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EX-32.2 - CERTIFICATION - First National Energy Corp.fnec_ex322.htm
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EX-31.1 - CERTIFICATION - First National Energy Corp.fnec_ex311.htm


UNITED STATES
SECURIITES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011.

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to ________________.

Commission File Number: 333-62588

FIRST NATIONAL ENERGY CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Nevada   66-0349372
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)
 
2000 Webber Street, Suite 3113, Sarasota, Florida 34239
 (Address of principal executive offices)

(416) 918-6987
(Registrant’s telephone number, including area code)

 (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
 
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. þ Yeso No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer   o  Accelerated filer   o
Non-accelerated filer
(do not check if a smaller reporting company)
 o Smaller reporting company   þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of June 9, 2011, there were 99,865,228 common shares issued and outstanding.
 


 
 

 
 

PART I—FINANCIAL INFORMATION
ITEM 1.             FINANCIAL STATEMENTS.


First National Energy Corporation
 
(Formerly First National Power Corporation)
 
(A Development Stage Company)
 
 Consolidated Financial Statements (unaudited)
 
For the 3-month periods ended March 31, 2011 and 2010
 
(Amounts expressed in US Dollars)
 
 
 
 
1

 
 
Index
 
       
Consolidated Interim Balance Sheets as at March 31, 2011 (unaudited) and December 31, 2010 (audited)
    3  
         
Consolidated Interim Statements of Operations and Comprehensive Loss for the 3-month periods ended March 31, 2011 and March 31, 2010 and for the cumulative period since inception (unaudited)
    4  
         
Consolidated Interim Statements of Cash Flows for the 3-month periods ended March 31, 2011 and March 31, 2010 and for the cumulative period since inception (unaudited)
    5  
         
Consolidated Interim Statements of Stockholders’ Equity (Deficiency) for the period since inception to March 31, 2011 (unaudited)
    6 - 9  
         
Condensed Notes to Consolidated Interim Financial Statements (unaudited)
    10  
 
 
 
2

 

FIRST NATIONAL ENERGY CORPORATION
 
(Formerly First National Power Corporation)
 
(A Development Stage Company)
 
Consolidated Interim Balance Sheets
 
As of December 31, 2011 and 2010
 
(Amounts expressed in US Dollars)
 
   
   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
    $     $  
 ASSETS
               
      CURRENT ASSETS
               
 Cash
    10,098       14,988  
                 
 License for SWEG technology (Note 4)
    200       200  
                 
      10,298       15,188  
                 
                 
 LIABILITIES
               
     CURRENT LIABILITIES
               
 Accounts payable and accrued liabilities (Note 5)
    15,669       13,269  
 Loan payable to Boreas Research Corporation (Note 8)
    540,000       540,000  
      555,669       553,269  
                 
 Going Concern (Note 2)
               
 Other Contingent Liabilities (Note 12)
               
                 
 STOCKHOLDERS’ EQUITY (DEFICIENCY)
               
                 
 Capital Stock (Note 7)
    99,765       99,765  
 Additional paid-in Capital
    103,329       103,329  
 Deficit accumulated during the development stage
    (748,539 )     (741,249 )
 Total FNEC Stockholders' Equity (Deficit)
    (545,445 )     (538,155 )
 Non-controlling interest
    74       74  
      (545,371 )     (538,081 )
                 
      10,298       15,188  
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
 
3

 

FIRST NATIONAL ENERGY CORPORATION
 
(Formerly First National Power Corporation)
 
(A Development Stage Company)
 
Consolidated Interim Statements of Operations and Comprehensive Loss
 
For the 3 month periods ended March 31, 2011 and 2010 and the cumulative period since inception
 
(Amounts expressed in US Dollars)
 
   
                   
                   
   
Cumulative
             
   
Since
             
   
Inception
   
2011
   
2010
 
                   
    $     $     $  
OPERATING EXPENSES
                       
                         
Interest Income
    (6,924 )     -       (12 )
Forgiveness of accounts payable and loans
    (47,394 )     -       -  
General and administrative expenses
    510,840       6,730       3,670  
Loss on foreign exchange
    580       -       -  
Project development costs
    288,237       560       -  
Interest Expense
    3,226       -       -  
NET LOSS
    748,565       7,290       3,658  
                         
Net loss attributable to non-controlling interest
    (26 )     -       -  
                         
Net loss attributable to FNEC Stockholders
    748,539       7,290       3,658  
                         
Net loss per share, basic and diluted
          $ 0.00     $ 0.00  
                         
Weighted average common shares outstanding
            99,746,598       99,665,228  
                         
COMPREHENSIVE LOSS
                       
Net Loss
    748,565       7,290       3,658  
                         
Other Comprehensive Loss
    -       -       -  
                         
Comprehensive Loss
    748,565       7,290       3,658  
                         
Comprehensive Loss attributable to non-controlling interest
    -       -       -  
Comprehensive Loss attributable to FNEC Stockholders
    748,565       7,290       3,658  
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
 
