Fuego Enterprises (FUGI) 10QSB/A 2007 Q3 Quarterly report (small business) (amended)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

First Amendment

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended February 28, 2007

oTransition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______________ to ______________

Commission file number: 000-52054

FUEGO ENTERTAINMENT, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	20-2078925
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 19250 NW 89th Court

 Miami, FL 33018

 (Address, including zip code, of principal executive offices)

 Issuer’s telephone number : (305) 829-3777

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes  o    No  x

Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  o

The number of outstanding shares of the Registrant's common stock, $0.001 par value, as of February 28, 2007 was 35,609,441.

1

TABLE OF CONTENTS

PART I:	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements:	4
	Condensed Balance Sheets February 28, 2007 (unaudited) and May 31, 2006	4
	Unaudited Condensed Statements of Operations for the three and nine months ended February 28, 2007 and 2006	5
	Unaudited Condensed Statements of Cash Flows for the nine months ended February 28, 2007 and 2006	6
	Statement of Stockholders' (deficit) for the period from Inception to February 28, 2007 (unaudited)	7
	Notes to Financial Statements	8
Item 2.	Managements Discussion and Analysis of Financial Condition and Plan of Operations	12
Item 3.	Controls and Procedures	17
PART II:	OTHER INFORMATION	18
Item 1.	Legal Proceedings	18
Item 2.	Changes in Securities	18
Item 3.	Defaults upon Senior Securities	18
Item 4.	Submission of Matters for a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits and Reports on Form 8-K	18
	SIGNATURES	19

2

This Form 10-QSB contains forward-looking statements within the meaning of the "safe harbor" provisions under Section 21E of the Securities Exchange Act of 1934. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "August," "expects," "believes," "anticipates," "intends," "projects," or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties, which could cause actual results to differ materially from those, described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-QSB to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors, which could cause such results to differ materially from those described in the forward-looking statements, and elsewhere,, are incorporated by reference into this Form 10-QSB.

3

PART 1: FINANCIAL INFORMATION

FUEGO ENTERTAINMENT, INC.
BALANCE SHEETS
		February 28,			May 31,
		2007			2006
		(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	-		$	152
Account receivable-trade, less allowance
of $11,833 and 0, respectively		136,154			5,000
Accrued federal Income Tax Refund Receivable		12,115			-
Total Current Assets		148,269			5,152
EQUIPMENT, less accumulated depreciation
of $11,010 and $2,190, respectively		42,407			33,531
OTHER ASSETS
Production costs		100,739			93,431
Logo, less accumulated amortization
of $1,035 and $630, respectively		1,665			2,070
Total Other Assets		102,404			95,501
	$	293,080		$	134,184
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	25,834		$	9,359
Accounts payable-related party		29,584			23,642
Other Liabilities		3,217			1,630
Income taxes payable		15,985			25,702
Deferred revenue		6,659			6,659
Total Current Liabilities		81,279			66,992
Long-Term Debt
Notes payable - Related Parties		260,617			-
Accrued Interest - Related Parties		8,480			-
Total Liabilities		350,376			66,992
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, par value $.001, 75,000,000 shares authorized, 35,609,441 outstanding
February 28; 34,959,562 outstanding May 31		35,610			34,960
Paid in capital		279,426			118,398
Retained earnings(deficit)		(372,332	)		(86,166	)
Total Stockholders' (Deficit)		(57,296	)		67,192
	$	293,080		$	134,184
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

