As Filed with the Securities and Exchange Commission on August 19, 2005
Registration No. 333-127612
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
First Amendment
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FUEGO ENTERTAINMENT, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Nevada 7900 20-2078925
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
19250 NW 89th Court
Miami, FL 33018
(305) 829-3777
(ADDRESS AND TELEPHONE NUMBER OF
PRINCIPAL
EXECUTIVE OFFICES)
HUGO M. CANCIO, CHIEF EXECUTIVE OFFICER
19250 NW 89th Court
Miami, FL 33018
(305) 829-3777
(NAME, ADDRESS AND TELEPHONE
NUMBER OF
AGENT FOR SERVICE)
COPIES TO:
THE O'NEAL LAW FIRM, P.C.
Attention: William D. O'Neal, Esq.
17100 E. Shea Boulevard
Suite 400-D
Fountain Hills, Arizona 85268
Tel:(480) 812-5058
Fax: (480) 816-9241
Approximate date of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] If delivery of the prospectus
is expected to be made pursuant to Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of Securities to be Amount to be Proposed maximum offering Proposed maximum aggregate Amount of
Registered (1) registered price per share (3) offering registration
price (US $) Fee (2)
- ------------------------------------------------------------------------------------------------------------------------
Common stock to be Offered 12,534,647 $0.25 $3,133,661.70 368.83
for resale by selling
stockholders
(1) In the event of a stock split, stock dividend, or similar transaction
involving our common stock, the number of shares registered shall
automatically be increased to cover the additional shares of common stock
issuable pursuant to Rule 416 under the Securities Act of 1933, as amended.
(2) Fee calculated in accordance with Rule 457(c) of the Securities Act.
Estimated for the sole purpose of calculating the registration fee.
(3) Fixed offering price was set by the selling shareholders until securities
are quoted on the OTC Bulletin Board or other national exchange, and
thereafter at prevailing market prices or privately negotiated prices.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 15, 2005
FUEGO ENTERTAINMENT, INC.
A NEVADA CORPORATION
RELATING TO THE RESALE OF UP TO 12,534,647 SHARES OF
FUEGO ENTERTAINMENT, INC. COMMON STOCK
The prospectus and the registration statement, of which it is a part, are being
filed with the SEC to satisfy our obligations to the recipients of certain
shares of common stock (the "Selling Shareholders") of Fuego Entertainment, Inc.
Accordingly, the prospectus and the registration statement cover the resale by
certain Selling Shareholders of 12,534,647 shares of our common stock which were
issued from January, 2005, to July, 2005, in connection with private placements;
There is currently no public market for our shares.
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The sales price to the public was set by the selling shareholders at $0.25 per
share for a total of $3,133,661.70. The price of $0.25 per share is a fixed
price until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 15, 2005.
The following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
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TABLE OF CONTENTS
PAGE NUMBER
PROSPECTUS SUMMARY ........................................................ 6
RISK FACTORS .............................................................. 8
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
RISKS RELATING TO OUR BUSINESS
FORWARD-LOOKING STATEMENTS ............................................... 11
USE OF PROCEEDS .......................................................... 12
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................. 12
DIVIDEND POLICY .......................................................... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS ..................................... 12
DESCRIPTION OF BUSINESS .................................................. 16
LEGAL PROCEEDINGS ........................................................ 22
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ............. 23
EXECUTIVE COMPENSATION ................................................... 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................... 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........... 25
DESCRIPTION OF COMMON STOCK .............................................. 25
PLAN OF DISTRIBUTION ..................................................... 25
SELLING SHAREHOLDERS ..................................................... 27
LEGAL MATTERS ............................................................ 30
TRANSFER AGENT ........................................................... 30
EXPERTS .................................................................. 30
INTEREST OF NAMED EXPERTS ................................................ 30
DISCLOSURE OF SEC POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES ....................................................... 30
WHERE YOU CAN FIND MORE INFORMATION ...................................... 30
FINANCIAL INFORMATION .................................................... 32
INDEMNIFICATION OF DIRECTORS AND OFFICERS ................................ 43
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION .............................. 44
RECENT SALES OF UNREGISTERED SECURITIES .................................. 45
EXHIBITS ................................................................. 45
UNDERTAKINGS ............................................................. 45
SIGNATURES ............................................................... 46
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ABOUT THIS PROSPECTUS
This prospectus is part of a resale registration statement. The selling
shareholders ("Selling Shareholders") may sell some or all of their shares in
transactions from time to time.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone else to provide you with
different information. If anyone provides you with different information, you
should not rely upon it. You should assume that the information appearing in
this prospectus, as well as the information we file with the Securities and
Exchange Commission ("SEC") and incorporate by reference in this prospectus is
accurate only as of the date of the documents containing the information. As
used in this prospectus, the terms "we", "us", "our", the "Company", and "Fuego
Entertainment, Inc." All dollar amounts refer to United States dollars unless
otherwise indicated.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements.
GENERAL
Fuego Entertainment, Inc. was originally incorporated under the laws of the
State of Nevada on December 30, 2004 as" Durango Entertainment, Inc.". On
February 15, 2005, we filed a Certificate of Amendment with the State of Nevada
changing our name to "Fuego Entertainment, Inc." Our executive offices are
located at 19250 NW 89th Court, Miami, Florida 33018, and our telephone number
is (305) 829-3777.
OUR BUSINESS
We are engaged in the business of 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
THE OFFERING
The prospectus and the registration statement, of which it is a part, are being
filed with the SEC to satisfy our obligations to the recipients of certain
shares of common stock (the "Selling Shareholders") of Fuego Entertainment, Inc.
Accordingly, the prospectus and the registration statement cover the resale by
certain Selling Shareholders of 12,534,647 shares of our common stock which were
issued from January, 2005, through July, 2005, in connection with private
placements.
The sales price to the public was set by the selling shareholders at $0.25 per
share for a total of $3,133,661.70. The price of $0.25 per share is a fixed
price until the shares are listed on the OTC Bulletin Board or other national
exchange, and thereafter at prevailing market prices or privately negotiated
prices. See "Plan of Distribution" on page 25 for a further description of how
the Selling Shareholders may dispose of the shares covered by this prospectus.
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PROSPECTUS SUMMARY - continued
NUMBER OF SHARES OUTSTANDING
There were 37,034,647 shares of our common stock issued and outstanding at July
31, 2005.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our
common stock being offered for sale by the Selling Shareholders. We will incur
all costs associated with this prospectus and related registration statement.
SUMMARY OF FINANCIAL INFORMATION
The following summary financial information for the periods stated summarizes
certain information from our financial statements included elsewhere in this
prospectus. You should read this information in conjunction with Management's
Plan of Operations and the financial statements and the related notes thereto
included elsewhere in this prospectus.
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December 30, 2004
Income Statement (inception)
To May 31, 2005
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Revenues $125,128
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Net Income (Loss) $ 39,489
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Net Income (Loss per Share) *
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Balance Sheet
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Total Current Assets $ 29,239
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Total Current Liabilities $ 43,310
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Shareholders' Equity $ 98,820
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* = less than $0.01 per share
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RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this prospectus in evaluating our company and its
business before purchasing shares of our common stock. Our business, operating
results and financial condition could be seriously harmed due to any of the
following risks. The risks described below are all of the material risks that we
are currently aware of that are facing our company. You could lose all or part
of your investment due to any of these risks.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY THE SELLING STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE
ON THE PRICE OF OUR COMMON STOCK AND COULD AFFECT THE ABILITY OF OUR
STOCKHOLDERS TO REALIZE THE CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
could cause a reduction in the market price of our common stock. We had
37,034,647 shares of common stock issued and outstanding as of July 31, 2005.
When this registration statement is declared effective, the Selling Stockholders
will be able to resell up to 12,534,647 shares of our common stock. As a result,
a substantial number of our shares of common stock may be issued and may be
available for immediate resale, which could have an adverse effect on the price
of our common stock. As a result of any such decreases in price of our common
stock, purchasers who acquire shares from the Selling Stockholders may lose some
or all of their investment.
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
In considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance. Our inception was December
30, 2004 and, as a result, we have a limited operating history.
WE MAY REQUIRE ADDITIONAL FUNDING IN THE FUTURE.
Our current plans require us to make capital expenditures to acquire, produce,
market and distribute entertainment content in the motion picture and music
industries. To date, we have funded our operations through the issuance of
equity and current revenues, but there can be no assurance that we may not
require additional financing in the future to implement our plan of operation .
