<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, 1998

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 307, 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, 1998  the registrant had outstanding 18,672,458 shares of its
$.005 par value Common Stock.






<PAGE>   2

                                     INDEX
                                        
                                        
                                        
                         Part I - Financial Information


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

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

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

        Notes to Consolidated Financial Statements........................     7

Item 2  Management's Discussion and Analysis of Financial Conditions 
        and Results of Operations.........................................    10


                   Part II - Other Information and Signatures



Item 5  Other Information.................................................    11

Item 6  Exhibits and Reports on Form 8-K..................................    12







                                       2
<PAGE>   3

PART 1 - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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



<TABLE>
<CAPTION>

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

June 30,                                                  1998          1997

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

<S>                                                    <C>            <C>

ASSETS

Current Assets
 Cash                                                  $  184,496     $   52,272
 Cash Escrow Account                                            0        500,000
Accounts receivable, net of allowance                     282,121              0
Loans Receivable, net of allowance                      2,984,472      2,186,315
 Interest Receivable                                      374,072         52,653
 Video Inventory                                          161,333              0
 Other                                                     35,654          4,883

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

Total Current Assets                                    4,022,148      2,796,123

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


Real Estate held for development                          559,000        550,000

Property and equipment, net                               214,343         12,607

Other Assets
 Film inventory                                            10,000        500,000
 Intangible assets, net of accumulated
   amortization of $8,641 (1998)                           43,207              0
 Licenses                                                 150,000              0
 Investment in LLC                                          2,245              0

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

Total Other Assets                                        205,452        500,000

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


TOTAL ASSETS                                           $5,000,943     $3,858,730

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

</TABLE>


See accompanying notes to consolidated financial statements.



                                       3

<PAGE>   4

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




<TABLE>
<CAPTION>

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

 June 30,                                               1998           1997

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

 <S>                                                <C>            <C>
 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current Liabilities
  Notes payable to shareholder                      $ 1,240,870    $   200,000
  Accounts payable                                      237,500        361,747
  Accrued expenses                                      852,466        370,444

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

 Total Current Liabilities                            2,722,503        932,191

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


 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:
   1998,  18,672,458 shares
   1997,  16,898,458 shares                              93,365         84,495
  Dividends payable                                    (249,120)             0
  Paid in capital                                    27,271,566     26,650,608
  Accumulated deficit                               (27,626,339)   (26,597,532)

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

 Total Shareholders' Equity                            (510,528)       137,571

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


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

 TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                               $ 5,000,943    $ 3,858,730

================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.




                                       4




<PAGE>   5

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------

For the six  months ended June 30,                   1998              1997

--------------------------------------------------------------------------------
<S>                                               <C>             <C>
TOTAL REVENUES                                    $  700,741      $(  103,579)

COST OF REVENUES                                     122,426          (51,790)

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

GROSS PROFIT (LOSS)                                  578,315          (51,789)

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


OPERATING EXPENSES
 Marketing, selling  & royalties                           0           84,716
 General and administrative                          464,924           38,417
Write-off film inventory costs                             0        2,200,000
Write-off goodwill and organization costs                  0          145,174

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

TOTAL OPERATING EXPENSES                             464,924        2,468,307


OPERATING INCOME (LOSS)                              113,391       (2,520,096)

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

OTHER INCOME (EXPENSE)                                39,330         (228,317)

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

NET INCOME (LOSS)                                 $  152,721      $(2,748,413)

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

NET GAIN (LOSS) PER SHARE                         $      .01      $      (.16)

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

Weighted average shares outstanding               18,672,458       16,898,458

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

</TABLE>



See accompanying notes to consolidated financial statements.



                                       5



<PAGE>   6

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

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


<TABLE>
<CAPTION>

   For the six  months ended June 30,                      1998          1997

--------------------------------------------------------------------------------
<S>                                                  <C>         <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                                  $152,721    $(2,748,413)

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

  Amortization of film costs                                0      2,148,210
  Other amortization, depreciation, write-offs         31,203         18,688
  Loss on disposition of capital leases                     0          9,022
  Provision for loan losses                            18,000              0
  Changes in operating assets and liabilities, net    220,579        338,497

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

NET CASH (USED IN) OPERATING ACTIVITIES               422,503       (233,996)

CASH FLOWS FROM INVESTING ACTIVITIES:

  Acquisition of property and equipment              (144,592)        (3,542)
  Real estate held for development                     (9,000)             0
  Investment in LLC                                    (2,245)             0
  Start Up costs                                      (51,848)             0

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

NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES                                 (207,685)        (3,542)

CASH FLOWS FROM FINANCING ACTIVITIES:

  Notes Payable/(Repayments)                               --        200,000
  Issuance of Warrants                                     --         60,000
  Dividends paid                                     (249,120)             0

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

NET CASH (USED IN) FINANCING ACTIVITIES              (249,120)       260,000

NET INCREASE/(DECREASE) IN CASH                      ( 34,302)        22,462

CASH - BEGINNING OF PERIOD                            218,798         29,810

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

CASH - END OF PERIOD                                 $184,496    $    52,272
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.



