UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended November 30, 2008






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




For the
transition period from _______________ to ________________






Commission
file number: 000-52054




FUEGO
ENTERTAINMENT, INC.


(Exact
name of registrant as specified in its charter)




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




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




(305) 829-9999


(Registrant's telephone
number, including area code)






(Former name,
former address and former fiscal year, if changed since last
report)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




x
Yes     o
No








Large accelerated
      filer
            o
            
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            (Do not check if a
      smaller reporting company)
            Smaller reporting
      company
            x




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




o
Yes     x No




APPLICABLE ONLY TO ISSUERS
INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:




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




o
Yes     o
No




APPLICABLE
ONLY TO CORPORATE ISSUERS:




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




The
number of outstanding shares of the Registrant's common stock, $0.001 par value,
as of November 30, 2008 was 40,055,186.




1




TABLE
OF CONTENTS






PagePART I:
            FINANCIAL
      INFORMATION
            3Item 1.
            Financial
      Statements
            3Balance Sheet as of
      November 30, 2008 (unaudited) and May 31, 2008
            3Statements of
      Operations (unaudited) for the three and six months ended November
      30, 2008 and 2007
            4Statements of Cash
      Flows (unaudited) for the six months ended November 30, 2008
      and 2007
            5Statements of
      Stockholders' Equity (Deficit) for the period from May 31, 2006 to
      November 30, 2008 (unaudited)
            6Notes to Financial
      Statements
            8Item 2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            12Item 3.
            Quantitative and
      Qualitative Disclosures About Market Risk
            15Item 4T.
            Controls and
      Procedures
            15PART II:
            OTHER
      INFORMATION
            16Item 1.
            Legal
      Proceedings
            16Item 1A.
            Risk
      Factors
            16Item 2.
            Unregistered Sales
      of Equity Securities and Use of Proceeds
            16Item 3.
            Defaults Upon Senior
      Securities
            16Item 4.
            Submission of
      Matters to a Vote of Security Holders
            17Item 5.
            Other
      Information
            17Item 6.
            Exhibits
            17Signatures
            17








2




PART I
- FINANCIAL INFORMATION




Item 1.
Financial Statements




FUEGO
      ENTERTAINMENT, INC. AND AFFILIATECONSOLIDATED
      BALANCE SHEETSNovember
      30,
                                                                                                  
                                                                                                  
                                                                                                  May
      31,2008
                                                                                                  
                                                                                                  
                                                                                                  2008(Unaudited)ASSETSCURRENT
      ASSETSCash
                                                                                                  
                                                                                                  $
                                                                                                  2,449
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  7,754Account
      receivable-trade, less allowancefor
      doubtful accounts of $90,000
                                                                                                  
                                                                                                  
                                                                                                  52,306
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  100,323Total
      Current Assets
                                                                                                  
                                                                                                  
                                                                                                  54,755
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  108,077EQUIPMENT,
      less accumulated depreciationof
      $32,872 and $27,172 respectively
                                                                                                  
                                                                                                  
                                                                                                  24,802
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  31,666OTHER
      ASSETSMusic
      Albums (Echo-Fuego)
                                                                                                  
                                                                                                  
                                                                                                  480,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  480,000Beverage
      Plus AG
                                                                                                  
                                                                                                  
                                                                                                  425,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  425,000Production
      costs-Video
                                                                                                  
                                                                                                  
                                                                                                  45,509
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  45,509Production
      costs-Music
                                                                                                  
                                                                                                  
                                                                                                  55,747
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  50,047Deposit
      on music library
                                                                                                  
                                                                                                  
                                                                                                  14,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  14,500Web
      portal
                                                                                                  
                                                                                                  
                                                                                                  11,329
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  11,329Logo,
      less accumulated amortizationof
      $1,980
                                                                                                  
                                                                                                  
                                                                                                  720
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  990Total
      Other Assets
                                                                                                  
                                                                                                  
                                                                                                  1,032,805
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,027,375TOTAL
      ASSETS
                                                                                                  
                                                                                                  $
                                                                                                  1,112,362
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,167,118LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                                                                                  
                                                                                                  $
                                                                                                  143,308
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  38,222Accounts
      payable - related parties
                                                                                                  
