Fuego Enterprises (FUGI) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2009

oTRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)

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

8010 NW 156 Terrace  Miami, FL	33018
(Address of pricipal executive offices)	(Zip Code)

(305) 829-9999

(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.

x Yes     o 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	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

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

o Yes     x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes     o No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.

The number of outstanding shares of the Registrant's common stock, $0.001 par value, as of February 28, 2009 was 40,075,186.

1

TABLE OF CONTENTS

		Page
PART I:	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Balance Sheet as of February 28, 2009 (unaudited) and May 31, 2008	3
	Statements of Operations (unaudited) for the three and nine months ended February 28, 2009 and 2008	4
	Statements of Stockholders' Equity (Deficit) for the period from May 31, 2006 to February 28, 2009 (unaudited)	5
	Statements of Cash Flows (unaudited) for the nine months ended February 28, 2009 and 2008	7
	Notes to Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4T.	Controls and Procedures	15
PART II:	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
Signatures		17

2

PART I - - FINANCIAL INFORMATION

Item 1. Financial Statements

FUEGO ENTERTAINMENT, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
	February 28,			May 31,
	2009			2008
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1,549			7,754
Account receivable-trade, less allowance
for doubtful accounts of $90,000		55,334			100,323
Total Current Assets		56,883			108,077
EQUIPMENT, less accumulated depreciation
of $32,872 and $27,172 respectively		21,576			31,666
OTHER ASSETS
Music Albums (Echo-Fuego)		480,000			480,000
Beverage Plus AG		315,000			425,000
Production costs-Video		45,509			45,509
Production costs-Music		55,747			50,047
Deposit on music library		14,500			14,500
Web portal		11,329			11,329
Logo, less accumulated amortization
of $1,980		585			990
Total Other Assets		922,670			1,027,375
TOTAL ASSETS	$	1,001,129		$	1,167,118
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	173,926		$	38,222
Accounts payable - related parties		92,840			99,586
Accrued interest - related parties		95,712			63,953
Income taxes payable		3,870			3,870
Payroll tax liabilities		5,538			5,193
Other liabilities		13,825			6,347
Total Current Liabilities		385,711			217,171
Long-Term Debt
Notes payable - related parties		141,512			281,549
Total Liabilities	$	527,223		$	498,720
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.001, 75,000,000
shares authorized, 40,075,186 and 39,476,020 shares		40,076			39,477
issued and outstanding, respectively
Additional Paid in capital		1,133,485			1,032,968
Paid in capital-stock options		112,527			233,027
Subscriptions payable		45,000			45,000
Noncontrolling interest in affiliate		293,052			354,243
Accumulated deficit		(1,150,234	)		(1,036,317	)
Total Stockholders' Equity		473,906			668,398
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,001,129		$	1,167,118
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

3

FUEGO ENTERTAINMENT, INC AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	February 28, 2009			February 29, 2008			February 28, 2009			February 29, 2008
REVENUES
Music sales, net		14,597			100,927		$	7,507		$	112,878
Concert sales		4,970						4,970
Advertising, web site		3,500			158,000			5,000			158,000
Consulting		-			840			-			840
Total Revenues		23,067			259,767			17,477			271,718
COSTS AND EXPENSES
Cost of music
Royalties - related party		-			-			-			2,844
Concert Fees		18,350						18,350
Production costs		4,780			48,216			19,554			48,852
Selling, general and administrative:
Compensation - stock based and contributed		18,300			63,854			106,666			221,529
Paid Compensation and Payroll Taxes					-						16,393
Other		45,974			79,400			216,827			234,184
Web site Cost		-			4,800						4,800
Interest expense - related parties		8,467			10,554			31,759			39,162
Interest expense - other		-			-			580			723
Depreciation and amortization		3,360			3,192			9,376			9,713
Total costs and expenses		99,231			210,016			403,112			578,200
Other Income								47
Gain on Cancellation of Compensation Options								137,500
Gain on Cancellation of Shares for Services-Settlement								71,250
Income (Loss) before income taxes		(76,164	)		49,751			(176,838	)		(306,482	)
Income tax expense (benefit)		-			-			-			-
Income (Loss) Before Minority Interest		(76,164	)		49,751			(176,838	)		(306,482	)
Less Minority Interest in Affiliates' losses		3,211			(25,100	)		62,921			(25,100	)
NET INCOME (LOSS)	$	(72,953	)	$	24,651		$	(113,917	)	$	(331,582	)
EARNINGS (LOSS) PER SHARE - BASIC		*			*			*			*
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC		40,061,853			39,296,020			39,819,671			37,732,686
*  less than $.01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