                                       6


<PAGE>   7

FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)\
 June 30, 1998



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

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,
1998 (unaudited) and the unaudited results of operations and cash flows for the
six months ended June 30, 1997.  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, 1997 Annual Report on Form
10-KSB.

The results of operations for the six  months ended June 30, 1998 and 1997 are
not necessarily indicative of the results to be expected for the full year. 

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

NOTE 2  CONDENSED SUMMARY OF ACCOUNTING POLICIES

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

Principles of Consolidation:   The consolidated financial statements include the
accounts of First National Entertainment Corp. (a Colorado corporation) and its
subsidiaries, Stylus Records, First National Finance Corp., and FNAT
Umwelttechnik AG (a Swiss company) (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:  The Company changed its fiscal year ended June 30 to a year
ended December 31.

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.


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

NOTE 3  ACCOUNTS RECEIVABLE

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

On August 16, 1994 the Company received an accounting statement from Republic
Pictures (Republic), its former film distributor, that reported video sales and
collection results for Happily Ever After through June 30, 1994.  This



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<PAGE>   8
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 charged off all of these outstanding
receivables in 1996 and prior years.

Loans Receivable:  Loans are stated net of the allowance for loan losses and
unearned discount.  Interest on loans is included in interest income 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.

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 considered 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.

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.

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

NOTE 4  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 




                                       8



<PAGE>   9
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.

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 difficulties in securing satisfactory songwriting and
financing, as well as the production of competitive properties by major
Hollywood studios, the Company decided to abandon its effort to produce this
version of Cinderella.  Accordingly, the previously deferred development and
preproduction costs, in the amount of $405,987, were charged against 1996
income.

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

NOTE 5  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.

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

NOTE 6  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).

On May 18, 1995, the Company received notice from Della Miles, Stylus Record's
feature artist, that Stylus was in material breach of its contract with her.
After several meetings with Ms. Miles and her counsel, the Company placed the
entire advanced royalty receivable amount relating to this contract in its
reserve for doubtful accounts.

The Founders' Agreement of Stylus Records calls for certain actions by the
Company if the Company's common stock price is not equal to $5 or greater on
March 31, 1996 (the stock price on April 1, 1996 was $.25).  These actions
relate to 60,000 shares of a total of 160,000 issued in April 1994 in exchange
for the Company's 80% interest in Stylus Records.  Per the Agreement, the
Company would be required to make up any shortfall in value, either in cash or
via the issuance of additional shares.  The Company has submitted the Agreement
to its legal counsel to determine if it is indeed obligated to take such
actions.  As of this date it is the Company's understanding that Stylus Records
is in receivership.

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

NOTE 7  LITIGATION

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

The Company is involved in certain litigation incidental to the conduct of its
business.  In the Company's opinion, none of these proceedings will have a
material adverse effect on the Company's financial position, results of
operations and liquidity.  The financial statements include the estimated
amounts of liabilities that are likely to be incurred from these and various
other pending litigation and claims.


                                       9

<PAGE>   10


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

NOTE 8  CONTINUING OPERATIONS AND SUBSEQUENT EVENTS

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

In a move to strengthen it's core entertainment buisness, First National
Entertainment has named television program production and marketing veteran
Peter Keefe to head up the company's entertainment operations.  Keefe, a well
known and respected executive in the television industry, will be responsible
for expanding First National's presence in the industry through program
creation, production and sales & marketing, with an emphasis upon building an
entertainment program library that the company will have a substantial ownership
interest in.

In July, 1998, the Company reached a new agreement with the new Europartners
pertaining to the loans to First National Technologies, Inc. ("FNET").  In the
new agreement, Jurg Mullhaupht and Dominic Mueller will purchase all outstanding
shares of the FNET subsidiary, FNAT Franchising, AG (FNATF) a Swiss company.

