SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C.  20549
                                  
                             Form 10-KSB
                                  
  [  X  ]   Annual  Report Pursuant to Section 13 or  15(d)  of  the
Securities Exchange Act of 1934

For the fiscal year ended June 30, 1996Commission file No.  0-18866
                                  
                                 OR
                                  
 [   ]  Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

                 FIRST NATIONAL ENTERTAINMENT CORP.
  (Exact name of small business issuer as specified in its charter)
                                  
               Colorado                     93-1004651
(State or other jurisdiction of           (I.R.S. Employer
incorporation or organization)          Identification No.)

     600 Enterprise Drive, Suite 109, Oak Brook, Illinois  60521
              (Address of principal executive offices)

      2443 Warrenville Road, Suite 600, Lisle, Illinois   60532
               (Address of previous executive offices)

                              (630)  573-8209
        (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None
                                  
Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock $0.005 Par Value
                          (Title of Class)

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  by check mark if disclosure of delinquent filers  pursuant
to  Item 405 of Regulation S-B is not contained herein, and will not
be  contained, to the best of registrant's knowledge, in  definitive
proxy  or information statements incorporated by reference  of  Part
III  of  this Form 10-KSB, or any amendment to this Form 10-KSB.   [
]

Registrant's revenues for the 1996 Fiscal Year: $1,153,542.

As  of  October 1, 1996 the registrant had 16,898,458 shares of  its
$.005 par value Common Stock outstanding. The aggregate market value
of  shares of Common Stock held by non-affiliates was $4,224,615  as
of this date.





                                                                    
                                                                    
                                                                    
                                                                    
                                INDEX
                                  
                                  
                               Part I.
                                  
                                  
                                                        Page
Item 1. Business.........................................   2
        
Item 2. Properties.......................................   5
          
        
Item 3. Legal                                               5
        Proceedings......................................   
  
Item 4. Submission of Matters to a Vote of Security         5
        Holders..........................................   
  
                                                            
                                 
                             Part II
                                 
Item 5. Market for Registrant's Common Equity and Related   5
        Stockholder Matters...................              
Item 6. Management's Discussion and                         7
        Analysis.........................................   
  
Item 7. Financial Statements and Supplementary             10
        Data.............................................   
  
Item 8. Disagreements on Accounting and Financial          10
        Disclosures......................................   
  
                                                            
                                 
                                 
                            Part III.
                                 
Item 9  Incorporated by                          10- 12   
        Reference...............................   
       
       
                                                            
        
                                 
                             Part IV
        
Item 13 Exhibits, Financial Statements and Reports on      15
        Form 8- K.......................................
        


                               PART I
                                  
Item 1 - Business

General

      The  Company was incorporated on January 10, 1985,  under  the
name of Power Capital Inc., a Colorado corporation.  In November  of
1989,  Power Capital became a public company.  On October  26,  1990
Power Capital acquired 100% of the stock of 1st National Film Corp.,
a  California corporation (1st National Film - California) in a tax-
free,  stock-for-stock  exchange. For financial  reporting  purposes
this acquisition was considered a reverse acquisition, in which  1st
National  Film  - California was deemed the acquiring  or  successor
parent corporation. In December of 1990 the name of the Company  was
changed to 1st National Film Corp. (the "Company"), and 1st National
Film - California's inception date of July 7, 1989 is considered the
Company's  inception date.  In October of 1994, the Company  changed
its  name to First National Entertainment Corp.  Since July of 1991,
the Company's Common Stock has been listed and traded on the NASDAQ.

      In December, 1991 the Company completed the acquisition of all
U.S.   and   Canadian  distribution,  merchandising  and   ancillary
licensing  rights  to the completed animated film  property  Happily
Ever  After  from Mr. Lou Scheimer for approximately $1.35  million.
Mr.  Scheimer is a world-renowned animator and was the  founder  and
former  president of Filmation Associates, which was  a  California-
based  animation  studio  acquired by French  conglomerate  L'Oreal.
Happily  Ever After is an animated sequel to the classic Snow  White
fairy tale, and includes one of the largest all-star casts of voices
ever  assembled  for  an animated motion picture.  Mr.  Scheimer  is
entitled to certain residual royalties based upon revenues earned by
the Company from this property. (See Financial Statements - Note  10
"Commitments and Contingencies").

      On May 28, 1993, Happily Ever After was independently released
by  the Company in over 1,000 theaters in the U.S. The film ran  for
approximately two months, and generated gross box office receipts of
approximately  $3.6 million, which netted the Company  approximately
$1.5 million. These results allowed the Company to graduate from the
development  stage, but were significantly below former management's
revenue expectations.

     In July of 1993 the Company awarded its Happily Ever After home
video distribution rights to Worldvision Enterprises Inc., a unit of
Spelling   Entertainment  Group,  which  is  principally  owned   by
Blockbuster  Entertainment  (which, since  the  video  release,  has
merged with Republic Pictures, "Republic"). The Company and Republic
released  the  Happily  Ever After video on October  19,  1993,  and
through June 30, 1996, the Company has recognized approximately $7.0
million in producer royalties from home video sales of this film.

      In  July of 1993 the Company entered into a manufacturing  and
distribution agreement with American Softworks Corporation  ("ASC"),
a  leading  video  game software company, for the development  of  a
state-of-the-art   video  game  for  Nintendo  and   Sega   hardware
platforms.  Nintendo has  since approved this game for sale  on  its
hardware  platform.   The  Company's  ASC  agreement  has  initially
focused  on the development of a video game for Happily Ever  After.
In  addition, the game has been uniquely designed to be played  from
either  a  boy's or girl's perspective, which may provide  crossover
sales appeal to players of both genders.

     In June of 1994 the Company entered into a revised television
exhibition agreement with Technovision Industries, Inc. ("TVI"), a
New York based distributor of entertainment properties, for the
distribution of Happily Ever After into U.S. and Canadian television
markets.  TVI acted as the Company's agent through August 1, 1995 in
seeking television broadcast and cable opportunities. No contracts
were entered into as a result of the agreement and the Company did
not extend the agreement after August 1, 1995.

     On October 4, 1995 the Company signed an agreement with SeaGull
Entertainment,  Inc., a New York and Los Angeles based  distributor,
for  the  distribution of Happily Ever After.  SeaGull Entertainment
was  to  act  as  the Company's agent through June  30,  2001.   The
Company retained the right to terminate this agreement at the end of
any fiscal year in which certain performance goals are not met.   On
June  30, 1996, the Company elected to terminate the agreement  with
SeaGull Entertainment.  The Company is currently interviewing for  a
replacement distributor.

Family Classics

      In  January of 1994 the Company announced the formation of its
Family  Classics division, which is dedicated to the  production  of
feature  films  based on classic tales.  Concurrently,  the  Company
announced that it had acquired all worldwide media rights  to  Nigel
Miles-Thomas'  stage production of Cinderella.  As of  the  date  of
this  filing,  based  on  the  lack of  a  renegotiated  songwriting
contract,  inability  to  secure  a  funding  partner,  as  well  as
competitive  offerings going into production by  Hollywood  studios,
the  Company  has elected to write off the pre-production  costs  of
Cinderella.

The  Company  is  currently in negotiations to produce  several  new
animated  features  similar  to HEA for  direct  to  video  release.
However,  these  productions will call  for  the  Company  to  raise
significant additional capital, the availability of which cannot  be
assured.

Stylus Records

      In  April  of  1994 the Company acquired an 80%  ownership  in
Stylus  Records Inc. ("Stylus") from Lewin & Rosenthal and Frontline
Records,  which are an entertainment law firm and music distributor,
respectively.   Pursuant  to  the Stylus  Founder's  Agreement,  the
Company  agreed  to  capitalize Stylus with 160,000  shares  of  its
Common  Stock, assumed $105,000 of long-term liabilities from Stylus
and agreed to provide a line of credit for up to $500,000. Stylus in
turn  issued  these shares to Lewin & Rosenthal and  Frontline,  and
agreed to reimburse $105,000 to Lewin & Rosenthal and Frontline  for
their initial contributions. The Company retains an 80% ownership in
Stylus,  with Lewin & Rosenthal (15%) and Frontline (5%) as minority
investment partners in Stylus.  Currently the Company is negotiating
with  both  minority partners to acquire their interests in  Stylus.
Additionally,  the  Company has elected to write off  the  remaining
unamortized portion of goodwill related to Stylus.

      In  addition  to  its initial acquisition  costs,  Stylus  has
advanced  over  $308,000 for the development and  promotion  of  Ms.
Della  Miles,  most of which is contractually recoupable  to  Stylus
from  Ms.  Miles'  future  royalties.   However,  there  can  be  no
assurance  of any future royalties derived from Ms. Miles'  efforts,
and  thus,  there can be no assurance of any recoupment  of  Stylus'
advances  to  date. Therefore, in accordance with the  Statement  of
Financial   Accounting  Standards  No.  50,  ("FAS  50")   Financial
Reporting  in  the Record and Music Industry, the advance  royalties
have  been  expensed.  Currently Ms. Miles continues to dispute  the
recoupment  under  her  contract with the Company.   (See  Financial
Statement, Note 7 "Stylus Records").

Diversification Plan

In   August   1995,  the  Company  announced  plans   to   begin   a
diversification plan into the retail video store industry.   Several
acquisition transactions were closed during the first half of fiscal
year 1996, however, these acquisitions were later unwound due to the
unavailability  of debt financing during the second half  of  fiscal
year 1996.

The  Company still intends to enter the retail video store  industry
and  continues to hold discussions with video store chain owners who
desire  to work with the Company to build a new publicly held chain.
The  Company  is reevaluating its pricing model as well  as  seeking
alternative financing for its acquisition plans, taking into account
the  current  conditions in the retail video  store  industry.   The
Company is currently in negotiations to acquire a new platform video
store  chain to serve as a base for its video store operations.   Of
course,  no assurance can be given as to the ultimate acceptance  of
the  Company's acquisition strategy and financing structure  by  the
market place.

In  September  1996, the Company announced that it  had  exclusively
optioned  the  screenplay "Chicago Blues" from a local screenwriter.
Financing for this live action feature is budgeted at $1,000,000 and
will  be  offered via the formation of Windy City Pictures  I,  LLC.
The  Company  will  serve as executive producer of  this  movie  and
intends  to produce two to three such productions a year in Chicago.
However, no assurance can be given that the funding for this project
or additional movies will be available.

The  Company continues to aggressively seek additional opportunities
in the animation, live action movies and retail video store arenas.

Financial Information About Industry Segments

Not applicable.

Competition

      The  Company competes with many other entertainment  companies
that  have  greater industry experience, acceptance,  and  financial
resources   than   the  Company.  The  Company   faces   significant
competition  from  other  companies  in  the  areas  of   acquiring,
financing,   developing,  producing,  marketing,  and   distributing
quality entertainment products into related markets.

Seasonality

      The  Company's  entertainment businesses may  be  affected  by
industry seasonal factors. Theatrical attendance generally increases
during  summer months and Christmas holiday period. Home  video  and
related  merchandising sales are typically the strongest during  the
Christmas selling season, from October through December.  Music  and
other entertainment property sales are not as seasonal as theatrical
and home video sales, but generally experience their strongest sales
during the Christmas selling season.
     .
Employees

      As  of  September  30, 1996 the Company  had  three  permanent
employees,  including two officers and one professional  staff.   No
employee  of  the  Company is represented by a  labor  union  or  is
subject  to a collective bargaining agreement. The Company  believes
that its relationship with its employees is good.

Research and Development

      The  Company did not incur any research and development  (R&D)
costs in fiscal years 1996 and 1995. The Company does not expect  to
generate any significant R&D costs in fiscal 1997.