We may not be able to obtain additional financing on favorable terms, if at all.
Our future cash flows and the availability of financing will be subject to a
number of variables. Further, debt financing, if utilized, could lead to a
diversion of cash flow to satisfy debt-servicing obligations and create
restrictions on business operations. If we are unable to raise additional funds,
it would have a material adverse effect upon our operations.
We may experience difficulty in acquiring talent and suffer fluctuations in
operating results.
The prerecorded music, like other creative industries, involves a substantial
degree of risk. Each recording is an individual artistic work, and its
commercial success is primarily determined by unpredictable and constantly
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RISK FACTORS - continued
changing consumer taste. Accordingly, we are unable to offer any assurance as to
the financial success of any of our proposed records or the popularity of any of
our artists. Nor can we offer any assurance that we will be successful in
developing any new artists. In addition, there can be no assurance that any of
our artists will not request a release from his or her agreement with us.
Because of the highly personal and creative nature of our contractual
relationship with our artists, it is not feasible to force an unwilling artists
to perform the terms of his or her contract. The loss of an artist could have a
materially adverse effect on our business.
We may suffer infringement of our copyrighted materials.
Infringement of our copyrights, in the form of unauthorized reproduction and
sale of our musical entertainment products, including artists' recordings, may
occur. If we achieve significant commercial success with one or more of our
musical entertainment products or recordings, such products or recordings could
be a target of "pirating" -- copying and sale in violation of our copyrights in
such products or recordings. It is impossible to estimate the potential loss in
sales that could result from illegal copying and sales of our products or
recordings. We intend to enforce against unlawful infringement all copyrights
owned by or licensed to it which are material to our business. There can be no
assurance, however, that we will be successful in protecting such copyrights.
We may be adversely affected by continuing changes in the recording industry as
well as our dependence upon attracting recording artists.
Our ability to succeed will be affected by, among other things, changes in
consumer tastes, national, regional and local economic conditions, demographic
trends and the type and number of competing recording. Since each project is an
individual artistic work and its commercial success is primarily determined by
unpredictable audience reaction, we can offer no assurance as to the economic
success of any of our proposed records or CD's. Even if one of our records or
CD's is an artistic success or recognized favorably by critics, we cannot offer
any assurance that it will generate sufficient audience acceptance. In addition,
we expect to be dependent upon our ability to attract recording artists.
Competition for such persons, especially in the recording industry, is intense.
Although Mr.Cancio has had past success in contracting recording artists with
the requisite skills and experience, we cannot offer any assurance that we will
be able to repeat this success.
THE ENTERTAINMENT INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT
WE WILL BE SUCCESSFUL.
The markets for recorded music are highly competitive. We believe that
competition will intensify and increase in the future. Our competitors include
other major, mini-major and independent recording companies. Since we are
recently formed, have a limited history of business operations and have not
previously raised significant capital, virtually all of these competitors enjoy
substantial competitive advantages, such as:
o existing products and experience in the marketplace;
o greater name recognition and larger marketing budgets and resources;
o established marketing and customer relationships; and
o substantially greater financial, technical and other resources.
As a result, these competitors may be able to respond more quickly and
effectively than we can to new or changing opportunities, technologies or
customer requirements. Existing or future competitors may develop or offer
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RISK FACTORS - continued
products that provide price or other advantages over those we intend to offer.
If we fail to compete successfully against current or future competitors with
respect to these or other factors, its business, financial condition, and
results of operations may be materially and adversely affected.
WE MAY BE UNABLE TO RETAIN KEY EMPLOYEES OR CONSULTANTS OR RECRUIT ADDITIONAL
QUALIFIED PERSONNEL.
Our extremely limited personnel means that we would be required to spend
significant sums of money to locate and train new employees in the event any of
our employees resign or terminate their employment with us for any reason. Due
to our limited operating history and financial resources, we are entirely
dependent on the continued service of our sole officer and director, Hugo M.
Cancio. Further, we do not have key man life insurance on Mr. Cancio. We may not
have the financial resources to hire a replacement if Mr. Cancio were to die,
become disabled or otherwise would not be able to continue to carry out his
duties. The loss of service of Mr. Cancio could therefore significantly and
adversely affect our operations.
OUR SOLE OFFICER AND DIRECTOR MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Our sole officer and director serves only part time and are subject to conflicts
of interest. Mr. Cancio devotes part of his working time to other business
endeavors and has responsibilities to other entities. Such conflicts include
deciding how much time to devote to our affairs, as well as what business
opportunities should be presented to the company. Because of these
relationships, Mr. Cancio will be subject to conflicts of interest. Currently,
we have no policy in place to resolve any such conflicts of interest.
ADDITIONAL ISSUANCES OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR EXISTING
STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of 75,000,000 shares of
common stock. Common stock is our only authorized class of stock. The board of
directors has the authority to issue additional shares of our capital stock to
provide additional financing in the future and the issuance of any such shares
may result in a reduction of the book value or market price of the outstanding
shares of our common stock. If we do issue any such additional shares, such
issuance also will cause a reduction in the proportionate ownership and voting
power of all other stockholders. As a result of such dilution, if you acquire
shares of our common stock from the Selling Shareholders, your proportionate
ownership interest and voting power will be decreased accordingly. Further, any
such issuance could result in a change of control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH LIMITS
THE MARKET FOR OUR COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
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RISK FACTORS - continued
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their shares.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTORS FROM
CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officers and directors will not be liable to us or
our stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," as that term is used in
federal securities laws, about our financial condition, results of operations
and business. These statements include, among others:
o statements concerning the benefits that we expect will result from our
business activities and certain transactions that we have completed, such as
increased revenues, decreased expenses and avoided expenses and expenditures;
and
o statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this document or may be incorporated
by reference to documents that we will file with the SEC. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions used in this prospectus. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors", that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. We caution you not to put undue reliance on
these statements, which speak only as of the date of this Prospectus. Further,
the information contained in this prospectus or incorporated herein by reference
is a statement of our present intention and is based on present facts and
assumptions, and may change at any time and without notice, based on changes in
such facts or assumptions.
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FORWARD-LOOKING STATEMENTS - continued
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results. The safe harbor for forward-looking statements provided in the Private
Securities Litigation Reform Act of 1995 does not apply to the offering made in
this prospectus.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the account
of the Selling Shareholders named in this prospectus. As a result, all proceeds
from the sales of the common stock will go to the Selling Shareholders and we
will not receive any proceeds from the resale of the common stock by the selling
stockholders. . We will, however, incur all costs associated with this
prospectus and related registration statement.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is not listed on any exchange and there is no public trading
market for the common stock.
As of July 31, 2005, we had 38 shareholders of record.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have no equity compensation plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with our consolidated
audited financial statements and the related notes that appear elsewhere in this
registration statement. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this registration statement,
particularly in the section entitled "Risk Factors" beginning on page 8 of this
registration statement. Our consolidated audited financial statements are stated
in United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
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MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
PLAN OF OPERATION
Fuego Entertainment, Inc. 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.
FILMED ENTERTAINMENT
We are currently producing three (3) documentaries and developing a reality
show. In the field of filmed entertainment (feature films and television shows),
we are actively seeking opportunities to negotiate the licensing or purchase of
existing projects that are in various phases of their lifecycle, including
development, pre-production, principal photography and post production. We will
also create filmed products for customers on a "for hire" basis.
We also intend to utilize our extensive network of contacts to gain access to
quality product by established industry participants. By avoiding cost overruns
and fixed overhead charges in our current stage of operations, we engage
third-party participants to fulfill the execution ofour projects, from camera
crews to editing facilities. We further intend to access various distributors
for penetration into the diverse windows of distribution, depending upon the
project's commercial viability and our marketing approach.
MUSIC ENTERTAINMENT
Over the next twelve (12) months, we intend to license the music library
catalogue of Ciocan Entertainment Music Group, L.L.C. ("Ciocan"). This library
consists of thirty-three (33) finished albums (over 300 single recorded tracks
of music) by eight (8) different artists who are under exclusive recording
contracts with Ciocan. Ciocan has successfully marketed its catalogue to the
Latin market, but we intend to target the non-Hispanic markets. We intend to
develop live productions for these artists to promote the visibility of the
licensed recordings among various cities and regions, both nationally and
internationally.
