<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 MARCH 31, 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.)


           600 ENTERPRISE DRIVE, SUITE 109, OAK BROOK, ILLINOIS 60523
           ----------------------------------------------------------
                    (Address of principal executive offices)

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



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

Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK $0.005 PAR VALUE
                          -----------------------------
                                (Title of Class)

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

As of March 31, 1998 the registrant had outstanding 18,672,458 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.........................    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


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<PAGE>   3
PART 1 - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

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


<TABLE>
<CAPTION>
March 31,                                                 1998           1997
                                                       ----------     ----------
<S>                                                    <C>            <C>       
ASSETS

Current Assets
  Cash                                                 $   49,158     $    6,049
  Cash Escrow Account                                     500,000              0
Accounts receivable, net of allowance                      47,121              0
 Loans Receivable, net of allowance                     1,610,631              0
  Interest Receivable                                     226,596              0
  Other                                                     4,881          9,514
                                                       ----------     ----------

Total Current Assets                                    2,438,387         15,563
                                                       ----------     ----------

Real Estate held for development                          550,000              0

Property and equipment, net                                76,761         41,470

Other Assets
  Film inventory                                           10,000      2,648,210
  Intangible assets, net of accumulated
     amortization of $214,297 (1997)                            0        107,362
  Franchise Rights                                            186              0
  Licenses                                                150,000              0
                                                       ----------     ----------

Total Other Assets                                        160,186      2,755,572
                                                       ----------     ----------


TOTAL ASSETS                                           $3,225,334     $2,812,605
                                                       ==========     ==========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       3
<PAGE>   4
FIRST NATIONAL ENTERTAINMENT CORP.AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

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


<TABLE>
<CAPTION>
March 31,                                            1998              1997
                                                 ------------      ------------
<S>                                              <C>               <C>         
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Accounts payable                               $    276,732      $    237,644
  Note Payable                                              0           118,300
  Accrued expenses                                    681,641           260,026
  Obligations under capital leases                          0            21,081
                                                 ------------      ------------

Total Current Liabilities                             958,373           637,051
                                                 ------------      ------------

Minority interest in consolidated subsidiary        2,788,968                 0

Shareholders' Equity
  Preferred stock, $.0001 par value,
  authorized 10,000,000 shares,
  no shares issued and outstanding                        186                 0

  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                                  (153,646)                0
  Paid in capital                                  27,271,566        26,090,608
  Accumulated deficit                             (27,733,478)      (23,999,549)
                                                 ------------      ------------

Total Shareholders' Equity                           (522,007)        2,175,554
                                                 ------------      ------------

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                             $  3,225,334      $  2,812,605
                                                 ============      ============
</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 three months ended March 31,                  1998             1997
                                                  ------------     ------------
<S>                                               <C>              <C>         
TOTAL REVENUES                                    $    166,325     $          0

COST OF REVENUES
  Amortization of film costs                                 0                0
                                                  ------------     ------------

GROSS PROFIT (LOSS)                                    166,325                0
                                                  ------------     ------------

 OPERATING EXPENSES
  Marketing, selling  & royalties                            0                0
  General and administrative                           122,229          155,029
                                                  ------------     ------------

TOTAL OPERATING EXPENSES                               122,229          155,029


OPERATING INCOME (LOSS)                                 44,096         (155,029)
                                                  ------------     ------------

OTHER INCOME (EXPENSE)                                   1,486            4,601
                                                  ------------     ------------

NET INCOME (LOSS)                                 $     45,582     $   (150,428)
                                                  ============     ============

NET GAIN (LOSS) PER SHARE                         $        .00     $       (.01)
                                                  ============     ============

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 three months ended March 31,                      1998          1997
                                                       ----------    ----------
<S>                                                    <C>           <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income (loss)                                  $   45,582    $ (385,727)

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

    Amortization of film costs                                 --        51,790
    Other amortization, depreciation, write-offs              886       141,986
    Provision for loan losses                               6,000             0
    Changes in operating assets and liabilities, net      (68,462)       49,890
                                                       ----------    ----------

NET CASH (USED IN) OPERATING ACTIVITIES                   (15,994)     (142,061)

CASH FLOWS FROM INVESTING ACTIVITIES:

    Acquisition of property and equipment                      --            --
    Disposition of property and equipment                      --            --
                                                       ----------    ----------

NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES                                           --            --

CASH FLOWS FROM FINANCING ACTIVITIES:

    Officer Advances/(Repayments)                              --            --
    Notes Payable/(Repayments)                                 --       118,300
    Common Stock Issuance/(Cancellation)                       --            --
    Dividends paid                                       (153,646)           --
                                                       ----------    ----------

NET CASH (USED IN) FINANCING ACTIVITIES                  (153,646)      118,300

NET INCREASE/(DECREASE) IN CASH                          (169,640)      (23,761)

CASH - BEGINNING OF PERIOD                                218,798        29,810
                                                       ----------    ----------

CASH - END OF PERIOD                                   $   49,158    $    6,049
                                                       ==========    ==========
</TABLE>


See accompanying notes to consolidated financial statements.