4

 
 
FIRST NATIONAL ENERGY CORPORATION
 
(Formerly First National Power Corporation)
 
(A Development Stage Company)
 
Consolidated Interim Statements of Cash Flows
 
For the 3 month periods ended March 31, 2011 and 2010 and the cumulative period since inception
 
(Amounts expressed in US Dollars)
 
   
                   
   
Cumulative
             
   
Since
             
   
Inception
   
2011
   
2010
 
                   
    $     $     $  
CASH FLOWS FROM OPERATING ACTIVITIES
                       
                         
 Net loss
    (748,565 )     (7,290 )     (3,658 )
 Adjustments for items not affecting cash
                       
 Shares issued for services rendered
    347,210       -       -  
 Shares issued for debt forgiveness
    (258,313 )     -          
 Forgiveness of accounts payable and loans
    (47,394 )     -       -  
 Increase (decrease) in accounts payable
    -       -       -  
     and accrued liabilities
    19,668       2,400       (5,069 )
                         
 Net cash used in operating activities
    (687,394 )     (4,890 )     (8,727 )
                         
 CASH FLOWS FROM FINANCING ACTIVITIES
                       
                         
 Loan from Stockholders
    301,708       -          
 Proceeds from issuance of capital stock
    355,784       -          
 Acquisition of India technology license
    (600,000 )     -       (600,000 )
 Loan from Boreas Research Corporation, net
    540,000               600,000  
 Proceeds of sale of non-controlling interest in subsidiary
    100,000       -          
                         
 Net cash provided by financing activities
    697,492       -       -  
                         
 NET INCREASE (DECREASE) IN CASH
    10,098       (4,890 )     (8,727 )
                         
 Cash, beginning of period
    -       14,988       36,730  
                         
 CASH, END OF PERIOD
    10,098       10,098       28,003  
                         
 INCOME TAXES PAID
    -       -       -  
                         
 INTEREST PAID
    3,226       -       -  
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
 
5

 
 

FIRST NATIONAL ENERGY CORPORATION
(Formerly First National Power Corporation)
(A Development Stage Company)
Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficiency)
For the period since inception to March 31, 2011
(Amounts expressed in US Dollars)
 
 
    Common stock - dollar amount at par value     Common stock - number of shares     Common stock subscribed    
 Additional paid-in capital
   
 Deficit accumulated during the development stage
   
 Total FNEC stockholders' equity (deficit)
   
 Non-controlling interests
   
 Total stockholders' equity (deficit)
 
                                                 
          $     $     $     $     $     $     $  
                                                               
 Balance at November 16, 2000
                                                             
 Issuance of common stock for cash
    100       100,000               900               1,000               1,000  
 Net Loss for the Period
                                    (968 )     (968 )             (968 )
                                                                 
 Balance as of December 31, 2000
    100       100,000       -       900       (968 )     32       -       32  
                                                                 
 Issuance of stock for cash
    400       400,000               3,600               4,000               4,000  
 Issuance of stock for cash
    700       700,000               6,300               7,000               7,000  
 Issuance of stock for cash
    850       850,000               7,650               8,500               8,500  
 Currency Translation
                            100               100               100  
 Net Loss for the Year
                                    (23,954 )     (23,954 )             (23,954 )
                                                                 
 Balance as of December 31, 2001
    2,050       2,050,000       -       18,550       (24,922 )     (4,322 )     -       (4,322 )
                                                                 
 Expiration of recission offer for
                                                               
   sale of stock
    64       63,536               6,290               6,354               6,354  
 Net Loss for the Year
                                    (26,047 )     (26,047 )             (26,047 )
                                                                 
 Balance as of December 31, 2002
    2,114       2,113,536       -       24,840       (50,969 )     (24,015 )     -       (24,015 )
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
 
6

 
 
FIRST NATIONAL ENERGY CORPORATION
(Formerly First National Power Corporation)
(A Development Stage Company)
Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficiency)
For the period since inception to March 31, 2011
(Amounts expressed in US Dollars)
 
    Common stock - dollar amount at par value     Common stock - number of shares     Common stock subscribed     Additional paid-in capital    
 Deficit accumulated during the development stage
    Total FNEC stockholders' equity (deficit)     Non-controlling interests     Total stockholders' equity (deficit)  
                                                 
          $     $     $     $     $     $     $  
                                                               
 Stock split 5:1
    8,454       8,454,144               (8,454 )             -                  
 Shares issued for services rendered
    200       200,000               79,800               80,000               80,000  
 Net Loss for the Year
                                    (107,245 )     (107,245 )             (107,245 )
                                                                 