We currently manage our own music catalogue and will be seeking to develop
additional artists within the Latin genre to expand upon our own proprietary
content. We will accomplish this by developing new and existing talent,
networking with music producers to evaluate potential opportunities, and
expanding our distribution networks.
DISTRIBUTION
We have established an in-house and independent national and international
distribution capability to distribute our products. We further seek to associate
with a major distribution company to assist us expand our distribution
capabilities within the national and international markets.
OTHER SERVICES
We will also act as an agent and contract organization for certain entertainment
projects that are fully developed by third party producers. These services may
include marketing, distribution, principal photography, development, pre and
post production, and introductory services.
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MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
We do not expect to purchase any significant equipment or significantly increase
the number of our employees over the next twelve (12) months. Our current
strategy is to outsource where possible because it is management's belief that
this strategy, at our current level of development, gives us access to the best
services available, leads to lower overall costs, and provides us the most
flexibility for our business operations.
While we anticipate that we can fund our current operations out of our existing
cash flows, certain aspects of our business plan for the next twelve (12) months
may require additional funding. Such funds may be raised through equity and/or
debt financing, or through possible participation in various partnerships that
we may enter into over the next twelve (12) months. There is no assurance that
such financing will be available to us, or that such financing, if available,
will be upon terms acceptable to us.
FOR THE PERIOD FROM DECEMBER 30, 2004 (INCEPTION) TO MAY 31, 2005
Our net income for the period from inception to May 31, 2005 ( a 5 month period)
was $39,489, which provided net cash flows of $7,479, consisting of $82,856 from
operating activities, $37,925 from financing activities, less $113,302 applied
to investing activities.
The gross revenues for this period were from filming, $121,628, and $3,500 was
from publicist services for the first month of a 6 month contract. Direct costs
associated with filming revenues were $17,000.
Operating expenses, principally selling, general and administrative, included
compensation for officer of $15,000, legal and accounting of $5,848, rent of
$3,500, travel and entertainment of $16, 051, and the balance $11,095, office
overhead.
At May 31, 2005, our total current assets were $29,239, and our total current
liabilities were $43,310, resulting in a deficiency in working capital of
$14,071. We expect that working capital requirements will continue to be funded
through a combination of our existing funds, cash flow from operations and
further issuances of securities. Our working capital requirements are expected
to increase in line with the growth of our business.
Other assets at May 31, 2005, included production costs for four separate
projects totaling $50,432. Revenue received towards one project, amounting to
$4,691, was deferred until project completion and DVD's to be created there from
are delivered. The other significant asset was the investment of $57,400 in a
series of live entertainment shows from which the Company believes it will enjoy
substantial revenues at their conclusion, targeted in 2006.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended May 31, 2005, net cash flow used in operating activities
was $82,856.
During the period ended May 31, 2005, net cash flows used in investing
activities was $113,302.
During the fiscal year ended December 31, 2004, net cash flow from financing
activities was $37,925.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
At May 31, 2005, our total current assets were $29,239, and our total current
liabilities were $43,310. We expect that working capital requirements will
continue to be funded through a combination of our existing funds, cash flow
from operations and further issuances of securities. Our working capital
requirements are expected to increase in line with the growth of our business.
Existing working capital and anticipated cash flow are expected to be adequate
to fund our operations over the next six months. We have no lines of credit or
other bank financing arrangements. Generally, we have financed operations to
date through our current revenues and the proceeds of the private placement of
equity and debt securities.
Additional issuances of equity or convertible debt securities will result in
dilution to our current shareholders. Further, such securities might have
rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
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
Consolidation of Variable Interest Entities -- On January 2003, the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 46,
Consolidation of Variable Interest Entities. In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN No. 46-R") to address certain FIN implementation
issues. This interpretation clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements for companies that have
interests in entities that are Variable Interest Entities ("VIE") as defined
under FIN No. 46. According to this interpretation, if a company has an interest
in a VIE and is at risk for a majority of the VIE's losses or receives a
majority of the VIE's expected gains it shall consolidate the VIE. FIN No. 46-R
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. For entities acquired or created before
February 1, 2003, this interpretation was effective no later than the end of the
first interim or reporting period ended March 31, 2004, except for those VIE's
that are considered to be special purpose entities, for which the effective date
is no later than the end of the first interim period or reporting period ended
after December 15, 2003. As of May 31, 2005, the Company did not have an
interest in any VIE's, and accordingly, the adoption of the provisions of this
interpretation by the Company did not have a material effect on its financial
position or results of operations.
In December 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123-R"). SFAS
No.123-R is a revision of SFAS No. 123, as amended, Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS No.123-R eliminates the
alternative to use the intrinsic value method of accounting that was provided in
15
MANAGEMENT'S DISCUSSION AND ANALYSIS - continued
SFAS No. 123, which generally resulted in no compensation expense recorded in
the financial statements related to the issuance of equity awards to employees.
SFAS No. 123-R requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. SFAS No. 123-R
establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all companies to apply a
fair-value-based measurement method in accounting for generally all share-based
payment transactions with employees.
DESCRIPTION OF BUSINESS
CORPORATE HISTORY
Fuego Entertainment, Inc. was originally incorporated under the laws of the
State of Nevada on December 30, 2004 as "Durango Entertainment, Inc." On
February 15, 2005, we filed a Certificate of Amendment with the Nevada Secretary
of State changing our name to "Fuego Entertainment, Inc."
Please note that throughout this report, and unless otherwise noted, the words
"we," "our," "us," the "Company," or "Fuego," refers to Fuego Entertainment,
Inc.
CURRENT BUSINESS OPERATIONS
We are 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.
We were founded by our President, Hugo Cancio, who has spent the last five years
successfully owning and operating Ciocan Entertainment & Music Group, a record
label and film production company that produces Cuban and world entertainment
and is extremely well-known throughout the Latin Market - both in Latin America
and the U.S. Fuego was formed in order to cross over into mainstream America
with some of Ciocan's Latin music and film products as well as to produce music,
films, and television programs geared toward the English speaking markets. By
combining the efforts and products of Fuego and Ciocan, we have been able to
reach both markets at the same time as well as further penetrate Europe where
Latin music is very popular.
DISTRIBUTION AND PUBLISHING
We currently out-source the distribution process of our products to various
reputable distribution companies. Fuego has over 100 clients across the globe,
including: Specs Music Stores, Reyes Records Distributors, DLN Distribution, H&L
Distribution, Sony Music, and Universal Music. These clients represent
distributors of our music products, independent record stores, and record labels
who have entered licensing agreements with us. We also license products from Sun
Flower Publishing, which receives royalties for products sold as well as for
songs played on the radio and television and licensed for soundtracks.
PRODUCT DESCRIPTIONS
Overall, our entertainment products appeal to both the Latin market (through
products licensed from Ciocan Entertainment) as well as the English speaking
market (through recent licensing agreements and productions as well as the
promotion of Cuban music to English speaking audiences). Our ultimate goal is to
develop and market products that appeal to both the Latin and Anglo markets -
16
DESCRIPTION OF BUSINESS - continued
thereby creating a strong presence throughout the world. Therefore, future
products developed, artists obtained, and agreements made will be focused on
this goal. The current entertainment products include:
- --------------------------------------------- ----------------------------------
Production Distribution
---------- ------------
Feature Films and Short Films Films
Documentaries and Reality Shows Music
Television Shows and Commercials Videos
Music Productions and Music Videos Documentaries
Tour Productions Any other related products/formats
Music and Film Festival Productions
- --------------------------------------------- ----------------------------------
SERVICE DESCRIPTIONS
We also offer various services related to the entertainment industry:
o Managing and representing artists (artists in general)
o Deal making (acting as liaisons for companies, entities, or
individuals looking to penetrate the Latin and Anglo markets)
o Public Relations and Marketing Services
o Television and Radio Spots
ADVERTISING AND PROMOTIONAL SERVICES
In terms of advertising and promoting our products, we currently use freelance
individuals and marketing firms to assist with this function. However, we are
investigating the possibility of bringing this function in-house in the near
future as revenues permit.
