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The following is an excerpt from a 10KSB SEC Filing, filed by FIRST NATIONAL ENTERTAINMENT CORP on 9/29/1997.
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First National Entertainment Corp. (the "Company") was founded to pursue the acquisition, distribution and marketing of high quality entertainment properties targeted at the family market in all forms of media. The Company was incorporated on January 10, 1985, under the name of Power Capital Inc., a Colorado corporation. In November of 1989, Power Capital became a public company. On October 26, 1990 Power Capital acquired 100% of the stock of 1st National Film Corp., a California corporation (1st National Film - California) in a tax-free, stock-for-stock exchange. For financial reporting purposes this acquisition was considered a reverse acquisition, in which 1st National Film-California was deemed the acquiring or successor parent corporation. In December of 1990 the name of the Company was changed to 1st National Film Corp. (the "Company"), and 1st National Film - California's inception date of July 7, 1989 is considered the Company's inception date. In October of 1994, the Company changed its name to First National Entertainment Corp.

In December, 1991 the Company completed the acquisition of all U.S. and Canadian distribution, merchandising and ancillary licensing rights to the completed animated film property Happily Ever After for approximately $1.35 million.

In 1993, the Company left the developmental stage and entered the operational stage concurrent with the national theatrical release of Happily Ever After. The revenue resulting from the release of the motion picture, including other forms of media, was well below projections. Resulting losses were significant and the Company accumulated a substantial tax-loss carry-forward.

During fiscal year 1997, the Company pursued several potential entertainment related opportunities, including continuing efforts to develop a video store chain and efforts to produce motion pictures/video entertainment and educational products. The Company was unable to complete financing of such interests. Also in fiscal 1997 the Company experienced a cash crisis. The income stream had completely stopped and certain expenses required payment. Management, at this time, negotiated operating loans funding operating expenses through June 30, 1997 on conditions a Turnaround Plan be put into effect.

The new business plan contemplates continuation and expansion of the Company's activities in the entertainment industry while exploring new business opportunities that can immediately utilize its other unique resources.

The Company had been listed and traded on the NASDAQ since July, 1991, until it was delisted July 3, 1997. The Company is appealing the delisting to the NASD Board of Governors. A decision is expected following their December, 1997 meeting. Currently the Company trades on the OTC Bulletin Board.


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


The Company maintains unrestricted distribution rights to a variety of media and products for Canada and the United States relating to its full length animated movie - Happily Ever After. This movie is

primarily aimed at the 3 to 7 year old market, films of this nature have continuing value since the target age group turns over quickly and there is a new market available every 3 to 5 years. An added asset is the fact that the movie has never been viewed on public or cable television.

The Company is evaluating future endeavors in production and/or distribution of animated and live action movies. Further contractual activity will be dependent upon advice from recognized experts in the field. The Company is currently negotiating with a consultant in this domain and expects to conclude an agreement in fiscal 1998.


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

In September 1996, the Company announced that it had exclusively optioned the screenplay "Chicago Blues" from a local screenwriter. Financing for this live action feature was budgeted at $1,000,000 and was offered via the formation of Windy City Pictures I, LLC. The Company was to serve as executive producer of this movie and intended to produce two to three such productions a year in Chicago. The project was cancelled when the Company failed to raise the revenue required and the exclusive option expired during the fiscal year.


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

In addition to its initial acquisition costs, Stylus has advanced over $308,000 for the development and promotion of Ms. Della Miles, most of which is contractually recoupable to Stylus from Ms. Miles' future royalties. However, there can be no assurance of any future royalties derived from Ms. Miles' efforts, and thus, there can be no assurance of any recoupment of Stylus' advances to date. Therefore, in accordance with the Statement of Financial Accounting Standards No. 50, ("FAS 50") Financial Reporting in the Record and Music Industry, the advance royalties have been expensed. Currently Ms. Miles continues to dispute the recoupment under her contract with the Company. (See Financial Statement, Note 9 "Stylus Records").


The Company's entertainment businesses may be affected by industry seasonal factors. Theatrical attendance generally increases during summer months and Christmas holiday period. Home video and

related merchandising sales are typically the strongest during the Christmas selling season, from October through December. Music and other entertainment property sales are not as seasonal as theatrical and home video sales, but generally experience their strongest sales during the Christmas selling season.


The Company maintains adequate insurance policies, including general liability, workers compensation and employers' liability and officers and directors. There can be no assurance that any of the above coverages will be adequate for the Company's needs.

As of June 30, 1997 the Company had two permanent employees, including one officer and one staff. No employee of the Company is represented by a labor union or is subject to a collective bargaining agreement. The Company believes that its relationship with its employees is good.


The Company did not incur any research and development (R&D) costs in fiscal years 1997 and 1996. The Company does not expect to generate any significant R&D costs in fiscal 1998.