4

FUEGO ENTERTAINMENT, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
										Paid-in capital				Noncontrolling
	Common Stock						Paid-in			Stock		Subscriptions		Interest in		Deferred			Accumulated
	Shares			Amount			Capital			Options		Payable		Affiliate		Charge			(Deficit)			Total
Balance, May 31,  2006		34,959,562			34,960			118,398									-			(86,166	)		67,192
Proceeds from sale of common stock for
$.18 per share		102,778			103			18,397															18,500
Stock based compensation
$.12 per share		25,000			25			2,975															3,000
$.15 per share		60,000			60			8,940															9,000
$.18 per share		488,013			488			87,354															87,842
$.23 per share		89,000			89			20,381															20,470
Stock Issued for debt reduction
$.18 per share		40,000			40			7,160															7,200
Stock Issued for future services
$.15 per share		875,000			875			130,375									(122,979	)					8,271
Contributed services								60,925															60,925
Net (loss) for the year																				(505,558	)		(505,558	)
Balance, May 31,  2007		36,639,353		$	36,640		$	454,905		$	-	$	-	$	-	$	(122,979	)	$	(591,724	)	$	(223,158	)
Proceeds from sale of common stock for
$.15 per share		83,000			83			12,367															12,450
$.12 per share		541,667			542			64,458															65,000
$.212 per share		1,300,000			1,300			274,300															275,600
Stock based compensation
$.28 per share		100,000			100			27,900															28,000
$.15 per share		207,000			207			30,843															31,050
$.17 per share		5,000			5			845															850
$.12 per share		100,000			100			11,900															12,000
Stock Issued for debt reduction
$.15 per share		525,000			525			78,225															78,750
Stock based compensation canceled		(25,000	)		(25	)		(3,725	)														(3,750	)
Stock options											233,027												233,027
Amortization of deferred charges																	122,979						122,979
Contributed services								80,950															80,950
Subscriptions payable													45,000										45,000
Noncontrolling interest in affiliate															354,243								354,243
Net (loss) for the year																				(444,593	)		(444,593	)

5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - continued

Balance, May 31,  2008	39,476,020		$	39,477		$	1,032,968		$	233,027		$	45,000	$	354,243		$	-	$	(1,036,317	)	$	668,398
(Unaudited)
Proceeds from sale of common stock for
$.085 per share	80,000			80			6,720																6,800
Stock based compensation
$.14 per share	62,500			62			8,687																8,749
$.10 per share	316,666			317			31,350																31,667
$.15 per share	65,000			65			9,685																9,750
Stock Issued for debt reduction
$.15 per share	180,000			180			26,820																27,000
$.10 per share	375,000			375			37,125																37,500
Stock options issued for debt reduction										17,000													17,000
Cancellation of shares for services-settlement	(475,000	)		(475	)		(70,775	)															(71,250	)
Cancellation of shares for services	(25,000	)		(25	)		(6,975	)															(7,000	)
Cancellation of compensation options										(137,500	)												(137,500	)
Contributed services							57,900																57,900
Shares issued	20,000			20			(20	)
Noncontrolling interest in affiliate															(61,191	)							(61,191	)
Net income for the period																				(113,917	)		(113,917	)
Balance, February 28,  2009 (Unaudited)	40,075,186		$	40,076		$	1,133,485		$	112,527		$	45,000	$	293,052		$	-	$	(1,150,234	)	$	473,906
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

