not sent at the request of or with the express consent of the
recipient. Another proposed law would require operators of websites and online
services to disclose to users the personal information the operators have
collected and the personal information that it may share with other firms. It
would further require operators to provide simple processes for users to provide
or withhold consent to the operators' dissemination of the information.

     In the absence of federal legislation, many states, including California,
Connecticut, Delaware, Iowa, Nevada, North Carolina, Oklahoma, Rhode Island,
Tennessee, Virginia, Washington and West Virginia, have passed laws limiting the
use of e-mail marketing. Because these laws have focused primarily on
unsolicited e-mail marketing, BigStar's business has yet to be affected by
current legislation. Other states have begun to consider placing restrictions on
e-mail marketing. If Congress or additional states pass legislation restricting
commercial uses of e-mail, it could harm our ability to communicate with
existing customers and attract new customers. Our sales growth could be
affected, which could materially harm our business, operating results and
financial condition.

     We Must Maintain Satisfactory Vendor Relationships To Compete
Successfully.  We rely on wholesalers to fill our customers' orders. We are
dependent upon maintaining these relationships for filling our customers' orders
because there are only a limited number of wholesalers who sell filmed
entertainment products. If we are unable to maintain suitable relationships with
vendors, we will be materially harmed.

     Our wholesalers will need to satisfy our increasing product requirements on
a timely basis. They also must continue to provide adequate selections of filmed
entertainment titles at competitive prices. If our wholesalers are unable or
unwilling to do so, it would materially harm our ability to compete, which would
in turn materially harm our business, operating results and financial condition.

     We Could Experience System Failures That Interfere With Customers' Access
To Our Online Superstore. Our business depends on the efficient and
uninterrupted operation of our computer and communications hardware and software
systems. Systems interruptions that cause our websites to be unavailable or that
reduce

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<PAGE>   15

our ability to process transactions could materially harm our business,
operating results and financial condition. Interruptions could result from
natural disasters as well as power loss, telecommunications failure and similar
events. We have fully redundant systems but have not yet established a formal
disaster recovery plan.

     Online Security Breaches Could Harm Our Business.  To protect confidential
information, we rely on encryption technology, which transforms information into
a code designed to be unreadable by third parties. We also use authentication
technology that utilizes passwords and other information to prevent unauthorized
persons from accessing a customer's information. If a person circumvents our
security measures, he or she could misappropriate confidential information about
us, or our customers, or cause interruptions in our operations. Security
breaches that result in access to confidential information also could damage our
reputation and expose us to a risk of loss or liability. In addition, we may be
required to make significant expenditures and expend considerable effort to try
and protect against security breaches or remedy problems caused by these
breaches.

     If We Fail To Keep Pace With Rapid Changes Involving The Internet, It Could
Materially Harm Our Ability To Attract And Retain Customers.  Internet
technology, commercial applications and online uses are all rapidly evolving. If
we do not successfully respond to rapid changes involving the Internet, our
business will be materially harmed. For example, we must respond to marketplace
developments in a timely and cost-effective manner. In this regard, we must
continue to develop, enhance and improve the responsiveness and features of our
websites and develop new features to meet customer needs. We also must respond
to technological advances and emerging industry standards and practices on a
cost-effective and timely basis, including the development of technology to sell
digital filmed entertainment to consumers through online systems.

     We Do Not Publish Our Own Editorial Content, Which Means We Must Rely On
Licensed Third-Party Content On Our Websites.  We license third-party content,
including filmed entertainment reviews, news reports and features, in order to
attract and retain website visitors. If we are unable to obtain desirable
content from our content licensors or from existing licensors, it could reduce
visits to our websites, which could materially harm our business. In addition,
if we are unable to obtain content at an acceptable cost, it could materially
harm our ability to compete and our operating results and financial condition.

     We May Not Be Able To Protect Our Intellectual Property Rights.  We regard
our trademarks, trade secrets and similar intellectual property as important to
our success. We have applied for the registration of some of our trademarks and
service marks in the United States. However, our efforts to establish and
protect our intellectual property rights may be inadequate to prevent
misappropriation or infringement of our intellectual property rights. If we are
unable to safeguard our intellectual property rights, it could materially harm
our business, operating results and financial condition.