Regulation

      The  Code  and  Ratings Administration of the  Motion  Picture
Association  of America, an independent industry trade  association,
assigns  ratings for age suitability for viewing of motion pictures.
The Company has and will continue to submit its films for ratings.

      United  States television stations and networks,  as  well  as
foreign  governments, impose restrictions on the content  of  motion
pictures  and  other  entertainment properties.   There  can  be  no
assurance  that  future  restrictions  on  entertainment  properties
released  by  the  Company may not affect the Company's  ability  to
exhibit or sell such entertainment properties.


Item 2 - Properties

      The  Company's principal executive offices are located at  600
Enterprise  Drive, Suite 109, Oak Brook, Illinois  60521,  telephone
(630) 573-8209. The Company leases approximately 900 square feet  of
office  space in an executive office complex.  This lease  commenced
June 1, 1996 and expires May 31, 1997.

      The  Company  does not own production studios  or  warehouses,
sound   stages,  music  studios  or  any  other  related  production
facilities.  As  such, the Company does not have the fixed  payroll,
overhead  and  other operating costs associated with  ownership  and
operation of such production facilities.


Item 3 - Legal Proceedings

      The  Company  and its former executive officers and  directors
were  defendants  in a class action lawsuit which commenced  in  the
United   States   District  Court  for  the  Eastern   District   of
Pennsylvania. The action was commenced on July 8, 1993, certified as
a  class  action on September 8, 1994, and alleged fraud and various
violations  of  securities  laws in connection  with  the  Company's
public  disclosures  during  the period preceding  and  through  the
theatrical  release  of the film Happily Ever After.  The  Company's
motion  for  a  change  of venue from Philadelphia  to  the  Western
District  of  Texas  was granted on January  31,  1995.   The  class
incorporates  all  persons who acquired the Company's  Common  Stock
between March 9, 1993 and June 2, 1993, inclusive. On June 30, 1995,
a second shareholder lawsuit was filed in the United States District
Court for the Western District of Texas (seeking to be certified  as
a  class action) covering the same facts as the previous shareholder
suit.   On December 28, 1995 the Company settled the first suit  for
$50,000  in  cash  and 4,000,000 shares of common stock,  valued  at
$0.50/share.  These amounts plus legal costs have been  recorded  in
the  1996 statement of operations as settlement of litigation.   The
second  class  action  lawsuit filed  on  June  30,  1995  has  been
dismissed by the plaintiffs based on the settlement of the  previous
suit.

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

      No matters were submitted to a vote of security holders during
the fourth quarter of fiscal year 1996.

                               Part II
                                  
Item 5 - Market for the Registrant's Common Stock and Related
Stockholder Matters

     The Company's $.005 par value Common Stock shares are traded on
the  NASDAQ  'Small Cap' Market System under the symbol "FNAT."  The
following  table  shows  the  range of reported  high  and  low  bid
quotations  for the Company's Common shares, for the fiscal  periods
indicated,  as reported on the NASDAQ Regular Market System  through
the National Quotation Bureau and NASDAQ Monthly Reports.


                              High           Low
Fiscal 1996:

     July - September         $2.06          $0.28
     October - December       $1.69          $0.34
     January - March          $0.78          $0.19
     March - June             $0.59          $0.16


      As  of October 1, 1996, the Company had 1,081 shareholders  of
record.  The  Company has never paid a cash dividend on  its  Common
Stock and does not expect to pay a cash dividend on its Common Stock
in the foreseeable future.

     The Company has previously issued 200,000 Class A Warrants and
200,000 Class B Warrants, each exercisable for one share of the
Company's Common Stock at a price of $12.50 per share. There is no
current active market for trading in these securities, which expired
on April 1, 1996.

      On  October 6, 1996 the Company's Board of Directors  approved
and  issued  an  Extension and Optional New  Pricing  Offer  to  the
holders of Warrants from its Private Placement of 1,260,000  of  the
Company's  common stock in December 1995.  These 1,260,000  Warrants
originally entitled the holders to purchase an additional share each
of  the  Company's  common  stock at a price  of  $1.00  through  an
expiration  date of December 15, 1997.  The Extension  and  Optional
New  Pricing  Offer  allows an extension at  the  same  price  until
December  31,  1998 for no additional consideration OR an  extension
until  December  31,  1999 at a share price of $.15  for  additional
consideration of $.05 per Warrant OR an extension until December 31,
2000  at a share price of $.05 for additional consideration of  $.10
per Warrant.



Item 6 - Management's Discussion and Analysis

Overview

       First   National  Film  Corp.  was  founded  to  pursue   the
acquisition,   distribution,   and   marketing   of   high   quality
entertainment properties targeted at the family market in all  forms
of  media.  The Company left the development stage and  entered  the
operational  stage  in 1993 concurrent with the national  theatrical
release  of its animated motion picture Happily Ever After  and  the
resultant generation of revenues.

      The  Company  initiates the recognition of revenues  from  its
entertainment properties when it releases them for sale  into  their
primary and/or secondary markets. Revenue recognition often precedes
revenue  collection due to substantial collection cycles, which  are
common  for the entertainment industry. Extended collection  periods
could adversely affect the Company's liquidity. Revenues and results
of  operations for any period are significantly dependent  upon  the
public  acceptance  of  the Company's entertainment  properties  and
products,  and,  as such, may materially fluctuate  from  period  to
period, and may not be indicative of results in future periods.

      For  theatrical, video, merchandising, television,  and  other
film-related revenues, the Company uses the individual-film-forecast
computation  method  as  promulgated under  Statement  of  Financial
Accounting  Standards No. 53, Financial Reporting by  Producers  and
Distributors of Motion Picture Films. Under this method, film  costs
for each period are amortized in proportion to the revenue earned in
the  current period, relative to management's estimate of the  total
revenue  to be realized from all markets for a given film  over  its
commercial  life. Film costs include acquisition costs, distribution
costs,  print  and certain advertising costs, and all other  related
exploitation costs which benefit future periods. Management  reviews
its  total  revenue estimates for its film properties on  a  regular
basis,  which may result in changes of projections of film revenues,
costs, and rate of cost amortization. Net income for any period  may
therefore  be  affected  by the Company's  revenue  projections  and
amortization of film costs.

      The  Company's unamortized film costs associated with  Happily
Ever After totaled approximately $2.7 million at June 30, 1996.   To
date,  the  Company has amortized over 74% of its total  capitalized
costs for this film, the majority of which have been matched against
home  video  producer royalties earned from the  Company's  Republic
contract.

      For future album, soundtrack, merchandising, publishing, music
video,  and mechanical revenues, the Company will use the accounting
standards  provided  for  in  FAS 50.  Under  these  standards,  the
Company will recognize license fee revenues when the earning process
is  complete and minimum guaranteed revenues are earned. The Company
will record advance royalty payments to its recording artists as  an
asset  when  paid  and  as an expense when actually  earned  by  the
artists, provided it is reasonable to consider these costs  will  be
recoupable  by  the  Company. The cost of record masters  which  are
reasonably considered to be recoupable will be treated as  an  asset
of  the  Company.   (See  Financial  Statements  -  Note  7  "Stylus
Records").

Liquidity and Capital Resources

      The Company's operations were burdened by over $3.7 million of
non-cash  costs, approximately $1.7 million of which were  amortized
film and goodwill costs, with the balance made up by the issuance of
stock in settlement of a class action shareholders' suit

      During  its  history  the Company has  recognized  over  $23.6
million  in accumulated deficits, most of which should be  available
to  be  used  as  tax  loss carryforwards. However,  under  Internal
Revenue  Code ("IRC") Section 382, Limitation on Net Operating  Loss
Carryforwards,  the  Company  is  somewhat  limited  in  its  annual
utilization  of accumulated tax losses based on certain  changes  in
ownership.  (See  Financial Statements - Note 5 "Income  Taxes").  A
majority  of the Company's deficit was incurred during the Company's
development stage through May 1993, prior to the release of  Happily
Ever  After. A significant portion of the Company's losses have been
derived from non-cash costs.

      During  fiscal  1996,  the  Company  collected  no  cash  from
theatrical  and  home video revenues earned by its  animated  motion
picture  property Happily Ever After.  As a result, the Company  has
not  been able to internally finance its operations during the year.
The  Company  has  substantially reduced its  overhead  expense  and
believes  it  will be able to increase cash revenues in fiscal  year
1997  via  the television exploitation of Happily Ever  After.  (See
Item 1 "Business - General").  In addition, the Company is currently
seeking  to  produce its first live action movie  in  an  effort  to
diversify  its  operations  and to increase  its  cash  flow.   (See
Financial Statements Note 11 "Continuing Operations").

       In July 1995, the Company moved its corporate offices
to  an  executive  suite in Chicago, Illinois and sold  all  of  the
Company's office furniture, furnishings and equipment to the  former
Chief  Executive Officer, Milton Verret, for $600,000 to be paid  in
equal  monthly  installments  commencing  on  July  15,  1995.    In
addition,  Mr.  Verret  agreed to assume all capital  and  operating
leases  entered  into by the Company prior to June  30,  1995.   The
Company  later agreed to a discount of $50,000 on the  principal  of
this  note in exchange for an acceleration of payments.  Mr.  Verret
satisfied the note during fiscal year 1996.

      As of June 30, 1996, the Company had approximately $157,000 in
unrestricted cash and cash equivalents as compared to $75,000 at the
end  of fiscal 1995. The Company had $27,000 net accounts receivable
and  $2.7  million in film inventory at the end of fiscal  1996,  as
compared  to  zero  and  $4.2 million at  the  end  of  fiscal  1995,
respectively. A majority of the Company's receivables and  inventory
balances  are  based  on  Happily Ever After sales  and  capitalized
costs,  respectively. To date, the Company has amortized  over  $7.8
million  (or  74%) of Happily Ever After's total capitalized  costs,
and expects to amortize a majority of the remaining balance by 2001.
(Animated  films often have relatively long revenue producing  lives
from  ancillary sources).  The Company expects to generate  revenues
from  Happily  Ever  After at least into fiscal 2003.   The  Company
invested  approximately  $14,000 in property  and  equipment  during
fiscal 1996.

The  Company  had  approximately $3.1 million in  total  assets  and
$519,000 in total current liabilities at the end of fiscal 1996,  as
compared  to  $4.9 million and $401,000 at the end of  fiscal  1995,
respectively.  The Company issued approximately $2.8 million of  its
Common Stock in fiscal 1996 as compared to $490,000 in fiscal  1995,
$2  million  of which was for litigation settlement and the  balance
substantially  for cash.  On October 13, 1995 the Company  announced
that its Board of Directors had approved a private stock offering of
up  to  10,000,000 shares of its par value $0.005  Common  Stock  at
$0.50 per share.  The offering was made only to a limited number  of
Accredited  Investors  (as  that term  is  defined  in  the  federal
securities laws).  The shares offered were not registered under  the
federal  securities laws or the securities laws  of  any  state  and
accordingly will not be tradable and may not be reoffered or  resold
in  the United States unless they are subsequently registered or  an
applicable exemption from registration is available.