4

FUEGO ENTERTAINMENT, INC
STATEMENTS OF OPERATIONS
(unaudited)
		For The						For The
		Three Months Ended						Nine Months Ended
		February 28, 2007			February 28, 2006			February 28, 2007			February 28, 2006
REVENUES
Misc. Revenue	$	-		$	-		$	-		$	19
Music
Music Sales,net of estimated returns		95,466			-			135,254			-
Filming		-			72,872			30,550			78,272
Consulting		-			-			6,800			13,400
Total Revenues		95,466			72,872			172,604			91,691
COSTS AND EXPENSES
Music Royalties - Related Party		25,123			-			35,972			-
Cost of revenue - Filming		-			8,800			5,000			8,800
Cost of Affiliation Agreements		50,000						50,000
Selling, general and administrative:
Compensation - Stock Based and Contributed		20,470			-			95,728			-
Other		(4,969	)		22,745			178,036			82,478
TV Development		-			-			97,146			-
Impairment of investmest		-			-			-			57,400
Interest Expense		8,603						9,494
Depreciation and amortization		3,397			(379	)		9,225			1,127
Total costs and expenses		102,624			31,166			480,601			149,805
Income (Loss) before income tax		(7,158	)		41,706			(307,997	)		(58,114	)
Income tax (benefit)		(2,406	)		8,057			(21,832	)		(4,339	)
NET (LOSS)	$	(4,752	)	$	33,649		$	(286,165	)	$	(53,775	)
EARNINGS (LOSS) PER SHARE - BASIC		*			*			(0.01	)		*
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC		35,579,774			34,954,054			35,493,763			29,209,602
* less than $.01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

5

FUEGO ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
		For The			For The
		Nine Months Ended			Nine Months Ended
		February 28, 2007			February 28, 2006
					(restated)
OPERATING ACTIVITIES
Net income (loss)	$	(286,165	)	$	(53,775	)
Adjustments to reconcile net income to net cash provided by
operating activities
Contributed services		40,339			27,264
Impairment loss on investment		-			57,400
Depreciation and amortization		9,225			1,127
Stock Based Compensation		95,639			-
Changes in operating assets and liabilities
Accounts receivable		(131,154	)		(300	)
Accrued federal Income Tax Refund Receivable		(12,115	)		-
Deferred tax asset		-			(5,994	)
Other current asset		-			51
Accounts payable		22,417			21,455
Income taxes payable		(9,717	)		1,655
Other current liabilities		1,586			1,120
Deferred revenue		-			5,617
Production costs		(7,308	)		(45,079	)
NET CASH (USED BY) OPERATING ACTIVITIES		(277,253	)		10,541
INVESTING ACTIVITIES
Purchased of equipment		(17,696	)		-
NET CASH (USED BY) INVESTING ACTIVITIES		(17,696	)		-
FINANCING ACTIVITIES
Proceeds from sale of common stock		25,700			56,096
Deferred financing costs		-			(51,186	)
Proceeds from (to) - Related Parties		260,617			(178	)
Accrued Interest - Related Parties		8,480
NET CASH PROVIDED BY FINANCING ACTIVITIES		294,797			4,732
NET DECREASE IN CASH		(152)			15,273
CASH, BEGINNING OF PERIOD		152			7,479
CASH, END OF PERIOD	$	-		$	22,752
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

6

FUEGO ENTERTAINMENT, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
						Subscriptions						Retained
	Common Stock				Paid-in	Common			Amount			Earnings
	Shares		Amount		Capital	Stock			Receivable			(Deficit	)		Total
Balance, at inception	-	$	-	$	-	-		$	-		$	-		$	-
Proceeds from sale of common stock for
$.001 per share	7,772,670		7,773												7,773
Proceeds from sale of common stock for
$.006 per share	5,500,000		5,500		24,350										29,850
Common stock subscribed
21,262,530 shares @ $.001 per share						21,262			(21,262	)					-
295,450 shares @ $.009 per share						2,955			(2,955	)					-
105,874 shares @ $.179 per share						19,057			(19,057	)					-
Contributed services					21,708										21,708
Net income												39,489			39,489
Balance, May 31, 2005	13,272,670		13,273		46,058	43,274			(43,274	)		39,489			98,820
Proceeds received from subscribed shares	21,658,977		21,659		29,412	(51,072	)		51,072						51,071
Proceeds from sale of common stock for
$.18 per share	27,915		28		4,997										5,025
Common stock subscribed															-
53,111 shares @.179 per share						9,561			(9,561	)
Common stock subscriptions canceled
10,000 shares @ .001 per share						(10	)		10
40,500 shares @ .009 per share						(405	)		405
7,488 shares @ .179 per share						(1,348	)		1,348
Contributed services					37,931										37,931
Net (loss) for the year												(125,655	)		(125,655	)
Balance, May 31, 2006	34,959,562		34,960		118,398	-			-			(86,166	)		67,192
(unaudited)
Proceeds from sale of common stock for
$.18 per share	142,778		143		25,557										25,700
Stock based compensation
$.18 per share	418,101		418		74,840										75,258
$.23 per share	89,000		89		20,292										20,381
Contributed services					40,339										40,339
Net (loss) for the nine months												(286,165	)		(286,165	)
Balance, February 28, 2007, (unaudited)	35,609,441	$	35,610	$	279,426	-		$	-		$	(372,331	)	$	(57,295	)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

7

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of February 28, 2007 and the results of its operations and cash flows for the nine months ended February 28, 2007 and 2006 have been made. Operating results for the nine months ended February 28, 2007 are not necessarily indicative of the results that may be expected for the year ended May 31, 2007.