6

FUEGO ENTERTAINMENT, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Nine Months Ended
	February 28, 2009			February 29, 2008
OPERATING ACTIVITIES
Net income (loss)	$	(113,917	)	$	(331,582	)
Adjustments to reconcile net income (loss) to net cash used by
operating activities
Contributed services		57,900			61,150
Depreciation and amortization		9,330			9,713
Stock based compensation		50,166			182,029
Changes in operating assets and liabilities
Accounts receivable		44,989			(58,988	)
Accrued federal Income tax refund receivable		-			-
Accounts payable		128,958			1,353
Accrued interest - related parties		31,759			34,026
Income taxes payable		-			(12,115	)
Payroll tax liabilities		345			-
Other current liabilities		7,478			(3,022	)
Production costs-music		(5,700	)
Deferred revenue		-			217,000
NET CASH (USED IN) OPERATING ACTIVITIES		211,308			99,564
INVESTING ACTIVITIES
Investment in Echo-Fuego Music Group, LLC		-
Investment in Beverage Plus AG					(375,000	)
Investment in Music Albums (Echo-Fuego)		-			(480,000	)
Noncontrolling interest in affiliate		(61,191	)		360,100
Web portal		-			(11,329	)
Production costs - Music		-			(48,844	)
Purchase of equipment		1,165			(3,013	)
NET CASH (USED IN) INVESTING ACTIVITIES		(60,026	)		(558,086	)
FINANCING ACTIVITIES
Proceeds from sale of common stock		6,800			12,450
Stock options issued for debt reduction		17,000
Cancellation of compensation options		(137,500	)
Cancellation of shares for services		(7,000	)
Cancellation of shares for services-settlement		(71,250	)
Common stock subscription payable		-			45,000
Common stock issued for debt reduction		64,500			419,350
Proceeds from notes payable - related parties		58,706			176,382
Repayments of notes payable - related parties		(88,742	)		(170,786	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		(157,486	)		482,396
NET INCREASE (DECREASE) IN CASH		(6,204	)		23,874
CASH, BEGINNING OF YEAR		7,754			-
CASH, END OF YEAR	$	1,549		$	23,874
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

7

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended February 28, 2009 and 2008

1. BASIS OF PRESENTATION

Our consolidated financial statements include the accounts of Fuego Entertainment, Inc. and its majority-owned limited liability company, Echo-Fuego Music Group, LLC.  All significant intercompany accounts and transactions have been eliminated in the consolidation.

Minority interest represents the minority partner’s, Jeffrey Collins (Echo-Vista, Inc.)  49% ownership interest in Echo-Fuego Music Group, LLC.

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-Q.  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, 2009 and the results of  its operations and cash flows for the nine months ended February 28, 2009 and 2008 have been made.  Operating results for the nine months ended February 28, 2009 are not necessarily indicative of the results that may be expected for the year ended May 31, 2009.

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, 2008.

2. NATURE OF BUSINESS

Fuego Entertainment, Inc. (the “Company”,”Fuego”.”we”,”our” or “us”) was formed on December 30, 2004 as a Florida corporation and 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. We also provide management, marketing, and public relations services to the entertainment industry.  In January, 2008 Fuego announced it formed a new music division, Echo-Fuego Music Group, LLC, in a joint venture with legendary music producer and promoter Jeffrey Collins. His music catalog of more than 2,000 tracks and 15 artists previously under the Echo-Vista label will be merged into the new joint venture, with a majority stake owned by Fuego. During the year ended May 31, 2008 the majority of revenues earned were earned from the sale of musical tracks and advertising revenue on our website www.fuegoentertainment.net.

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. Our ability to continue in existence is dependent on its ability to develop additional sources of capital, or achieve profitable operations. We sustained significant losses in the last two years and we have deficits in working capital, however we were profitable in current period. Our financial position at that date and presently is of great concern to us and our investors, however, management’s plan is to obtain additional capital and to continue to develop, market and distribute musical tracks through Fuego and its joint venture, Echo-Fuego Music Group, LLC. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

8

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended February 28, 2009 and 2008

4. RELATED PARTY TRANSACTIONS

· Ciocan is an entertainment company owned by our President/CEO that creates products for the Latino Market worldwide and anticipates using us to market, promote and commercialize some of its products (music, films, documentaries, artist, etc) for the Anglo and international markets. During the current period, Ciocan did not advance any funds. In addition, Ciocan did not earn any music royalties in the current period. The amount owed for royalties to Ciocan as of February 28, 2009 was $40,798.

· Our President/CEO is owed $113,394 on a net consolidated basis as of February 28, 2009 for cash advances to the company for a variety of general and administrative expenses and the development of TV station programming. During the current quarter he advanced $25,359 and was repaid $9,161. No interest was paid on this date which accrues at 15 percent per annum and is payable on June 1, 2009. Accrued interest totaled $31,758 as of February 28, 2009.  In January 2009 the Company reached an agreement with our President and CEO to cancel indebtedness to him in the amount of $110,000 in exchange for the transfer of 110,000 Beverage Plus AG shares held by us.

· Fees incurred in the nine month period ended February 28, 2009 for a related party accounting firm totaled $15,204. The accounting firm received 100,000 options in payment of certain outstanding invoices for accounting, tax and financial statement preparation services.  The amount owed to the firm as of February 28, 2009 was $34,145.