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

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


The Company's principal executive offices are located at 600 Enterprise Drive, Suite 109, Oak Brook, Illinois 60521, telephone (630) 573-8209. The Company leases approximately 900 square feet of office space in an executive office complex. This lease commenced June 1, 1997 and expires May 31, 1998.

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


In the ordinary course of its business, the Company is from time to time threatened with or named as a defendent in various lawsuits. The Company is not currently involved in any material litigation. (See Financial Statement, Note 11 "Commitments and Contingencies").



The Company presented shareholders a Turnaround Plan on May 30, 1997. Included was a report on the current status of the Company and an expression of approval which was to be mailed in. A "Shareholder Consent to Turnaround Plan" was submitted by mail to shareholders of record of the Company and, to the extent known and identifiable, beneficial owners as of the close of business on Friday, May 23, 1997. The Company received an overwhelming response and received written approvals from shareholders holding approximately 2/3 of the outstanding shares of First National Entertainment Corp.

The Company was reorganized with new management upon receiving overwhelming approval from the majority of its shareholders. Chairman and President Charles E. Nootens heads the new management team. Mr. Nootens has had considerable success in building and marketing businesses and completing financial transactions. The Company considers its primary assets to be:

- It's full-length animated motion picture, Happily Ever After.

- The wide distribution of its publicly traded (OTC) stock with several market makers.

- It's tax-loss carry-forward exceeding $26 million that maybe used to offset income taxes from operations under certain circumstances.

- Management services in exchange for fees.

Although the Company continues to view the entertainment industry as important, and hopes to broaden its involvement in this sector of commerce, it also intends to create value by pursuing opportunities that can immediately utilize its other unique resources. (See Financial Statements, Note 12 "Continuing Operations and Subsequent Events").


To fund its operations, the finance subsidiary will seek to raise $1,000,000 in a private placement on the terms and conditions described below. Mr. Nootens and NHI have agreed to exchange part or all of the Secured Demand Promissory Notes issued to them in connection with their respective loans to the Company during the Interim Period for the Units of Calls as described below. (See Financial Statement, Note 5 "Notes Payable to Shareholders").


Although the Units of Calls do not involve any immediate dilution, if fully exercised, however, they could involve substantial dilution of voting power and economic interest to the Company's existing shareholders. As explained in more detail below under the caption "Description of Securities To Be Offered," each Call (which can be purchased for $.025 per share of the Company covered by the Call) entitles the holder to acquire 10 Common Shares of the Company for $.10 per share, or an aggregate price of $1.25, or $.125 per Common Share, if all Common Shares covered by the Call are exercised. On the other hand, if a purchaser of a Unit of Calls (who must pay $10,000 for a Unit) elects only to purchase one of the 400,000 shares covered by the Unit of Calls, the price for that single Common Share would be $10,000.10. It should be assumed, therefor, that purchasers of the Calls presently intend to exercise the right to purchase all of the Common Shares covered by the Call, thereby spreading the price of the Call over the largest number of Common Shares possible. THUS, THE OFFER OF THESE UNITS OF CALLS IS BEING MADE IN ORDER TO BE FAIR TO ALL OF THE COMPANY'S SHAREHOLDERS, AND TO GIVE ALL SHAREHOLDERS AN OPPORTUNITY TO



The Calls will be sold in Units entitling the holder of a Unit of Calls to purchase from FNFC up to 400,000 Common Shares of the Company (or an aggregate of 40,000,000 Common Shares of the Company should all 100 Units be sold and all Calls exercised for the Company's Common Shares) for a purchase price of $.10 per share or, in the event of the bankruptcy of the Company, 4,000 shares of FNFC's Common Shares (or an aggregate of 400,000 FNFC Common Shares should all 100 Units be sold and all Calls exercised for FNFC shares) for a purchase price of $1.00 per FNFC share. The Calls will not be exercisable for 12 months from the date of issuance and the exercise may be postponed if, in the opinion of the Company, the exercise will jeopardize the Company's net operating loss. The Calls will lapse as to 20% of the shares covered by each Unit on June 30 of each of 1999, 2001, 2003, 2005 and 2007, respectively, and the Calls will be redeemable at the option of the Company based on a formula.

The purchase price for each Unit of Calls is $10,000 and the exercise price for each Common Share of the Company is $.10. Thus, a purchaser of the Unit of Calls who decides to exercise the Call with respect to all shares covered thereby (400,000 shares) would be $50,000 ($10,000 for the Call and $40,000 upon exercise). The mere purchase of a Call, without exercise, does not entitle the purchaser to receive any shares of either the Company or FNFC.


The Corporation which the Company has established to implement the first phase of the Turnaround Plan is First National Finance Corp. (FNFC), an Illinois corporation.