These condensed financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Form 10-KSB for the year ended May 31, 2006.

2. NATURE OF BUSINESS

Fuego Entertainment, Inc. (Fuego, we, us, our, or the Company) whose registration statement on SB2 became effective on July 12, 2006 is primarily engaged in the directing, production, marketing, and distribution of entertainment products, including feature and short films, documentaries, television shows, music, and tour productions. The Company also provides management, marketing, and public relations services to the entertainment industry. During the nine months ended February 28, 2006 the majority of revenues earned were from CD sales worldwide of which sales in the United States represents 40 percent of the total revenues. Of the foreign revenues, the largest percentage was represented in Italy at 38 percent of total worldwide sales.

3. SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN

Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Fuego’s ability to continue in existence is dependent on our ability to develop additional sources of capital, or achieve profitable operations. The Company’s plan is to obtain additional capital, and to develop, market and distribute music CDs of musical tracks owned and controlled by Ciocan Entertainment & Music Group, LLC (Ciocan), an affiliated company, for a 25% royalty; to pursue the multi-media releases of a popular film the President/CEO of the Company owns and produced in Cuba for a similar royalty, and to manage various television stations in Puerto Rico and continental United States in which the President/CEO of the Company will own the majority interest as a managing member of an affiliate . Shipping costs of music CDs will be incurred when we assume the role of manufacturer. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

MUSIC REVENUES AND COSTS

Music revenues are recognized when the media on which it is contained is provided to customers such as CD’s, DVD’s and digital images. An allowance of 5 percent of music revenues is provided for expected returns. Our terms for payment are from 120 to 180 days from invoice date depending on the customer. Credit terms are extended only to known accounts.

Cost of the media provided is included in cost of sales along with any delivery cost. Our initial inventory cost was included in the 25 percent royalty we agreed to pay to Ciocan from whom we obtained the CD’s that were shjpped to customers as of February 28, 2007. Once Ciocan’s inventory is depleted we will incur such costs.

4. RELATED PARTY TRANSACTIONS

· For the nine month period ended February 28, 2007, Ciocan advanced us a total of $32,300 for accounting, legal and other fees, and was owed a total of $30,970 for music royalties. As of February 28, 2007 Ciocan was owed $63,270, which is included in Long Term Debt, Notes payable-related parties.

· For the nine month period ended February 28, 2007, Mr. Cancio advanced to and is owed by the Company a total of $197,348 for audit fees, operating expenses, TV development expenses, and the $50,000 advanced for the purchase of affiliation agreements from VSCN which acquisition is presently being finalized. This amount is included in Long-Term Debt, Notes payable-related parties as of February 28, 2007.

· Fees incurred in the nine month period end February 28, 2007 for a related party accounting firm totaled $23,303. The total amount owed to the firm as of November 30, 2006 was $28,244. which is included in the category, accounts payable-related parties, in the accompanying balance sheet.

An affiliate of the Company initially announced on August 25, 2006, that it was going to launch a full power television station called City TV, Inc. on the island of Puerto Rico under an exclusive agreement with Chum International, but later postponed its commencement because of the potential acquisition of 14 additional television stations owned by another company. Delaying the launch of the Puerto Rico station allows the restructuring of the format for a Spanish language network. With the proposed acquisition of the additional 14 TV stations, the affiliate intends to create its own brand name and launch its own network which we intend to manage, and have incurred related prior and current expenses totaling $136,620 of which $62,672 was incurred in the nine month period ended February 28, 2007. In addition, we capitalized equipment relating to this management process of $31,747 as of February 28, 2007.