First National Entertainment Corp. extended a loan of $270,000 to FNET which was
used to increase the paid in capital of FNATF.  The new Europartners will
establish a Bermuda company and assume responsibility for this loan.

Jurg Mullhaupht and Dominic Mueller shall return all First National
Entertainment Corp. shares and warrants.  They will cooperate with the company
to obtain the return of shares and warrants held by Mathias Wettstein.

The $270,000 loan will be paid in equal installments from 1999 to 2001.

The company is negotiating to purchase the assets of Freeworld Tours with the
intent of establishing a subsidiary First National World Tours, Inc. to
establish high end tours.  Initially, these tours would be to the Pacific Basin
and India.  Also, the company is considering an arrangement with a travel agency
in the Chicagoland area to handle certain details of specific travel requests.

The First National Finance Corp. continues to meet expectations and provide
working capital to sustain the corporation.

The acquired video stores have gone through the transition period of license and
lease assignments and is now headed into a period of improvement through new
movie distributors and remodeling.  It is anticipated the stores will be
generating a positive cash flow within the next few months.


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

OVERVIEW




                                       10
<PAGE>   11
The Company's revenues were received from loan fees and interest on short term
bridge loans primarily in the Chicago area.  The Company has a portfolio of
loans ranging from approximately $30,000 to $300,000.  Generally, loan fees and
interest are prepaid for six months.


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company had $184,496 in cash compared to $52,272 for the
same period in 1997.

Operations provided cash flow of $422,503 during the six  months ended June 30,
1998.  Additional cash was received in a loan of $400,000 from LaSalle Bank for
the purchase of Windy City Video.  An officer and shareholder advanced $975,000
during the six months to First National Finance Corp. to expand the loan
portfolio.  The Company expects this advance to be short term.

Accounts Receivable and loans receivable increased from $2,186,315 to
$3,117,528.  The increase is due to the acquisition of a corporation obtained
from Mr. Nootens and formed as First National Finance Corp.  The Company has
received an assignment for a cash escrow account that resulted in additional
cash available for loans in the Finance subsidiary during the second quarter
1998.  In addition, the Company is exploring the best option regarding a parcel
of lakefront property in far suburban Chicago for either a joint venture to
develop or a sale.

The Company had deferred loan fees and interest of $204,065  which should be
realized during fiscal 1998.


FINANCING ACTIVITIES

Management believes its working capital and existing credit availability will be
adequate to meet its operating requirements for the foreseeable future.  In
connection with any plans for expansion of the entertainment and pipe repair
businesses, the Company is exploring additional funding through a variety of
options.  Nothing has been finalized at this time.


RESULTS OF OPERATIONS - Six Months Ended June 30, 1998 compared to Six  Months
Ended June 30, 1997.

Revenues increased to $700,741 from $(103,579) in the prior year through the
increase in loan interest, fees and video store revenue.

Operating costs and expenses.  Cost of Goods and operating expenses totaled
$587,350 during the six months ended June 30, 1998. This is a decrease from the
comparable amount in 1997 of $2,416,517.  Operating expenses are in fact
selling, administrative and general expenses for the quarter.

The Company had net income of $152,721 compared to a net loss of $(2,748,413)
for the six months.  The improzvement is due to revenues from the Financing
Company and continued reduction in costs.  The Company had a loss of $(.01) on a
diluted basis in the current period vs. a loss of $(.18) per share for the
comparative six months in 1997.

TAXES ON INCOME

Taxes on income are zero due to the cumulative net operating loss carryforwards
of approximately $25.0 million at June 30, 1998, for federal tax reporting
purposes.  The net operating loss carryforwards expire in varying amounts
beginning in the year 2000.




                                       11

<PAGE>   12




                          PART II - OTHER INFORMATION
                                        
                           ITEM 5 - OTHER INFORMATION

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 Founders' 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 difference between the market price and
the guarantee price.  The shares issued for this acquisition, including the
price guarantees, were valued at $375,000.  The Company maintains an 80%
ownership in Stylus, with its investment partners Lewis & Rosenthal and
Frontline Records, maintaining 15% and 5% ownership interests, respectively.

The Company has reached an agreement to acquire the Stylus shares of Lewis
& Rosenthal and Frontline Records which should be completed prior to the end of
the third quarter.






                   ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

      (27)   Financial Data Schedule

(b)   Reports on Form 8-K

               None.






                                       12
<PAGE>   13



                                   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 14, 1998                  /s/ Charles E. Nootens
       ----------------------           ----------------------
                                        Charles E. Nootens
                                        President












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