<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 SEPTEMBER 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  November 12, 1998  the registrant had outstanding 17,907,458 shares of 
its $.005 par value Common Stock.


<PAGE>   2


                                     INDEX



                         Part I - Financial Information

<TABLE>
<CAPTION>

                                                                                                               Page


<S>          <C>                                                                                               <C>
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

</TABLE>





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PART 1 - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

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

September 30,                                             1998                  1997

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

<S>                                                <C>                   <C>        
ASSETS

Current Assets
  Cash                                             $   101,328           $   232,915
  Cash Escrow Account                                        0               500,000
 Accounts receivable, net of allowance                 241,865                 5,048
 Loans Receivable, net of allowance                  3,166,514             2,226,083
  Interest Receivable                                  450,442               104,957
  Video Inventory                                      139,333                     0
  Other                                                 50,139                 4,881

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

Total Current Assets                                 4,149,621             3,073,884

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

Real Estate held for development                       559,000               550,000

Property and equipment, net                            217,817                50,146

Other Assets
  Film inventory                                        10,000               500,000
  Goodwill                                               5,000
  Intangible assets, net of accumulated
     amortization of $12,962 (1998)                     30,245                     0
   Licenses                                            150,000                     0
  Investment in LLC                                     27,726                     0
  Investment in PK                                      10,000
  Organization Costs                                                         519,349
  Franchise Rights                                                            22,686

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

Total Other Assets                                     232,971             1,042,035

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

TOTAL ASSETS                                        $5,159,409            $4,716,065

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

</TABLE>

See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   4




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

<TABLE>
<CAPTION>

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

September  30,                                          1998                    1997

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

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

Current Liabilities
  Notes payable to shareholder                     $   775,946          $    328,947
  Loans payable to bank                              1,166,667                     0
  Accounts payable                                     267,856               322,608
  Accrued expenses                                     869,852               459,622

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

Total Current Liabilities                            3,080,321             1,111,177

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

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:                                                        186
    1998,  16,898,458 shares
    1997,  18,398,458 shares                            93,365               528,842
  Dividends payable                                   (325,682)              (30,000)
  Paid in capital                                   27,271,566            26,850,608
  Accumulated deficit                              (27,749,129)          (26,533,716)

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

Total Shareholders' Equity                           (709,880)               815,920

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

========================================================================================
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                               $5,159,409           $  4,716,065

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

</TABLE>


See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   5

<TABLE>
<CAPTION>

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

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

For the nine months ended September 30,              1998                             1997

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

<S>                                                <C>                           <C>        
TOTAL REVENUES                                     $ 1,358,216                   $   142,188

COST OF REVENUES                                       387,859                             0

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

GROSS PROFIT (LOSS)                                    970,357                       142,188

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

 OPERATING EXPENSES
  Marketing, selling  & royalties                            0                             0
  General and administrative                           983,534                        75,371

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

TOTAL OPERATING EXPENSES                               983,534                        78,371

OPERATING INCOME (LOSS)                                (13,177)                       63,817

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

OTHER INCOME (EXPENSE)                                  43,108                             0

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

NET INCOME (LOSS)                                      $29,931                       $63,817

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

NET GAIN (LOSS) PER SHARE                          $       --                    $        --

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

Weighted average shares outstanding                 18,289,958                    18,398,458

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

</TABLE>

See accompanying notes to consolidated financial statements.



                                       5
<PAGE>   6

<TABLE>
<CAPTION>


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

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

For the nine  months ended September 30,                            1998                  1997

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

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

    Net income (loss)                                             $29,931             $63,817

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

    Other amortization, depreciation, write-offs                   76,241               6,885
    Provision for loan losses                                      27,000                   0
    Changes in operating assets and liabilities, net              336,754             (47,080)

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

NET CASH (USED IN) OPERATING ACTIVITIES                           469,926              23,622

CASH FLOWS FROM INVESTING ACTIVITIES:

    Acquisition of property and equipment                        (158,140)            (38,425)
    Real estate held for development                               (9,000)                  0
    Investment in LLC                                             (27,726)                  0
    Start Up costs                                                (51,848)                  0
   Organization Costs                                                                (519,349)
   Goodwill                                                        (5,000)                  0
   Investment in PK                                               (10,000)                  0