     We May Infringe On The Intellectual Property Rights Of Others.  We have
established a network of links with numerous small online sites. Many of the
sites may not have licenses for the use of the intellectual property that they
display. The copyright holders of this intellectual property or their licensees
may assert infringement claims against our affiliate partner sites and us
because of our relationships with these sites.

     Although we believe that our use of third-party material on our websites is
permitted under current provisions of copyright law, some aspects of Internet
content and commerce law are not clearly settled. We may therefore be the
subject of alleged infringement claims of the trademarks and other intellectual
property rights of third parties. If we become subject to these types of claims,
our business could be materially harmed even if we successfully defend against
the claims. It also is possible that future legal developments would prohibit us
from having rights to downloadable information, sound or video.

     The Protection Of Our Domain Names Is Uncertain Because The Regulation Of
Domain Names Is Subject To Change.  We currently hold various web domain names
relating to our brand, including BigStar.com, as well as domain names registered
in foreign countries. The acquisition and maintenance of domain names generally
is regulated by governmental agencies and their designees. The regulation of
domain names in the United States and in foreign countries is expected to change
in the near future. As a result, we

                                        14
<PAGE>   16

may be unable to acquire or maintain relevant domain names in all countries in
which we may conduct business. If our ability to acquire or maintain domain
names is limited, it could materially harm our business, operating results and
financial condition.

     We Are Subject To Government Regulation And Legal Liabilities That May Be
Costly And May Interfere With Our Ability To Conduct Business.  Laws and
regulations directly applicable to online commerce or Internet communications
are becoming more prevalent. These laws and regulations could expose us to
compliance costs and substantial liability, which could materially harm our
business, operating results and financial condition. In addition, the growth of
the Internet, coupled with publicity regarding Internet fraud, may lead to the
enactment of more stringent consumer protection laws. These laws would also be
likely to impose additional burdens on our business.

     We May Be Subject To Liability For Sales And Other Taxes.  We do not
collect sales or other similar taxes in most states, although we do so in New
York, California and Illinois. Our business could be materially harmed if
additional sales and similar taxes are imposed on us, or if penalties are
assessed on us for past nonpayment of these taxes. Recently adopted legislation
provides that, prior to October 2001, a state cannot impose sales taxes on
products sold on the Internet unless these taxes could be charged on
non-Internet transactions involving the products. During this moratorium, it is
possible that taxing mechanisms may be developed that would, following the
moratorium, impose increasing sales and similar tax burdens on us. If these
burdens are placed on us, our business could be materially harmed and there
could be a material adverse effect on our operating results and financial
condition.

     Our Success Depends On Our Key Personnel.  Our success is substantially
dependent on key personnel, particularly David Friedensohn, our Chief Executive
Officer and Chairman of the Board. We are party to an employment agreement with
David Friedensohn. The agreement provides that he will be employed as the Chief
Executive Officer of BigStar for an unspecified period of time. Both BigStar and
Mr. Friedensohn may terminate the agreement at any time. If terminated without
cause, Mr. Friedensohn will be entitled to severance pay equal to two years of
his then current base salary. We have no other employment contracts with any of
our other personnel. If Mr. Friedensohn becomes unable or unwilling to continue
in their present positions, our business could be materially harmed.

     We have purchased key-man life insurance in the amounts of $1,000,000 for
David Friedensohn with the Company as the named beneficiary. The benefits
received under these policies would not be sufficient to compensate the Company
for the loss of the services of Mr. Friedensohn should suitable replacements not
be employed.

                                    PART II
                               OTHER INFORMATION

Item 1.  Legal Proceedings

     None.

Item 2.  Changes in Securities and Use of Proceeds.

     None.

Item 3.  Defaults Upon Senior Securities

     None.

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

     No matters were submitted to a vote of security holders during the first
quarter of 2001.

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<PAGE>   17

Item 5.  Other Information

     None.

Item 6.  Exhibits and Reports on Form 8-K.

     (a) List of Exhibits:

     None.

     (b) Reporting on Form 8-K

     None.

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<PAGE>   18

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          BIGSTAR ENTERTAINMENT, INC.

                                          By: /s/ DAVID FRIEDENSOHN
                                            ------------------------------------
                                          David Friedensohn, Chief Executive
                                          Officer and Principal Accounting
                                          Officer

Dated: May 14, 2001

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<PAGE>   19

                                 EXHIBIT INDEX

     Exhibits

     None.