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<PAGE>   7
FIRST NATIONAL ENTERTAINMENT CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)\
  March 31, 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 March 31,
1998 (unaudited) and the unaudited results of operations and cash flows for the
three months ended March 31, 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 three months ended March 31, 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 statement
reflected a lower producer royalty payment than the Company had anticipated
because of certain assumptions used by


                                       7
<PAGE>   8

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 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.


                                       8
<PAGE>   9

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

The Company, as has been previously reported, has continued to pursue revenue
from the animated film Happily Ever After. In addition, the Company is exploring
possible acquisitions in the movie distribution field and has contracted with
Peter Keefe Productions located in California to assist in this endeavor.

First National Finance Corporation is generating the expected revenue and should
continue to earn as projected fro the balance of the fiscal year.

In September 1997, the Company through a wholly owned subsidiary First National
Technologies, Inc. ("FNET") acquired a Swiss management company having the
rights to certain trenchless pipe technology in exchange for stock and cash.
Initially this product was to be marketed in Europe. Because of differences in
management philosophy, management has decided to give the Swiss company to
purchase the majority interest in FNET and shut down or continue to operate the
European operation.

In January, 1998 the Company's Board approved an agreement to transfer FNET to a
group of European investors headed by Mr. Jurg Mullhaupt. (see 8K dated January
2, 1998).

On March 10, 1998 the agreement was invalidated due to the European partners
failure to meet the conditions of the agreement (see 10KSB).

At this time the Company continues to negotiate the return of its investment of
stock and cash in exchange for the transfer of FNET to Mr. Jurg Mullhaupt.

Through its wholly owned subsidiary First National Video Corp., the Company
acquired the assets and operating rights to six video stores in the Chicago area
on April 29, 1998. (see 8K dated May 6, 1998).



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

OVERVIEW

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 March 31, 1998, the Company had $49,158 in cash compared to $6,049 for the
same period in 1997. The Company repaid the loan to Chairman, C. Nootens of
$268,947 during the quarter.

Operations provided cash flow of $45,482 during the three months ended March 31,
1998.


                                       10
<PAGE>   11

Accounts Receivable and loans receivable increased from $-0- to $1,837,227. 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 of $94,707 and deferred interest income of
$48,343 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 - Three months Ended March 31, 1998 compared to Three
Months Ended March 31, 1997.

Revenues increased to $166,325 from $-0- in the prior year through the increase
in loan interest and fees.

Operating costs and expenses. Operating expenses totaled $122,229 during the
first quarter. This is a decrease from the comparable amount in 1997 of
$155,029. Operating expenses are in fact selling, administrative and general
expenses for the quarter.

The Company had net income of $45,582 compared to a net loss of $(150,428) for
the quarter. The improvement is due to revenues from the Financing Company and
continued reduction in costs. The Company was a break even on a diluted basis
vs. a loss of $(.01) per share for the comparative quarter in 1997.

TAXES ON INCOME

Taxes on income are zero due to the cumulative net operating loss carryforwards
of approximately $25.0 million at March 31, 1998, for federal tax reporting
purposes. The net operating loss carryforwards expire in varying amounts
beginning in the year 2000.



                           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 a tentative agreement to acquire the Stylus shares of
Lewin &Rosenthal.


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<PAGE>   12

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         (27)     Financial Data Schedule

(b)      Reports on Form 8-K

         During the Quarter ended March 31, 1998 the Company filed an 8K dated
January 2, 1998, which, under Item 2 the Board approved an agreement to transfer
First National Technologies, Inc. to a group of European Investors headed by Mr.
Jurg Mullhaupt.

         Item 5 - The Board approved the write down of Happily Ever After of up
                  to $500,000. 
         Item 6 - Mr. Jurg Mullhaupt's resignation from the Board of the Company
                  was accepted.
         Item 8 - The Board approved the change in the Company's Year End from
                  June 30 to December 31.

         On March 10, 1998, the Company filed on Form 8K under Item 2 the offer
to the European investors had been invalidated due to the investors failure to
meet the conditions of the agreement.

         Also, a tender offer had been made to purchase the assets of video
stores under the name of Windy City Video located in the Chicago area. The six
stores were acquired on April 29, 1998. (see 8K dated May 6, 1998).


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<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:  May 15, 1998                   /s/ Charles E. Nootens
       --------------                  -----------------------------------------
                                           Charles E. Nootens
                                           President


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