NOTABLE ARTISTS AND PROJECTS
Vocal Sampling is a Cuban six-man a cappella group which has been described as
one of the wonders of the musical world, capturing the attention and support of
luminaries such as Quincy Jones, Carlos Santana, Peter Gabriel, David Byrne,
Bobby McFerrin, and Paul Simon. Not a choral group but a swinging Latin band
which sings instead of playing the instruments of the salsa orchestra...their
precision and skill has amazed audiences throughout the world, leaving many in
disbelief. They don't use backing tracks - even the brass and flute parts are
created using only their voices - and all is delivered with their unique blend
of talent and infection joy. As well as their symphonic orchestral replication,
Vocal Sampling's repertoire also covers salsa, jazz, reggae, and hip hop.
U.S. Tour of Havana Night Club, Celebrate Freedom Tour 05 is being co-produced
by Fuego and is experiencing rave reviews throughout the country. The show
includes 51 musicians, singers, and dancers and is the largest musical show from
Cuba to appear in the United States in about 50 years. After attracting more
than 200,000 patrons in Las Vegas, Havana Night Club hit the road for a U.S.
tour - which sold out in a matter of days at the Miami, Florida location.
The Trader Show is a reality television show based on the real life activities
of amateur and professional stock traders. While there are many forms of stock
trading, The Trader Show places an emphasis on the activities of day traders.
The show focuses on the real life activities of Anthony Pullicino (A.K.A., The
Trader), who quit his sales position at a BMW dealership in order to satisfy his
desire to perfect his trading abilities and earn even greater profits. The show
17
DESCRIPTION OF BUSINESS - continued
includes Anthony's circle of influence, from those who give advice to him to
those he advises. As Anthony investigates and researches public companies to
invest in, it is necessary from time to time for him to venture out and actually
be on the site of his next investment. From gold mining companies in Ecuador, to
diamond mining companies in Canada, to financial organizations in the U.S., The
Trader Show follows the trail of The Trader, documenting his every move and
delivering it to television sets around the country. Ups and downs, profits and
losses, happiness and sadness, The Trader Show captures it all and shows the
reality of life as a stock trader to the world.
MARKET ANALYSIS SUMMARY
Fuego competes in the $33.6 billion global Music Industry as well as the Motion
Picture and Video Production Industry, estimated at $45 billion in the United
States alone. Within the music industry, four major record labels dominate the
industry while the motion picture industry is represented by several large
studios, based mostly in Hollywood. Although major labels and studios are the
most visible in the overall entertainment industry, a trend and acceptance
toward smaller, independent companies has emerged..
MUSIC INDUSTRY
Within this $33.6 billion global market, sales of recorded music were flat in
2004, with a slight reduction in physical audio sales offset by growing sales of
DVD music videos and a sharp increase in sales of digital music. Regionally,
2004 saw strong markets in the U.S. and the UK and a slowing rate of decline in
other major markets. Even excluding digital sales, 2004 was the best
year-on-year trend in global music sales for five years. Sales of top selling
albums reversed several years of decline. Top 10 albums sales globally rose by
14%, while the top 50 albums were up 8% in value. Eight albums sold more than
five million in 2004, up from five in 2003. Digital sales rose exponentially,
with the total number of tracks downloaded in 2004 (including album tracks) up
more than tenfold on 2003 - to over 200 million in the four major digital music
markets (U.S., UK, France, and Germany). The trend has continued in 2005, with
digital sales in the U.S. in the first quarter more than doubling that of the
same period in 2004.
Highlights of global sales in 2004 include:
o Digital sales, more stability in physical sales, and growing DVD music
video sales helped keep the market flat in 2004.
o Economic strength and strong releases helped CD volume growth of 2.8%
and 4.5% in the U.S. and UK, which together make up 47% of the value
of the world market.
o Music sales in Latin America grew 12.6% in value due to economic
recovery, anti-piracy efforts, and strong DVD music video sales.
o Music DVD sales rose 23% and have doubled their share of the world
music market from 4% in 2002 to 8% in 2004 - with a value of over $2.6
billion.
o CD sales increased in 36 markets in volume terms in 2004, with
positive performances in some major markets as well as a growing
switch from cassette to CDs in developing markets in Eastern Europe,
Asia, and the Middle East.
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DESCRIPTION OF BUSINESS - continued
MAJOR RECORD LABELS
Within the global music industry, four major labels represent the overwhelming
majority of the marketplace: Universal Music Studios, Sony BMG Music
Entertainment, EMI Group, and Warner Brothers Music.
Universal Music Studios
Universal Music Studios (UMG) leads the music industry in global sales with an
estimated worldwide market share in 2004 of 25% as well as 32% of the U.S.
digital distribution market. Its global operations encompass the development,
manufacture, marketing, sales, and distribution of recorded music, music video
and DVD, and music publishing through a network of subsidiaries, joint ventures,
and licensees in 77 countries. Owning and administering more than one million
copyrights, Universal Music Publishing Group (UMPG) is one of the largest music
publishing businesses in the world with more than 47 offices in 41 countries.
Overall, UMG reached revenues of approximately $9 billion in 2004 with an
estimated operating income of $600 million.
Sony BMG Music Entertainment
- ----------------------------
In 2004, Sony and BMG merged in a 50/50 joint venture to form Sony BMG Music
Entertainment. Overall, Sony BMG generated estimated sales of $5 billion in
2004, representing approximately 14.9% of the global marketplace.
EMI Group
- ---------
EMI distributes albums through more than 70 labels, including Blue Note,
Capitol, and Virgin. It also owns EMI Music Publishing, the world's largest
music publishing arm, with rights to more than a million songs. The only major
record company not tied to a media conglomerate, EMI has seen acquisition deals
with both TimeWarner and Bertelsmann denied by European regulators. Overall, EMI
Group ranks last in U.S. sales among the four major music labels and holds the
#3 position in worldwide sales (behind Sony BMG and Universal). Revenues for the
company reached an estimated $3.9 billion in 2004.
Warner Brothers Music
- ---------------------
Started by Jack Warner in 1958, Warner Music Group (WMG) is one of the largest
recording companies in the world and ranks #3 in terms of U.S. market share
(behind Sony BMG and Universal). Through its recorded music operations, WMG
produces, markets, and distributes recordings by such artists as Madonna, Josh
Groban, and Linkin Park. WMG's labels include Atlantic, Elektra, Maverick, and
Reprise. Its Warner/Chappell publishing unit holds the rights to more than a
million songs. Investment firm Thomas H. Lee Partners owns about 35% of the
company. Overall, WMG achieved revenues of about $3.4 billion in 2004.
MOTION PICTURE INDUSTRY
The U.S. motion picture industry produces much of the world's feature films and
many of its television programs. Overall, the industry is dominated by several
large studios, based mostly in Hollywood. However, with the increasing
popularity and worldwide availability of cable television, video recorders,
DVDs, and the internet, many small and medium-sized independent filmmaking
companies have emerged to fill the growing demand. Overall, the Motion Picture
and Video Production industry generates an estimated $45 billion a year in
19
DESCRIPTION OF BUSINESS - continued
revenues in the United States alone. Major participants in this industry
include:
o 20th Century Fox (owned by News Corporation and including Fox
Searchlight Pictures)
o Paramount Pictures (owned by Viacom and including MTV Films,
Nickelodeon Movies, Paramount Classics, and Republic Pictures)
o Sony Pictures Entertainment (owned by Sony and including Columbia
Pictures, TriStar Pictures, Screen Gems, Triumph Films, Sony Pictures
Classics, Destination Films, Metro-Goldwyn-Mayer, and United Artists)
o NBC Universal Entertainment (owned by General Electric and including
Universal Studios, Focus Features, and StudioCanal)
o Warner Brothers Entertainment (owned by TimeWarner and including
Warner Brothers Pictures, Warner Independent Productions, Cartoon
Network Studios, and Castle Rock Entertainment)
o New Line Cinema (owned by TimeWarner and including Fine Line Features
and HBO Films)
o Buena Vista Motion Pictures Group (owned by The Walt Disney Company
and including Walt Disney Pictures, Hollywood Pictures, and Touchstone
Pictures)
o Miramax Films (owned by The Walt Disney Company and including
Dimension Films)
o Mini-majors and/or major production companies include: Amblin
Entertainment, American Zoetrope, Blue Sky Studios, Davis
Entertainment, DreamWorks, Gold Circle Films, IFC Entertainment,
Imagine Entertainment, Interscope Pictures, Jim Henson Pictures,
Liberty Media, Lions Gate Films, Lucasfilm, Mandalay Pictures, Morgan
Creek Productions, Pixar Animation Studios, Producers Releasing
Corporation, Revolution Studios, RKO Pictures, the Samuel Goldwyn
Company, Spyglass Entertainment, Strand Releasing, Troma
Entertainment, Vanguard Films, and Zeitgeist Films.
