<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

(Mark one)
[ X ]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934

                   FOR THE FISCAL QUARTER ENDED JUNE 30, 1999

Commission 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.)


            477 E BUTTERFIELD RD., SUITE 410, LOMBARD, ILLINOIS 60148
            ---------------------------------------------------------
                    (Address of principal executive offices)

                                 (630) 971-9924
                                 --------------
              (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  [  ]

As of June 30, 1999 the registrant had outstanding 18,637,458 shares of its
$.005 par value Common Stock.


<PAGE>   2


                                      INDEX



                         Part I - Financial Information


                                                                            Page

Item 1    Consolidated Balance Sheets......................................    3

          Consolidated Statements of Income................................    5

          Consolidated Statements of Cash Flow.............................    6

          Notes to Consolidated Financial Statements.......................    8

Item 2    Management's Discussion and Analysis of Financial Conditions
          and Results of Operations........................................   13



                   Part II - Other Information and Signatures


Item 5    Other Information................................................   14

Item 6    Exhibits and Reports on Form 8-K.................................   15










                                       2


<PAGE>   3


PART 1 - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

--------------------------------------------------------------------------------

June 30,                                         1999                1998

--------------------------------------------------------------------------------

ASSETS

Current Assets
  Cash                                         $   66,813          $  184,496
 Accounts receivable, net of allowance            283,229             282,121
 Loans Receivable, net of allowance             3,338,468           2,984,472
  Interest Receivable                             196,691             374,072
  Video Inventory                                 112,333             161,333
  Other                                            56,752              35,654

--------------------------------------------------------------------------------
Total Current Assets                            4,054,286           4,022,148
--------------------------------------------------------------------------------

Real Estate held for development                    9,000             559,000

Property and equipment, net                       190,546             214,343

Other Assets
  Film inventory                                   10,000              10,000
  Intangible assets, net                            6,175              43,207
  Security Deposits                                   900                   0
  Licenses                                              0             150,000
  Investment in LLC                                     0               2,245

--------------------------------------------------------------------------------
Total Other Assets                                207,621             205,452
--------------------------------------------------------------------------------

TOTAL ASSETS                                   $4,270,907          $5,000,943

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

See accompanying notes to consolidated financial statements.


                                       3

<PAGE>   4

FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

--------------------------------------------------------------------------------
June 30,                                               1999            1998
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Short-term debt                                  $ 2,632,328      $ 1,240,870
  Accounts payable                                     169,324          237,500
  Accrued expenses                                     441,249          852,466

--------------------------------------------------------------------------------

Total Current Liabilities                            3,242,901        2,722,503


Minority interest in consolidated subsidiary         2,788,968        2,788,968

Shareholders' Equity
  Common stock, $.005 par value,
   authorized 100,000,000 shares,
   issued and outstanding:
    1999,  18,637,458 shares
    1998,  18,672,458 shares                            92,690           93,365
  Dividends payable                                   (153,125)        (249,120)
  Paid in capital                                   27,258,241       27,271,566
  Accumulated deficit                              (28,958,768)     (27,626,339)

--------------------------------------------------------------------------------

Total Shareholders' Equity                          (1,760,962)        (510,528)

--------------------------------------------------------------------------------

================================================================================
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                               $ 4,270,907      $ 5,000,943

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

See accompanying notes to consolidated financial statements.


                                       4

<PAGE>   5


FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

--------------------------------------------------------------------------------

For the six  months ended June 30,                     1999            1998
--------------------------------------------------------------------------------

TOTAL REVENUES                                      $1,212,357     $   700,741

COST OF REVENUES                                       415,340         122,426

--------------------------------------------------------------------------------

GROSS PROFIT (LOSS)                                    797,017         578,315

--------------------------------------------------------------------------------

 OPERATING EXPENSES
  Marketing, selling & royalties                             0               0
  General and administrative                         1,217,307         464,924
  Write-off film inventory costs                             0               0
  Write-off goodwill and organization costs                  0               0

--------------------------------------------------------------------------------

TOTAL OPERATING EXPENSES                             1,217,307         464,924


OPERATING INCOME (LOSS)                               (420,290)        113,391

--------------------------------------------------------------------------------

OTHER INCOME (EXPENSE)                                     562          39,330

--------------------------------------------------------------------------------

NET INCOME (LOSS)                                   $ (419,728)    $   152,721

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

NET GAIN (LOSS) PER SHARE                           $     (.02)    $       .01

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

Weighted average shares outstanding                 18,672,458      18,672,458

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

See accompanying notes to consolidated financial statements.