                                                                                                  
                                                                                                  92,840
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  99,586Accrued
      interest - related parties
                                                                                                  
                                                                                                  
                                                                                                  86,665
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  63,953Income
      taxes payable
                                                                                                  
                                                                                                  
                                                                                                  3,870
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,870Payroll
      tax liabilities
                                                                                                  
                                                                                                  
                                                                                                  5,538
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,193Other
      liabilities
                                                                                                  
                                                                                                  
                                                                                                  14,722
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,347Total
      Current Liabilities
                                                                                                  
                                                                                                  
                                                                                                  346,943
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  217,171Long-Term
      DebtNotes
      payable - related parties
                                                                                                  
                                                                                                  
                                                                                                  234,799
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  281,549Total
      Liabilities
                                                                                                  
                                                                                                  $
                                                                                                  581,742
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  498,720COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock, par value $.001, 75,000,000shares
      authorized, 40,055,186 and 39,476,020 shares
                                                                                                  
                                                                                                  
                                                                                                  40,056
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  39,477issued
      and outstanding, respectivelyAdditional
      Paid in capital
                                                                                                  
                                                                                                  
                                                                                                  1,115,205
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,032,968Paid
      in capital-stock options
                                                                                                  
                                                                                                  
                                                                                                  112,527
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  233,027Subscriptions
      payable
                                                                                                  
                                                                                                  
                                                                                                  45,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  45,000Noncontrolling
      interest in affiliate
                                                                                                  
                                                                                                  
                                                                                                  294,533
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  354,243Accumulated
      deficit
                                                                                                  
                                                                                                  
                                                                                                  (1,076,701
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,036,317
                                                                                                  )Total
      Stockholders' Equity
                                                                                                  
                                                                                                  
                                                                                                  530,620
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  668,398TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                                  
                                                                                                  $
                                                                                                  1,112,362
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,167,118SEE
      ACCOMPANYING NOTES TO FINANCIAL
STATEMENTS
  3


FUEGO
      ENTERTAINMENT, INC AND AFFILIATECONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)For
      the Three Months Ended
                                    
                                    
                                    For
      the Six Months EndedNovember
      30, 2008
                                    
                                    
                                    November
      30, 2007
                                    
                                    
                                    November
      30, 2008
                                    
                                    
                                    November
      30, 2007REVENUESMusic
      sales, net
                                    
                                    
                                    3,720
                                    
                                    
                                    
                                    575
                                    
                                    
                                    $
                                    (7,090
                                    )
                                    
                                    $
                                    11,951Advertising,
      web site
                                    
                                    
                                    1,500
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,500Total
      Revenues
                                    
                                    
                                    5,220
                                    
                                    
                                    
                                    575
                                    
                                    
                                    
                                    (5,590
                                    )
                                    
                                    
                                    11,951COSTS
      AND EXPENSESCost
      of musicRoyalties
      - related party
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,844Production
      costs
                                    
                                    
                                    1,816
                                    
                                    
                                    
                                    336
                                    
                                    
                                    
                                    14,774
                                    
                                    
                                    
                                    636Selling,
      general and administrative:Compensation
      - stock based and contributed
                                    
                                    
                                    59,816
                                    
                                    
                                    
                                    93,863
                                    
                                    
                                    
                                    88,366
                                    
                                    
                                    
                                    157,675Paid
      Compensation and Payroll Taxes
                                    
                                    
                                    
                                    
                                    
                                    
                                    16,393
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    16,393Other
                                    
                                    
                                    39,912
                                    
                                    
                                    
                                    103,241
                                    
                                    
                                    
                                    170,853
                                    
                                    
                                    
                                    154,784Interest
      expense - related parties
                                    
                                    
                                    11,948
                                    
                                    
                                    
                                    17,824
                                    
                                    
                                    
                                    23,292
                                    
                                    
                                    
                                    28,608Interest
      expense - other
                                    
                                    
                                    -
                                    
                                    
                                    
                                    330
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    723Depreciation
      and amortization
                                    
                                    
                                    3,192
                                    
                                    
                                    