TARGET MARKETS
With its current offerings, our entertainment products appeal to both the Latin
and English-speaking markets. We offer a wide selection of hip-hop, rap, pop,
and contemporary music as well as films encompassing the documentary and reality
television genre - thereby crossing all age groups, sexes, income levels, and
races.
20
DESCRIPTION OF BUSINESS - continued
U.S. DEMOGRAPHIC DATA
The charts below highlight key demographic data for the United States:
- ------------------ ----------------------- ------------------- ----------------
Age Group Total Population Male Female
- ------------------ ----------------------- ------------------- ----------------
Under 5 years 19,175,798 9,810,733 9,365,065
5 to 14 years 41,077,577 21,043,474 20,034,103
15 to 19 years 20,219,890 10,391,004 9,828,886
20 to 24 years 18,964,001 9,687,814 9,276,187
25 to 29 years 19,381,336 9,798,760 9,582,576
30 to 34 years 20,510,388 10,321,769 10,188,619
35 to 39 years 22,706,664 11,318,696 11,387,968
40 to 49 years 42,534,267 21,018,608 21,515,659
50 to 59 years 31,054,785 15,116,453 15,938,332
60 to 69 years 20,338,992 9,536,989 10,802,003
70 and older 25,458,208 10,009,263 15,448,945
- ------------------ ----------------------- ------------------- ---------------
Total 281,421,906 138,053,563 143,368,343
- ------------------ ----------------------- ------------------- ---------------
- ------------------------------------------- ------------------ ---------------
Race Total Population % of Population
- ------------------------------------------- ------------------ ---------------
White 211,347,851 75.1%
Black or African American 34,614,894 12.3%
Some Other Race 15,478,205 5.5%
Asian 10,131,189 3.6%
Two or More Races 6,754,126 2.4%
American Indian and Alaska Native 2,532,797 0.9%
Native Hawaiian and Other Pacific Islander 281,422 0.1%
- ------------------------------------------- ------------------ ---------------
Total 281,140,484 100.0%
Hispanic or Latino (can be any race) 35,177,738 12.5%
White Alone, not Hispanic or Latino 194,462,537 69.1%
- ------------------------------------------- ------------------ ---------------
STRATEGY AND IMPLEMENTATION SUMMARY
In the entertainment industry, a key factor to success is the reputation and
visibility of the company. A successful, well-known company will attract the
best artists and products, create the best, most financially-rewarding industry
deals, and have the highest distribution rates and channels. Fortunately,
through Hugo Cancio's established industry reputation and Ciocan's achievements
in the Latin market, Fuego has successfully entered the marketplace in Latin
America and the U.S. and is poised for tremendous future success.
ADVERTISING AND MARKETING STRATEGY
In terms of obtaining artists and products to direct, produce, and distribute,
we primarily rely on word-of-mouth marketing, public relations efforts, and
business networking through other industry professionals. In fact, we receive
over 30 contacts per week from talented artists, writers, and visionaries - as a
result of Hugo Cancio's strong reputation in the business. In terms of marketing
the end products to the consumers, we utilize a variety of methods, including
21
DESCRIPTION OF BUSINESS - continued
radio, television, print advertising, public relations efforts, and press
mention, depending on the project. By bringing the marketing functions in-house,
we will be able to further penetrate the marketplace and increase its brand
awareness as well as generate incremental revenues.
SALES STRATEGY
We have already developed strong relationships with the channels of distribution
for the products as well as works with reputable distributors to place the
products within retail stores, music stores, etc. across the globe. We also stay
in close contact with various radio stations, television producers, newspaper
editors, etc. in order to get the songs played on the radio, the shows
televised, the artists known, etc.
STRATEGIC PARTNERSHIPS
We have developed strategic partnerships with over 100 major participants in the
entertainment industry within the United States and internationally, including:
Specs Music Stores, DLN Distribution, H&L Distribution, Sony Music, Universal
Music, and more. These clients represent distributors of our music products,
independent record stores, and record labels who have entered licensing
agreements with us.
COMPETITION
Most of our competitors have greater financial, managerial and marketing
resources than us. In addition, these competitors may have pre-existing
relationships with providers and purchasers that we will be trying to develop.
Existing or future competitors may develop or offer services that provide price,
service or other advantages over those offered by us. If we fail to compete
successfully against our current or future competitors with respect to these or
other factors, our business, financial condition, and results of operations may
be materially and adversely affected and could affect our ability to remain an
on-going concern.
RESEARCH AND DEVELOPMENT ACTIVITIES
No research and development expenditures have been incurred, either on our
account or sponsored by customers, to the date of our inception.
EMPLOYEES
We do not employ any persons on a full-time or on a part-time basis. Hugo M.
Cancio is our President, Chief Executive Officer, Chief Financial Officer and
Secretary. Mr. Cancio is responsible for all of our day-to-day operations. Other
services are provided by outsourcing and consultant and special purpose
contracts.
EXECUTIVE OFFICES
We lease our principal office space located at 19250 NW 89th Court, Miami,
Florida 33018. This facility is personally owned by Hugo Cancio and is leased
back to the Company for $700 per month in rent. Total rent expense from
inception to May 31, 2005 was $3,500.
22
LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our
company, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our interest.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our directors and executive officers, their ages, positions held are as follows:
- -------------------- ---- ---------------------- ---------------- -------------
NAME AGE POSITION TERM COMMENCED TERM EXPIRES
- -------------------- ---- ---------------------- ---------------- -------------
Hugo M. Cancio 41 President, Treasurer, December December
19250 NW 89th Court Secretary, Director 30, 2004 29, 2005
Miami, FL 33018
- -------------------- ---- ---------------------- ---------------- -------------
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed.
HUGO M. CANCIO, President, Treasurer, Secretary and Director, Age 41, is our
sole officer and director. Since 2003, Mr Cancio has served as the president of
Ciocan Entertainment and Music Group, L.L.C., an independent film and music
company. Prior to 2003, Mr. Cancio was self-employed as an independent film and
music producer since 1990. Mr. Cancio attended Miami-Dade Community College
where he studied Business Administration. Mr. Cancio is not an officer or
director of any other publicly traded company.
FAMILY RELATIONSHIPS
There are no family relationships among our directors or officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, none of our directors, executive officers or persons
that may be deemed promoters is or have been involved in any legal proceeding
concerning (i) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses); (iii) being subject to any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction permanently or temporarily enjoining, barring,
suspending or otherwise limiting involvement in any type of business, securities
or banking activity; or (iv) being found by a court, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law (and the judgment has not been
reversed, suspended or vacated).
23
EXECUTIVE COMPENSATION
During the last fiscal year, none of our directors were compensated for their
roles as directors. Our Officers and directors may be reimbursed for any
out-of-pocket expenses incurred by them on behalf of our company. We presently
have no pension, health, annuity, insurance, profit sharing or similar benefit
plans. Executive compensation is subject to change concurrent with our
requirements.
SUMMARY COMPENSATION TABLE
None of our executive officers received an annual salary and bonus that exceeded
$100,000 during the fiscal year ending December 31, 2004. The following table
sets forth the compensation received by Hugo M. Cancio, our sole officer and
director.
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND 12/30/04 SALARY OTHER SECURITIES
PRINCIPAL POSITION through UNDERLYING
5/31/05 OPTIONS
Hugo M Cancio $15,000 $0 N/A
President,Treasurer
Secretary and Director
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
COMPENSATION OF DIRECTORS
Generally, our Directors do not receive salaries or fees for serving as
directors, nor do they receive any compensation for attending meetings of the
Board of Directors. Directors are entitled to reimbursement of expenses incurred
in attending meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ciocan Entertainment and Music Group, LLC, "Ciocan" is an entertainment company
owned by Hugo M. Cancio, our sole officer, director and principal shareholder.
Ciocan creates products for the Latino Market in and out of the United States
borders and will use our company to market, promote and commercialize some its
products (music, films, documentaries, artist, etc) for the Anglo and
international markets. During the five month period ended May 31, 2005, we were
advanced approximately $31,500, of which all but $302 was applied towards the
purchase of 5.5 million shares of our common stock.