 Balance as of December 31, 2003
    10,768       10,767,680       -       96,186       (158,214 )     (51,260 )     -       (51,260 )
                                                                 
 Stock split 7:1
    64,606       64,606,080               (64,606 )             -               -  
 Shares issued for services rendered
    30       30,000               15,870               15,900               15,900  
 Shares subscribed
                    146       70,371               70,517               70,517  
 Shares issued for services rendered
    44       43,000               9,956               10,000               10,000  
 Net Loss for the Year
                                    (75,414 )     (75,414 )             (75,414 )
                                                                 
 Balance as of December 31, 2004
    75,448       75,446,760       146       127,777       (233,628 )     (30,257 )     -       (30,257 )
                                                                 
 Shares issued for services rendered
    830       830,000               193,160               193,990               193,990  
 Net Loss for the Year
                                    (208,886 )     (208,886 )             (208,886 )
                                                                 
 Balance as of December 31, 2005
    76,278       76,276,760       146       320,937       (442,514 )     (45,153 )     -       (45,153 )
                                                                 
 Net Loss for the Year
                                    (32,962 )     (32,962 )             (32,962 )
                                                                 
 Balance as of December 31, 2006
    76,278       76,276,760       146       320,937       (475,476 )     (78,115 )     -       (78,115 )
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
7

 

FIRST NATIONAL ENERGY CORPORATION
(Formerly First National Power Corporation)
(A Development Stage Company)
Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficiency)
For the period since inception to March 31, 2011
(Amounts expressed in US Dollars)
 
    Common stock - dollar amount at par value     Common stock - number of shares     Common stock subscribed    
 Additional paid-in capital
    Deficit accumulated during the development stage    
 Total FNEC stockholders' equity (deficit)
   
 Non-controlling interests
   
 Total stockholders' equity (deficit)
 
                                                 
          $     $     $     $     $     $     $  
                                                               
 Issue shares bought under subscription
    146       146,000       (146 )                     -               -  
 Net Loss for the Year
                                    (30,760 )     (30,760 )             (30,760 )
                                                                 
 Balance as of December 31, 2007
    76,424       76,422,760       -       320,937       (506,236 )     (108,875 )     -       (108,875 )
                                                                 
 Shares issued for services rendered
    100       100,000               400               500               500  
 Net Loss for the year
                                    (78,645 )     (78,645 )             (78,645 )
                                                                 
 Balance as of December 31, 2008
    76,524       76,522,760       -       321,337       (584,881 )     (187,020 )     -       (187,020 )
                                                                 
                                                                 
 Reverse Stock split 1:100
    (75,759 )     (75,757,532 )             75,759               -               -  
 Shares issued for services rendered
    100       100,000               31,900               32,000               32,000  
 Purchase of SWEG license for shares
    98,800       98,800,000               (98,700 )             100               100  
 Net Loss for the Year
                                    (81,131 )     (81,131 )             (81,131 )
                                                                 
 Balance as of December 31, 2009 (restated)
    99,665       99,665,228       -       330,296       (666,012 )     (236,051 )     -       (236,051 )
                                                                 
 
The accompanying notes form an integral part of these consolidated interim financial statements
 
 
8

 

FIRST NATIONAL ENERGY CORPORATION
(Formerly First National Power Corporation)
(A Development Stage Company)
Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficiency)
For the period since inception to March 31, 2011
(Amounts expressed in US Dollars)
 
   
 Common stock - dollar amount at par value
    Common stock - number of shares     Common stock subscribed    
 Additional paid-in capital
   
 Deficit accumulated during the development stage
   
 Total FNEC stockholders' equity (deficit)
   
 Non-controlling interests
   
 Total stockholders' equity (deficit)
 
                                                 
          $     $     $     $     $     $     $  
                                                               
 Shares issued in exchange for debt forgiveness
    100       100,000               258,213               258,313               258,313  
 Return of shares for cancellation
    (296 )     (296,400 )             296                               -  
 Shares issued for services rendered
    296       296,400               14,524               14,820               14,820  
 Sale of non-controlling interest in subsidiary
            100,000               99,900               99,900       100       100,000  
 Purchase of SWEG technology license
                            (599,900 )             (599,900 )             (599,900 )
 Net Loss for the Year
                                    (75,237 )     (75,237 )     (26 )     (75,263 )
                                                                 
 Balance as of December 31, 2010
    99,765       99,865,228       -       103,329       (741,249 )     (538,155 )     74       (538,081 )
                                                                 
 Net Loss for the Period
                                    (7,290 )     (7,290 )     0       (7,290 )
                                                                 
 Balance as of March 31, 2011
    99,765       99,865,228       -       103,329       (748,539 )     (545,445 )     74       (545,371 )
 
The accompanying notes form an integral part of these consolidated interim financial statements

 
9

 
 
First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)

 
1.          GENERAL

a) 
Description of the Business

First National Energy Corporation (the Company) was incorporated in the State of Delaware on November 16, 2000, under the name Capstone International Corporation.  On March 28, 2004, the Company changed its name to First National Power Corporation. On February 12, 2009, the Company relocated its charter to the State of Nevada and changed its name to First National Energy Corporation. As part of reorganization, the Company increased its authorized capital to 300 million common shares and effected a 100 for 1 reverse stock split of its issued and outstanding shares of common stock. The accompanying consolidated interim financial statements reflect all share data based on the 100 for 1 reverse common stock split.