                                    3,192
                                    
                                    
                                    
                                    6,016
                                    
                                    
                                    
                                    6,521Total
      costs and expenses
                                    
                                    
                                    116,684
                                    
                                    
                                    
                                    235,179
                                    
                                    
                                    
                                    303,301
                                    
                                    
                                    
                                    368,184Other
      Income
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    47Gain
      on Cancellation of Compensation Options
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    137,500Gain
      on Cancellation of Shares for Services-Settlement
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    71,250Income
      (Loss) before income taxes
                                    
                                    
                                    (111,464
                                    )
                                    
                                    
                                    (234,604
                                    )
                                    
                                    
                                    (100,094
                                    )
                                    
                                    
                                    (356,233
                                    )Income
      tax expense (benefit)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Income
      (Loss) Before Minority Interest
                                    
                                    
                                    (111,464
                                    )
                                    
                                    
                                    (234,604
                                    )
                                    
                                    
                                    (100,094
                                    )
                                    
                                    
                                    (356,233
                                    )Less
      Minority Interest in Affiliates' losses
                                    
                                    
                                    2,050
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    59,710NET
      INCOME (LOSS)
                                    
                                    $
                                    (109,414
                                    )
                                    
                                    $
                                    (234,604
                                    )
                                    
                                    $
                                    (40,384
                                    )
                                    
                                    $
                                    (356,233
                                    )EARNINGS
      (LOSS) PER SHARE - BASIC
                                    
                                    
                                    *
                                    
                                    
                                    
                                    *
                                    
                                    
                                    
                                    *
                                    
                                    
                                    
                                    *WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING - BASIC
                                    
                                    
                                    39,779,631
                                    
                                    
                                    
                                    35,579,774
                                    
                                    
                                    
                                    39,698,580
                                    
                                    
                                    
                                    35,450,758*  less
      than $.01 per shareSEE
      ACCOMPANYING NOTES TO FINANCIAL
STATEMENTS





4


FUEGO
      ENTERTAINMENT, INC. AND AFFILIATECONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)For
      the Six Months EndedNovember
      30, 2008
                                
                                
                                November
      30, 2007OPERATING
      ACTIVITIESNet
      income (loss)
                                
                                $
                                (40,384
                                )
                                
                                $
                                (356,233
                                )Adjustments
      to reconcile net income (loss) to net cash used byoperating
      activitiesContributed
      services
                                
                                
                                39,600
                                
                                
                                
                                41,350Depreciation
      and amortization
                                
                                
                                5,969
                                
                                
                                
                                6,521Stock
      based compensation
                                
                                
                                50,166
                                
                                
                                
                                131,675Changes
      in operating assets and liabilitiesAccounts
      receivable
                                
                                
                                48,017
                                
                                
                                
                                9,849Accrued
      federal Income tax refund receivable
                                
                                
                                -
                                
                                
                                
                                -Accounts
      payable
                                
                                
                                98,340
                                
                                
                                
                                (30,293
                                )Accrued
      interest - related parties
                                
                                
                                22,712
                                
                                
                                
                                23,472Payroll
      tax liabilities
                                
                                
                                345
                                
                                
                                
                                5,193Other
      current liabilities
                                
                                
                                8,375
                                
                                
                                
                                1,597Production
      costs-music
                                
                                
                                (5,700
                                )NET
      CASH (USED BY) OPERATING ACTIVITIES
                                
                                
                                227,440
                                
                                
                                
                                (166,869
                                )INVESTING
      ACTIVITIESNoncontrolling
      interest in affiliate
                                
                                
                                (59,710
                                )Web
      portal
                                
                                
                                -
                                
                                
                                
                                (3,882
                                )Deposit
      on music library
                                
                                
                                -
                                
                                
                                
                                (42,500
                                )Purchase
      of equipment
                                
                                
                                1,164NET
      CASH (USED BY) INVESTING ACTIVITIES
                                
                                
                                (58,546
                                )
                                
                                
                                (46,382
                                )FINANCING
      ACTIVITIESProceeds
      from sale of common stock
                                
                                
                                6,800
                                
                                
                                