8

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

5. INCOME TAXES

Fuego uses the liability method of accounting for income taxes pursuant to Statement of Financial Accounting Standards Board Opinion No. 109. Under this method, deferred income taxes are recorded to reflect the tax consequences in future periods of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end.

The provision for current income taxes is as follows:

	For the nine months ended Feb 28, 2007			For the nine months ended Feb 28, 2006
Current tax expense:
Federal tax at statutory rates	$	(104,719	)	$	(19,759	)
State income taxes less federal tax benefit		0			0
Benefit of surtax exemptions		73,879			5,495
Adjustment to 5/31/06 tax liability		9,717			0
Valuation allowance		4,335			0
Permanent differences		14,382			9,925
Income tax expense	$	(2,406	)	$	(4,339	)

The analysis of income tax expense is as follows:

		For the nine months ended Feb 28, 2007			For the nine months ended Feb 28, 2006
Current	$	(2,406	)		5,030
Deferred		- 0 -			(9,369	)
Income tax expense	$	(2,406	)	$	(4,339	)

9

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

5. INCOME TAXES - continued

The following is an analysis of the change in the deferred tax asset:

	For the nine  months ended  Feb 28, 2007		For the nine months ended  Feb 28, 2006
Allowance for Doubtful Accounts	(1,705	)	0
Interest Expense to Related Parties	(2,877	)	0
Impairment of Investment			9,253
Depreciation	248		116
Valuation allowance	4,334		0
Deferred tax asset (liability), end of year	-0-		9,369

6. CONTRIBUTED CAPITAL

For the nine month period end February 28, 2007, the president of the Company contributed the value of his services of $27,000, the prorata share of auto expenses of $5,250, and rent for corporate office facilities of $8,000 for a grand total of $40,250.

7. ISSUANCE OF RESTRICTED COMMON STOCK

We authorized the issuance of 560,879 shares of restricted common stock at $.18 per share on July 2, 2006 and 89,000 shares of restricted common stock at $.23 per share on February 2, 2007 to various persons for services they performed subsequent to May 31, 2006.

Principally in connection with our efforts to obtain additional capital to sustain our business, the following restricted stock was issued at $.18. Restricted shares of stock consisted of 361,111 issued to an investment capital firm. In addition to these shares, there were 40,000 shares issued to the accounting firm in part payment for their accounting, tax and financial statement preparation services, 25,000 shares issued to a Board member, the sale of 102,778 shares for cash and 31,990 shares were issued to various individuals for services rendered.

Restricted shares of common stock issued at $.23 consisted of 50,000 issues to a Board Member and 39,000 issued to a contracted individual for corporate services provided.

10

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

8. NOTES PAYABLE - RELATED PARTIES

Amounts owed during the quarter to Ciocan Music & Entertainment, an affiliate, totaled $25,123, which represents the 25% of Music sales owed to Ciocan in accordance with the Music Royalty Agreement. After adjustment from receipts for the quarter ended February 28, 2007, the net amount due to Ciocan is $21,023. At the quarter end, the accumulated amounts advanced from Ciocan Music & Entertainment totaled $63,270.

Amounts paid on behalf of us in the quarter from Hugo Cancio, the President/CEO, totaled $23,018, which represents multiple corporate related expenses, including out of pocket expenses to pay for legal fees, auditing fees, and fuel for business related usage of vehicle. At the quarter end, the accumulated amounts advanced from Hugo Cancio totaled $197,348.

9. COMPOSITION OF REVENUES

10. SUBSEQUENT EVENTS

We created a music division in July 2006, named Fuego Entertainment Music International (FEMI) the purpose of which is to sell our music content under this name.

Since launching FEMI, we expanded our music marketing and distribution capabilities and enhanced sales in the process. We hired on March 1, 2007, the services of Adolfo Fernandez, a prestigious publicist from F&F Media Group. Mr. Fernandez's firm represents companies such as WEA Music, Sony BMG, Televisa Group, Univision Music Group, EMI US Latin, EMI Music Colombia, Venemusic, Fonosound, Grupo Origin, Warner Music Latina, and others. Mr. Fernandez has worked with many artists such as Andrea Bocelli, Ricky Martin, Alejandro Sanz, Mark Anthony, Shakira, Gilberto Santarosa, Jennifer Lopez, and others.