The Company’s business purpose is the provision of wind-driven solutions for power generation. Current projects for the Company are the completion of power generation projects from supplemental wind generation technologies.

b)
Purchase of Technology License

On April 20, 2009, the Company entered into a preliminary letter of intent with Boreas Research Corporation (“Boreas”), an arm’s length Florida corporation, pursuant to which the Company would acquire a territorial license to certain rights in alternative energy technology of Boreas, in exchange for a quantity of newly issued common shares of the Company. The letter of intent was superseded by a Technology License and Stock Purchase Agreement (the “Agreement”) between the Company and Boreas that was consummated on May 25, 2009 (the “Closing”), at which time the Company issued to the stockholders of Boreas 98,800,000 new restricted and unregistered common shares of the Company and agreed to pay certain future royalties to Boreas from net revenues realized by the Company from the technology license.

The preliminary letter of intent was reported by the Company on form 8-K to the Securities and Exchange Commission (“SEC”) on April 21, 2009, and the Agreement was annexed to an information statement on form 14-C filed with the SEC in preliminary and definitive forms on April 22, 2009 and May 4, 2009, respectively.  The definitive information statement was mailed to the Stockholders of the Company on May 4, 2009.

The Company obtained written consent to the Agreement and the transaction from the holders of 55.82% of its issued and outstanding shares of common stock in lieu of a meeting of stockholders.

On May 14, 2009, the Company and Boreas amended the Agreement by making and entering into a First Amendment of Technology License and Stock Purchase Agreement (the “Amendment”), pursuant to which (1) Boreas elected, as authorized by the Agreement, to cause the new restricted and unregistered common shares of the Company due to Boreas at the Closing to be issued to the stockholders of Boreas, and (2) the Company and Boreas agreed to reduce the number of new restricted and unregistered common shares of the Company to be issued at the closing of the transaction, from 98,915,000 shares to 98,800,000 shares.
 
 
10

 
 
First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)


In exchange for the Company acquiring the technology license from Boreas at the Closing pursuant to the Agreement (as amended by the Amendment), the Stockholders of Boreas received an aggregate of 98,800,000 new restricted and unregistered common shares of the Company's common stock. Accordingly, the Boreas Stockholders now own 99.13% of the Company's 99,665,228 outstanding shares. No finder’s fees were paid or consulting agreements entered into by the Company in connection with the transaction.

Prior to the transaction, there were no material relationships between the Company and Boreas, between Boreas and the Company’s affiliates, directors or officers, or between any associates of Boreas and the Company’s officers or directors. All of the Company’s transaction liabilities were settled on or immediately following the Closing.
 
Upon the Closing on May 25, 2009, the Company was no longer deemed to be a "shell company" as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"). Accordingly, the Company filed an amended current report on Form 8-K/A with the SEC on May 26, 2009, setting forth the information that would be required if the Company were filing a general form for registration of securities on Form 10 under the Exchange Act.

On April 18, 2011, First National Energy Corporation (the “Company”) entered into a Novation Agreement (the "Novation") with all of the stockholders of Boreas Research Corporation (“Boreas”), a Florida corporation, revising the structure of the May 25, 2009 transaction by which the Company acquired a territorial license to certain rights in alternative energy technology of Boreas, in exchange for  98,800,000 newly issued common shares of the Company as disclosed above. The Novation amended the Technology License and Stock Purchase Agreement (the “Original Agreement”) to substitute the stockholders of Boreas as the licensor under the Original Agreement.

c)
Further Purchase of Technology License

On March 22, 2010, Pavana Power Corporation (“Pavana”), a Nevada corporation, the Company’s 99.9% owned subsidiary, acquired an exclusive territorial 25 year license for the Republic of India (“India”), from Boreas Research Corporation (‘Boreas”, the stockholders of whom hold controlling interests in the Company), pursuant to which the Company’s subsidiary acquired technology rights for India in the technology of Boreas that maximizes the energy productivity of existing wind turbines by capturing energy that flows through and underneath existing wind turbine systems.  The consideration due from the Company’s subsidiary to Boreas for the license was a deferred cash payment of $600,000, and a future royalty equal to 5% of the subsidiary’s “EBITDA” (revenues before interest, taxes, depreciation and amortization) from exploitation of the acquired license.