                                       5

<PAGE>   6


--------------------------------------------------------------------------------
FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

For the three  months ended June 30,                     1999          1998
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income (loss)                                  $(316,904)   $ 107,139

    Adjustments to reconcile net loss to net
     cash provided by operating activities:

    Other amortization, depreciation, write-offs          36,943       30,317
    Provision for loan losses                             26,331       12,000
    Changes in operating assets and liabilities, net      43,495      289,041
--------------------------------------------------------------------------------

NET CASH (USED IN) OPERATING ACTIVITIES                 (210,135)     438,497

CASH FLOWS FROM INVESTING ACTIVITIES:

    Acquisition of property and equipment                 (5,492)    (144,592)
    Real estate held for development                           0       (9,000)
    Investment in LLC                                          0       (2,245)
    Start Up costs                                             0      (51,848)
--------------------------------------------------------------------------------

NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES                                      (5,492)    (207,685)

CASH FLOWS FROM FINANCING ACTIVITIES:

    Loans (repayments) from/to shareholder               141,210            0
    Principal payments on notes                          (72,927)           0
    Proceeds from borrowings on notes                    100,000            0
    Dividends paid                                       (76,563)     (95,474)
--------------------------------------------------------------------------------

NET CASH (USED IN) FINANCING ACTIVITIES                   91,720      (95,474)

NET INCREASE/(DECREASE) IN CASH                         (123,907)     135,338

CASH - BEGINNING OF PERIOD                               190,720       49,158
--------------------------------------------------------------------------------

CASH - END OF PERIOD                                    $ 66,813    $ 184,496
================================================================================

See accompanying notes to consolidated financial statements.


                                       6

<PAGE>   7


--------------------------------------------------------------------------------
FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

For the six  months ended June 30,                        1999          1998
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income (loss)                                  $(419,736)     $ 152,721

    Adjustments to reconcile net loss to net
     cash provided by operating activities:

    Other amortization, depreciation, write-offs          53,586         31,203
    Provision for loan losses                             55,000         18,000
    Changes in operating assets and liabilities, net     167,937        220,579
--------------------------------------------------------------------------------

NET CASH (USED IN) OPERATING ACTIVITIES                 (143,213)       422,503

CASH FLOWS FROM INVESTING ACTIVITIES:

    Acquisition of property and equipment                (95,450)      (144,592)
    Real estate held for development                           0         (9,000)
    Investment in LLC                                          0         (2,245)
    Start Up costs                                             0        (51,848)
--------------------------------------------------------------------------------

NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES                                     (95,450)      (207,685)

CASH FLOWS FROM FINANCING ACTIVITIES:

    Loans (repayment) from/to shareholder                257,923              0
    Principal payments on notes                         (141,667)             0
    Notes Receivable                                     (41,638)             0
    Proceeds from borrowings on notes                    200,000              0
    Dividends paid                                      (153,125)      (249,120)
--------------------------------------------------------------------------------

NET CASH (USED IN) FINANCING ACTIVITIES                  121,493       (249,120)

NET INCREASE/(DECREASE) IN CASH                         (117,170)       (34,302)

CASH - BEGINNING OF PERIOD                               183,983        218,798
--------------------------------------------------------------------------------

CASH - END OF PERIOD                                   $  66,813      $ 184,496
================================================================================

See accompanying notes to consolidated financial statements.