We lease our principal office space located at 19250 NW 89th Court, Miami,
Florida 33018. This facility is personally owned by our sole officer, director
and principal shareholder, Hugo M. Cancio, and is leased back to us for $700 per
month in rent. Total rent expense from inception to May 31, 2005 was $3,500.
24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 2005, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
Hugo M. Cancio 19,000,000 Direct 66.15%
19250 NW 89th Court 5,500,000 Indirect*
Miami, FL 33018
- -------------------------------------------------------------------------------
All Officers, Directors 66.15%
And 5% Shareholders
* Hugo M. Cancio is the controlling shareholder of Ciocan Entertainment Film and
Music Group, L.L.C. which owns 5,500,000 shares of our common stock.
CHANGES IN CONTROL
We are unaware of any contract or other arrangement the operation of which may
at a subsequent date result in a change in control of our company.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 75,000,000 common shares with a par value of $0.001.
As of July 31, 2005 we had 37,034,647 common shares outstanding. Upon
liquidation, dissolution or winding up of the corporation, the holders of common
stock are entitled to share ratably in all net assets available for distribution
to common stockholders after payment to creditors. The common stock is not
convertible or redeemable and has no preemptive, subscription or conversion
rights. Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There are no cumulative voting
rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as our board of directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the board of directors. We have not paid any dividends on our common stock and
do not anticipate paying any cash dividends on such stock in the foreseeable
future.
In the event of a merger or consolidation, all holders of common stock will be
entitled to receive the same per share consideration.
PLAN OF DISTRIBUTION
The Selling Shareholders of the common stock of Fuego Entertainment, Inc., and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. The sales price to the public has been determined by the
25
PLAN OF DISTRIBUTION - continued
shareholders to be $0.25 per share. The price of $0.25 per share is a fixed
price until the securities are listed on the OTC Bulletin Board or other
national exchange, and thereafter at prevailing market prices or privately
negotiated prices.
The Selling Shareholders may use any one or more of the following methods when
selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - settlement of short sales entered into after the date of this prospectus;
- - broker-dealers may agree with the Selling Shareholders to sell a specified
number of such shares at a stipulated price per share;
- - a combination of any such methods of sale;
- - through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; or
- - any other method permitted pursuant to applicable law.
The Selling Shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Shareholders does not expect these commissions and
discounts relating to their sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein, the
Selling Shareholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
26
PLAN OF DISTRIBUTION - continued
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Shareholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.
Because the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each Selling
Shareholders has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling
Shareholders.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Shareholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Shareholders or any other person. We will make copies of this prospectus
available to the Selling Shareholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
SELLING SHAREHOLDERS
The Selling Shareholders may offer and sell, from time to time, any or all of
the common stock issued. Because the Selling Shareholders may offer all or only
some portion of the 12,534,647 shares of common stock to be registered, no
estimate can be given as to the amount or percentage of these shares of common
stock that will be held by the selling stockholders upon termination of the
offering.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the Selling Shareholders as of July 31,
2005, and the number of shares of common stock covered by this prospectus. The
number of shares in the table represents an estimate of the number of shares of
common stock to be offered by the selling stockholder. None of the Selling
Shareholders is a broker-dealer, or an affiliate of a broker-dealer to our
knowledge.
Selling Shareholders Shares of Common Stock Owned Prior to Offering Shares of
Common Stock to be Offered for Sale Shares of Common Stock Owned After the
Offering Percentage of Common Stock Owned Before the Offering Percentage of
Common Stock Owned After the Offering
27
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Selling Shareholders Shares of Common Shares of Shares of Percentage of Percentage
Stock Owned Common Stock Common Stock Common Stock of Common
Prior to Offering to be Offered Owned After Owned Before Stock Owned
for Sale the Offering the Offering After the
Offering
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Maritza de la Torre 1,800,000 1,800,000 0 4.86% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Braynert Marquez 10,000 10,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Juan Ramon Guzman 500,000 500,000 0 1.35% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Jose Gomez 1,400,000 1,400,000 0 3.78% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Johnna Catanella 1,000 1,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Katie Hale 200 200 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Edward Kamisky 20,000 20,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Joseph MacCarthy 11,111 11,111 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Linda M. Vance 12,000 12,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Jimmy Hopler 1,000 1,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Dan York 2,777 2,777 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Charles Short 1,000 1,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Anthony Hattenbach 1,500,000 1,500,000 0 4.05% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Jason Webb 13,888 13,888 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Cherie Cancio
and Christy Cancio (1) 2,100,000 2,100,000 0 5.67% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Miguel A. Cancio (2) 1,600,000 1,600,000 0 4.32% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Sunflower Publishing (3) 500,000 500,000 0 1.35% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Ana M. Cancio (4) 1,000,000 1,000,000 0 2.70% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Vivianka Cancio (5) 200,000 200,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Rogelia Morua 1,800,000 1,800,000 0 4.86% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Roberto Soto 3,000 3,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Louis Mendez 20,000 20,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Lee Delor 5,000 5,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Berberly Jo Mehlman 10,000 10,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
28
- ----------------------------- ------------------ --------------- ---------------- --------------- --------------
Selling Shareholders Shares of Common Shares of Shares of Percentage of Percentage
Stock Owned Common Stock Common Stock Common Stock of Common
Prior to Offering to be Offered Owned After Owned Before Stock Owned
for Sale the Offering the Offering After the
Offering
----------------------------- ------------------ --------------- ---------------- --------------- --------------
TRW Family Limited 5,555 5,555 0 * 0
Partnership
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Verna Tucker & Roger Summers 5,555 5,555 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Jonathan D. Gildin & Leah 1,500 1,500 0 * 0
Gildin
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Noleia Guzman 250 250 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Juan R. Guzman & Noelia Sosa 200 200 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Kenneth Hicks and Sandra 1,000 1,000 0 * 0
Hicks
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Choice Mortgage Funding, 1,000 1,000 0 * 0
Inc. (7)
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Hope Seitzinger 500 500 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Kevin West 2,000 2,000 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Mary Alice Seagill 555 555 0 * 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Behrens International Group 5,556 5,556 0 * 0
(8)
----------------------------- ------------------ --------------- ---------------- --------------- --------------
Total 12,534,647 12,534,647 0 33.85% 0
----------------------------- ------------------ --------------- ---------------- --------------- --------------
(1) Cherie Cancio and Christy Cancio are the daughters of Hugo M.Cancio.
(2) Miguel A. Cancio is the father of Hugo M. Cancio.
(3) Sunflower Publishing is controlled by Anthony Hattenbach.
(4) Ana M. Cancio is the wife of Hugo M. Cancio.
(5) Vivianka Cancio is the sister of Hugo M. Cancio.
(6) Choice Mortgage Funding, Inc. is controlled by Jason Webb.
(7) Behrens International Group is controlled by Judi Behrens.
We may require the Selling Shareholders to suspend the sales of the securities
offered by this prospectus upon the occurrence of any event that makes any
statement in this prospectus or the related registration statement untrue in any
material respect or that requires the changing of statements in these documents
in order to make statements in those documents not misleading.
29
LEGAL MATERS
The validity of the common stock offered by this prospectus has been passed upon
by The O'Neal Law Firm, P.C., 17100 East Shea Boulevard, Suite 400-D, Fountain
Hills, Arizona 85268.
TRANSFER AGENT
Our transfer agent is First American Stock Transfer, 706 E. Bell Road, Suite
201, Phoenix, Arizona 85022.
EXPERTS
The consolidated financial statements of Fuego included in this registration
statement have been audited by Braverman International,P.C. to the extent and
for the period set forth in their reports appearing elsewhere in the
registration statement, and are included in reliance upon such reports given
upon the authority of said firms as experts in auditing and accounting.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency basis
or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents, subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
DISCLOSURE OF SEC POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Bylaws provide that directors and officers shall be indemnified by us to the
fullest extent authorized by the Nevada General Corporation Law, against all
expenses and liabilities reasonably incurred in connection with services for us
or on our behalf. The bylaws also authorize the board of directors to indemnify
any other person who we have the power to indemnify under the Nevada General
Corporation Law, and indemnification for such a person may be greater or
different from that provided in the bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any document we file at the Commission's Public Reference Room 450
Fifth Street, N.W., Washington, D.C. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You
can also obtain copies of our Commission filings by going to the Commission's
website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, under the Securities Act with respect to the securities
30
WHERE YOU CAN FIND MORE INFORMATION - continued
offered under this prospectus. This prospectus, which forms a part of that
registration statement, does not contain all information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of Lexington Resources, Inc.,
the references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document.