On November 8, 2010, Pavana paid Boreas $60,000 as a payment due under the India technology license agreement, leaving a balance of cash consideration due of $540,000. The remaining debt is non-interrest bearing and is without any fixed repayment terms.
 
In accordance with Codification Topic ASC 850, Related Party Disclosures, Pavana recorded the acquisition of the SWEG technology license for the geographical territory of India, at the carrying amount of the license technology acquired which was $100 and the balance of the cash consideration of $599,900 was accounted for as additional paid in capital.
 
 
11

 
 
First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)


2.          GOING CONCERN

The Company’s consolidated interim financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, the Company has not generated any revenues from its planned principal operations through March 31, 2011, has recorded losses since inception, has negative working capital, has yet to achieve profitable operations and expects further losses in the development of its business.  There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms in the amounts required by the Company. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated interim financial statements do not include any adjustments that might result from this uncertainty.

Management has plans to raise cash through debt offerings once the sales of the technologies begin. The personnel, facilities and equipment required for successfully completing the business model have been identified but until the resources are available, have not been acquired or engaged. In the period prior to the onset of operations, the Company will undertake to raise further cash through further capital offerings. There is no assurance that the Company will be successful in raising additional capital.

3.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) 
Basis of Consolidation

The consolidated interim financial statements include the accounts of First National Energy Corporation, its wholly-owned subsidiary First National Energy (Canada) Corporation and its majority owned subsidiary Pavana Power Corporation. All material inter-company amounts have been eliminated.

b) 
Use of Estimates

These consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depend on future events, the preparation of consolidated financial statements for any period necessarily involves the use of estimates and assumptions. Actual amounts may differ from these estimates. These consolidated interim financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. Significant estimates include the recording of accrued liabilities, shares issued for services, and the determination of the valuation allowance for deferred tax assets.

c) 
Project Development Costs

In accordance with generally accepted accounting principles in the United States of America, fees and expenses incurred while developing a project cannot be capitalized until there is a reasonable expectation of a revenue stream. As the Company is still in the very early stages of power generation projects, it was determined that costs incurred to date had to be expensed.
 
 
12

 
 
First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)

 
d) 
Financial Instruments

The carrying amounts of the Company’s accounts payable and accrued liabilities and loan payable to Boreas Research Corporation approximate their fair values, because of the short maturity of these instruments.

e) 
Income Taxes

Deferred income taxes are provided using the asset and liability method of accounting.  Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.

Current income tax expense (recovery) is the amount of income taxes expected to be payable (recoverable) for the current year.  A deferred tax asset and/or liability is computed for both the expected future impact of differences between the financial statement and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax losses.  Valuation allowances are established when necessary to reduce the deferred tax asset to the amount expected to be "more likely than not" to be realized in future returns.  Tax law and rate changes are reflected in income in the period such changes are enacted.

f) 
Earnings or Loss Per Share

Basic loss per share is calculated by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the treasury stock method. Under this method, the diluted weighted average number of shares is calculated assuming the proceeds that arise from the exercise of stock options and other dilutive instruments are used to repurchase the Company’s shares at their weighted average market price for the period.

g) 
Comprehensive Income (Loss)

Comprehensive income (loss) as defined includes all changes in equity (net assets) during a period from non-owner sources. Examples of items to be included in comprehensive income (loss), which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.  The Company does not have any items that affect comprehensive income (loss) since inception to March 31, 2011.

h) 
Intangible Assets

Intangible assets, which include the technology licenses, are recorded at the cost of acquisition or at the carrying amount for a non-arm’s length acquisition and are amortized over the estimated useful life of 10 years on a straight line basis.
 
 
13

 
 
First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)

i) 
Impairment of Long Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicated that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicated possible impairment. If there are indications of impairment, the Company uses future undiscovered cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell

j) 
Development Stage Company

The Company complies with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 (SFAS 7) for its characterization of the Company as a development stage company.

4.         LICENSE FOR SWEG TECHNOLOGY
 
   
2010
   
2009
 
   
Cost
   
Accumulated Amortization
   
Net Book Value
   
Net Book Value
 
                         
North American Technology License
  $ 100     $ -     $ 100     $ 100  
Indian Technology License
    100       -       100       100  
    $ 200     $ -     $ 200     $ 200  

(see Notes 1 (b) and 1 (c))

5.          ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following;

   
2011
   
2010
 
Accrued Professional Fees
  $ 15,669     $ 13,269  
Accrued Professional Fees
  $ 15,669     $ 13,269  
 
6.          LOAN FROM STOCKHOLDER

In December 2010, an outstanding loan from a Stockholder of $258,313 was converted into 100,000 common shares of the Company at a value of $2.58313 per share which was the agreed upon per share value by the Company and the Stockholder. The Stockholder released the Company from all debts for the loan and released the Company for any claim for possible accrued interest.
 