Results of Operations

      The  Company incurred a net loss during the fiscal year  ended
June 30, 1996 of ($4.76) million or ($0.33) per share as compared to
($4.95) million or ($0.43) per share for fiscal 1995.  Approximately
$1.7  million of the fiscal 1996 loss was attributed to write  downs
of the unamortized film costs for the Company's feature film Happily
Ever  After,  pre-production costs of Cinderella and the unamortized
goodwill of Stylus Records.  Almost $2.1 million of the fiscal  1996
loss  was  attributable to settlement of the class action litigation
which  commenced in 1993.  These two categories in total contributed
over  80%  of the year's loss.  From inception through fiscal  1996,
the  Company incurred an accumulated deficit of ($23.6) million,  as
compared to ($18.8) million from inception through the end of fiscal
1995.  A majority of the accumulated deficit and the resultant  loss
per   share  since  the  Company's  inception  occurred  during  the
Company's  development  stage prior to  the  theatrical  release  of
Happily Ever After in May of 1993, which includes start-up expenses,
film  acquisition and marketing costs, movie prints and  advertising
campaigns,  employment  contract stock  issuances  for  certain  key
management, and settlement of debts resulting from attempted earlier
theatrical  releases of Happily Ever After in the early  1990's.   A
majority  of  these  costs were paid through  the  issuance  of  the
Company's  Common  Stock. Management believes  that  most  of  these
expenses were unusual in nature and/or amount, and does not expect a
recurrence  of  these  items at previous expense  levels  in  future
periods, although there can be no assurance.

      Comparison  of  Fiscal  1996 to Fiscal  1995.   Total  revenue
increased  to approximately $1,153,000 in fiscal 1996 from  $806,000
in  fiscal  1995  as a result of an increase in the number  of  home
video  sales recognized in 1996. Total revenue from the current  and
previous  year were comprised primarily of royalties from  sales  of
the Company's home video version of its Happily Ever After title.

      The  Company  graduated  from the development  stage  when  it
commenced  operations  as  an independent film  distributor  in  the
fourth  quarter of fiscal 1993 with the national theatrical  release
of  its  film  Happily Ever After in over 1,000 theaters nationwide.
The  Company  expects  to continue generating sales  from  secondary
revenue  sources  for  this film title over the  next  seven  fiscal
years,  primarily  in  the  home  video,  television,  video   game,
merchandising,  and  premium sales markets,  although  there  is  no
assurance   that  such  sales  will  be  generated.  A   change   in
management's lifetime revenue estimate for Happily Ever  After  made
at   the   end  of  fiscal  1996  had  the  effect  of  accelerating
approximately  $500,000 of amortized film costs  into  fiscal  1996.
(See   Financial  Statements  -  Note  1  "Summary  of   Significant
Accounting Polices.")

      Direct  film  costs  associated  with  revenues  (including  a
writedown  of  $500,000 in fiscal 1996 and $1.8  million  in  fiscal
1995) totaled $1.1 million in fiscal 1996 and $2.5 million in fiscal
1995.  These  costs  reflect  an  amortized  portion  of  the  total
capitalized  costs  associated with the  acquisition  and  marketing
campaign required to bring Happily Ever After to market and position
it  for sales in ancillary markets. Unamortized costs related to the
film totaled $2.7 million at the end of fiscal 1996 and $3.8 million
at the end of fiscal 1995. (See Financial Statements - Note 3  "Film
Inventory").

     Operating expenses totaled $4.7 million in fiscal 1996, up from
$2.8   million   in  fiscal  1995.  This  increase   was   primarily
attributable  to  the write off of Cinderella of  $400,000,  and  an
increased  reserve for uncollectable receivables  of  $600,000  over
that reserved in fiscal 1995.

      Marketing,  selling and royalties expenses fell  over  50%  to
$253,000 in fiscal 1996 from $554,000 in fiscal 1995.  This  decline
was  primarily due to the reduction of sales efforts to only include
that associated with the exploitation of Happily Ever After.

     General and administrative expenses were $2.2 million in fiscal
1996 and fiscal 1995.

      The  Company incurred no income tax liabilities in fiscal 1996
or  1995. The Company hopes to utilize its tax loss carryforwards of
approximately  $22.4 million in the future against  taxable  income,
which  would allow the Company to avoid having to pay federal income
taxes  against  an  equivalent amount of otherwise  taxable  income.
However,  there  is  no  assurance that the  Company  will  generate
sufficient  taxable  income to offset any or all  of  its  tax  loss
carryforwards  in  the  statutory  time  frame  allowed   for   such
carryforwards.  Further,  the Company  is   limited  in  its  annual
utilization  of  tax  loss  carryforwards  under  IRC  Section  382,
Limitation  on  Net Operating Loss Carryforwards, based  on  certain
changes  in  ownership. (See Financial Statements - Note  5  "Income
Taxes").

Item 7 - Financial Statements and Supplementary Data

      The  financial statements listed in the accompanying index  to
financial statements are filed as an attachment to this Report.

Item 8 - Disagreements on Accounting and Financial Disclosures

For  fiscal year 1996, the Company engaged Crowe, Chizek and Company
LLP as its independent accountants.  For fiscal years 1994 and 1995,
Ernst  & Young LLP had served as its independent accountants.  Ernst
&  Young  LLP  resigned as the Company's independent accountants  on
June  10,  1996.  Through  the date of  resignation  there  were  no
reportable  events or disagreements with Ernst & Young  LLP  on  any
matter  of  accounting principles or practices, financial  statement
disclosure  or  auditing scope or procedure, which disagreements  if
not  resolved  to the satisfaction of Ernst & Young LLP  would  have
caused  them  to  make  reference thereto in  their  report  on  the
financial statement for such periods.  The reports of Ernst &  Young
LLP  on  the  financial statements for fiscal years  1995  and  1994
contained no adverse opinion or disclaimer of opinion and  were  not
qualified  as to uncertainty, audit scope or accounting  principles.
The  Company's Board of Directors participated in and  approved  the
decision to change independent accountants.


                              Part III

Item 9 - Directors and  Executive Officers
Directors and Executive Officers
The  following table sets forth the Executive Officers and Directors
of  the  Board for the Company, their ages, positions held with  the
Company  and term of service as Director of the Company, as of  June
30, 1996.

ame            Age    Positions Held With       Periods of Service
                      Company                   as Company Director
Stephen J.     43     President, Acting         May 1995 to Present
Denari                Chief Financial Officer,
                      Chief Operating Officer
                      and Director
                                                      
Joanne K. 
Fabere         39     Controller, Secretary      February 1996 to
                      and Director               Present
                                                      

     Eugene Denari, Jr., age 70, served as Chairman of the Board and
Chief  Executive  Officer from June 1995 until  his  resignation  in
February of 1996.

       All  Directors  serve  until  the  next  annual  meeting   of
stockholders and the concurrent election of directors.  All officers
serve  at the pleasure of the Board of Directors.  No Director holds
directorships in other reporting companies.

Business Experience of Nominees and Executive Officers

Stephen J. Denari - As President and Chief Operating Officer, Mr.
Denari participates in the formulation of and is responsible for the
overall operation and implementation of corporate strategy.  His 20
years of business experience began with various positions at large
organizations such as Coopers & Lybrand, IBM and National
Semiconductor.  His corporate turnaround experience began in the
early 1980's, as President of Harley Davidson Finance Company and
Vice President of Harley Davidson.

Joanne K. Fabere - As Controller, Ms. Fabere is involved in the day
to day operations of the Company.  Her 14 years of business
experience range from banking, operations management,  quality
assurance and business process re-engineering in various
organizations.  Ms. Fabere has worked with Mr. Denari in his
corporate turnaround efforts for several years.

Item 10 - Executive Compensation

Summary Compensation Table

The following table summarizes the compensation paid during the last
three   fiscal  years  to  the  Company's  executive  officers   and
directors.

                  Annual Compensation      Long-Term Compensation
                                   Restricted Securities
Name and            Fiscal         Stock      Underlying      All Other
Principal Position  Year   Salary  Awards     Options/SARs(#) Compensation

Eugene 
Denari,Jr. CEO      1995  $30,199  $ 0         500,000(a)       0
                    1996   50,769

Stephen J. 
Denari    President 1995  $14,487  $ 0         800,000(b)       0
          Chief
          Operating
          Officer & 1996  $103,846
          Acting CFO

Joanne K. 
Fabere    Controller1996  $29,230  $ 0           0              0
          Company 
          Secretary

NOTES:
(a)   Mr.  Eugene Denari, Jr. received an option to purchase 500,000
shares of Company stock in June 1995 at the exercise price of  $0.40
per share which vest over a period from July 1, 1995 through July 1,
1996.    This  option  was  canceled  in  its  entirety  after   his
resignation from the Company in February 1996.

(b)   Mr.  Stephen J. Denari received an option to purchase  800,000
shares of Company stock in June 1995 at the exercise price of  $0.40
per  share which vested over a period from July 1, 1995 through July
1, 1996.

Options/SAR Grants in the Last Fiscal Year
The  Company  has  one stock option plan in place:  the  1993  Stock
Option  Plan, under which up to 3,500,000 shares may be issued.  The
plan  authorizes the grant of incentive stock options with  exercise
prices  no lower than the fair market value of the underlying  stock
on  the  date of the grant, and also non-qualified stock options  at
exercise  prices  no  lower than par value. As  of  June  30,  1996,
options  to purchase 25,000 shares had been issued under this  plan.
The  grant was made to a former officer of the Company in August  of
1993  at an exercise price of $1.53 per share.  The following  table
sets forth information regarding the stock option grants the Company
has  made to the named executive officers during fiscal 1995.   None
were granted during fiscal 1996.

            Number of      % of Total
            Securities     Options/SARs
            Underlying     Granted to      Exercise or   Expiration
            Options/SARs   Employees in    Base Price    Date
            Granted        Fiscal Year     ($/Share)

Name                                        

Eugene 
Denari, Jr.  500,000(a)       38%            $0.40        7/1/2006

Stephen J.
Denari       800,000(b)       62%            $0.40        7/1/2006

(a)   Mr.  Eugene Denari, Jr. received an option to purchase 500,000
shares of Company stock in June 1995 at the exercise price of  $0.40
per share which vest over a period from July 1, 1995 through July 1,
1996.    These  options were not issued pursuant to the  1993  Stock
Option  Plan  or  any other plan.  This option was canceled  in  its
entirety  after  his resignation from the Company in February  1996.
(See Note 6 - Shareholders' Equity)

(b)   Mr.  Stephen J. Denari received an option to purchase  800,000
shares of Company stock in June 1995 at the exercise price of  $0.40
per share which vest over a period from July 1, 1995 through July 1,
1996.   These  options were not issued pursuant to  the  1993  Stock
Option Plan or any other plan.

Aggregated  Option/SAR Exercises in the Last Fiscal Year and  Fiscal
Year-End Option/SAR Values.
The following table provides information about the options exercised
by  the  named  executive  officers during  fiscal  1996  and  about
unexercised stock options held by the named executive officers as of
June 30, 1996.
                                 Number of Securities
                                 Underlying Unexer-      In-the-Money
                                 cised Options/SARs      Options/SARs at
          Shares                 at Fiscal Year-End (#)  Fiscal Year-
          Acquired on   Value    Exercisable(E)/         Exercisable (E)/
Name      Exercise(#)   Ralized  Unexercisable(U)        Unexercisable(U)


Eugene 
Denari, Jr.   0            0              0                     0

Stephen J.
Denari        0            0           800,000(E)               0

Item  11  -  Security  Ownership of Certain  Beneficial  Owners  and
Management
Principal Stockholders and Stock Holdings of Management
The  following table sets forth as of  October 1, 1996  all  persons
known  by  the  Company to be a beneficial owner of more  than  five
percent  of  any  class of the Company's voting securities  and  the
security  ownership  in the Company or its affiliates,  directly  or
indirectly by all directors and nominees, executive officers and all
directors  and officers of the Company as a group. Unless  otherwise
stated,  the  nature of beneficial ownership is that of sole  voting
power and sole investment power.