                                       7

<PAGE>   8

FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)\
June 30, 1999


--------------------------------------------------------------------------------

NOTE 1  GENERAL
--------------------------------------------------------------------------------

In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
1999 (unaudited) and the unaudited results of operations and cash flows for the
six months ended June 30, 1998. The financial statements have been prepared in
accordance with the requirements of Form 10-QSB and consequently do not include
all the disclosures normally made in an Annual Report on Form 10-KSB.
Accordingly, the consolidated financial statements included herein should be
reviewed in conjunction with the financial statements and the footnotes thereto
included in the Company's short period December 31, 1998 Annual Report on Form
10-KSB.

The results of operations for the six months ended June 30, 1999 and 1998 are
not necessarily indicative of the results to be expected for the full year.

--------------------------------------------------------------------------------

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

--------------------------------------------------------------------------------

Principles of Consolidation: The consolidated financial statements include the
accounts of First National Entertainment Corp. (a Colorado corporation) and its
subsidiaries, Equator Entertainment, First National Finance Corp., and First
National Video Corp. (collectively referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.

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

Fiscal Year Change: Effective January 1, 1998, the Company changed its fiscal
year-end of June 30 to a year-end of December 31. The six-month transition
period bridges the gap between the Company's old and new fiscal year end.

Inventories: Inventories, consisting primarily of prerecorded videocassettes,
concessions, and other accessories held for resale, are stated at the lower of
cost or market. Cost of sales is determined on a first-in, first-out basis
("FIFO"). Videocassette rental inventory, which includes video games, is stated
at cost and amortized over its estimated useful life to a $4 per videocassette
salvage value. See Note 4 for discussion of the amortization policy applied to
videocassette rental inventory.

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.

Loans Receivable: Loans are stated net of the allowance for loan losses and
unearned discount. Interest on loans is included in operating revenues over the
term of the loan based upon the principal balance outstanding. Where serious
doubt exists as to the collectibility of a loan, the accrual of interest is
discontinued. Loan fees and direct loan origination costs are deferred and
amortized over the term of the loan as a yield adjustment.


                                       8

<PAGE>   9

The Company has a reserve for unfunded restoration costs which it holds in
escrow. Payments are made from time to time as work is completed and
documentation is presented to a title company for approval. Funds are disbursed
upon a directive from the title company.

Allowance for Loan Losses: An allowance for loan losses has been established to
provide for those loans which may not be repaid in their entirety. The allowance
is increased by provisions for loan losses charged to expense and decreased by
charge-offs, net of recoveries. Although a loan is charged off by management
when deemed uncollectible, collection efforts may continue and future recoveries
may occur.

The allowance is maintained by management at a level adequate to cover losses
that are currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations (including their
financial position and collateral values) and other factors and estimates which
are subject to change over time. Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective and ultimate losses may vary from
current estimates. These estimates are reviewed periodically, and as adjustments
become necessary, they are reported in earnings in the periods in which they
become known.

Loans are considered impaired if full principal or interest payments are not
anticipated. Each impaired loan is carried at the present value of expected cash
flows discounted at the loan's effective interest rate or at the fair value of
the collateral if the loan is collateral dependent. A portion of the allowance
for loan losses is allocated to an impaired loan if the present value of cash
flows or collateral value indicate the need for an allowance.

For impaired loans and other loans, accrual of interest is discontinued on a
loan when management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are credited to the
loan receivable balance, and no interest income is recognized on those loans
until the principal balance has been collected.

Property, Plant, and Equipment: Property, plant, 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.

Financial Instruments: The Company's financial instruments consist principally
of loans receivable and notes payable and are carried at amounts which
approximate fair value.

Stock-Based Compensation: On October 23, 1995, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, the recognition of
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on a fair value method of accounting. Companies
are permitted to continue to apply the existing accounting rules contained in
Accounting Principles Board Option No. 25, "Accounting for Stock Issued to
Employees" (APBO No. 25"); however, companies that choose to retain this method
of accounting are required to provide expanded disclosures of pro forma net
income and earnings per share in the notes to financial statements as if the new
fair value method of accounting ad been adopted. The Company has elected to
continue to apply the accounting principles contained in APBO No. 25.