We also hired Jorge Artiles on March 1 2007, as Vice-President of Marketing and Promotions for FEMI, Mr. Artiles, who has years of experience in artist management, marketing and promotions started his career in the music industry in 1994 working as a music promoter in Miami. We believe these two additions to the team will help us reach it sales goals.

Gross sales of CDs after February 28, 2007 were approximately $75,000 representing approximately 7,000 CDs.

11

ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION

QUARTER ENDED FEBRUARY 28, 2007

Fuego Entertainment, Inc. (Fuego, we,our or us) had a net loss for the current quarter of $4,752. Although revenues were almost$96,000 for that period, there were three major expenses which contributed to the loss for the quarter, namely $50,000 of written off investments made to acquire content that were later deemed unrecoverable, the audit and accounting fees of $10,640 relating to the preparation of financial statements along with auditing fees for first 10QSB of the current fiscal year, and Stock Based Compensation of $20,470 for the value of common stock issued in exchange for services provided by two separate individuals.

Revenues for the current quarter-

We generated $95,466 in music revenues from the sale of pre-recorded music created by an affiliate to whom royalties of 25% of total music revenues were recorded of $25,123. The agreement for this revenue was entered into with Ciocan Entertainment and Music Group,LLC (Ciocan) on a verbal basis during the first quarter. During the current quarter approximately 12,000 CD’s representing over $ $95,000 in net music revenues were sold. 

Since launching FEMI, a dividion of ours, we have expanded its music marketing and distribution capabilities and enhanced sales in the process. We hired on March 1, 2007, the services of Adolfo Fernandez, a prestigious publicist from F&F Media Group. Mr. Fernandez's firm represents companies such as WEA Music, Sony BMG, Televisa Group, Univision Music Group, EMI US Latin, EMI Music Colombia, Venemusic, Fonosound, Grupo Origin, Warner Music Latina, and others. Mr. Fernandez has worked with many artists such as Andrea Bocelli, Ricky Martin, Alejandro Sanz, Mark Anthony, Shakira, Gilberto Santarosa, Jennifer Lopez, and others.

Fuego also hired Jorge Artiles in March 2007, as Vice-President of Marketing and Promotions for FEMI. Mr. Artiles has years of experience in artist management, marketing and promotions. He started his career in the music industry in 1994 working as a music promoter in Miami. We believe these two additions to the team will help us reach our sales goals. 

There were no other revenues in this quarter..

Cost of Revenue-

Aside from the recurring royalties to a related party as mentioned above, there were no additional costs of revenue. Our president, whose compensated efforts for all revenues generated are contributed to capital monthly at $3,000 per month, is the only one presently involved in generating revenues, and therefore, his costs along with related travel, meals and entertainment relating to revenue are recorded in the selling, general and administrative category.The cost of CD’s is not included because Ciocan agreed to use its existing inventory of the CD’s sold, however, in the future, we will have to manufacturer them and will assume this cost.

Selling, General and Administrative Expenses-

This category has routinely consisted of all of the recurring and/or normal corporate overhead expenses not separately identified such as depreciation and amortization. This category has recently increased, as in the current quarter, for such items as Stock Based Compensation, Cost of Affiliation Agreements and Accounting & Auditing Fees.

12

ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION - continued

Adjustments to Common Stock-

In the quarter ended February 28, 2007, 89,000 shares of restricted common stock was issued at $.23 to a board member and another individual for services performed.

Investments-

An investment was made to Mako Communications to acquire assets and content from VSEN, a television station in Las Vegas, for the potential development of a television and broadband network totaled $50,000. In the quarter ended February 28, 2007, it was determined that the recoverability of the investment amount was doubtful and was therefore written of as a Cost of Affiliation Agreement.

Related Party Transactions-

Amounts owed during the quarter to Ciocan, an affiliate, totaled $25,123, which represents the 25% of Music sales owed to Ciocan in accordance with the Music Royalty Agreement. After adjustment from receipts for the quarter ended February 28, 2007, the net amount due to Ciocan is $21,023. At the quarter end, the accumulated amounts advanced from Ciocan Music & Entertainment totaled $63,270.

Amounts paid on behalf of us in the quarter from Hugo Cancio, the President/CEO, totaled $23,018, which represents multiple corporate related expenses, including out of pocket expenses to pay for legal fees, auditing fees, and fuel for business related usage of vehicle. At the quarter end, the accumulated amounts advanced from Hugo Cancio totaled $197,348.