Name and Address        Amount and         Percent
of Beneficial           Nature of          of Class(1)
Owner                   Beneficial
                        Ownership

Stephen J. Denari        800,000(2)           4.7%
600 Enterprise
Drive, Ste 109,
Oak Brook, IL
60521
                                        
Joanne K. Fabere            1,000             .01%
600 Enterprise
Drive, Ste 109,
Oak Brook, IL
60521

Officers and              801,000            4.71%
Directors as a
Group (two
people)

1   Calculated  based upon 16,898,458 shares of Common Stock  issued
and  outstanding  as  of the Record Date of  October  1,  1996.   In
addition  to  its  Common Stock, the Company had outstanding  as  of
October 1, 1996, 1,260,000 Warrants to purchase one share of  common
stock,  $0.005 par value each.  None of the holders of the  Warrants
are entitled to vote, receive dividends, receive notices of meetings
or  to any other shareholder rights on account of the Warrants prior
to exercise thereof.

2  Mr.  Stephen  J.  Denari received an option to  purchase  800,000
shares of Company stock in June 1995 at the exercise price of  $0.40
per share which vest over a period from July 1, 1995 through July 1,
1996.  This  table  includes the underlying securities  for  options
vesting  within 60 days of the Company's fiscal year end  (June  30,
1996.).


Item 12 - Certain Relationships and Related Transactions
Certain Relationships and Related Transactions

For the years ended June 30, 1996 and 1995, the Company incurred and
paid  consulting  fees of $2,000, in 1996 and interest  payments  of
$6,571   in  1995,  which  were  substantially  to  related  parties
Additionally,  during fiscal year 1996, Eugene  Denari  and  Timothy
Denari,  father  and  brother of Company  president  Stephen  Denari
respectively, worked for the Company, and Eugene served on the Board
of  Directors.   As of June 30, 1996 both Eugene and Timothy  Denari
had  resigned all positions with the Company.  An independent review
of all compensation and expenses was conducted, and both parties and
the  Company  have  executed mutual releases regarding  any  further
financial  issues  related  to their work  for  the  Company.   (See
Financial Statements Note 8 - "Related Party Transactions").

In December of 1993, the Company issued 556,881 shares of its Common
Stock  to  Mr.  Verret  in payment of $587,000 of  accumulated  cash
advances  which  he  had  made to the Company.   These  shares  were
recorded  as  "Redeemable Common Stock" in the  Company's  financial
statements  for the 1994 Fiscal Year, as Mr. Verret  was  given  the
option to return these shares to the Company for payment in cash  of
the  original $587,000 obligation  owed to him by the  Company.   In
May of 1994, the Board of Directors approved the payment in cash  of
this  obligation  and  in July, 1994, Mr. Verret  surrendered  these
shares to the Company in exchange for such cash payment.

Further,  in  December of 1993, the Company paid Mr. Verret  191,743
shares  of  common  stock in lieu of a balance due  of  $200,000  in
annual salary, subject to the right of Mr. Verret to put back all or
a  portion  of such shares, if the open market sales of such  shares
did  not achieve payment in full of the amount owed. Mr. Verret sold
100,000 of these shares and returned the balance of 91,743 shares to
the Company in July of 1994 for cancellation in exchange for Company
payment  of  the remaining $107,471 owed on his 1993  salary,  after
deducting the net sales proceeds from the shares sold.

In  April  of  1994, the Company paid $100,000 towards its  $222,000
note  payable  to  Mr. Thomas Verret, father of the  Company's  then
Chairman,  Mr.  Milton Verret.  This note was originally  issued  in
December  of 1991 as final payment for the Company's acquisition  of
Happily Ever After.  The Company paid annual interest of 12% on this
note  on a monthly basis.  The Company paid this obligation in  full
in July of 1994.

The  Company  had  a five-year employment contract with  its  former
President,  Mr. Jeffrey S. Schwaber, for his exclusive  services  to
the  Company.  This  contract, dated May 1, 1993,  provided  for  an
annual  salary  for  Mr.  Schwaber of  $204,000.  In  addition,  the
President   was  to  receive  500,000 shares  of  Company  stock  in
consideration  for  services to be rendered over  the  term  of  the
contract.  These  shares vested as follows:  100,000  shares,  which
vested  on September 26, 1993; 200,000 shares, to vest on  April  1,
1995; and 200,000 shares to vest on April 1, 1997. The two blocks of
200,000  shares  were to be forfeited if employment  was  terminated
prior  to their respective vesting dates.  In November of 1994,  Mr.
Schwaber resigned his position as president and pursuant to  another
agreement  with  the  Company, he returned  200,000  shares  to  the
Company.   Mr. Schwaber was granted the unearned 200,000  shares  by
the Board upon his resignation.

The  Company  also  had  a five-year employment  contract  with  its
Executive  Vice  President, Mr. Rick D.  Busby,  for  his  exclusive
services  to  the Company.  This contract, dated January  15,  1993,
provided  for  escalating  annual  salary  levels  to  approximately
$165,000  per  year  by  April of 1994,  with  annual  6%  increases
thereafter  through April of 1997.  The Company also issued  100,000
shares  of  Common Stock to Mr. Busby, which are fully vested.   Mr.
Busby  also received an option to purchase 11,500 shares  of  Common
Stock,  payable  by  the Company, in partial  consideration  for  an
earlier  loan  to the Company. Mr. Busby exercised  this  option  in
fiscal  1993.  In February 1995, Mr. Busby resigned his position  as
the Company's Executive Vice President.

Compliance with Section 16 (a) of the Exchange Act

      The  Securities  Exchange Act of 1934 requires  all  executive
officers,  directors and 10% or greater shareholders to  report  any
changes in their ownership of Company common stock to the Securities
and  Exchange Commission, NASDAQ and the Company.  Based solely upon
a  review of these reports, the Company believes that during  fiscal
1996 all Section 16 filing requirements were complied with except as
follows:   Joanne K. Fabere failed to timely file an initial  report
on Form 3.  These filings have now been made.


                               Part IV

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

Financial Statements and Schedules:

      See  Table of Contents at the beginning of attached  financial
statements.

Exhibits required by Item 601 of Regulation S-B.


Exhibit  Description
No.      
3.1 *    Articles   of  Incorporation  as  Amended  on   7/1/93
         approved by shareholders on May 21, 1993 (Restated  as
         Amended).  (Incorporated by reference to  Exhibit  3.1
         of  the  Company's Annual Report of Form 10-K for  the
3.1.1    year  ended  June  30, 1993, Commission  File  No.  0-
         18866)
         
         Amendment  of  Articles of Incorporation  approved  on
         October 28, 1994.
         
3.2 *    By-laws   approved  and  adopted   March   30,   1989.
         (Incorporated  by  reference to  Exhibit  3.2  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1993, Commission File No. 0-18866)
         
4.1 *    Instruments  Defining  Rights  of  Security   Holders,
         Class  A  and Class B Common Stock Purchase  Warrants.
         (Incorporated   by   reference  to  the   Registration
         Statement   on   Form  S-18,  declared  effective   on
         9/19/89, SEC Reg. No. 33-30153-B)
         
10.1 *   1993  Non-Statutory Stock Option Plan, April 1,  1993.
         (Incorporated  by  reference to Exhibit  10.1  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1993, Commission File No. 0-18866)
         
10.2 *   1993  Incentive  Stock  Option Plan,  April  1,  1993.
         (Incorporated  by  reference to Exhibit  10.2  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1993, Commission File No. 0-18866)
         
10.3 *   Employment  Agreement with Jeffrey S.  Schwaber  dated
         March  26, 1993. (Incorporated by reference to Exhibit
         10.3  of the Company's Annual Report of Form 10-K  for
         the  year ended June 30, 1993, Commission File No.  
         0-18866)
         
10.4 *   Employment  Agreement and option with  Rick  D.  Busby
         dated January 15, 1993. (Incorporated by reference  to
         Exhibit  10.4 of the Company's Annual Report  of  Form
         10-K  for  the  year ended June 30,  1993,  Commission
         File No. 0-18866)
         
10.5 *   Milton  Verret Stock Purchase Arrangement of  December
         1,  1991 (Written Summary). (Incorporated by reference
         to  Exhibit  10.5  of the Company's Annual  Report  of
         Form   10-K   for  the  year  ended  June  30,   1993,
         Commission File No. 0-18866)
         
10.6 *   Continental   Capital  &  Equity   Corp.   Advertising
         Consulting  Agreement dated March 5, 1993  and  Agenda
         of  May 11, 1993 (Incorporated by reference to Exhibit
         10.6  of the Company's Annual Report of Form 10-K  for
         the  year ended June 30, 1993, Commission File No.  0-
         18866)
         
10.7 *   Television  Distribution Agreement  with  Technovision
         Industries,  Inc. dated  March 16, 1993  (Incorporated
         by  reference to Exhibit 10.7 of the Company's  Annual
         Report of Form 10-K for the year ended June 30,  1993,
         Commission File No. 0-18866)
         
10.8 *   Letter   Agreement   and  Amendment   Agreement   with
         Entertainment      Marketing     &      Communications
         International  dated February 3,  1992  and  June  15,
         1993,  respectively  (Incorporated  by  reference   to
         Exhibit  10.8 of the Company's Annual Report  of  Form
         10-K  for  the  year ended June 30,  1993,  Commission
         File No. 0-18866)
         
10.9 *   Agreement  with  American Softworks Corporation  dated
         June  17, 1993. (Incorporated by reference to  Exhibit
         10.9  of the Company's Annual Report of Form 10-K  for
         the  year ended June 30, 1993, Commission File No.  0-
         18866)
         
10.10 *  Agreement  with  Worldvision  Enterprises  Inc.  dated
         July  16, 1993. (Incorporated by reference to  Exhibit
         10.10 of the Company's Annual Report of Form 10-K  for
         the  year ended June 30, 1993, Commission File No.  0-
         18866)
         
10.11*+  1994  Employee Stock Purchase Plan, dated January  22,
         1994   (Incorporated by reference to Exhibit 10.11  of
         the  Company's Annual Report of Form 10-K for the year
         ended June 30, 1994, Commission File No. 0-18866)
         
10.12*   Amendments  to Worldvision Enterprises Inc. Agreement,
         dated  April  13, 1994 and May 23, 1994  (Incorporated
         by  reference to Exhibit 10.12 of the Company's Annual
         Report of Form 10-K for the year ended June 30,  1994,
         Commission File No. 0-18866)
         
10.13*   Stylus  Records  Inc.  subsidiary Founder's  Agreement
         dated  April  15, 1994  (Incorporated by reference  to
         Exhibit  10.13 of the Company's Annual Report of  Form
         10-K  for  the  year ended June 30,  1994,  Commission
         File No. 0-18866)
         
10.14*   Replacement Television Program Distribution  Agreement
         with  Technovision  Industries, Inc.  dated  June  10,
         1994   (Incorporated by reference to Exhibit 10.14  of
         the  Company's Annual Report of Form 10-K for the year
         ended June 30, 1994, Commission File No. 0-18866)
         
10.15*+  Employment Agreement with Stephen J. Denari dated  May
         10,  1995. (Incorporated by reference to Exhibit 10.15
         of  the  Company's Annual Report of Form 10-K for  the
         year  ended  June  30, 1995, Commission  File  No.  0-
         18866)
         
10.16*+  Non-Qualified   Stock  Option  Grant  Agreement   with
         Eugene E. Denari, Jr. dated June 26, 1995.
         (Incorporated  by reference to Exhibit  10.16  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1995, Commission File No. 0-18866)

10.17*+  Non-Qualified   Stock  Option  Grant  Agreement   with
         Stephen J. Denari dated June 26, 1995.
         (Incorporated  by reference to Exhibit  10.17  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1995, Commission File No. 0-18866)

10.18*   Promissory Note from Milton J. Verret dated  July  14,
         1995.
         (Incorporated  by reference to Exhibit  10.18  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1995, Commission File No. 0-18866)

10.19*   Distribution  Agreement with SeaGull  Entertainment  ,
         Inc. dated October 4, 1995.
         (Incorporated  by reference to Exhibit  10.19  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1995, Commission File No. 0-18866)

10.20*   Amendment  to Promissory Note and Collateral Agreement
         with    Milton   Verret,   dated   July   14,    1995.
         (Incorporated  by reference to Exhibit  10.20  of  the
         Company's  Annual  Report of Form 10-K  for  the  year
         ended June 30, 1995, Commission File No. 0-18866)
         
10.21    Option  Agreement with Vivienne Crowe dated  September
         14, 1996.
         
16.1*    Letter  from  former accountant regarding  concurrence
         with   registrant's  statements  in  report  regarding
         dismissal as registrant's principal accountant,  dated
         June  30,  1994 (Incorporated by reference to  Exhibit
         16.1  of the Company's Annual Report of Form 10-K  for
         the  year ended June 30, 1994, Commission File No.  0-
         18866)
         
21.1*    Subsidiaries  of the Registrant, as amended  on  April
         15,  1994  (Incorporated by reference to Exhibit  21.1
         of  the  Company's Annual Report of Form 10-K for  the
         year  ended  June  30, 1994, Commission  File  No.  0-
         18866)

* Previously filed with the Commission.
+ Constitutes agreement or plan relating to employment or  employee
   benefits.