                                12,450Stock
      options issued for debt reduction
                                
                                
                                17,000Cancellation
      of compensation options
                                
                                
                                (137,500
                                )Cancellation
      of shares for services
                                
                                
                                (7,000
                                )Cancellation
      of shares for services-settlement
                                
                                
                                (71,250
                                )Common
      stock subscription payable
                                
                                
                                -
                                
                                
                                
                                65,000Common
      stock issued for debt reduction
                                
                                
                                64,500
                                
                                
                                
                                78,750Proceeds
      from notes payable - related parties
                                
                                
                                31,602
                                
                                
                                
                                74,733Repayments
      of notes payable - related parties
                                
                                
                                (78,351
                                )
                                
                                
                                (17,682
                                )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                
                                
                                (174,199
                                )
                                
                                
                                213,251NET
      INCREASE (DECREASE) IN CASH
                                
                                
                                (5,305
                                )
                                
                                
                                -CASH,
      BEGINNING OF YEAR
                                
                                
                                7,754
                                
                                
                                
                                -CASH,
      END OF YEAR
                                
                                $
                                2,449
                                
                                
                                $
                                -SEE
      ACCOMPANYING NOTES TO FINANCIAL
STATEMENTS







5




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


6




CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)-
continued




Balance,
      May 31,  2008
                              
                              
                              39,476,020
                              
                              
                              $
                              39,477
                              
                              
                              $
                              1,032,968
                              
                              
                              $
                              233,027
                              
                              
                              $
                              45,000
                              
                              
                              $
                              354,243
                              
                              
                              $
                              -
                              
                              
                              $
                              (1,036,317
                              )
                              
                              $
                              668,398(Unaudited)Proceeds
      from sale of common stock for$.085
      per share
                              
                              
                              80,000
                              
                              
                              
                              80
                              
                              
                              
                              6,720
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              6,800Stock
      based compensation$.14
      per share
                              
                              
                              62,500
                              
                              
                              
                              62
                              
                              
                              
                              8,687
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              8,749$.10
      per share
                              
                              
                              316,666
                              
                              
                              
                              317
                              
                              
                              
                              31,350
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              31,667$.15
      per share
                              
                              
                              65,000
                              
                              
                              
                              65
                              
                              
                              
                              9,685
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              9,750Stock
      Issued for debt reduction$.15
      per share
                              
                              
                              180,000
                              
                              
                              
                              180
                              
                              
                              
                              26,820
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              27,000$.10
      per share
                              
                              
                              375,000
                              
                              
                              
                              375
                              
                              
                              
                              37,125
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              37,500Stock
      options issued for debt reduction
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              17,000
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              17,000Cancellation
      of shares for services-settlement
                              
                              
                              (475,000
                              )
                              
                              
                              (475
                              )
                              
                              
                              (70,775
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (71,250
                              )Cancellation
      of shares for services
                              
                              
                              (25,000
                              )
                              
                              
                              (25
                              )
                              
                              
                              (6,975
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (7,000
                              )Cancellation
      of compensation options
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (137,500
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (137,500
                              )Contributed
      services
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              39,600
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              39,600Noncontrolling
      interest in affiliate
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (59,710
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (59,710
                              )Net
      income for the period
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (40,384
                              )
                              
                              
                              (40,384
                              )Balance,
      November 30,  2008 (Unaudited)
                              
                              
                              40,055,186
                              
                              
                              $
                              40,056
                              
                              
                              $
                              1,115,205
                              
                              
                              $
                              112,527
                              
                              
                              $
                              45,000
                              
                              
                              $
                              294,533
                              
                              
                              $
                              -
                              
                              
                              $
                              (1,076,701
                              )
                              
                              $
                              530,620SEE
      ACCOMPANYING NOTES TO FINANCIAL
STATEMENTS







7
 FUEGO
ENTERTAINMENT, INC.
 NOTES
TO FINANCIAL STATEMENTS
 (Unaudited)
 For the six months ended
November 30, 2008 and 2007





1.
              BASIS
      OF PRESENTATION
 
 Our
consolidated financial statements include the accounts of Fuego Entertainment,
Inc. and its majority-owned limited liability company, Echo-Fuego Music Group,
LLC.  All significant intercompany accounts and transactions have been
eliminated in the consolidation.
 