· As part of the Echo-Fuego Music Group, LLC joint venture with music producer and promoter Jeffrey Collins, there was an initial amount owed in January 2008 was $100,000. Jeffrey Collins received 100,000 shares as a partial payment on the outstanding balance.  The amount owed to the Jeffrey Collins as of February 28, 2009 was $28,119.

6. CONTRIBUTED CAPITAL

For the three months ended February 28, 2009, the President contributed a total of $18,300 consisting of $13,500 for the value of services, and $4,800 for the rent of corporate office facilities.

7.  ISSUANCE OF RESTRICTED COMMON STOCK

In the current quarter, we issued no restricted shares of our common stock. In the nine months ending February 28, 2009, principally in connection with our efforts to obtain additional capital to sustain our business, the following restricted stock was issued. Restricted shares of stock consisted of 444,166 issued to an various individuals for services rendered. In addition, Jeffrey Collins, was issued 100,000 shares in partial payment of an outstanding balance.

During the quarter ended November 30, 2008, we issued 80,000 shares of our common stock for cash at $0.085 per share. These shares were purchased by our related party Securities attorney.

In addition to the shares issued above, we also issued our President 275,000 shares of our common stock in partial payment of our debt owed to him. We also issued 180,000 shares of our common stock to vendors in satisfaction of their outstanding balances.

We also cancelled 25,000 shares of our common stock that was issued originally to a director that could not serve their entire term of office.

9

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended February 28, 2009 and 2008

8.  OTHER

The Beatles

On January 10, 2008 Fuego and Jeffrey Collins (Echo Vista, Inc.) through Echo-Fuego Music Group, LLC announced plans to sell the eight “lost” Beatles’ club recordings. Apple Corps Limited, representing the Beatles, was seeking to have Fuego remove any information about the planned release from Fuego’s website, was requiring Fuego to cease any use of the trademark, The Beatles, for commercial purposes, and was also seeking $15 million in the lawsuit filed against Fuego, Echo-Fuego Music Group, LLC, Hugo Cancio and Jeffrey Collins.

On April 4, 2008, Apple Corps Limited and Fuego struck an injunction agreement approved by a Miami U.S. District Judge that requires Fuego to halt plans to release the eight song recordings. On May 16, 2008, Fuego Entertainment filed a motion to dismiss the lawsuit brought by Apple Corps Limited and Apple Records, Inc. as a matter of law.  In the motion to dismiss Fuego Entertainment asserted that as a matter of law Fuego has the right to commercially exploit the 15 “Lost” 1962 Beatles recordings.

On October 15, 2008 Fuego Entertainment entered into a private settlement agreement with Apple Corps Limited and Apple Records, Inc. (representing The Beatles) which resolves the lawsuit against Fuego Entertainment and others to the parties' mutual satisfaction.  Fuego has agreed not to release, distribute, sell or otherwise exploit any recordings containing The Beatles performances from the Star Club in Hamburg, Germany in 1962.

Stock Option Plan

We have issued restricted shares of common stock and stock options to compensate non-employees who were principally key personnel.  Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, Share-Based Payments ("SFAS No. 123(R)"), which is a revision of SFAS No. 123 which requires that stock awards granted to directors, consultants and other non-employees be recorded at the fair value of the award at grant date .

On February 5, 2008, we registered the “2008 Stock Option Plan of Fuego Entertainment, Inc.” The purpose of this Plan is to strengthen Fuego Entertainment, Inc. (hereinafter the “Company”) by providing incentive stock options as a means to attract, retain and motivate key corporate personnel, through ownership of stock of the Company, and to attract individuals of outstanding ability to render services to and enter the employment of the Company or its subsidiaries. There shall be two types of Stock Options that may be granted under this Plan: (1) Options intended to qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code (“Qualified Stock Options”), and 2) Options not specifically authorized or qualified for favorable income tax treatment under the Internal Revenue Code (“Non-Qualified Stock Options”).

During the year ended May 31, 2008, the estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 3 years, a risk free interest rate of 3.30%, a dividend yield of 0% and volatility of 137%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services was $226,727.

For three months ended August 31, 2008, various stock option agreements have been canceled for various reasons, mainly that the recipients did not serve a full year as members of our Board of Directors, thereby as stipulated in our stock option agreement management at its own discretion canceled those stock option agreements and recorded as other income, Gain on Cancellation of Compensation Options for $ 137,500.