Reports on Form 8-K during the last quarter

On  April 16, 1996, the Company filed on Form 8-K, that on April  2,
1996  the  Company had announced  that it and the  owners  of  Video
Tyme,  Inc. of Las Vegas mutually terminated their agreement.  Based
on  this  event, no assets or liabilities or results  of  operations
related  to  this  acquisition had been recorded  in  the  Company's
financial statements for the quarter ended December 31, 1995.

On  May 21, 1996 the Company filed on Form 8-K, that on May 3,  1996
Eugene  E. Denari, Jr., former Chief Executive Officer, revised  his
resignation  agreement with the Company, and on  May  7,  1996,  the
Company accepted his revised agreement.

On  June  17, 1996, the Company filed on Form 8-K, that on June  10,
1996,   the  Company  received  notification  that  its  independent
auditor, Ernst & Young LLP was resigning as independent auditor.  In
connection  with the audit of the Company's financial statement  for
each  of the two fiscal years ended June 30, 1994 and 1995,  and  in
the  subsequent  interim periods, there were  no  disagrements  with
Ernst  & Young on any matters of accounting principles or practices,
financial  statement disclosure, or auditing scope  and  procedures,
which,  if  not resolved to the satisfaction of Ernst & Young  would
have  caused Ernst & Young to make reference to the matter in  their
report.


                             SIGNATURES

      Pursuant  to  the requirements of Section 13 or 15(d)  of  the
Securities and Exchange Act of 1934, the Registrant has duly  caused
this  report to be signed on its behalf by the undersigned thereunto
duly authorized.

Dated: October 15, 1996

                              FIRST NATIONAL ENTERTAINMENT CORP.



                              By:/s/ Stephen J. Denari
                                      President







      Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons  on
behalf  of  the registrant and in the capacities and  on  the  dates
indicated.



Signature                 Title                   Date


/S/ Stephen J. Denari     Director, President, 
                          Chief Operating Officer,  
                          Acting Chief Financial
                          Officer
                                                    October 15, 1996

/S/ Joanne K. Fabere      Controller,
                          Secretary
                                                    October 15, 1996


                            EXHIBIT INDEX



Exhibit No.  Description                        Comment


3.1 *         Articles of Incorporation, as      Restated as Amended
              amended
3.1.1         Articles of Amendment to the       Adopted October 28,1994
              Articles of Incorporation          (Filed concurrently)
3.2 *         By-Laws                            By-laws see Note 1
        
4.1***        Instruments Defining Rights of     Class A & B Warrants
              Security Holders
10.1 *        Non-Statutory Stock Option Plan    April 1, 1993
10.2 *        Incentive Stock Option Plan        April 1, 1993
10.3 *        Employment Agreement with  Jeffrey March 26, 1993
              Schwaber
10.4 *        Employment Agreement with Rick
              Busby                              January 15, 1993
10.5 *        Stock Purchase Agreement with
              Milton Verret                      December 1, 1991
10.6 *        Continental Capital & Equity 
              Agreement                          March  5, 1993 and Addenda
                                                 May 11, 1993

10.7 *       Technovision Agreement              March 16,1993

10.8 *       Entertainment Marketing &
             Communications Agreement           February 3, 1992 & June 15
                                                1993           
10.9 *       American Softworks Agreement       June 17, 1993
10.10*       Worldvision Agreement              July 16, 1993        
10.11**      Employee Stock Purchase Plan       January 22, 1994
10.12**      Worldvision Agreement as amended   April 13, 1994 and May 23,
                                                1994
10.13**      Stylus Records Founders Agreement  April 15, 1994
  
10.14**      Technovision Agreement as amended  June 10, 1994

10.15****    Employment Agreement with  Stephen May 10,1995(Filed
             J. Denari                          concurrently)
10.16****    Non-Qualified Stock  Option  Grant 
             Agreement with Eugene E. Denari, Jr.June 26,1995 (Filed
                                                  concurrently)
10.17****    Non-Qualified Stock Option Grant 
             Agreement with Stephen J. Denari    June 26, 1995 (Filed
                                                  concurrently)
10.18****    Promissory Note from Milton J.      July 14, 1995(Filed
             Verret                               concurrently)
10.19****    Distribution Agreement with 
             SeaGull Entertainment , Inc.        October 4, 1995(Filed)
                                                 concurrently
10.20****    Amendment to Promissory Note 
             and Collateral  Agreement with  
             Milton Verret                       July 14, 1995

10.21        Option agreement with Viviene Crowe  September 14, 1996

16.1**       Letter from previous auditor         June 30, 1994

21.1**       Subsidiaries of the Registrant,
             as Amended                           Restated as amended

* Incorporated by reference to Annual Report on Form 10-KSB-A1 filed
on November 18, 1993.

**Incorporated by reference to Annual Report on Form 10-KSB-A1 filed
on September 27, 1994.

***Incorporated by reference to the Registration Statement on 
Form S-18, declared effective on 9/19/89, SEC Reg. No. 33-30153-B

**** Incorporated by reference to Annual Report on Form 10-KSB filed
on October 28, 1995.



             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                            Page
                                                            
                                                            
Reports of Independent                                      F1
Auditors..................................................
 ......................................................

                                                            
Consolidated Balance Sheet as of June 30, 1996 and          F2 -F3
1995...................................................... 

                                                           
Consolidated Statements of Operations for the years ended   
June 30, 1996 and                                           F4
1995......................................................


                                                            
Consolidated Statements of Cash Flows for Each of the Two   
Years Ended                                                 F5
June 30,1996 and 1995....................................

                                                            
Consolidated Statements of Shareholders' Equity for each    
of the Two Years Ended June 30, 1996 and 1995
 ........................................................... F6

                                                            
Notes to the Consolidated Financial                         F7-F19
Statements................................................ 


                                                            
                                                      
                                                            






                   REPORT OF INDEPENDENT AUDITORS
                                  
                                  
   
   The Board of Directors
   First National Entertainment Corp.
   
   We have audited the accompanying consolidated balance sheet of
   First National Entertainment Corp., as of June 30, 1996 and the
   related consolidated statements of operations, shareholders'
   equity and cash flows for the year then ended.  These financial
   statements are the responsibility of the Company's management.
   Our responsibility is to express an opinion on these financial
   statements based on our audit.
   
   We conducted our audit in accordance with generally accepted
   auditing standards.  Those standards require that we plan and
   perform the audit to obtain reasonable assurance about  whether
   the financial statements are free of material misstatement.  An
   audit includes examining, on a test basis, evidence supporting
   the amounts and disclosures in the financial statements.  An
   audit also includes assessing the accounting principles used and
   significant estimates made by management, as well as evaluating
   the overall financial statement presentation.  We believe that
   our audit provides a reasonable basis for our opinion.
   
   In our opinion, the consolidated financial statements
   referred to above present fairly, in all material respects,
   the financial position of First National Entertainment Corp.,
   at June 30, 1996, and the results of its operations and its
   cash flows for the year then ended in conformity with
   generally accepted accounting principles.
   
   The accompanying financial statements have been prepared
   assuming that the Company will continue as a going concern.  As
   discussed in Note 11 to the consolidated financial statements,
   the Company has suffered recurring losses from operations and
   has liabilities substantially in excess of current assets that
   raise substantial doubt about its ability to continue as a going
   concern.  Management's plan in regard to these matters are also
   described in note 11.  The financial statements do not include
   any adjustments that might arise from the outcome of this
   uncertainty.
   
   
                              /s/ Crowe, Chizek and Company LLP
   
   
   Oak Brook, Illinois
   October 14, 1996           Crowe, Chizek and Company LLP
   
   



                                                                F-1
                                  
                                  
                                  
                                  
                                  
                   Report of Independent Auditors

The Board of Directors
First National Entertainment Corporation
  and Subsidiaries

We have audited the consolidated balance sheet of First
National Entertainment Corporation and Subsidiaries as of June
30, 1995 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
the year  then ended.  These financial statements are the
responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of First National Entertainment Corporation
and Subsidiaries at June 30, 1995 and the consolidated results
of  their  operations and their cash flows for  the year then
ended, in conformity with generally accepted accounting
principles.



October 12, 1995                        /s/ Ernst & Young LLP
Austin, Texas


                                        Ernst & Young LLP


FIRST NATIONAL ENTERTAINMENT CORP.

CONSOLIDATED BALANCE SHEET



June 30,                               1996               1995


ASSETS

Current Assets
  Cash                                $156,993         $75,248
  Accounts receivable, 
  net of allowance for doubtful 
  accounts of $1,601,942 (1996)
  and $567,246 (1995)                   26,945               0
  Film inventory                             0         405,987
  Other                                  9,514          10,720

Total Current Assets                   193,452         491,955


Property and equipment, net             42,064         135,870

Other Assets
  Film inventory, net of accumulated
  amortization of $7,862,101 (1996) 
   and $6,722,101 (1995)             2,700,000       3,840,000
  Intangible assets, net of 
  accumulated amortization of 
  $106,904 (1996) and
  $131,489 (1995) and other            145,174         425,719

Total Other Assets                   2,845,174       4,265,719



TOTAL ASSETS                        $3,080,690      $4,893,544


See accompanying notes to consolidated financial statements

                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                   F-2
FIRST NATIONAL ENTERTAINMENT CORP.