 
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First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)

7.          CAPITAL STOCK

a) 
Authorized

300,000,000 Common shares with a par value of $0.001 per share

b) 
Issued

99,865,228 Common shares (99,865,228 in 2010)

b) 
Changes in Issued Share Capital

During the period, there were no changes to the issued share capital of the Company

8.           RELATED PARTY TRANSACTION

The Company’s majority owned subsidiary, Pavana Power Corporation, acquired a technology license to the SWEG technology for the Republic of India from Boreas Research Corporation, a company related by virtue of common control. (see Note  1(c)). Pavana agreed to pay $600,000 to acquire the license to the SWEG technology for the territory of the Republic of India. During 2010, Pavana paid $60,000 and as at March 31, 2011, there is a remaining debt of $540,000 owing to Boreas Research Corporation.

9.           SEGMENTED INFORMATION

The Company operates in only one business segment, namely the development of alternative energy sources. All of the Company’s assets are located in the United States of America.

10.        WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

The weighted average shares outstanding has been adjusted to reflect a 100 to 1 reverse stock split effective February 10, 2009.
 
 
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First National Energy Corporation
(Formerly First National Power Corporation)
(A Development Stage Company)
Condensed Notes to the Consolidated Interim Financial Statements
March 31, 2011 and 2010
(Amounts expressed in US Dollars)


11.         FAIR VALUE MEASUREMENTS

The Company follows ASC 820-10, “Fair Value Measurements and Disclosures” (ASC 820-10), which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

• Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

• Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

At March 31, 2011 and 2010, there were no financial instruments that require classification to Levels 1,2 or 3. The carrying values of cash, accounts payable and accrued liabilities and loans from stockholder approximate their fair values due to the relatively short term maturities of these financial instruments.

12.         OTHER CONTINGENT LIABILITIES

Pursuant to Note 1 ( c ), under the Technology License purchased by Pavana Power Corporation, the Company’s majority owned subsidiary, the Company has a contingent liability for royalties at the rate of 5% for all revenues derived by Pavana from exploitation of the acquired license technology.
 
 
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ITEM 2.             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
 
 Certain statements in this quarterly report on Form 10-Q contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to consummate a merger or business combination, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Readers should carefully review this annual report in its entirety, including but not limited to our financial statements and the notes thereto.  Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Description of Business
 
1.  Business Development

First National Energy Corporation (the “Registrant”) was incorporated as Capstone International Corporation on November 16, 2000, in the state of Delaware, and has a class of shares registered with the Securities and Exchange Commission on Form SB-2 as SEC File No. 333-62588, filed on June 8, 2001. The Registrant’s name was changed to “First National Power Corporation” on January 28, 2004, and was changed again to “First National Energy Corporation” on February 12, 2009, at which time the Registrant effected a reverse stock split, adopted a holding company structure, and relocated its corporate charter from Delaware to Nevada as part of the reorganization described in the next succeeding paragraph.

As described in the definitive information statement on Form DEF 14-C filed with the Securities and Exchange Commission on December 22, 2008, and pursuant to the approval of the Registrant’s board of directors and a majority of its stockholders, on February 12, 2009, the Registrant effected a reorganization pursuant to that certain Agreement and Plan of Merger to Form Holding Company, dated as of December 10, 2008 (a true and complete copy of which is included in the Form DEF 14-C information statement described above), which had the effect of (1) implementing a reverse stock split of its issued and outstanding common shares at the rate of 100 to 1, thereby reducing the number of issued and outstanding common shares from 76,522,760 to 765,228, with no effect on the number of authorized common shares; (2) merging the Registrant with and into First National Power Corporation, a Nevada corporation and a wholly-owned indirect (second tier) subsidiary of the Registrant, such that First National Energy Corporation, a Nevada corporation and a wholly-owned direct (first tier) subsidiary of the Registrant, succeeded the Registrant as a successor issuer of its registered securities, pursuant to Rule 12g-3 under the Securities Exchange Act of 1934, and continued the business of the Registrant for all purposes; (3) exchanging each issued and outstanding share of the Registrant (bearing CUSIP number 32113F 10 3) on the record date (and after giving effect to the reverse stock split described above) into one new common share of the successor issuer (bearing CUSIP number 321129 108); (4) shifting the Registrant’s charter from the State of Delaware to the State of Nevada; (5) increasing the authorized capital of the Registrant from 100 million common shares to 300 million common shares; (6) changing the Registrant’s name from “First National Power Corporation” to “First National Energy Corporation”; and (7) changing the Registrant’s stock symbol from FNPR to FNEC.
 