 Minority
interest represents the minority partner’s, Jeffrey Collins (Echo-Vista,
Inc.)  49% ownership interest in Echo-Fuego Music Group,
LLC.
 
 In the
opinion of management, the accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the Company’s financial position as of November 30, 2008 and the results
of  its operations and cash flows for the six months ended November
30, 2008 and 2007 have been made.  Operating results for the six
months ended November 30, 2008 are not necessarily indicative of the results
that may be expected for the year ended May 31, 2009.
 
 These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company’s Form 10-KSB for the year
ended May 31, 2008.
 
  2.
              NATURE
      OF BUSINESS
  Fuego
Entertainment, Inc. (the “Company”,”Fuego”.”we”,”our” or “us”) was formed on
December 30, 2004 as a Florida corporation and is primarily engaged in the
directing, production, marketing, and distribution of entertainment products,
including feature and short films, documentaries, television shows, music, and
tour productions. We also provide management, marketing, and public relations
services to the entertainment industry.  In January, 2008 Fuego
announced it formed a new music division, Echo-Fuego Music Group, LLC, in a
joint venture with legendary music producer and promoter Jeffrey Collins. His
music catalog of more than 2,000 tracks and 15 artists previously under the
Echo-Vista label will be merged into the new joint venture, with a majority
stake owned by Fuego.During the year ended May 31, 2008 the majority of revenues earned were
earned from the sale of musical tracks and advertising revenue on our website
www.fuegoentertainment.net.
 
  3.
              SIGNIFICANT
      ACCOUNTING POLICIES
  GOING
CONCERN
 
 Our
financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Our ability to continue in
existence is dependent on its ability to develop additional sources of capital,
or achieve profitable operations. We sustained significant losses in the last
two years and we have deficits in working capital, however we were profitable in
current period. Our financial position at that date and presently is of great
concern to us and our investors, however, management’s plan is to obtain
additional capital and to to continue to develop, market and distribute musical
tracks through Fuego and its joint venture, Echo-Fuego Music Group, LLC. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
  8
 FUEGO
ENTERTAINMENT, INC.
 NOTES
TO FINANCIAL STATEMENTS
 (Unaudited)
 For the six months ended
November 30, 2008 and 2007
  4.
              RELATED
      PARTY TRANSACTIONS
  ·
              Ciocan
      is an entertainment company owned by our President/CEO that creates
      products for the Latino Market worldwide and anticipates using us to
      market, promote and commercialize some of its products (music, films,
      documentaries, artist, etc) for the Anglo and international markets.
      During the current period, Ciocan did not advance any funds. In addition,
      Ciocan did not earn any music royalties in the current period. The amount
      owed for royalties to Ciocan as of November 30, 2008 was
      $40,798.
  ·
                      Our
      President/CEO is owed $214,979 on a net consolidated basis as of November
      30, 2008 for cash advances to the company for a variety of general and
      administrative expenses and the development of TV station programming.
      During the current quarter he advanced $48,988 and was repaid $69,339. No
      interest was paid on this date which accrues at 15 percent per annum and
      is payable on June 1, 2009. Accrued interest totaled $22,711 as of
      November 30, 2008.  In January 2009 the Company reached an
      agreement with our President and CEO to cancel indebtedness to him in the
      amount of $110,000 in exchange for the transfer of 110,000 Beverage Plus
      AG shares held by us.·
                      Fees
      incurred in the six month period ended November 30, 2008 for a related
      party accounting firm totaled $15,204. The accounting firm received
      100,000 options in payment of certain outstanding invoices for accounting,
      tax and financial statement preparation services.  The amount
      owed to the firm as of November 30, 2008 was $34,145.·
                      As
      part of the Echo-Fuego Music Group, LLC joint venture with music producer
      and promoter Jeffrey Collins, there was an initial amount owed in January
      2008 was $100,000. Jeffrey Collins received 100,000 shares as a partial
      payment on the outstanding balance.  The amount owed to the
      Jeffrey Collins as of November 30, 2008 was
  $28,119.
   6.
              CONTRIBUTED
      CAPITAL
 
 For the
three months ended November 30, 2008, the President contributed a total of
$19,800 consisting of $13,500 for the value of services, $1,500 for the prorata
share of auto expenses, and $4,800 for the rent of corporate office
facilities.
 