CONSOLIDATED BALANCE SHEET


June 30,                       1996               1995


LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Accounts payable             $273,285         $216,181
  Accrued expenses              225,041          151,978
  Obligations under capital 
   leases                        21,081           33,754


Total Current Liabilities       519,407          401,913


Shareholders' Equity
  Preferred stock, 
  $.0001 par value,
  authorized 10,000,000 shares,
  no shares issued and 
  outstanding                        --               --

  Common stock, $.005 par value,
  authorized 100,000,000 shares,
  issued and outstanding:
  1996,  16,898,458 shares, and
  1995,  11,293,631 shares        84,495          56,468

  Paid in capital             26,090,608      23,285,049
  Accumulated deficit        (23,613,820)    (18,849,886)


Total Shareholders' Equity     2,561,283       4,491,631



TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY        $3,080,690      $4,893,544




See accompanying notes to consolidated financial
statements                                   F-3


FIRST NATIONAL ENTERTAINMENT CORP. CONSOLIDATED
STATEMENTS OF OPERATIONS

For the years ended June 30,            1996            1995

TOTAL REVENUES                     $1,153,542        $806,324

COST OF REVENUES
  Amortization of film costs        1,140,000       2,481,430


GROSS PROFIT (LOSS)                    13,542      (1,675,106)


 OPERATING EXPENSES
  Marketing, selling  & royalties     253,158         554,300
  General and administrative        2,219,111       2,200,117
  Gain on sale of furniture 
   and equipment                     (427,860)
  Settlement of litigation          2,081,040          72,000
  Write-off film inventory            405,987             ---
  Write-off and amortization 
   of goodwill                        225,000          60,000


TOTAL OPERATING EXPENSES            4,756,436       2,886,417


OPERATING LOSS                     (4,742,894)     (4,561,523)


OTHER (EXPENSE)                       (21,040)       (385,384)


NET LOSS                          $(4,763,934)    $(4,946,907)


NET LOSS PER SHARE                     $ (.33)        $ (.43)



Weighted average shares outstanding14,314,317      11,372,741


See accompanying notes to consolidated financial
statements
                                                                  F-4
                                                                     
FIRST NATIONAL ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS


For the years ended June 30,                 1996             1995

Cash Flows From Operating Activities
    Net loss                          $(4,763,934)      $(4,946,907)
    Adjustments to reconcile net 
    loss to net cash (used in) 
    operating activities:
    Gain on sale of furniture 
     and equipment                       (427,860)

    Amortization of film costs          1,140,000         2,481,430
    Stock issued for services
    and compensation, net                   3,667           395,230
    Provision for doubtful accounts     1,126,097
    Other amortization  and depreciation  279,880         1,190,915
    Decrease (increase) in accounts 
     receivable                        (1,153,042)          350,610
    Increase (decrease) in accounts 
     payable                               57,103           (95,223)
    Changes in other assets & 
     liabilities, net                     472,633          (691,738)
    Issuance of common stock in 
     settlement of class action 
     lawsuit                            2,000,000
Net Cash (Used in) Operating
   Activities:                         (1,265,456)       (1,315,683)

Cash Flows From Investing Activities

Proceeds from sale of equipment           531,387
Acquisition of property and equipment     (14,186)         (27,330)

Net Cash Provided by (Used in)
   Investing Activities:                  517,201          (27,330)

Cash Flows From Financing Activities

Repayments to Officers                                    (140,794)
Note payable repayments                                   (122,000)
Redemption of redeemable common stock                     (587,000)
Redemption of common stock                                 (91,743)
Issuance of common stock                 830,000             9,464

Net Cash Provided by (Used in)
  Financing Activities:                  830,000          (932,073)

Net Increase (Decrease) in Cash           81,745        (2,275,086)

Cash  - Beginning of Year                 75,248         2,350,334

Cash - End of Year                      $156,993           $75,248


See accompanying notes to consolidated financial
statements
                                                               
                                                          F-5






FIRST NATIONAL ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

            Common Stock    Additional
            Number of       Paid-In    Unearned       Accumlated
            Shares  Amount  Capital    Compensation   (Deficit)       TOTAL

Balance 
at June 30,
1994       11,178,620 $55,893 $23,913,673 $(1,281,250) $(13,902,979)$8,785,337
Issuance of 
Common Stock 
for employee 
compensation, 
services,and 
professional 
fees, net     369,058   1,846    393,384                               395,230

Issuance of 
Common Stock   19,801      99      9,365                                 9,464

Conversion 
of Redeemable 
Common Stock 
to Common 
Stock          17,895      89     84,911                                85,000

Cancellation 
of Common 
Stock pursuant 
to return 
by former
Chairman      (91,743)   (459)   (91,284)                             (91,743)

Cancellation 
of Common 
Stock pursuant 
to return by 
President    (200,000)  (1,000)(1,025,000)                         (1,026,000)

Amortization 
ofunearned 
compensation                               1,281,250                1,281,250

Net Loss                                               (4,946,907) (4,946,907)

Balance 
at June 30, 
1995       11,293,631  $56,468 $23,285,049        $0 $(18,849,886)  $4,491,631

Issuance of 
Common Stock 
for employee 
compensation, 
services,and 
professional 
fees, net       4,365       22      3,645                                3,667

Issuance of 
Common 
Stock       1,617,143    8,086    821,914                              830,000

Issuance of
Common 
Stockin 
settlement 
of class 
action
lawsuit    4,000,000    20,000   1,980,000                           2,000,000

Cancellation 
of Common 
Stock 
pursuant to 
return by 
former
Chairman     (16,681)     (81)                                            (81)

Net Loss                                               (4,763,934) (4,763,934)

Balance
at 
June 30, 
1996      16,898,458   $84,495  $26,090,608      $0  $(23,613,820)  $2,561,283

See accompanying notes to consolidated financial statements.
                                                            F-6
FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The  financial  statements include  the  accounts  of  First
National  Entertainment Corp. (a Colorado  corporation)  and
its  subsidiaries First National Film Corp. - California and
Stylus  Records (collectively referred to as the "Company").
As   of  June  30,  1996,  there  were  nominal  assets  and
liabilities  in the Company's First National  Film  Corp.  -
California subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.

The   Company's  primary  business  activity  has  been  the
acquisition,  distribution  and marketing  of  high  quality
entertainment  properties targeted at the family  market  in
film and other media.

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

Revenue Recognition
Revenue  from  the  exhibition and  sales  of  Company  film
entertainment properties are recorded when earned, based  on
the  Company's  rights under various exhibition/distribution
agreements. Revenues from theatrical properties are recorded
when   exhibited,  based  on  a  percentage  of  box  office
receipts.  Revenues from home video producer  royalties  are
recorded  based  on  reported sales and collections  by  the
Company's   distributor(s),  which  is  currently   Republic
Pictures.   (See  Note  2 - Accounts Receivable).   Revenues
from  television, merchandising, and other  related  markets
for the Company's film entertainment properties are recorded
when  the  properties are released for sale in these  media,
subject to acceptance, collectibility, and other criteria.

The  Company's revenues for fiscal years 1996 and 1995  were
comprised  of producer participation royalties accrued  from
its  video distribution partner Republic Pictures  for  home
video   sales  of  the  Company's  animated  motion  picture
property Happily Ever After.

Cost Recognition
Costs associated with the Company's entertainment properties
are   generally   recognized  consistent   with   associated
revenues.  Under Statement of Financial Accounting Standards
No. 53, Financial Reporting by Producers and Distributors of
Motion  Picture Films, the Company amortizes film costs  for
each  period in proportion to the revenue recognized in  the
current  period,  relative to management's estimate  of  the
total  revenue to be realized from all markets for  a  given
film property over its commercial life. Amortized film costs
include   acquisition,  distribution,  print,   advertising,
marketing,  and certain other costs that benefit a  property
over  its  entire  revenue-producing  life.  (Certain  local
advertising,  marketing costs, and direct  theatrical  costs
for  a  property are immediately expensed in the  period  of
theatrical exhibition.)

Management   reviews  its  revenue  projections   for   film
properties  on a regular basis, which may result in  changes
of   projected  film  revenues,  costs,  and  rate  of  cost
amortization, which can have a material effect on income for
any  current and/or future period.  Estimated losses from  a
property, if any, are provided for currently.

F-7
FIRST NATIONAL ENTERTAINMENT CORP.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)


Income Taxes

The  Company  accounts for income taxes using  the  deferred
asset  and  liability  method as required  by  Statement  of
Financial   Accounting  Standards  No.  109   ("FAS   109"),
Accounting For Income Taxes. This method was adopted by  the
Company  effective July 1, 1993. Deferred income  taxes  are
provided as temporary differences arise between the basis of
assets  and  liabilities for financial reporting and  income
tax reporting.

Earnings/(Loss) Per Share

Earnings/(Loss) per common share is computed by dividing the
net  income/(loss)  for the period by the  weighted  average
number  of common shares outstanding during the period.  The
weighted  average number of common shares used  in  the  per
share  computations was 14,314,317 for 1996  and  11,372,741
for  1995.   Since the Company has experienced net operating
losses,  the  outstanding options and warrants  to  purchase
common  stock  have  an  anti-dilutive  effect.   Therefore,
options   and   warrants   were   not   included   in    the
earnings/(loss) per share calculation.

Cash and Cash Equivalents

For  purposes of the statement of  cash flows,  the  Company
considers all investments with maturities of three months or
less, when purchased, to be cash equivalents.

Accounts Receivable

Accounts  receivable consists of committed receivables  from
customers   and   estimated  accrued   revenues   based   on
distributor accounts receivable from shipped but uncollected
entertainment   property  revenues.    Accounts   receivable
include  an allowance for doubtful accounts, which is  based
on   management's  estimate  of  potentially   uncollectible
accounts.

Film Inventory

Film inventory consists of certain capitalized costs for the
acquisition,  production, and exploitation of  entertainment
properties.  Inventory is stated at the lower of unamortized
cost or estimated net realizable value for each property. In
accordance with Statement of Financial Accounting  Standards
No. 53, Financial Reporting by Producers and Distributors of
Motion  Picture Films, the Company amortizes its film  costs
using  the "individual film forecast method," which requires
that  cost  amortization relate film costs to the  estimated
total  gross  revenues  from  all  lifetime  sources  on  an
individual  film  basis. Amortization of film  costs  begins
when a film property is released into its primary market and
revenue  generation has begun. Unamortized costs  remain  as
inventory  on the balance sheet, with capitalized costs  for
the  property's initial (primary) market recorded as current
inventory,  and capitalized costs associated with  secondary
markets recorded as non-current inventory.
                                                         F-8

FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)


Intangible Assets

Intangible  assets, which includes goodwill of  $300,000  in
1995,  and  organizational costs of $252,000  are  amortized
over 60 months using the straight line method.  The carrying
value  of goodwill is reviewed annually to determine if  the
facts  and  circumstances suggests that it may  be  impaired
(See Note 7).

Property and Equipment

Property and equipment are recorded at cost. Depreciation is
computed  using the straight-line method over the  estimated
useful  lives  of  the  assets,  generally  3  to  7  years.
Leasehold  improvements are amortized over the useful  lives
of  the improvements or the term of the lease, whichever  is
shorter.  Capital  lease  assets are  amortized  over  their
estimated  useful  lives, and amortization  is  included  in
depreciation expense. Ordinary maintenance and  repairs  are
expensed as incurred.


NOTE 2  ACCOUNTS RECEIVABLE


On  August  16,  1994  the  Company received  an  accounting
statement  from  Republic Pictures  ("Republic"),  its  film
distributor,  that  reported  video  sales  and   collection
results  for Happily Ever After through June 30, 1994.  This
statement  reflected a lower producer royalty  payment  than
the  Company had anticipated because of certain assumptions,
used  by  Republic  in  the accounting statement,  that  the
Company  believes  were inconsistent with  its  distribution
agreement  with  Republic.  The Company  communicated  these
issues to Republic and conducted a comprehensive third-party
special  audit  of  all  reported  video  results.  Republic
subsequently agreed to revise the August 16, 1994 accounting
statement for the number of videos shipped, and on September
26,  1994 delivered payment to the Company for this  revised
accounting  statement, plus interest. However, according  to
the  special auditor's report, Republic owes the  Company  a
producer's bonus of 5% of the first one million units  sold,
which approximates $256,000, in addition to amounts owed the
Company  for  foreign currency adjustments and excess  units
held  in  reserve  of $184,000.  In 1996, Republic  reported
units  sold  of 389,000 units but, because of  certain  cost
assumptions  used by Republic in submitting  its  accounting
for these sold units, informed the Company that they have no
liability  for  producer  royalty  payments.   The   Company
maintains  that under the terms of the Distributor Agreement
they are entitled to a specific amount for each unit sold or
approximately $1,150,000 for 1996.  The Company  intends  to
vigorously pursue collection efforts with respect  to  these
receivables, however, due to the uncertainty of the  results
of  the  collection  efforts, the Company  has  provided  an
allowance for the entire outstanding amount due at June  30,
1996.