10

FUEGO ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended February 28, 2009 and 2008

9. SUBSEQUENT EVENTS

Related Party Transactions

 In March 2009, the Company reached an agreement with our President and CEO to cancel indebtedness to him in the amount of $62,500 in exchange for the transfer of 50,000 Beverage Plus AG shares held by us.

Payment of Accounts Payable Debt

In April 2009, we reached an agreement with our independent auditors for a settlement of the debt owed to them for $31,250 or 25,000 shares of Beverage Plus AG owned by us, in exchange for the cancellation of our debt owed to them. We also in April 2009, reached an agreement with an accounting firm for payment of certain outstanding invoices for accounting and financial statement preparation services. The firm received 1,800 shares of Beverage Plus AG owned by us, valued at $2,250.

Lawsuit Judgment

On April 1, 2009, we received a final default judgment against Fuego Entertainment and Echo-Fuego Entertainment from a suit brought by the attorneys that represented us in the above referenced suit in Note 8, Beatles. The judgment was for amounts owed to them for the case settled in Note 8, Beatles for $92,740, plus attorney fees of $1,194 and costs of $471 for a total of $94,405. Please see note below for further information.

Settlement Negotiations

As the result of the unexpected litigation with Apple Corporation (as referenced in Note 8, Beatles) the music catalog acquired by Fuego from Echo-Fuego, our affiliate, we have decided to revoke Jeffrey Collins’ rights to the one hundred thousand shares issued to him as partial payment of the debt owed by us. We are also in negotiations to cancel the remaining debt to Mr. Collins. As per our agreement, Mr. Collins is liable for any third party claims as a result of the acquisition of his music catalog by us. We are therefore negotiating a settlement that Mr. Collins will also assume responsibility for all legal fees incurred by Echo-Fuego and Fuego Entertainment as the result of this litigation.

11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide an analysis of the Company’s financial condition and Plan of Operation and should be read in conjunction with the Company’s financial statements and the notes thereto set forth herein. The matters discussed in this section that is not historical or current facts deal with potential future circumstances and developments. The Company’s actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below.

Plan of Operation

We have been in operation since December 30, 2004. Our efforts have largely been to generate cash flows from operations and cash flow from the sales of our common shares. The majority of these cash flows were applied towards, production costs, and the investment in a series of shows, including Havana Nights.

Since inception, we have sold music CD’s representing the majority of our music revenue. In the prior fiscal year we created a music business segment named Fuego Entertainment Music International (FEMI) the purpose of which is to sell our music content under this name. Our current main priority is the marketing, distribution and sale of our music catalog.

Since launching FEMI, and lauching our joint venture Echo-Fuego we expanded our music and video catalog, by signing new artists, and acquiring music masters containing over 3,800 music tracks. We have also expanded our marketing and distribution capabilities and enhanced sales in the process.  

We executed a new deal with The Orchard (ORCD - News), a global leader in digital music and entertainment, to add more than 1.1 million tracks from The Orchard's catalog to the digital download store www.FuegoMio.com. The addition of The Orchard music catalog, which includes one of the largest and best Latin music offerings available, will increase the total tracks available for sale on the Fuego music store to about 2.5 million tracks. In addition to the hundreds of thousands of songs spanning nearly every genre, The Orchard will deliver a diverse offering of Latin artist tracks by the likes of Daddy Yankee, Joan Sebastian, Hector Lavoe, Antonio Aguilar, Willie Colon, Cuisillos, Ivy Queen.

We  executed an agreement with IODA, the global leader in digital distribution, marketing, and technology solutions for the independent music and film industry, the Company will be adding more than one million music tracks and over two thousand video and film titles to our FuegoMio.com music and video retail store. The addition of more than one million music tracks and over two thousand video and film titles from IODA is an important step in Fuego Entertainment's commitment to becoming one of the largest music and video digital retail stores. Through Fuego's new digital retail music store, www.FuegoMio.com, the Company will be providing high quality digital audio content. As IODA continues to grow its music, film and video catalogs, it is expected that Fuego will continue to receive new releases.

We also executed an agreement with UK digital distributor Vidzone.  Most recently we executed a publishing agreement with Ediciones Musicales Clippers. On March 1, 2007 we retained 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.