Income Taxes: The Company accounts for income taxes using the deferred asset and
liability method as required by SFAS No. 109, "Accounting for Income Taxes."
Deferred income taxes are proved as temporary differences arise between the
basis of asset and liabilities for financial reporting and income tax reporting.

Earnings/(Loss) Per Share: Earnings per common share (EPS) is computed under the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," which was adopted retroactively by the Company at December 31, 1997.
Basic earnings/(loss) per common share is computed by dividing net income/(loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. 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
computing dilutive earnings/(loss) per share.


                                       9

<PAGE>   10

--------------------------------------------------------------------------------

NOTE 3  NOTES RECEIVABLE

--------------------------------------------------------------------------------


                                                                March 31,
                                                                ---------
                                                              1999      1998
                                                              ----      ----
    10% note due January 1, 2000, convertible to a 21%
    ownership in a travel company at the option of the
    Company's management                                    $125,000   $ ---

    10% note due November 1, 1999.  Note is secured by real
    estate                                                   126,000   $ ---
                                                            --------   ------

                                                            $251,000   $ ---

--------------------------------------------------------------------------------

NOTE 4  VIDEOCASSETTE RENTAL INVENTORY

--------------------------------------------------------------------------------

The Company amortizes its videocassette rental inventory on an accelerated
method. Under this method, videocassette rental inventory, which includes video
games, is stated at cost and amortized, beginning on the date the videocassettes
are placed into service, to its salvage value ($4 per videocassette) over an
estimated useful life of 36 months. All copies of new release videocassettes are
amortized on an accelerated bases during their first three months to an average
net book value of $8 and then on a straight-line basis to their salvage value of
$4 over the next 33 months.

--------------------------------------------------------------------------------

NOTE 5  AMORTIZATION OF FILM INVENTORY

--------------------------------------------------------------------------------

The Company's film inventory consists of the unamortized film costs for Happily
Ever After allocated to the secondary market.

Amortization of capitalized film property costs is computed using the
individual-film-forecast computation method as promulgated under SFAS No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films". At
June 30, 1996, the Company intended to amortize the remaining unamortized film
costs for its Happily Ever After property over the next five years, subject to
future market conditions altering this accounting estimate. The Company's
computation of net realizable value as of June 30, 1997 resulted in a
significant change in the amount of unamortized costs permitted to be charged to
future operations. Accordingly, a charge of $2,200,000 is reflected in the
statement of operations for the year ended June 30, 1997 to reflect the
writedown of film property costs to their estimated net realizable value. At
December 31, 1997, an additional review and analysis of the film's net
realizable value resulted in a charge to income of $490,000.


                                       10

<PAGE>   11

--------------------------------------------------------------------------------

NOTE 6  LEASEHOLD IMPROVEMENTS AND EQUIPMENT

--------------------------------------------------------------------------------

Leasehold improvements and equipment consisted of the following at June 30, 1999
and 1998:

                                                      1999            1998
                                                      ----            ----

          Leasehold improvements                    $  79,439       $  80,685
          Office equipment                            151,268          68,341
          Furniture and fixtures                       27,377          41,680
          Automobile                                    ---            38,425
                                                    ---------       ---------
                                                      258,084         229,131
          Less accumulated depreciation                67,538          14,788
                                                    ---------       ---------
             Net property and equipment             $ 190,546       $ 214,343
                                                    =========       =========


--------------------------------------------------------------------------------

NOTE 7  SHAREHOLDERS' EQUITY

--------------------------------------------------------------------------------

Preferred Stock: The Company has authorized the issuance of 10,000,000 shares of
$.0001 par value preferred stock. At December 31, 1998, the Company had not
issued any preferred shares.