Fees incurred in the quarter for a related party accounting firm totaled $7,340. The total amount owed to the firm as of quarter ended February 28, 2007 was $29,584, which represents accounting and financial statement preparation fees.

Accrued Interest and Interest Expense-

Amounts loaned to us for the quarter ended February 28, 2007, of $23,019 by our President/CEO Hugo Cancio were added to his Long Term Notes payable now totaling $197,348. The note is unsecured with interest at an annual rate of 15%. The previous note due November 30, 2007 was extended to March 1, 2008. Interest on this note, which began in the quarter ended February 28, 2007 totaled $6,876.

Amounts owed by us of $21,023 for the quarter ended February 28, 2007, to Ciocan were added to its Long Term Notes payable now totaling $63,270. The note is unsecured, with interest at an annual rate of 15%. The previous note due November 30, 2007 was extended to March 1, 2008. Interest on this note, which began in the quarter ended February 28, 2007, totaled $1,604.

The total interest expense for the quarter ended February 28, 2007 was $8,603 and came as a direct result of the above related parties accrued interest.

Income Tax Benefit-

There was no additional income tax benefit earned in this quarter as the current losses experienced may not be recoverable.

QUARTER ENDED FEBRUARY 28, 2007 COMPARED TO THE QUARTER ENDED FEBRUARY 28, 2006

The Net Loss for the current quarter of $4,752 changed greatly in comparison to the same quarter a year ago from a net income of $33,649 by approximately $38,400 due principally to Stock Based Compensation of $11,500, the Cost of Affiliation Agreements of $50,000, and interest expense of $8,603, less the benefit from reduced income taxes of $10, 463 .

13

ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION - continued

Revenues-

Revenues in comparison to a year ago on a quarterly basis increased around $22,500. Last year there were no music revenues because the music royalty agreement had not yet been entered into. Although there was a short term consulting agreement last year, no Consulting income was generated.. We expect music revenues to increase as more music titles are acquired and released. We have also entered the digital distribution market for music, music videos, sound recordings, films, short films, documentaries, and television content. The company executed an exclusive agreement with Digital Music Group Inc, (DMGI) one of the world leaders.. Under the terms of the agreement, DMGI will distribute our music through their global distribution channels such as: the iTunes Stores, Yahoo! Music, Napster, Real Networks, Musicnet, Wal-Mart Music, Snocap, and others. Our video content will be distributed through Google Video, the iTunes Store, YouTube, and others.

Additionally, we have also authorized Digital Music Group, Inc. to adapt and edit its music for the purpose of creating ringtones for distribution through their mobile channel partners including Verizon, Virgin Mobile, Infospace, Amp'd Mobile.

We believe that as a content provider we are well positioned to capitalize on this new opportunity. This agreement with DMGI willl help maximize our sales potential and revenue stream.

No Filming revenues or work for hire occurred as a resualumlt of our president spending a considerable amount of his time distributing CDs,generating additional revenues and raising capital. Historically, our revenues were generated from various filming in Puerto Rico,however, we have global revenues from the sale of CD albums.

Cost of Revenues-

Due to the focus on other revenue generating opportunities, there was less emphasis on Filming business. There was no Filming that occurred in this quarter therefore no costs were incurred or associated with this service. Current quarter cost of sales for music, there being no costs for the comparative period a year ago, consisted of only accrued royalties on music sales to Ciocan as per our agreement. Net sales for royalty calculation purposes is based on gross rather than net royalties for accounting purposes as we have provided an allowance against gross music revenues for CD returns, estimated at 5% of gross music revenues.

Selling, General and Administrative Expenses-

The current quarter’s selling, general and administrative expenses exceeded the comparable quarter’s expenses by approximately $77,000 due largely to the Cost of Affiliation Agreements of $50,000 and stock based compensation. The balance of the increase was due mainly to the increase in legal, auditing and accounting expenses which together were approximately $17,000 for the current quarter.

Common Stock Issuances-

In the three months ended February 28, 2007, 89,000 shares of restricted common stock was issued at $.23 to a board member and another individual for services performed. In the same three month period in prior year, the only increase to common stock came from the issuance of common sock through Subscription Agreements.