During the third quarter of fiscal 1995 the Company shared
in the net profits from the sale of approximately 15,000
Happily Ever After video games manufactured and distributed
by American Softworks Corporation ("ASC"). The Company
recorded a receivable from ASC for $175,000 (less the amount
paid by ASC) representing advances made to ASC for the
developing of the video game.  ASC disputed amounts owed
under the contract. The amount of net receivables (after
costs of collection) due from American Softworks Corporation
at June 30, 1996, in the amount of $26,945, represents the
agreed upon settlement between the parties.
                                                         F-9
FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 2  ACCOUNTS RECEIVABLE (continued)



The   activity  in  the  Company's  allowance  for  doubtful
accounts for the periods ended June 30, 1996 and 1995 is  as
follows:
                     Balance at  Charged to                  Balance
                     Beginning   Costs & Expenses            at End of
For the Period       of Period                    Deductions Period
Ended 

June 30, 1995        $90,000     $477,246               $0      $567,246
June 30, 1996        567,246    1,126,097           91,401     1,601,942



NOTE 3  FILM INVENTORY


The Company's film inventory is summarized as follows:

                                               1996         1995

Development costs for Cinderella
allocated to the primary market 
and recorded as a current asset             $             $  405,987

Unamortized film costs for 
Happily  Ever After allocated to 
the secondary market and recorded
as a non-current asset                        2,700,000    3,840,000


 Total Film Inventory                        $2,700,000    4,245,987
                                                ========    ========

Amortization of capitalized film property costs is  computed
using  the  individual-film-forecast computation  method  as
promulgated   under    Statement  of  Financial   Accounting
Standards  No.  53,  Financial Reporting  by  Producers  and
Distributors of Motion Picture Films. The Company expects to
amortize  the  remaining  unamortized  film  costs  for  its
Happily  Ever  After  property over  the  next  five  years.
Market  conditions could alter this accounting estimate  and
the  Company's  annual computation of net  realizable  value
could   result  in  unamortized  costs  being   charged   to
operations over a shorter time frame.

During fiscal year 1996, the Company evaluated the potential
future marketability of its film version of the Nigel Miles-
Thomas   stage   production  of  Cinderella.    Based   upon
difficulities  in  securing  satisfactory  songwriting   and
financing,   as  well  as  the  production  of   competitive
properties  by  major  Hollywood studios,  the  Company  has
decided  to  abandon its effort to produce this  version  of
Cinderella.  Accordingly the previously deferred development
and  preproduction  costs  have been  charged  against  1996
income.
                                                        F-10
FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 4  PROPERTY AND EQUIPMENT


Property  and equipment at June 30, 1996 and 1995, consisted
of the following:

                                          1996            1995

Office equipment                       $ 12,610         $98,910
Furniture and fixtures                    1,575          58,609
Leasehold improvements                        0          26,830
Capital Leases                           41,994          41,994
                                         56,179         226,343

Less accumulated depreciation            14,115          90,473

Net Property and Equipment              $42,064        $135,870


In  July 1995, the Company moved its corporate offices to an
executive  suite in Chicago, Illinois and sold  all  of  the
Company's office furniture, furnishings and equipment to the
former  Chief Executive Officer, Milton Verret, for $600,000
to  be paid in equal monthly installments commencing on July
15,  1995.   In  addition, Mr. Verret agreed to  assume  all
capital  and  operating leases entered into by  the  Company
prior  to  June  30, 1995.  The Company later  agreed  to  a
discount  of  $50,000  on  the principal  of  this  note  in
exchange  for  an  acceleration  of  payments.   Mr.  Verret
satisfied the note during fiscal year 1996.




NOTE 5  INCOME TAXES


In  1993,  the  Company  adopted  SFAS  109  which  requires
recognition of deferred tax assets and liabilities  for  the
expected  future tax consequences of events that  have  been
included in the financial statements and tax returns.

The  Company had cumulative net operating loss carryforwards
of approximately $22.4 million and $17.6 million at June 30,
1996  and  1995,  respectively, for  federal  tax  reporting
purposes.   The net operating loss carryforwards  expire  in
varying amounts beginning in the year 2000.

Due  to  changes  in  the  Company's ownership,  the  annual
utilization of the net operating loss carryforwards  arising
prior  to  the ownership changes may be limited.  Generally,
the  amount  of  those  carryforwards available  for  annual
utilization is based on the value of the Company at the time
of  the ownership change, multiplied by a rate specified  by
the Internal Revenue Service.

                                                        F-11

FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 5  INCOME TAXES (continued)


Significant   components   of  deferred   tax   assets   and
liabilities at June 30, 1996 and 1995, are as follows:


                                         1996               1995
Deferred tax assets:                             
  Net operating loss carryforwards     $7,750,000        $6,025,000
                        
     Reserves and allowances              375,000           300,000
                                        8,125,000         6,325,000
                                      
Valuation allowance                     8,125,000         6,325,000

Net deferred taxes                     $     ---          $     --- 
                                      ===========        ==========


A  valuation  allowance has been established by the  Company
due  to the uncertainties of the realization of deferred tax
assets  based on the Company's prior history of tax  losses.
The  valuation reserve increased approximately $1.8  million
in  1996  due  to the increase in net deferred  tax  assets.
Management  will continue to re-evaluate the appropriateness
of the valuation allowance in future years.

There  were  no income tax payments in the years ended  1996
and 1995.
                                                            
                                                            

NOTE 6  SHAREHOLDERS' EQUITY


Preferred Stock - The Company has authorized the issuance of
10,000,000  shares of $.0001 par value Preferred  Stock.  At
June  30,  1996,  the Company had not issued  any  preferred
shares.

Common Stock - The Company issued 4365 shares in 1996 and
369,058 shares during 1995 for employee compensation,
contractual services, and professional fees valued at $3,667
and $395,230, respectively.

In  the  second quarter of 1996December of 1995, the Company
initiated  an  equity  restructuring program  in  which  the
Company  issued  1,260,000 shares of its common  stock  (par
value  $.005) along with warrants to purchase an  additional
1,260,000   shares of its common stock (par value $.005)  at
$1.00/share. for  Total proceeds from the offering  amounted
to $830,000.  All of the warrants were to expire on December
15, 1997.  (See Note 12 "Subsequent Events")


                                                        F-12
FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 6  SHAREHOLDERS' EQUITY (continued)


Rentrak,  Inc., of Portland, Oregon, is a large  distributor
of  video cassettes on a pay per view basis nationally.   On
December 22, 1995, the Company and Rentrak entered into a 10
year  Agreement whereby Rentrak purchased 357,143 shares  of
common  stock for $200,000.  Rentrak has also agreed to  buy
an  additional   $10,000 of common stock for each  new  non-
Rentrak video store acquired by the Company.

On  December 28, 1995 the Company issued 4,000,000 shares of
common  stock  as part of the settlement of a  class  action
lawsuit.  (Note 9  "Settlement of  Legal Matters".)

Unearned  Compensation - At June 30, 1994, the  Company  had
($1,281,250)  of  unearned  compensation  recorded  in   its
financial   statements.   This   balance   represented   the
unamortized portion of a 500,000 share stock grant given  to
the Company's then President, Mr. Schwaber, in May 1993 when
he  joined  the Company (this grant was valued at $2,562,500
on  the  date  of grant). These shares were to vest  to  Mr.
Schwaber over the term of his five-year employment agreement
with  the  Company, and the Company recognized a portion  as
compensation  expense  each  period,  with  the  unamortized
balance  remaining on the balance sheet as  a  contra-equity
account  for  future  amortization. In  November  1994,  Mr.
Schwaber resigned as President of the Company.  As a  result
the  Company  has  written  off  the  remaining  unamortized
balance and has received and canceled 200,000 of the  shares
originally issued.

Stock  Options - On May 21, 1993, shareholders  approved  an
incentive stock plan which reserved 3,500,000 shares of  the
Company's Common Stock for issuance under the 1993 Incentive
Stock  Option Plan ("ISO") and the 1993 Non-Qualified  Stock
Option Plan ("NQSO") (collectively referred to as the  "1993
Plan").  The  1993  Plan  provides incentives  to  officers,
directors, employees, consultants and advisors in  the  form
of  stock  options,  subject  to certain  restrictions.  The
Company's  Board  of Directors determines  the  granting  of
options  under the 1993 plan, including the exercise period,
contingencies,  vesting periods and employee qualifications.
Options  to be issued under the ISO are intended to  qualify
as  "incentive stock options" under section 422 of the  1986
Internal  Revenue  Code (the "Code"),  as  amended.  Options
granted  under  the  NQSO are subject to fewer  restrictions
than   the  ISO  and  are  considered  "Non-statutory  Stock
Options"  as  defined in the Code.  As  of  June  30,  1996,
25,000  option shares had been issued under this Plan.   The
25,000  options were issued in August, 1993 at the  exercise
price  of  $1.53 per share.  All of the outstanding  options
were   exercisable  at  June  30,  1996.   No  options  were
exercised  during the fiscal years ended June 30,  1996  and
1995.

                                                        F-13
FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 6  SHAREHOLDERS' EQUITY (continued)


On  May  10,  1995, the Company hired Stephen J.  Denari  as
President  and Director and promoted Eugene E.  Denari,  Jr.
(father of Stephen) to the position of Senior Vice President
and Director.  On June 28, 1995, Eugene Denari, Jr. replaced
Milton Verret as Chief Executive Officer.  On June 26, 1995,
the  Board  approved a stock option grant  for  800,000  and
500,000  shares of the Company's Common Stock at  an  option
price of $0.40 per share (the then current market value)  to
Stephen Denari and Eugene Denari, Jr., respectively.   These
options  may  be  exercised  in accordance  with  a  vesting
schedule  which  extends over a five  quarter  period.   One
fifth  of the options are exercisable each quarter beginning
July  1,  1995 until July 1, 1996 at which time all  options
are vested and exercisable.  During fiscal year 1996, Eugene
Denari resigned from the Company and its Board; as a part of
his  resignation settlement, the stock option grant covering
500,000 shares previously granted was entirely canceled.  No
options were exercised during the fiscal year ended June 30,
1996.


Employee Stock Purchase Plan  -  The Company implemented an
Employee Stock Purchase Plan in 1994 which permits
substantially all employees to acquire Company Common Stock.
Participating employees may acquire stock at the end of each
six-month period (June 30 and December 31 of each year) at a
purchase price of 85% of the lower of fair market value at
the beginning or end of the period. Employees may designate
up to 10% of their base compensation for the purchase of
stock under this plan.  There are no charges to income in
connection with this plan.



NOTE 7  STYLUS RECORDS


In  April 1994, the Company acquired a majority ownership in
Stylus  Records, a Delaware Corporation, for 160,000  shares
of   Common   Stock  and  the  assumption  of  $105,000   in
liabilities. The Founder's Agreement calls for  the  Company
to guarantee certain stock values for 60,000 of these issued
shares relative to their market price as of March 31,  1996.
The Company has the option to issue additional shares to the
extent  of any differences between the market price and  the
guarantee  price.   The shares issued for this  acquisition,
including   the  price  guarantees,  have  been  valued   at
$375,000.  The Company maintains an 80% ownership in Stylus,
with its investment partners Lewin & Rosenthal and Frontline
Records   maintaining   15%  and  5%  ownership   interests,
respectively.  The purchase method of accounting was used to
record  this  acquisition. The initial  investment  included
$300,000  of  goodwill  and $252,078  organizational  costs,
which  are being amortized on the straight line method  over
five  years.   At June 30, 1996, the Company  evaluated  the
underlying  value  of  goodwill and the  appropriateness  of
amortizing this asset over future periods.  Based upon  this
evaluation,  the  Company has determined that  the  original
basis  for  carrying goodwill has diminished  and  therefore
there  is no basis for carrying this asset forward to future
years.  Accordingly, the unamortized balance of $225,000 was
charged against 1996 income.