 
 7.
              ISSUANCE
      OF RESTRICTED COMMON STOCK
 
 In the
current quarter, principally in connection with our efforts to obtain additional
capital to sustain our business, the following restricted stock was issued.
Restricted shares of stock consisted of 444,166 issued to an various individuals
for services rendered. In addition, Jeffrey Collins, was issued 100,000 shares
in partial payment of an outstanding balance.
 
 During
the quarter ended November 30, 2008, we issued 80,000 shares of our common stock
for cash at $0.085 per share. These shares were purchased by our related party
Securities attorney.
 
 In
addition to the shares issued above, we also issued our President 275,000 shares
of our common stock in partial payment of our debt owed to him. We also issued
180,000 shares of our common stock to vendors in satisfaction of their
outstanding balances.
  We also
cancelled 25,000 shares of our common stock that was issued originally to a
director that could not serve their entire term of office.
  9
 FUEGO
ENTERTAINMENT, INC.
 NOTES
TO FINANCIAL STATEMENTS
 (Unaudited)
 For the six months ended
November 30, 2008 and 2007
  8.
              OTHER
 
 The
Beatles
 On
January 10, 2008 Fuego and Jeffrey Collins (Echo Vista, Inc.) through Echo-Fuego
Music Group, LLC announced plans to sell the eight “lost” Beatles’ club
recordings. Apple Corps Limited, representing the Beatles, was seeking to have
Fuego remove any information about the planned release from Fuego’s website, was
requiring Fuego to cease any use of the trademark, The Beatles, for commercial
purposes, and was also seeking $15 million in the lawsuit filed against Fuego,
Echo-Fuego Music Group, LLC, Hugo Cancio and Jeffrey Collins.
 
 On April
4, 2008, Apple Corps Limited and Fuego struck an injunction agreement approved
by a Miami U.S. District Judge that requires Fuego to halt plans to release the
eight song recordings. On May 16, 2008, Fuego Entertainment filed a motion to
dismiss the lawsuit brought by Apple Corps Limited and Apple Records, Inc. as a
matter of law.  In the motion to dismiss Fuego Entertainment asserted that
as a matter of law Fuego has the right to commercially exploit the 15 “Lost”
1962 Beatles recordings.
 
 On
October 15, 2008 Fuego Entertainment entered into a private settlement agreement
with Apple Corps Limited and Apple Records, Inc. (representing The Beatles)
which resolves the lawsuit against Fuego Entertainment and others to the
parties' mutual satisfaction.  Fuego has agreed not to release, distribute,
sell or otherwise exploit any recordings containing The Beatles performances
from the Star Club in Hamburg, Germany in 1962.
 
 Stock
Option Plan
 We have
issued restricted shares of common stock and stock options to compensate
non-employees who were principally key personnel.  Effective January
1, 2006, we adopted the fair value recognition provisions of SFAS 123R, Share-Based Payments ("SFAS
No. 123(R)"), which is a revision of SFAS No. 123 which requires that stock
awards granted to directors, consultants and other non-employees be recorded at
the fair value of the award at grant date .
 
 On
February 5, 2008, we registered the “2008 Stock Option Plan of Fuego
Entertainment, Inc.” The purpose of this Plan is to strengthen Fuego
Entertainment, Inc. (hereinafter the “Company”) by providing incentive stock
options as a means to attract, retain and motivate key corporate personnel,
through ownership of stock of the Company, and to attract individuals of
outstanding ability to render services to and enter the employment of the
Company or its subsidiaries. There shall be two types of Stock Options that may
be granted under this Plan: (1) Options intended to qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code (“Qualified Stock
Options”), and 2) Options not specifically authorized or qualified for favorable
income tax treatment under the Internal Revenue Code (“Non-Qualified Stock
Options”).
 