 
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2.           On April 20, 2009, the Registrant acquired a territorial license to certain rights in alternative wind energy technology in exchange for 98,800,000 newly issued common shares of the Registrant, which resulted in a change in control of the Registrant, all as more particularly described in the definitive information statement on Form DEF 14-C filed with the Securities and Exchange Commission on May 4, 2009. As a result of such transaction, the Registrant was after such date no longer deemed to be a "shell company" as defined in Rule 12b-2 under the Securities Exchange Act of 1934.

On April 18, 2011, the Registrant entered into a Novation Agreement (the "Novation") with all of the stockholders of Boreas Research Corporation (“Boreas”), a Florida corporation, revising the structure of the May 20, 2009 transaction by which the Registrant acquired a territorial license to certain rights in alternative energy technology of Boreas, in exchange for 98,800,000 newly issued common shares of the Registrant as disclosed above. The Novation amended the 2009 agreement to substitute the stockholders of Boreas, collectively, as the licensor under the original 2009 agreement.

In addition, the Registrant has acquired technology rights to an additional territory for the licensed technology, and intends to exploit such rights through a newly formed and 99.9% owned subsidiary [see Note 1(c) of accompanying consolidated interim financial statements].
 
3.          The Registrant has not at any time been the subject of any bankruptcy, receivership or similar proceeding.
 
4.          Business of Issuer

(i) Principal products or services and their markets.

Since acquiring the technology license described above, management of the Registrant has expended significant time seeking sources of capital to implement its business plan, which is primarily designed to exploit the licensed technology throughout the United States and Canada for commercial gain by building, installing and operating its proprietary supplemental wind generation devices. The Registrant is also evaluating other alternatives in order to improve the Registrant's financial condition, including merger and acquisition opportunities. There is no assurance that the Registrant will be successful in raising capital or closing any such merger or acquisition transactions.

(ii) Distribution methods of the products or services.

The Registrant intends to market and distribute its licensed proprietary supplemental wind generation devices by achieving strategic alliances with wind industry participants operating construction and maintenance enterprises in the licensed territories.

(iii) Status of any publicly announced new product or service.

The publicly announced licensed proprietary supplemental wind generation devices of the Registrant are the subject of intense research and development efforts by the Registrant, with the object of achieving optimum performance, facilitating large scale manufacturing at multiple locations, and protecting the Registrant's unique product designs.
 
 
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(iv) Competitive business conditions and the smaller reporting company's competitive position in the industry and methods of competition.

For a discussion of competitive business conditions and the Registrant's competitive position in the industry and methods of competition, please see "Risk Factors - RISKS RELATED TO WIND ENERGY INDUSTRY" below.

(v) Sources and availability of raw materials and the names of principal suppliers.

The Registrant has identified ready sources and availability of raw materials and multiple suppliers of the materials and components to be incorporated in its licensed proprietary supplemental wind generation devices, and does not foresee any dependence on any sole source or supplier for such materials and components.

(vi) Dependence on one or a few major customers.

The Registrant does not foresee any likely dependence on one or a few major customers.

(vii) Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including duration.

For a description of the license agreement held by the Registrant, the reader is referred to the definitive information statement on Form DEF 14-C filed by the Registrant with the Securities and Exchange Commission on May 4, 2009.

(viii) Need for any government approval of principal products or services.

No government approval is required for the Registrant's principal products, but certain certifications may be necessary to obtain liability insurance for the products in order to satisfy the contractual requirements of potential customers.

(ix) Effect of existing or probable governmental regulations on the business.

For a discussion of the effect of existing or probable governmental regulations on the business of the Registrant, please see "Risk Factors-RISKS RELATED TO WIND ENERGY INDUSTRY" below.

(x) Estimate of the amount spent during each of the last two fiscal years on research and development activities.

Research and development activities for the fiscal year ending December 31, 2010 incurred expenses of $14,820; such activities for the fiscal year ending December 31, 2009 are included in general and administrative expenses of $81,136, as such activities were carried out by the Registrant's management.
 
For the 3-month period ended March 31, 2011, the Company spent $560 on Research and Development activities. For the 3-month period ended March 31, 2010, the Company spent $-0- on Research and Development activities.
 
 
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(xi) Costs and effects of compliance with environmental laws (federal, state and local).

Such costs are unknown, but are not considered by the Registrant to be material.

(xii) Number of total employees and number of full-time employees.

The Registrant has no paid employees nor any full-time employees, as the directors and officers of the Registrant are currently performing their services without compensation.

5.          Reports to Security Holders

The Registrant is a reporting entity and files annual, quarterly and special event reports with the Securities and Exchange Commission, as well as proxy and information statements.

The Registrant will voluntarily make available to security holders upon request a copy of this quarterly report on Form 10-Q.

The public may read and copy any materials filed by the registrant with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1–800–SEC–0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission at its web site (http://www.sec.gov).

ITEM 2B.          UNRESOLVED STAFF COMMENTS.