No finder, dealer, sales person or other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by Fuego
Entertainment, Inc.. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of this prospectus.
31
PART 1. FINANCIAL INFORMATION
Financial Information Table of Contents Page
Report of Independent Registered Accounting Firm ......................... 33
Balance Sheet May 31, 2005 ............................................... 34
Statement of Operations from December 30, 2004 (inception) to
May 31, 2005 ........................................................... 35
Statement of Cash flows from December 30, 2004 (inception) to
May 31, 2005 ........................................................... 36
Statement of Stockholders' Equity from December 30, 2004
(inception) to May 31, 2005 ............................................ 37
Notes to Financial Statements ....................................... 38 - 42
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
FUEGO ENTERTAINMENT, INC.
Miami, Florida
We have audited the accompanying balance sheet of FUEGO ENTERTAINMENT, INC. (a
Nevada corporation) as of May 31, 2005, and the related statements of
operations, stockholders' equity, and cash flows for the period from December
30, 2004 (inception) to May 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FUEGO ENTERTAINMENT, INC. as of
May 31, 2005, and the results of its operations and its cash flows for the
period from December 30, 2004 (inception) to May 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
Braverman International, P.C.
Prescott, Arizona
August 3, 2005
ITEM 1. FINANCIAL STATEMENTS
33
FUEGO ENTERTAINMENT, INC.
BALANCE SHEET
May 31, 2005
ASSETS
Current Assets
Cash $ 7,479
Accounts receivable-trade 16,833
Deferred tax asset 3,375
Other 1,552
---------
Total Current Assets 29,239
---------
Equipment, net of accumulated depreciation of $206 2,449
---------
Other Assets
Production costs 50,432
Investment 57,400
Logo, net 2,610
---------
Total Other Assets 110,442
---------
$ 142,130
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 18,208
Advances from related party 302
Income taxes payable 20,109
Deferred revenue 4,691
---------
Total Current Liabilities 43,310
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.001, 75,000,000 shares
authorized, 13,272,670 shares outstanding 13,273
Paid-in capital 46,058
Common stock subscribed, 21,663,854 shares 43,274
Common stock subscriptions receivable (43,274)
Retained earnings 39,489
---------
Total Stockholders' Equity 98,820
---------
$ 142,130
=========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
FUEGO ENTERTAINMENT, INC.
STATEMENT OF OPERATIONS
FROM DECEMBER 30, 2004 (INCEPTION) TO MAY 31, 2005
REVENUE $ 125,128
-----------
EXPENSES:
Cost of revenues 17,000
Selling, general and administrative 51,494
Depreciation and amortization 411
-----------
Total Expenses 68,905
-----------
Income before provision for income taxes 56,223
Provision for income taxes 16,734
-----------
Net income $ 39,489
===========
BASIC AND FULLY DILUTED EARNINGS PER SHARE *
===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-BASIC 13,272,670
===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-FULLY DILUTED 34,936,527
===========
* Less than .01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
FUEGO ENTERTAINMENT, INC.
STATEMENT OF CASH FLOWS
FROM DECEMBER 30, 2004 (INCEPTION) TO MAY 31, 2005
Operating Activities:
Net income $ 39,489
Adjustments to reconcile net income to net cash provided by
operating activities
Contributed capital 21,708
Depreciation and amortization 411
Changes in operating assets and liabilities:
Accounts receivable (16,833)
Deferred tax asset (3,375)
Other current assets (1,552)
Accounts payable 18,208
Income taxes payable 20,109
Deferred revenue 4,691
---------
Net cash provided by operating activities 82,856
---------
Investing Activities:
Purchase of equipment (2,770)
Production costs (50,432)
Investment (57,400)
Logo (2,700)
---------
Net cash used in investing activities (113,302)
---------
Financing Activities:
Proceeds from sale of common stock 37,623
Advances from related party 302
---------
Net cash provided by financing activities 37,925
---------
Increase in cash and cash equivalents 7,479
Cash and cash equivalents, beginning of year --
---------
Cash and cash equivalents, end of year 7,479
=========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
FUEGO ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FROM DECEMBER 30, 2004 (INCEPTION) TO MAY 31, 2005
Subscriptions
-----------------------
Paid-in Common Amount
Shares Amount Capital Stock Receivable Earnings 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 comon 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 @ $.0179 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
========== ========== ========== ========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
FUEGO ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Fuego Entertainment, Inc. (the "Company") 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.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company formed
in the State of Nevada on December 30, 2004. The Company was originally formed
as Durango Entertainment, but changed its name to Fuego Entertainment in March
2005. These financial statements reflect the use of significant accounting
policies, as described below and elsewhere in the notes to the financial
statements,and are prepared in accordance with accounting principles generally
accepted in the United States of America. The fiscal year end of the Company is
May 31.
REVENUE RECOGNITION
Revenue from the sale of film and television programming rights and license
arrangements is recognized only when persuasive evidence of a sale or
arrangement with a customer exists, the project is complete, the contractual
delivery arrangements have been satisfied, the license period has commenced if
applicable, the arrangement fee is fixed or determinable, collection of the
arrangement fee is reasonably assured, and other conditions as specified in the
respective agreements have been met.
Revenue from production services for third parties is recognized when the
production is completed and delivered. All associated production costs are
deferred and charged against income when the film is delivered and the related
revenue is recognized.
Fees for other services provided to third parties are recognized as revenues
when the services are performed and there is reasonable assurance over the
collection of the fees.
Cash received in advance of meeting the revenue recognition criteria described
above is recorded as deferred revenue.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company uses the allowance method for bad debts. Based on historical
collection activity, no allowance is deemed necessary.
ADVERTISING EXPENSES
Advertising costs are expensed as incurred, except for costs related to the
development of a property and/or live-action television program commercial or
media campaign which are expensed in the period in which the commercial or
campaign is first presented. Advertising expenses are included in advertising
and marketing expenses in the accompanying statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
38
2. SIGNIFICANT ACCOUNTING POLICIES - continued
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all liquid investments with original
maturities of three months or less are classified as cash and cash equivalents.
The fair value of cash and cash equivalents approximate the amounts shown on the
financial statements. Cash and cash equivalents consist of unrestricted cash and
short-term investments.
FILM AND TELEVISION COSTS
The Company accounts for its film and television costs pursuant to AICPA
Statement of Position ("SOP") No. 00-2, Accounting by Producers or Distributors
of Films. The cost of production for film and television production costs,
including direct costs, production overhead and interest are capitalized and
amortized using the individual-film-forecast method under which such costs are
amortized for each program in the ratio that revenue earned in the current
period for such program bears to management's estimate of the ultimate revenues
to be realized from all media and markets for such program. Management regularly
reviews, and revises when necessary, its ultimate revenue estimates on a
title-by-title basis, which may result in a change in the rate of amortization
applicable to such title and/or a write-down of the value of such title to
estimated fair value. These revisions can result in significant
quarter-to-quarter and year-to-year fluctuations in film write-downs and rates
of amortization. If a total net loss is projected for a particular title, the
associated film and television costs are written down to estimated fair value.
All exploitation costs, including advertising and marketing costs are expensed
as incurred. Television adaptation and production costs that are adapted and/or
produced are stated at the lower of cost, less accumulated amortization, or fair
value.
INVESTMENTS
The Company invested a total of $57,400 in a series of shows to be presented in
5 cities in the United States, from which it is to receive a percentage of net
income after completion of all shows which are anticipated to extend into 2006.
Although no profits appear to have been generated from the first 3 shows
performed in Miami, Florida as of May 31, 2005, in the opinion of management,
substantial earnings beyond recovery of this investment are forecasted after
completion of all shows required under the agreement. Accordingly, no impairment
of this investment has been recorded as of May 31, 2005.
EQUIPMENT
Equipment is carried at cost, net of accumulated depreciation. Depreciation is
provided on the straight-line method based on the estimated useful lives of the
assets, which range from 2.5 years to 5 years.
INTANGIBLE ASSETS
The company has capitalized the cost of the creation of its logo. Amortization
of logo costs is being amortized ratably over a 5 year useful life.