Sales Strategy

We leverage our relationships in traditional channels of distribution for retail and other media outlets to sell its content. Additionally, the Company is actively developing new media distribution outlets by launching digital distribution of music and video content through agreements with The Orchard, IODA, Koch Entertainment and VidZone. Various radio stations, television producers, newspaper editors, and other traditional media is regularly informed on Fuego’s activities to push other avenues for sales growth.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Digital distribution has become the focus of Fuego’s sales strategy, utilizing the Internet instead of bricks and mortars to compete for music sales. We have finalized our our digital encoding process of our  music, film and video catalog. All of our music, and film catalog is now available for digital distribution In aggregating content, Fuego currently has agreements with three major distributors, Koch Entertainment LP (“Koch”), The Orchard Enterprises, Inc. (“The Orchard”), and Independent Online Distribution Alliance, Inc. (“IODA”). The Orchard (NASDAQ: ORCD) currently distributes to the iTunes Store, which as of April 3, 2008, surpassed Wal-Mart to become the number one music retailer in the US based on the latest data from the NPD Group. With over 50 million customers, iTunes has sold over four billion songs and features the world’s largest music catalog of over six million songs. Fuego intends to follow the same operating model of the iTunes Store by focusing on Latin customer demographics.

Target Markets

We offer our media and entertainment products with a Latin flair in the English language, gaining a crossover into English-speaking markets with a focus on the Hispanic/Latin market.

We have focused on the creation and development of our four filming projects. Three of the four projects are documentaries titled One Million Millionaires, Gold in Ecuador and Counterfeit Conspiracy. The fourth project is a reality television series titled The Trader. Our four filming projects, all in the development stage, cost $45,509 as of February 28, 2009.  The work in progress includes script development, principal photography, sound engineering, personnel, such as a cameraman, producer and assistant producer, location permits, filming insurance, equipment rental travel and hotel accommodations and crew meals. No general and administrative costs were capitalized.

Operating expenses for the nine months ended February 28, 2009 were principally for selling, general and administrative expenses, the major components of which were stock based compensation costs of$48,766, and audit and accounting fees of $41,066.

In general, our filming projects are in final stages of development. We have no plans to engage in any more in house productions until we have completed the four current projects that we have undertaken to complete, thereby reducing the possibility of incurring further significant costs. Until our in process production filming projects are completed, we believe we can sustain our cash flows through sales of our music, television and film content, publishing revenues and work for hire such as the sale of corporate videos, from consulting services, and from the sale of our common stock should our expected cash flows in the next 12 months require it.  However, there is no guarantee that our cash flow requirements will exceed the amount of funds received from the sale of securities or the cash flow generated from our current operation activities.

Our minimum expected cash flows to continue our current level of operations during the next 12 months is approximately $375,000 , however up to $ 500,000 would be needed to pursue our goals during that period. These additional funds would be needed to license products from other parties and properly market, promote and distribute them, including our own projects presently in process. To date our revenues have been largely generated from sales of our music content. If the additional $375,000 , is not raised, we may be unable to continue operations.

We previously entered into a 10-year licensing agreement with Ciocan for their music library catalogue. This library consists of 33 finished albums (over 300 tracks) by 8 different artists who are exclusively recording with Ciocan for the release of other future projects. Ciocan has marketed the catalogue to the Latin market, but we plan to penetrate the non-Hispanic markets and develop the current marketing efforts within the Latin base. We plan to develop live productions for artists we intend to sign. The agreement to license Ciocan's music requires us to pay a royalty of 25% of the net sales proceeds quarterly from sales.   

The President and CEO of the Company own 100% of the rights to a popular film he owns and produced in Cuba called Zafiros Lucura Azul (Sapphire Blue Maddness).  This film has never been distributed or commercialized. We acquired from Mr. Hugo Cancio the right to market, promote, and distribute the film in all formats: Theatrical release, Television, cable, DVD. This is part of a 10 year licensing agreement in which Fuego Entertainment will keep 75% of the net revenues generated. There was no payment of any kind involved in the transaction.  We will account for all sales and costs on a gross basisfor the above agreements in accordance with the criteria set forth in Emerging Issues Task Force Abstract Issue No. 99-19, since we will be responsible for all production and distribution costs and expenses, and have full discretion in selecting suppliers and product specifications. If there are no net proceeds after one year, all rights revert to the producer.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Additional sources of income may include projects where we will also act as an agent and contract organization for certain entertainment projects. These services may include marketing, distribution, principal photography, development, pre- and post-production, introductory services, and many others that are within our realm of expertise. To date, we currently do not have any agreements or projects whereby we act as an agent.