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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION - continued

Investments-

An investment was made to Mako Communications to acquire assets and content from VSEN, a television station in Las Vegas, for the potential development of a television and broadband network totaled $50,000. In the three months ended February 28, 2007, it was determined that the recoverability of the investment amount was doubtful and was therefore written of as a Cost of Affiliation Agreement.

Related Party Transaction-

Amounts owed during the quarter to Ciocan, totaled $25,123, which represents the 25% of Music sales owed to Ciocan in accordance with the Music Royalty Agreement. After reduction for a paymnet for the quarter ended February 28, 2007, the net amount due to Ciocan is $21,023. At the quarter end, the accumulated amounts advanced from Ciocan Music & Entertainment totaled $63,270.

Amounts paid on behalf of us in the quarter from Hugo Cancio, the President/CEO, totaled $23,018, which represents multiple corporate related expenses, including out of pocket expenses to pay for legal fees, auditing fees, and fuel for business related usage of vehicle. At the quarter end, the accumulated amounts advanced from Hugo Cancio totaled $197,348.

Fees incurred in the quarter for a related party accounting firm totaled $7,340. The total amount owed to the firm as of the quarter ended February 28, 2007 was $29,584, which represents accounting and financial statement preparation fees.

Income Tax Benefit-

Compared to the prior years quarter provision for income tax, which resulted in an income tax expense of approximately $8,000 as a result of permanent timing differences including the impairment of Havana Nights Investment of approximately $58,000 for income tax purposes, there was an income tax benefit this quarter of $2,406.

Accrued Interest and Interest Expense-

 The total interest expense for the three months ended February 28, 2007 was $8,603 as a result of interest accruing on notes to related parties effective December 1, 2006.

NINE MONTHS ENDED FEBRUARY 28, 2007 COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 2006

Compared to the previous nine month period a year ago, the current nine months’ loss was approximately $221,000 higher due mainly to an increase in overall expenses of approximately $285,000. The most influential of these expense increases were related to Cost of Affiliation Agreements of $50,000, TV Development of $97,000, Stock Based Compensation of $95,728 and Accounting & Auditing fees of $31,000. This can be explained by the fact that the President of the Company, who is the sole person generating revenues, spent the majority of his time developing TV stations in Puerto Rico and other places in the United States for the purpose of ultimately generating advertising revenues from the marketing of Latino businesses throughout those areas within an affiliated company to be owned 70% by the president and over which the Company will manage such interests.  Although expenses during the current quarter were considerably more, the beneficial reduction in income taxes offset this amount by approximately $19,000.

Revenues-

Although music revenues were recorded for the first time in this nine month period, there was a decrease of about $48,000 in filming revenues and a reduction in consulting revenues of $6,600 from the nine month period a year ago.

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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION - continued

Cost of Revenue-

Because of the increased revenue from music sales due to the Music Agreement in the current nine months, Music Royalty costs were $36,000 in comparison to last year of zero. Also, because filming revenue decreased, the costs associated with those productions were reduced by $3,800.

Selling, General and Administrative Expenses-

This category resulted in approximately $191,000 more in expenses than last year’s nine month period. The more significant increase were for professional fees of $30,000, and stock based compensation of $68,000..

Adjustments to Common Stock-

In the nine months ended February 28, 2007, 89,000 shares of restricted common stock was issued at $.23 to a board member and another individual for services performed. In the same nine month period in prior year, the only adjustments to common stock came from the issuance of common sock through Subscription Agreements.

Investments-

An investment made to Mako Communications to acquire assets and content from VSEN, a television station in Las Vegas, for the potential development of a television and broadband network totaled $50,000. In the nine months ended February 28, 2007, it was determined that the recoverability of the investment amount was doubtful and was therefore written of as a Cost of Affiliation Agreement.

Related Party Transaction-

Amounts owed during the quarter to Ciocan, an affiliate, totaled $63,270, which the represents 25% of Music sales owed to Ciocan in accordance with the Music Royalty Agreement and additional corporated expenses paid for on behalf of Fuego. The same nine month period in the prior year did not have any amounts advanced from this related party. At the quarter end, the accumulated amounts advanced from Ciocan totaled $63,270.