Common Stock: During the periods ended December 31, 1998 and 1997, respectively,
the Company issued 600,000 and 274,000 shares for employee compensation and
professional fees valued at $6,000 and $5,480.

In the second quarter of 1996, 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 share. Total proceeds from the offering
amounted to $830,000. On October 6, 1996, the Company's Board of Directors
approved and issued an Extension and Optional New Pricing Offer to the holders
of these warrants. 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
through an expiration date of December 15, 1997. The Extension and Optional New
Pricing Offer allows 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. During the year ended June 30, 1997, warrants for 800,000 shares
are extended to December 31, 1999 and warrants for 200,000 shares were extended
to December 31, 2000. Additional paid-in capital of $60,000 was received from
these transactions for the period ended June 30, 1997. During 1998, certain
warrants previously issued in the six-month period ended December 31, 1998 were
canceled and cash of $20,000 was returned. During 1998, 100,000 warrants were
issued as part of a compensation agreement. The warrants are convertible to
common stock at twenty-five cents a share. There were 13,660,000 warrants
outstanding at December 31, 1998.

Rentrak, Inc. of Portland, Oregon is a large distributor of videocassettes on a
pay-per-view basis nationally. On December 22, 1995, the Company and Rentrak
entered into a ten-year agreement whereby Rentrak purchased 357,143 shares of
common stock for $200,000. Rentrak has also agreed to acquire an additional
$10,000 of common stock for each new non-Rentrak video store acquired by the
Company. No new stores have been acquired as of December 31, 1998.


                                       11

<PAGE>   12

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 December 31, 1997, 25,000 options
had been issued under the 1993 Plan. These options were issued in August 1993 at
the exercise price of $1.53 per share. All of the outstanding options were
exercisable at December 31, 1998. No options were exercised during the year
ended December 31, 1998, the six months ended December 31, 1997, or the year
ended June 30, 1997.

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 8  LEASES

--------------------------------------------------------------------------------

The Company occupies certain office facilities and video stores under operating
lease arrangements. Under terms of the leases, the Company is responsible for
real estate taxes, insurance, and maintenance costs on the facilities. Total
rent expense under such arrangements was approximately $278,000, $35,000 and
$17,000 for the year ended December 31, 1998, the six months ended December 31,
1997, and the year ended June 30, 1997, respectively. The leases expire from
1999 through 2003.

Future minimum payments under noncancelable leases as of December 31, 1998 are
as follows:

                         1999                 $     308,870
                         2000                       264,751
                         2001                       251,142
                         2002                       214,440
                         2003                       180,870
                                              -------------

                                              $   1,220,073

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


                                       12

<PAGE>   13


                                     ITEM 2.
               FIRST NATIONAL ENTERTAINMENT CORP.AND SUBSIDIARIES
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                       OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

Corporate revenues were obtained during the second quarter from the following
subsidiaries; First National Finance Corp., Prairie Business Credit, Inc., and
First National Video Corp. Revenue was below projections and is further
discussed in Results of Operations. On a positive note the Corporation's Equator
Entertainment subsidiary continues to pursue world wide general entertainment
opportunities with two such opportunities under are letter agreements - one
discussed in the 8K dated 7/20/99 and the second discussed in Item 5 - Other
Information of this report.

Expenses have been reduced from projections in an attempt to match actual
revenues. The Equator Entertainment subsidiary as has been anticipated did not
generate revenue in the second quarter. The Corporation remains confident of an
Equator revenue stream in late 1999 or early 2000.


FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a `safe harbor'
for forward looking statements. Certain information included in this news
release contains statements that are forward-looking, such as statements
relating to the consumption of transactions, anticipated future revenues of the
company, and the success of current product offerings. Such forward-looking
information involves risks and uncertainties that could significantly affect
results in the future and, accordingly, such results may differ materially from
those expressed in any forward-looking statements made by or on behalf of
Equator Entertainment. For a description of risks and uncertainties, please
refer to First National Entertainment's filings with the Securities and Exchange
Commission, including Forms 10-K and 10-Q.