                                                        F-14
FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 7  STYLUS RECORDS (continued)


Through  June  30, 1995, the Company advanced  approximately
$308,000  for  the  promotion and record production  of  its
foundation artist, Ms. Della Miles which represents  advance
royalties to Ms. Miles and are recoupable from any  advances
and/or future royalties earned for the Company by Ms. Miles.
During  fiscal  year 1995, Ms. Miles informed  the  Company,
that she disputes the entire amount of advance royalties and
believes  her  contract  has been breached  by  the  Company
rendering  it  void.  In accordance with SFAS  No.  50,  the
advance royalties have been expensed.




NOTE 8  RELATED PARTY TRANSACTIONS


In July  1994 the Company repaid all outstanding obligations
to  its former Chairman, Mr. Verret totaling $140,794  which
was  for advances made to the Company in 1994.  In addition,
the  Company  redeemed 648,624 shares of  Common  Stock  for
$678,743  which had previously been issued to Mr. Verret  in
consideration for the repayment of past advances and  unpaid
salary.

The Company also repaid the remaining $122,000 balance, plus
interest, on its outstanding note payable to a related party
in July  1994.

For  the  years  ended June 30, 1996 and 1995,  the  Company
incurred  and paid consulting fees of $2,000,  in  1996  and
interest   payments   of  $6,571   in   1995,   which   were
substantially  to  related  parties   Additionally,   during
fiscal  year 1996, Eugene Denari and Timothy Denari,  father
and    brother   of   Company   president   Stephen   Denari
respectively, worked for the Company, and Eugene  served  on
the Board of Directors.  As of June 30, 1996 both Eugene and
Timothy  Denari had resigned all positions with the Company.
An  independent review of all compensation and expenses  was
conducted,  and both parties and the Company  have  executed
mutual  releases  regarding  any  further  financial  issues
related to their work for the Company.




NOTE 9  SETTLEMENT OF LEGAL MATTERS


On  June  27,  1995  the Securities and Exchange  Commission
Division  of  Enforcement  filed  a  complaint  against  the
Company,  its former CEO and several of its former  officers
and  employees.   The  suit was the result  of  an  informal
investigation  which  commenced  in  fiscal  year  1994  and
alleged, among other things, that between the fall  of  1992
and June 1993, First National and certain individual members
then   in  management  disseminated  materially  false   and
misleading  information to the public regarding  projections
of  revenue that the Company would earn from the release  of
the animated film Happily Ever After.

                                                        F-15
FIRST NATIONAL ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 9  SETTLEMENT OF LEGAL MATTERS (continued)


The Company entered into an agreement with the SEC to settle
the  suit  on  June  27, 1995.  As part of  the  settlement,
Milton  J.  Verret agreed to resign as the  Company's  Chief
Executive  Officer, Chief Financial Officer and Chairman  of
the  Board  and is prohibited from attempting  to  influence
First   National's   management  or  shareholders   in   the
nomination  of  directors or other corporate matters  during
the  pendency  of the litigation against him.  In  addition,
Mr.  Verret  agreed to vote his First National Entertainment
Corp.  Common Stock in proportion to the votes cast  by  the
Company's  other  shareholders.  As  a  result  of  the  SEC
investigation   which  began  in  November,  1994,   Jeffrey
Schwaber  resigned  as President (even  though  he  was  not
implicated  by  the  SEC), and Ricky D.  Busby  and  Michael
Swingler  resigned as officers and directors.   On  May  10,
1995  the  Company hired Stephen J. Denari as President  and
Director  and  promoted  Eugene E. Denari,  Jr.  (father  of
Stephen)  to  the  position  of Senior  Vice  President  and
Director  and  on  June  27, 1995,  Eugene  E.  Denari,  Jr.
replaced Mr. Verret as Chief Executive Officer, who resigned
as an officer and director.

Pursuant  to  the  terms  of  the settlement,  the  Company,
without  admitting  or  denying  the  allegations   of   the
complaint,  consented to the entry by the court of  a  final
judgment  of  permanent  injunction  against  it   for   the
securities  law  violations alleged in the  complaint.   The
Company  also agreed to cooperate with the SEC in connection
with  any  discovery request made by the SEC in its  ongoing
litigation against the individual defendants.

Class  Action Lawsuit - The Company and its former executive
officers  and  directors were defendants in a  class  action
lawsuit which commenced in the United States District  Court
for  the  Eastern District of Pennsylvania. The  action  was
commenced  on July 8, 1993, certified as a class  action  on
September  8, 1994, and alleged fraud and various violations
of  securities laws in connection with the Company's  public
disclosures  during  the period preceding  and  through  the
theatrical  release  of  the film Happily  Ever  After.  The
Company's motion for a change of venue from Philadelphia  to
the  Western  District of Texas was granted on  January  31,
1995.   The class incorporates all persons who acquired  the
Company's  Common Stock between March 9, 1993  and  June  2,
1993,  inclusive.  On  June 30, 1995, a  second  shareholder
lawsuit  was filed in the United States District  Court  for
the Western District of Texas (seeking to be certified as  a
class  action)  covering  the same  facts  as  the  previous
shareholder suit.  On December 28, 1995 the Company  settled
the  first suit for $50,000 in cash and 4,000,000 shares  of
common  stock,  valued at $0.50/share.  These  amounts  plus
legal  costs  have  been recorded in the 1996  statement  of
operations  as settlement of litigation.  The  second  class
action lawsuit filed on June 30, 1995 has been dismissed  by
the plaintiffs based on the settlement of the previous suit.

                                                        F-16
 FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 10  COMMITMENTS AND CONTINGENCIES


The  Company  received notice from the Screen  Actors  Guild
that  supplemental residuals of 4.5% of the first $1,000,000
and  5.4% of all remaining gross producer receipts  are  due
them.   The  Company's entertainment counsel is  researching
the  matter  to  determine if the Company  has  a  liability
related to this matter.  As of the date of this filing there
has been no determination and the Company believes that,  if
any residuals are due, they should be the responsibility  of
Lou  Scheimer  and Filmation (the original producer  of  the
film) or its succesor in interest.


Contingent Liabilities Against Future Revenues - The Company
has  agreed to pay compensation to various parties based  on
gross revenues from the film Happily Ever After as follows:

   Mr.  Lou Scheimer, creator and original owner of  Happily
Ever After

     Home Video - Forty cents ($.40) for each video cassette
unit   sold,   up   to   two  million   units;   thereafter,
twenty-five cents ($.25) for each additional home video unit
sold in excess of two million units;

     Video Disc - 15% of producer's gross;

      Merchandising - 45% of gross revenue received  by  the
      Company after deductions of licensing commissions and fees.


   Technovision  Industries Inc., marketing  consultant  for
   Happily Ever After
     Home Video - 5% of net Company collection proceeds from
     Republic, after partial deductions for Scheimer royalties


  American Softworks Corp. for Happily Ever After
     Video  Games - 50% of net proceeds to the Company after
     deductions    for    manufacturing,   marketing,    and
     distribution by the distributor.














                                                        F-17

FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 11  CONTINUING OPERATIONS


The  Company has historically incurred operating losses, and
to  date  has an accumulated deficit of approximately  $23.6
million.  Since new management was installed at the  end  of
fiscal year 1995, the Company has substantially reduced  its
operating  overhead  by reducing full  time  staff  from  14
permanent  and  15  temporary  employees  to  3  full   time
professional  staff  at  the  end  of  fiscal   year   1996.
Additionally, the Company's move from over 7,000 square feet
of  office facility in Austin to under 1,000 square feet  in
the  Chicago  area has substantially reduced  administrative
costs.    Settlement  of  the  SEC  investigation  with   no
financial penalties at the end of fiscal year 1995  and  the
shareholder  class action suit for primarily Company  issued
equity  in fiscal 1996 leaves the Company with no litigation
pending as of this report.

In  August  1995,  the Company announced plans  to  begin  a
diversification  plan into the retail video store  industry.
Several  acquisition  transactions were  closed  during  the
first  half of fiscal year 1996, however, these acquisitions
were  later  unwound  due  to  the  unavailability  of  debt
financing during the second half of fiscal year 1996.

The  Company  still intends to enter the retail video  store
industry and continues to hold discussions with video  store
chain owners who desire to work with the Company to build  a
new  publicly  held chain.  The Company is reevaluating  its
pricing  model as well as seeking alternative financing  for
its  acquisition  plans,  taking into  account  the  current
conditions in the retail video store industry.  The  Company
is currently in negotiations to acquire a new platform video
store  chain  to  serve  as  a  base  for  its  video  store
operations.  Of course, no assurance can be given as to  the
ultimate  acceptance  of the Company's acquisition  strategy
and financing structure by the market place.

The  Company's distribution agreement with Republic Pictures
covering  Happily Ever After (HEA) expires in October  1996.
The  television  distribution agreement  of  HEA  previously
reported with Seagull Entertainment was canceled as of  June
30,  1996 for lack of performance.  The Company is currently
in  negotiations with another distributor for  both  TV  and
video rights of this property.  Additionally, the Company is
currently  in  negotiations to produce several new  animated
features  similar  to  HEA  for  direct  to  video  release.
However,  these  productions will call for  the  Company  to
raise  significant additional capital, the  availability  of
which cannot be assured.

In  September  1996,  the  Company  announced  that  it  had
exclusively optioned the screenplay "Chicago Blues"  from  a
local  screenwriter.  Financing for this live action feature
is  budgeted  at  $1,000,000 and will  be  offered  via  the
formation  of Windy City Pictures I, LLC.  The Company  will
serve  as  executive producer of this movie and  intends  to
produce  two  to three such productions a year  in  Chicago.
However, no assurance can be given that the funding for this
project or additional movies will be available.

The   Company  continues  to  aggressively  seek  additional
opportunities  in  the  animation, live  action  movies  and
retail video store arenas.

                                                        F-18

FIRST NATIONAL ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995


NOTE 12  SUBSEQUENT EVENTS


On October 6, 1996 the Company's Board of Directors approved
and  issued an Extension and Optional New Pricing  Offer  to
the  holders  of  Warrants  from its  Private  Placement  of
1,260,000  of  the Company's common stock in December  1995.
These 1,260,000 Warrants originally entitled the holders  to
purchase  an  additional share each of the Company's  common
stock  at  a  price of $1.00 through an expiration  date  of
December  15, 1997.  The Extension and Optional New  Pricing
Offer  allows an extension at the same price until  December
31,  1998  for  no additional consideration OR an  extension
until  December  31,  1999  at a share  price  of  $.15  for
additional consideration of $.05 per Warrant OR an extension
until  December  31,  2000  at a share  price  of  $.05  for
additional consideration of $.10 per Warrant.


NOTE 13  FOURTH QUARTER ADJUSTMENT


During  the  fourth quarter of fiscal 1996, amortization  of
film  inventory  costs was adjusted to  reflect  changes  in
total  estimated revenue from Happily Ever After.  Based  on
the  change  in  revenue  estimates and  the  related  costs
associated with those revenues, net film inventory cost  was
reduced   by   approximately  $500,000  and   the   deferred
production costs for Cinderella ($405,987) were written  off
to  reflect  net  realizable value  write-downs.   No  other
significant  quarter-to-quarter  fluctuations   were   noted
except for the goodwill write-off described in Note 7.   The
changes  in  estimates made during the  fourth  quarter  are
based on management's plans and estimates for the film.















                                                        F-19