 During
the year ended May 31, 2008, the estimated value of the compensatory common
stock purchase options granted to non-employees in exchange for services and
financing expenses was determined using the Black-Scholes pricing model and the
following assumptions: expected term of 3 years, a risk free interest rate of
3.30%, a dividend yield of 0% and volatility of 137%. The amount of the expense
charged to operations for compensatory options and warrants granted in exchange
for services was $226,727.
 
 For three
months ended August 31, 2008, various stock option agreements have been canceled
for various reasons, mainly that the recipients did not serve a full year as
members of our Board of Directors, thereby as stipulated in our stock option
agreement management at its own discretion canceled those stock option
agreements and recorded as other income, Gain on Cancellation of Compensation
Options for $ 137,500.
  10
 FUEGO
ENTERTAINMENT, INC.
 NOTES
TO FINANCIAL STATEMENTS
 (Unaudited)
 For the six months ended
November 30, 2008 and
2007
   9.
              SUBSEQUENT
      EVENTS
 
 Related
Party Transactions
 
 In
January 2009, the Company reached an agreement with our President and CEO to
cancel indebtedness to him in the amount of $110,000 in exchange for the
transfer of 110,000 Beverage Plus AG shares held by us.
 
 Settlement
Negotiations
 
 As the
result of the unexpected litigation with Apple Corporation (as referenced in
Note 8, Beatles) the music catalog acquired by Fuego from Echo-Fuego, our
affiliate, we have decided to revoke Jeffrey Collins’ rights to the one hundred
thousand shares issued to him as partial payment of the debt owed by us. We are
also in negotiations to cancel the remaining debt to Mr. Collins. As per our
agreement, Mr. Collins is liable for any third party claims as a result of the
acquisition of his music catalog by us. We are therefore negotiating a
settlement that Mr. Collins will also assume responsibility for all legal fees
incurred by Echo-Fuego and Fuego Entertainment as the result of this
litigation.













11


Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
 The
following discussion is intended to provide an analysis of the Company’s
financial condition and Plan of Operation and should be read in conjunction with
the Company’s financial statements and the notes thereto set forth herein. The
matters discussed in this section that is not historical or current facts deal
with potential future circumstances and developments. The Company’s actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below. 
 Plan
of Operation
 
 We have
been in operation since December 30, 2004. Our efforts have largely been to
generate cash flows from operations and cash flow from the sales of our
common shares. The majority of these cash flows were applied towards, production
costs, and the investment in a series of shows, including Havana
Nights.
 
 Since
inception, we have sold music CD’s representing the majority of our music
revenue. In the prior fiscal year we created a music business segment named
Fuego Entertainment Music International (FEMI) the purpose of which is to sell
our music content under this name. Our current main priority is the marketing,
distribution and sale of our music catalog.
  Since
launching FEMI, and lauching our joint venture Echo-Fuego we expanded our
music and video catalog, by signing new artists, and acquiring music masters
containing over 3,800 music tracks. We have also expanded our marketing and
distribution capabilities and enhanced sales in the
process.
 
 We
executed a new deal with The Orchard (ORCD - News), a global
leader in digital music and entertainment, to add more than 1.1 million tracks
from The Orchard's catalog to the digital download store www.FuegoMio.com. The addition of
The Orchard music catalog, which includes one of the largest and best Latin
music offerings available, will increase the total tracks available for sale on
the Fuego music store to about 2.5 million tracks. In addition to the hundreds
of thousands of songs spanning nearly every genre, The Orchard will deliver a
diverse offering of Latin artist tracks by the likes of Daddy Yankee, Joan
Sebastian, Hector Lavoe, Antonio Aguilar, Willie Colon, Cuisillos, Ivy
Queen.
  We
 executed an agreement with IODA, the global leader in digital
distribution, marketing, and technology solutions for the independent music and
film industry, the Company will be adding more than one million music tracks and
over two thousand video and film titles to our FuegoMio.com music and video
retail store. The addition of more than one million music tracks and over two
thousand video and film titles from IODA is an important step in Fuego
Entertainment's commitment to becoming one of the largest music and video
digital retail stores. Through Fuego's new digital retail music store, www.FuegoMio.com, the
Company will be providing high quality digital audio content. As IODA continues
to grow its music, film and video catalogs, it is expected that Fuego will
continue to receive new releases.
 