In the past few month we have branched out into the production of live music events. Our goal is  utilize our relationships our recording artist to also produce our live music events. We believe have access to the artist recordings, marketing, distributing their recording and producing their live acts will be a great opportunity to expose our products and create a new source of revenues. We have scheduled over 12 live music events during the next coming months. These events will include some of Cuba’s most popular artist  which we hope to obtain visas and working permits permissable.  In order to fully achieve our plans, we require additional capital of$ 500,000. We have applied for visas for several Cuban music groups and we are currently awating final approvals.

Fuego has an arrangement with Tota Productions, a music and video production company located in Torino, Italy, that produces Spanish Hip Hop and Pop artists from Europe.  Under the arrangement we obtained the ownership of over 300 CD masters and supporting data with which to market the library.  

.We have generated revenues from sales of our music, television and film content, publishing revenues and work for hire such as the production of corporate videos and consulting services. It is our intention to continue offering these services as they incur no material costs or expenses by the Company, as they are mostly borne by the clients.  Our efforts are provided by Mr. Cancio whose compensation has been and will continue to be contributed to the Company until we reach profitable ongoing operations. We have also generated revenues by providing consulting services to companies that are in need of reaching the US Hispanic/ Latino Markets with their products or services. Consulting services do not incur material costs or expenses since such services are provided solely by Mr. Cancio. We will continue seeking these consulting activities in order to generate revenues.

Cuba: The releationship between the US and Cuba since to going into a new direction to where certain restriction have been lifted by the Barack Obama administration. The president of the company has excellent relations with individuals within Cuba and we currently exploring opportunites in Cuba in the travel related field, arts and entertainment.

Results of Operations for the Three Month and Nine Month Periods ended February 28, 2009, Compared to prior year periods ended February 29, 2008

Revenues and Cost of Filming and Music

The Company's major revenue source has shifted from filming based to music based. As a result, in the prior year ended May 31, 2007, filming revenue represented 80% of all revenues generated and music revenue producing projects had not yet been entered into. In the current year ended May 31, 2008 and nine months ended February 28, 2009, filming revenues represented  0% of total revenues. We earned a net revenue of $23,067 for the three months ended February 28, 2009 as compared to $259,767 for the three months ended February 29, 2008.  We earned a net  revenue of $17,477 for the nine months ended February 28, 2009 as compared to $271,718 for the nine months ended February 29, 2008.  The current direction of the Company is towards generating revenues from music sales and live concert events.

Operating Expenses

The current year's operating activities were more involved since they included the stock based compensation. For the three month period ended February 28, 2009 we incurred $-0- of stock-based compensation as compared to $50,354 for the three month period ended February 29, 2008.  We incurred $48,766 in stock-based compensation for the nine month period ended February 28, 2009 and $181,029 for the nine month period ended February 29, 2008.  However it should be noted that the stock based compensation of $137,500 reported for 2007 was later recaptured as income for services not rendered by certain directors. Other selling, general and administrative expenses were $45,974 for the three month period ended February 28, 2009 as compared to $79,400 for the three month period ended February 29, 2008.  We incurred $216,827 for the nine month period ended February 28, 2009 as compared to $234,184 for the nine month period ended February 29, 2008. Other selling, general and administrative expenses of the current year were in line with the level of expenses incurred in the prior year.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Liquidity and Capital Resources

The Company has a deficit in working capital at year end, and is past due on the majority of its accounts payable. It has no line of credit or other outside financing sources presently to enable it to finance exist operations, and is dependent on its music sales and the occasional planned sales of its investment in securities in Beverage Plus AG for current cash flows. Beverage Plus has applied for a public company listing on a significant German stock exchange and awaits a response sometime in early May, 2009.  Beverage Plus has also secured retail distribution in several thousand locations in the USA with an intent to sell the Beverage Plus products throughout the U.S. in up to 10,000 retail locations.  Beverage Plus AG has been assigned the trading symbol 1bi and the  German WKN number of A0NJNV (note the zero after the A). Accordingly, it is presently seeking financing to continue in existence. Up to the date of this report, the Company is primarily dependent on its President/CEO for all revenue generating opportunities as well as on-going cash flow requirements.

Material Commitments

We have no material commitments as at the date of this registration statement.