INCOME TAXES
Deferred income taxes will be recorded for the temporary differences between the
financial statement and tax bases of assets and liabilities using current tax
rates. Valuation allowances will be established against deferred tax assets
39
2. SIGNIFICANT ACCOUNTING POLICIES - continued
whenever circumstances indicate that it is more likely than not that such assets
will not be realized in future periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
investments, prepaid expenses and other current assets, unearned revenue,
accounts payable and accrued expenses, and other liabilities approximate their
fair values principally because of the short-term maturities of these
instruments.
NEW ACCOUNTING PRONOUNCEMENTS
Consolidation of Variable Interest Entities - On January 2003, the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 46,
Consolidation of Variable Interest Entities. In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN No. 46-R") to address certain FIN implementation
issues. This interpretation clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements for companies that have
interests in entities that are Variable Interest Entities ("VIE") as defined
under FIN No. 46. According to this interpretation, if a company has an interest
in a VIE and is at risk for a majority of the VIE's losses or receives a
majority of the VIE's expected gains it shall consolidate the VIE. FIN No. 46-R
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. For entities acquired or created before
February 1, 2003, this interpretation was effective no later than the end of the
first interim or reporting period ended March 31, 2004, except for those VIE's
that are considered to be special purpose entities, for which the effective date
is no later than the end of the first interim period or reporting period ended
after December 15, 2003. As of May 31, 2005, the Company did not have an
interest in any VIE's, and accordingly, the adoption of the provisions of this
interpretation by the Company did not have a material effect on its financial
position or results of operations.
In December 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123-R").
SFAS No.123-R is a revision of SFAS No. 123, as amended, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. SFAS No.123-R eliminates the
alternative to use the intrinsic value method of accounting that was provided in
SFAS No. 123, which generally resulted in no compensation expense recorded in
the financial statements related to the issuance of equity awards to employees.
SFAS No. 123-R requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. SFAS No. 123-R
establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all companies to apply a
fair-value-based measurement method in accounting for generally all share-based
payment transactions with employees.
3. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of temporary cash investments and accounts
receivable. The majority of the cash and cash equivalents are maintained with
major financial institutions in the United States of America. Credit risk on
accounts receivable is minimized by the Company by performing ongoing credit
evaluations of its customers' financial condition and monitoring its exposure
for credit losses and maintaining allowances for anticipated losses. One
customer for which a corporate video was produced accounted for 60% of total
operating revenues in the five months ended May 31, 2005.
40
4. CAPITALIZED PRODUCTION COSTS
Capitalized production costs consist of the following as of May 31, 2005:
The Trader Show is a reality television show based on the $27,842
real life activities of amateur and professional stock
traders. The Trader Show places an emphasis on the
activities of day traders.
Gold In Ecuador is the story of a small mining town of 15,148
Portobello. Fifty years ago American company SADCO abandoned
the American shaft, one of the oldest gold mines in the
world. Today, the people of Portobello have a new hope, or
do they? The Americans are back in Portobello searching for
Gold.
One Million Millionaires, the Life of Urban Casavant is a 6,800
documentary that will capture the life of a controversial
individual, Mr. Urban Casavant and his dream of making 1
million millionaires. The film will cover his life from
being a low-income earning prison guard to
multimillion-dollar businessman.
Counterfeit Conspiracy is a documentary on stock market scandals. 642
Total capitalized production costs $ 50,432
=========
5. COMMITMENTS
Operating Leases
The Company leases office and equipment from a related party for $700 a month.
Total rent expense from inception to May 31, 2005 was $3,500.
6. RELATED PARTY TRANSACTIONS
Ciocan Entertainment and Music Group, LLC, "Ciocan" is an entertainment company
owned by the principal shareholder of the Company. Ciocan creates products for
the Latino Market in and out of the United States borders and will use the
Company to market, promote and commercialize some its products (music, films,
documentaries, artist, etc) for the Anglo and international markets. During the
five month period ended May 31, 2005, the Ciocans advanced $31,552, of which all
but $302 was applied towards the purchase of 5.5 million shares of common stock.
7. INCOME TAXES
The Company 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 as of May 31, 2005:
Federal tax at statutory rates $ 19,116
State income taxes less federal tax benefit 2,645
Benefit of surtax exemptions (11,382)
Permanent differences 6,355
-------------
Income tax expense $ 16,734
=============
41
7. INCOME TAXES - continued
The analysis of income tax expense at May 31, 2005 is as follows:
Current $ 20,109
Deferred ( 3,375)
-------------
Income tax expense $ 16,734
=============
A deferred tax asset was recognized of $3,375 for the approximate $10,400 of
temporary timing differences during the period from inception to May 31, 2005.
These differences resulted from the filing of income tax returns on the cash
basis, wherein certain expenses totaling $22,542 were not deductible until paid,
deferred revenue of $4,691 was taxable when received, and income related to
accounts receivable of $16, 833 was not taxable until collected.
8. CONTRIBUTED CAPITAL
The President of the Company contributed the value of his services from
inception to May 31, 2005, at $15,000, and the value of other expenses totaling
$6,708, which consisted of office rent of $2,100, the prorata share of auto
expenses of $3,958, and legal services of $650.
42
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada Revised Statute Section 78.7502 provides that:
(i) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful;
(ii) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper; and
(iii) to the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
Nevada Revise Statute Section 78.751 provides that we may make any discretionary
indemnification only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) by our stockholders;
(b) by our board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) if a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a
written opinion;
43
INDEMNIFICATION OF DIRECTORS AND OFFICERS - continued
(d) if a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a written
opinion; or
(e) by court order.
Our Certificate of Incorporation and Articles provide that no director or
officer shall be personally liable to our company, any of our stockholders or
any other for damages for breach of fiduciary duty as a director or officer
involving any act or omission of such director or officer unless such acts or
omissions involve intentional misconduct, fraud or a knowing violation of law,
or the payment of dividends in violation of the General Corporate Law of Nevada.
Further, our Bylaws provide that we shall, to the fullest and broadest extent
permitted by law, indemnify all persons whom we may indemnify pursuant thereto.
We may, but shall not be obligated to, maintain insurance, at our expense, to
protect ourselves and any other person against any liability, cost or expense.
We shall not indemnify persons seeking indemnity in connection with any
threatened, pending or completed action, suit or proceeding voluntarily brought
or threatened by such person unless such action, suit or proceeding has been
authorized by a majority of the entire Board of Directors.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with this
registration:
SEC Registration Fees $ 368.83
Printing and Engraving Fees (1) $ 500.00
Accounting Fees and Expenses $15,000.00
Legal Fees and Expenses $20,000.00
Transfer Agent Fees and Expenses (1) $ 750.00
------------
TOTAL $36,618.83
(1) We have estimated these amounts.
44
RECENT SALES OF UNREGISTERED SECURITIES
From January through July of 2005, we issued 18,034,647 shares of our common
stock to 37 investors for a total value of $57,690.
On January 6, 2005, we issued 19,000,000 shares of our common stock to our sole
officer and director, Hugo M. Cancio, for services rendered to our company in
connection with our organization and formation at a value of $19,000.
We relied upon Section 4(2) of the Securities Act of 1933, as amended (the
"Act"). Our officers and directors determined the sophistication of our
investors, as the investors were either business associates of, or personally
known to, our officer and director. Each investor completed a subscription
agreement whereby the investors certified that they were purchasing the shares
for their own accounts, with investment intent. This offering was not
accompanied by general advertisement or general solicitation and the shares were
issued with a Rule 144 restrictive legend.
EXHIBITS
Exhibit Description
Number
- -------- ------------------------------------
3.1 Articles of Incorporation
3.2 Certificate of Amendment
3.3 Bylaws
5.1 Opinion and Consent of Counsel
23.1 Consent of Independent Auditor
UNDERTAKINGS
With regard to the securities of the registrant being registered pursuant to
Rule 415 under the Securities Act the registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any additional or changed material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
45
UNDERTAKINGS - continued
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned in the City
of Miami, Florida on August 15, 2005.
FUEGO ENTERTAINMENT, INC.
/s/ Hugo M.Cancio
- ------------------------------
Hugo M. Cancio
Principal Executive Officer
/s/ Hugo M.Cancio
- ------------------------------
Hugo M. Cancio
Principal Financial Officer
/s/ Hugo M.Cancio
- ------------------------------
Hugo M. Cancio
Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: August 15, 2005 /s/ Hugo M. Cancio
----------------------------
Hugo M. Cancio, Director
46
Dealer Prospectus Delivery Obligation
Until 90 days from the effective date of this Registration Statement, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
47