The Company will capitalize FNFC by contributing to FNFC 28 million shares of its common stock in exchange for the issuance to the Company by FNFC all its common shares. These shares will represent 100% of its issued common shares. Thus, FNFC, will be a wholly owned consolidated subsidiary of the Company. The Company's Common Shares being contributed to FNFC will not be deemed to be outstanding, and hence will not dilute the Company's primary earnings per share and will not be entitled to any voting rights, so long as these shares are held by FNFC. The issuance of these shares to FNFC is not expected to effect the Company's net operating loss.

The Company obtained approximately $3.5 million dollars of assets ($2.9 million liquid short-term) with the issuance of preferred stock in FNFC and Calls. Included in the short term assets are loans receivable, interest and cash.


Urban areas are experiencing significant demands for redevelopment of single and multiple family dwellings. Many qualified developers responding to this demand require short term financing. The Company provides this financing generally in large metropolitan areas.


The Company is engaged in business of making relatively small, high yield bridge loans. These loans are typically in the range of $25,000 to $100,000 to developers and redevelopers of real estate and to a lesser extent tangible personal property and to producers, inventors, authors and syndicators of media, software and other similar entertainment and intellectual properties.


Through networking the Company has established by contacts in local markets allowing the Company to capitalize on their expertise. Guidelines have been established to attact clients capable of fulfilling their loan obligations on a timely basis. The Company's marketing strategy incorporates a continued review of client's needs, areas which require its services and development of long-term relationship with borrowers to more fully understand and anticipate their needs.


The short term loan industry is very competitive and fragmented. There are limited barriers to entry and new competitors frequently enter the market. Some may possess substantially greater resources. The Company believes that the availability of quality loan candidates, level of service, effective monitoring of loan and renovation performance and the price of service are the principal elements of competition in the bridge loans.


As of September 15, 1997 FNFC has no employees and has a management agreement for all services with First National Entertainment Corp.


The Company shares space with its parent in a leased office which has an annual lease ending June, 1998.


The Company is not currently involved in any litigation.



Effective September, 1997 the Company established a subsidiary First National Environmental Technologies, Inc. (FNET) which acquired a Swiss Management Company, FNAT Franchising AG. The Company then obtained an 80% interest in GMbH (a German Sales Company) as a subsidiary of FNAT Franchising AG.

The FNAT Franchising system uses a patented hardening process for polyester or vinyl-resin triggered by ultra-violet light to reline cracked or damaged underground pipes. The system is an advancement on current systems in capability, flexibility and substantially lower capital cost. The FNAT system has approximately 30% of the existing system equipment cost and may be transported in a small van.

With the Ultra Violet light curing system versus the cold-hardening process our system can be cured with minimum impact on traffic or the environment. The UV light is instantaneous while the competitive hardening process requires ecologically damaging on-site mixing and twenty four hours or more of hardening time.

Revenue is generated through franchise agreements. Under these agreements customers pay a license fee (franchise fee) and commit to an agreement to purchase lining material exclusively from the Company. The Company would establish objectives for material consumption. If the customer fails to meet the goals the Company has the right to cancel the franchise agreement.

Potential customers upon signing an agreement will obtain the basic equipment without any downpayment, and receive technical training and assistance and marketing services. (See Financial Statement, Note 12 "Continuing Operations and Subsequent Events").


In the last ten years communities in northern and middle Europe began investigating the extent of damaged underground sewage and waste water pipes. In Germany at least 30% of underground pipes are damaged and need curing. Under present German laws communities and owners of underground pipes have a legal obligation to fix damaged sewer and waste water pipes. It is believed that there is an immediate market for over 100 systems in Germany and that it could expand with further damage evaluation and customer education to several hundred units. In the future FNAT may qualify to be used on fresh water pipes which could significantly expand the market.


Currently, FNET's President is also Managing Director of FNAT Franchising AG located in Zurich, Switzerland. The general management will be located with financial and marketing services directed from the Swiss location. Cash management will be located in Corporate at Oak Brook, Illinois.

The subsidiary, GMbH has a Managing Partner responsible for operation. The managing partner of GMbH will sign up and train the new customers. The Company will expand its sales and technical assistance organization by hiring two regional managers working as independent contractors.


The Company's plan is to make the units available to customrs on a franchise basis. Prior industry experience should put the Company in contact with several customers who have been using a prior system that is no longer available.

The Company will try to develop sales through three types of companies (initially in Germany). The potential customers are: (1) specialized pipe curing companies owning the necessary equipment, including other systems competing with FNAT Franchising AG, (2) pipe cleaning companies owning inspection and cleaning equipment, but not owning competing pipe curing systems, and (3) construction companies diversifying into pipe cleaning and curing as an addition to their traditional business.


Traditional systems of digging up the old pipes and completely replacing them. Also, in many countries, mainly in the UK and USA not only the traditional methods have a firm grip on the market, but also the cold-hardening method. These are competing systems.

The Company believes that with the new advances in its equipment, ecological improvement and cost effectiveness it competes favorably with respect to these factors. It expects competition to increase and there can be no assurance the Company will remain competitive.