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

NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES                                             (261,714)           (557,774)

CASH FLOWS FROM FINANCING ACTIVITIES:

    Notes Payable/(Repayments)                                         --             268,947
    Issuance of Warrants                                               --              59,000
    Dividends paid                                               (325,682)            (30,000)
   Common Stock Issuance                                                              416,848

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

NET CASH (USED IN) FINANCING ACTIVITIES                          (325,682)            714,795

NET INCREASE/(DECREASE) IN CASH                                  (117,470)            180,643

CASH - BEGINNING OF PERIOD                                        218,798              52,272
--------------------------------------------------------------------------------------------------

CASH - END OF PERIOD                                             $101,328           $ 232,915
===================================================================================================================

</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 September
30, 1998 (unaudited) and the unaudited results of operations and cash flows for
the nine months ended September 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 nine months ended September 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

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


                                       7
<PAGE>   8

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 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 


                                       8
<PAGE>   9



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.

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


                                       9
<PAGE>   10



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.





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

NOTE 8  CONTINUING OPERATIONS AND SUBSEQUENT EVENTS

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



In its continuing commitment toward establishing a profitable entertainment
division the Company has agreed to acquire PK Productions owned by Mr. Peter
Keefe.

The web site at www.fnat.com has been expanded to include information regarding
the activity of the entertainment division.

First National World Tours, Inc. has been incorporated and is beginning to
operate. At this time a final agreement has not been concluded to purchase the
assets of a tour company and a travel agency. Certain conditions may preclude a
successful conclusion to this acquisition.



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

OVERVIEW

The company continues to obtain all revenue from loan fees and interest on short
term business bridge loans supported by real estate.

The company increased its bank loans to approximately $1,200,000 during the
quarter. During the same period, loans receivable increased by approximately
$900,000.

Profits on a consolidated basis were adversely affected by the start up costs in
"revitalized" entertainment division, the tour company as well as continued
losses in the video stores.


LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998, the Company had $101,328 in cash compared to $232,915 for
the same period in 1997. The difference can be attributed to timing on business
loans from the Finance subsidiary.

Accounts and loans receivable amounted to $3,945,590. The company has increased
its bank loans to $1,200,000 while decreasing loans to shareholders to
approximately $567,000. The Board of Directors has instructed management to
repay all shareholder loans as quickly as possible.


FINANCING ACTIVITIES


                                       10
<PAGE>   11

Management believes its working capital and existing credit availability will be
adequate to meet its operating requirements, including start up and expansion
activities, for the foreseeable future.




RESULTS OF OPERATIONS

Consolidated

Revenues for the company for the nine months ended September 30, 1998 amounted
to $1,401,324 compared to $142,188 for 1997. With a cost of goods of $387,859
and expenses of $983,534 a profit of $29,931 was achieved for the nine months.
The quarter reflected a loss of $124,389 attributed to timing of some of the
loan revenue in the Finance subsidiary and start up costs in the Tour and
Entertainment subsidiaries.

The income of $29,931 compares to net income of $63,817 for the comparable nine
months in 1997.

First National Finance Corp.

Revenues increased to $726,910 for the nine months compared to $142,188 for the
prior year. Amounts reflect a full nine months of Finance activity compared to
less than six months in 1997.

Operating costs and expenses maintained within projected amounts at $253,665
with a net income of $473,246.


Entertainment

With a minimum income from management fees from the Finance subsidiary,
corporate operating expenses of $423,859 for nine months resulted in a loss of
$320,359. Additional expenses were incurred with the focus on establishing a
profitable niche in the family entertainment industry.


First National World Tours, Inc.

As in any start up, limited income of $28,588 and expenses of $61,158 resulted
in a loss of $32,769 for the quarter and nine months.


First National Video Corp.

Revenues of $685,073 with cost of goods of $406,906 and expenses of $369,954
resulted in a nine months loss of $91,787. Sales have been less than anticipated
primarily due to current "softness" in the industry. The company continues to
evaluate the profitability of each store and its commitment in time and cost to
this subsidiary.


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 Lewin
& Rosenthal and Frontline Records which should be completed prior to year end.






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



                                       13
<PAGE>   14




                                    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:___________________                     By:



                                              -----------------------------
                                              Charles E. Nootens President



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