Purchase of Significant Equipment

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

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R, Share Based Payments. SFAS 123R is applicable to transactions in which an entity exchanges its equity instruments for goods and services. It focuses primarily on transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R supersedes the intrinsic value method prescribed by APB No. 25, requiring that the fair value of such equity instruments be recorded as an expense as services are performed. Prior to SFAS 123R, only certain pro forma disclosures of accounting for these transactions at fair value were required. SFAS 123R will be effective for the first quarter 2006 financial statements, and permits varying transition methods including retroactive adjustment of prior periods or prospective application beginning in 2006. The Company adopted SFAS 123R using the modified prospective method effective January 1, 2006. Under this transition method the Company will begin recording stock option expense prospectively, beginning with that date.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4T. 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 is 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by 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 and Principal Financial Officer. Based upon that evaluation, he concluded that our disclosure controls and procedures were ineffective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.

There were no changes in internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.  We also note the incorrect characterization of production costs in our statement of cash flows that resulted in a material change to cash flows from operating and investing activities.

In connection with the development of a leased TV channel in Puerto Rico, the Company shared in paying for certain expenses including travel, lodging and meals for its President, in connection with the pursuit of available TV programming in that area. There was inadequate documentation to support the allocation of such expenses between the Company and the TV station owned by the Company’s president. In addition there were no signed agreements between the Company and the personnel retained to perform services in connection with obtaining TV programming which should disclose as a minimum, the nature of the services to be rendered, the amount of periodic compensation being paid and the term of the services.

The lack of support concerning the above matters was considered to be a material weakness in internal control, which weakness commenced during the entire period from inception of the Company as to the first matter and the last quarter of the fiscal year ended May 31, 2008, as to the second matter.

The President of the Company has since required documentation for all disbursements, has recorded in a journal the information necessary to allocate amounts among entities, and will obtain written agreements for all services to be provided to the Company.

Changes in Internal Controls

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Other than what is disclosed in this section, we were not a party to any legal proceedings during the reporting period, and we know of no legal proceedings pending or threatened or judgments entered against any director or officer of the Company in their capacity as such.

In the matter of the Miami case of Apple Corp Vs. Hugo Cancio and Fuego Entertainment, We entered into a private settlement agreement with Apple Corps Limited and Apple Records, Inc. (representing The Beatles) which resolves the lawsuit against Fuego Entertainment and others to the parties' mutual satisfaction.  Fuego has agreed not to release, distribute, sell or otherwise exploit any recordings containing The Beatles performances from the Star Club in Hamburg, Germany in 1962.

In the matter of the lawsuit filed by, Genovesse, Joblove and Battista as the result of a billing dispute over the final legal bill . On March, 31 2009 A final default judgment was entered against Fuego Entertainment, Inc  in the amount of $94,404.95 in favor of the legal firm Genovese, Joblove and Batista. Fuego has engaged a new attorney to continue our legal argument.Fuego herein disputes the amount in questions and intends to defend the company further.

In the matter of Fuego Entertainment, Inc Vs. Var Growth Corporation and Barry Davis and Ice Cold Stocks, Fuego filed a lawsuit against this individuals for money damages and for injunctive relief as to shares issued to the Defendants but allegedly not earned. In July, 2008, the case was settled out of court via private agreement and the lawsuit dismissed. Fuego agreed to drop all legal action against Var Growth. Var Growth retained 400,000 shares of Fuego stock and Var Growth returned 475,000 shares of Fuego stock.

In the Nevada case in the matter of Fuego Entertainment, Inc Vs. Nicole Durr and Viashow Inc., Fuego filed a lawsuit against these organizations and individuals associated with an allegation that the Defendants failed to pay necessary royalties to Fuego and that the Defendants failed to conduct a full five-city schedule of the Havana Night Club show. The show originally appeared in Miami, FL and was scheduled to appear in New York, New Jersey, Chicago, Dallas, Houston and or California. The Defendants failed to run any of these shows. The case is not yet set for a hearing. The parties entered into initial settlement negotiations. There is no resolution of the case as of the date of this filing. In the past two months we have amended our complaint and file a motion for mediation and motion for deposition of Nicole N Durr.

Item 1A. Risk Factors.

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

	Fuego Entertainment, Inc.
Date: April 20, 2009	By:	/s/  Hugo M. Cancio
		Hugo M. Cancio
		Title: Principal Executive Officer

Date: April 20, 2009	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: April 20, 2009	By:	/s/  Hugo M. Cancio
		Hugo M. Cancio
		Title: Director

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