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1999, the Company had cash of $66,813 compared to $49,158 at year
ended December 31, 1998. The bank loans remained the same with the exception of
an approximate principal payment of $25,000 on the video store loan. Notes
Receivable increased $122,160 related to the activity of Prairie Business
Credit.

The Corporation's relationship with the bank remains excellent.

FINANCING ACTIVITIES

Management believes its working capital and existing credit sources are adequate
to meet its operating requirements for the foreseeable future. The Corporation
continues to seek the best arrangement to set in place a multi million dollar
revolving credit line. Primary use of the loan would be to fund anticipated
growth in Prairie Business Credit, Inc. and also to allow current cash to be
used in profit participation deals in Equator Entertainment.


RESULTS OF OPERATIONS - SIX months Ended June 30, 1999 compared to Six Months
Ended June 30, 1998.

Revenues increased by $512,448 in 1999 compared to six months in 1998. This can
be attributable to activity in First National Video and Prairie Business Credit
factoring. Sales through June, 1999 total $1,212,919 versus $700,741 for the
same period in 1998.


                                       13

<PAGE>   14

Cost of Revenues, related to the video stores, amounted to $415,340 in 1999 in
comparison to an amount of $122,426 in a short period of store ownership in
1998.

Total operating costs of $1,217,307 resulted in the six month loss of
$(419,728).

In First National Finance income on business loans is recorded upon repayment of
the loan. The majority of the loans are for property rehabilitation. In recent
weeks sales of the completed property has been slowed primarily due to lender
processing time. The result is income being delayed into future quarters. At
this time the Corporation is unable to determine the length of these timing
differences or the period in which loan completion delays will occur.

Prairie Business Credit has experienced additional start up costs in connection
with a new marketing plan.

First National Video Corp. has been struggling to obtain consistent
profitability. Factors include a difficult period in the industry with record
independent store closings, cyclical sales with low periods of the year in
May/June and late fall. The Company has been unable to compete with the large
chains without purchasing movies on a Pay Per View basis. The Company has a
source agreement in place with Rentrak Corp. and expects to purchase product on
a Pay Per View basis for a significant portion of its movie requirements
beginning in the third quarter. As directed by it's Board, the Corporation
continues to pursue a sale of the stores.

TAXES ON INCOME

Taxes on income are zero due to the cumulative net operating loss carryforwards
of approximately $28.0 million at June 30, 1999, for federal tax purposes. The
net operating loss carryforwards expire in varying amounts beginning in the year
2000.




                           PART II - OTHER INFORMATION

                           ITEM 5 - OTHER INFORMATION

During the second quarter Prairie Business Credit, Inc. moved to a combined
office with First National Entertainment Corp. and First National Finance Corp.
The offices are located at 477 E. Butterfield Rd., Suite 410, Lombard, IL 60148.
The Corporation has extended the lease through 2004.

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 class action incorporated all persons who
acquired common stock between 3/9/93 and 6/2/93 inclusive. On December 28, 1995
the Company settled the suit for $50,000 in cash and 4,000,000 shares of common
stock. These shares have been included in dilutive common shares outstanding.
The Common stock was distributed to approximately 1800 shareholders and several
law firms during the second quarter of this year.

Equator Entertainment has reached an agreement with CROMOSOMA TV PRODUCTIONS of
Barcelona, Spain to act as exclusive distributor of TV rights in the USA for
"240", a new project. Further discussion continues on amount of co-production
profit participation and collaborative merchandising.


                                       14

<PAGE>   15



                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         (27)     Financial Data Schedule

(b)      Reports on Form 8-K

         Equator Entertainment agreement with Filmax/Costelao of Spain
pertaining to the new animated television show GOOMER! As filed on July 20,
1999.











                                       15

<PAGE>   16




                                    SIGNATURE


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


                                 First National Entertainment Corp.




Dated: August 13, 1999           /s/ Charles E. Nootens
       ---------------           ----------------------
                                 Charles E. Nootens
                                 President













                                       17