The Registrant received comments from the Division of Corporation Finance of the SEC dated November 16, 2010, and again on February 18, 2011, pertaining to the Forms 10-K and 10-Q filed by the Registrant for fiscal 2009 and subsequent periods.  The Registrant is endeavoring to resolve each such comment by, among other things, filing an amended annual report and preparing amendments of each subsequent quarterly report on Form 10-Q.  The issues embodied in the comments are in three principal areas: (1) disclosures according to applicable regulations; (2) valuation of technology assets acquired by the Registrant and its subsidiary, Pavana Power Corporation; and (3) the accounting treatment of the Registrant's 2009 technology acquisition.  The Registrant is endeavoring to revise its reporting procedures to ensure that all quarterly and annual reports comply with applicable disclosure regulations.  The Registrant has restated its financial 2009 results in this annual report to substantially reduce the carrying value of its acquired technology assets.  The Registrant is in continuing discussions with the Division of Corporation Finance staff of the SEC concerning the correct accounting treatment of its 2009 technology acquisition from Boreas Research Corporation, and has amended certain of its prior annual and quarterly reports to give effect to the adjustments resulting from such discussions.
 
 
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Results of Operations

Three Months Ended March 31, 2011, compared to the Three Months Ended March 31, 2010

Assets

Licensed technology assets, valued at a nominal $200 are more particularly described in Note 1 (b) and 1 (c) of the accompanying consolidated interim financial statements.

Revenues

The Company did not generate any operating revenues in the three months ended March 31, 2011 or in the three months ended March 31, 2010.

Costs and Expenses

General and Administrative

General and administrative expenses increased to $7,290 during the three months ended March 31, 2011, as compared to $3,658 during the comparable period in 2010. This increase was primarily due to a difference in the additional filing fees relating to a restatement of the 2009 annual results.

Liquidity and Capital Resources

Cash and cash equivalents were $10,098 at March 31, 2011, compared to $28,003 at March 31, 2010.

The Company is a development stage company and has not generated any operating revenues as of March 31, 2011. In addition, the Company will continue to incur net losses and cash flow deficiencies from operating activities for the foreseeable future.

Based on its cash flow projections, the Company will need additional financing to carry out its planned business activities and complete its plan of operations through December 31, 2011. At the Company’s present level of activities, the Company’s cash and cash equivalents are believed, at this time, to be insufficient to fund its operations only into the fourth quarter of this current fiscal year. Accordingly, there is substantial doubt as to the Company’s ability to continue as a going concern by the end of its current fiscal year.
 
 
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Much of the Company’s ability to raise additional capital or secure a strategic collaboration for the financing of its continued operations and product development will depend substantially on the successful outcome of its efforts to negotiate joint ventures with wind power industry participants. The Company is currently seeking to raise funds through corporate collaboration and sub-licensing arrangements in connection with its ongoing and long-term operations. The Company does not know whether additional financing will be available when needed or, if available, will be on acceptable or favorable terms to it or its stockholders.

The Company’s independent registered public accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern in the audit report on the Company’s audited financial statements for the fiscal year ended December 31, 2010 included in the 2010 10-K.

Net cash used in operating activities was ($4,890) for the three months ended March 31, 2011 as compared to ($8,727) during the comparable period in 2010. The decrease in net cash used in operations was primarily due to a difference in professional fees paid during the period.

ITEM 3.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. (NOT APPLICABLE)

ITEM 4.             CONTROLS AND PROCEDURES.

As of March 31, 2011, the Registrant carried out an evaluation of the effectiveness of the Registrant’s disclosure controls and procedures (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934) under the supervision and with the participation of the Registrant’s chief executive and chief financial officer. Based on and as of the date of such evaluation, the aforementioned officer has concluded that the Registrant’s disclosure controls and procedures were not effective.

The Registrant also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and an internal audit program to monitor its effectiveness. During the interim period ended March 31, 2011, there were no changes to this system of internal controls or in other factors that could significantly affect those controls.
 
 
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PART II—OTHER INFORMATION

ITEM 1.             LEGAL PROCEEDINGS

The Registrant is not a party to any pending or threatened legal proceedings.

ITEM 2.             UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Registrant has not sold any unregistered equity securities during the period covered by this report.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES.  (Not Applicable)

ITEM 4.             (REMOVED AND RESERVED).
 
ITEM 5.             OTHER INFORMATION.  (Not Applicable)

ITEM 6.             EXHIBITS.
 
Exhibit No.
 
Document
     
31.1*
 
Sect. 302 Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*   Sect. 302 Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1*
 
Sect. 906 Certification Statement of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
     
32.1*   Sect. 906 Certification Statement of the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002

* Filed herewith
 
 
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SIGNATURES

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 ENERGY CORPORATION  
       
Dated: June  9, 2011 
By:
/s/ Gregory Sheller  
    Gregory Sheller, Chief Executive Officer  
       
       
 
 
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