Amounts paid on behalf of us in the quarter from Hugo Cancio, the President/CEO, totaled $197,348, which represents multiple corporate related expenses, including out of pocket expenses to pay for legal fees, auditing fees, and fuel for business related usage of vehicle. The same nine month period in the prior year did not have any amounts advanced from this related party. At the quarter end, the accumulated amounts advanced from Hugo Cancio totaled $197,348.

Fees incurred in the nine months ended February 28, 2007 for a related party accounting firm totaled $30,643 in comparison to the same nine month period in prior year of $32,342. The total amount owed to the firm as of February 28, 2007 was $29,584 in comparison to prior year of $23,642, which represents accounting and financial statement preparation fees.

Income Tax Benefit-

Compared to the prior nine months period income tax, which resulted in an income tax benefit of approximately $4,000 as a result of permanent timing differences including the inability to deduct impairment of Havana Nights Investment of $57,400 for income tax purposes, there was an income tax benefit in the current nine month period of approximately $22,000. Therefore, the difference between the current nine month period and the nine month period a year ago is approximately $18,000 of a benefit in income taxes.

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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION - continued

Accrued Interest and Interest Expense-

Amounts loaned to us in the nine months ended February 28, 2007, by President/CEO Hugo Cancio, were added to his Long Term Notes payable now totaling $197,348. The note are unsecured, with interest at an annual rate of 15%. The previous note due November 30, 2007 was extended to March 1, 2008. Interest on this note, which began in the quarter ended February 28, 2007 totaled $6,876.

Amounts owed to us in the nine months ended February 28, 2007, by Ciocan, were added to its Long Term Notes payable now totaling $63,270. he note is unsecured, with interest at an annual rate of 15%. The previous note due November 30, 2007 was extended to March 1, 2008. Interest on this note, which began in the quarter ended February 28, 2007, totaled $1,604.

The total interest expense for the nine months ended February 28, 2007 was $9,494, which is a combination of interest from related parties and other parties.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

MATERIAL COMMITMENTS

We entered into two separate commitments to make reimbursement payments to Hugo Cancio and Ciocan for amounts owed, to be paid in full by March 1, 2008. The Long Term Notes Payable for these amounts due are each listed as unsecured and are 15% interest bearing.

LIQUIDITY AND CAPITAL RESOURCES-

We funded our cash requirements for the nine-month period ended February 28, 2007 through operations and personal loans from related parties. During the nine months ended February 28, 2007 our cash flows applied to operations was $277,253 as compared to cash flows from operations of $10,541 in the corresponding period in 2006. We have no material commitments for capital expenditures as of the date of this report. We are continuing to seek debt and equity financing to fund its business plan. Fuego has also eliminated or reduced unnecessary costs

Cash decreased by $152 during the nine-month period ended February 28, 2007. Over the same period in 2006 cash increased by $15,273. During the nine-month period ended February 28, 2007 our operating expenses were decreased due to cost cutting efforts by management.

We are currently incurring cash expenses of $34,222 per month for all operations, of which fixed costs are $5,415. We anticipate cash expenditures of approximately $ 55,000 for the next quarter. We believe the proceeds generated from the sale of our music content will be sufficient to support our ongoing business operations in the near term.

PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any significant equipment during the next twelve (12) months.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act of 1934 are recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Principal Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

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ITEM 3. CONTROLS AND PROCEDURES - continued

Within the 90 days prior to the filing date of this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of our Principal Executive Officer/Principal Accounting Officer. Based upon that evaluation, we have concluded that our disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.

Changes in Internal Controls

There were no significant changes in our internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5: Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

31.1 Certificate of Principal Executive Officer

31.2 Certificate of Principal Accounting Officer

32.1 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

Form 8K/A filed with the SEC December 11, 2006

Form 8K filed with the SEC December 12, 2006

Form 8K filed with the SEC December 18, 2006

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FUEGO ENTERTAINMENT, INC.

(Registrant)

Date: July 31, 2007	By:	/s/ Hugo M. Cancio
		Hugo M. Cancio
		Title: Principal Executive Officer

Date: July 31, 2007	By:	/s/ Hugo M. Cancio
		Hugo M. Cancio
		Title:  Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: July 31, 2007	By:	/s/ Hugo M. Cancio
		Hugo M. Cancio
		Title: Director

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