 We also
executed an agreement with UK digital distributor Vidzone.  Most recently
we executed a publishing agreement with Ediciones Musicales Clippers. On March
1, 2007 we retained the services of Adolfo Fernandez, a prestigious publicist
from F&F Media Group. Mr. Fernandez's firm represents companies such as WEA
Music, Sony BMG, Televisa Group, Univision Music Group, EMI US Latin, EMI Music
Colombia, Venemusic, Fonosound, Grupo Origin, Warner Music Latina, and others.
Mr. Fernandez has worked with many artists such as Andrea Bocelli, Ricky Martin,
Alejandro Sanz, Mark Anthony, Shakira, Gilberto Santarosa, Jennifer Lopez, and
others.
  Sales
Strategy
  We
leverage our relationships in traditional channels of distribution for retail
and other media outlets to sell its content. Additionally, the Company is
actively developing new media distribution outlets by launching digital
distribution of music and video content through agreements with The
Orchard, IODA, Koch Entertainment and VidZone. Various radio stations,
television producers, newspaper editors, and other traditional media is
regularly informed on Fuego’s activities to push other avenues for sales
growth.
   12
  Item 2. Management's Discussion and
Analysis of Financial Condition and Results of
Operations- continued
  Digital
distribution has become the focus of Fuego’s sales strategy, utilizing the
Internet instead of bricks and mortars to compete for music sales. In
aggregating content, Fuego currently has agreements with three major
distributors, Koch Entertainment LP (“Koch”), The Orchard Enterprises, Inc.
(“The Orchard”), and Independent Online Distribution Alliance, Inc. (“IODA”).
The Orchard (NASDAQ: ORCD) currently distributes to the iTunes Store, which as
of April 3, 2008, surpassed Wal-Mart to become the number one music retailer in
the US based on the latest data from the NPD Group. With over 50 million
customers, iTunes has sold over four billion songs and features the world’s
largest music catalog of over six million songs. Fuego intends to follow the
same operating model of the iTunes Store by focusing on Latin customer
demographics.
  Target
Markets
  We offer
our media and entertainment products with a Latin flair in the English language,
gaining a crossover into English-speaking markets with a focus on the
Hispanic/Latin market.
  We have
focused on the creation and development of our four filming projects. Three of
the four projects are documentaries titled One Million Millionaires, Gold in
Ecuador and Counterfeit Conspiracy. The fourth project is a reality television
series titled The Trader. Our four filming projects, all in the development
stage, cost $
45,509 as of November 30, 2008.  The work in progress includes
script development, principal photography, sound engineering, personnel, such as
a cameraman, producer and assistant producer, location permits, filming
insurance, equipment rental travel and hotel accommodations and crew meals. No
general and administrative costs were capitalized.
 
 Operating
expenses for the three months ended November 30, 2008 were principally for
selling, general and administrative expenses, the major components of which were
stock based compensation costs of$ 59,816,
and audit and accounting fees of $
30,479.
 
 In
general, our filming projects are in final stages of development. We have no
plans to engage in any more in house productions until we have completed the
four current projects that we have undertaken to complete, thereby reducing the
possibility of incurring further significant costs. Until our in process
production filming projects are completed, we believe we can sustain our cash
flows through sales of our music, television and film content, publishing
revenues and work for hire such as the sale of corporate videos, from consulting
services, and from the sale of our common stock should our expected cash flows
in the next 12 months require it.  However, there is no guarantee that
our cash flow requirements will exceed the amount of funds received from the
sale of securities or the cash flow generated from our current operation
activities.
 
 Our
minimum expected cash flows to continue our current level of operations during
the next 12 months is approximately $375,000 , however up to $750,000 would be
needed to pursue our goals during that period. These additional funds would be
needed to license products from other parties and properly market, promote and
distribute them, including our own projects presently in process. To date our
revenues have been largely generated from sales of our music content. If the
additional $375,000 , is not raised, we may be unable to continue
operations.
 
 We
previously entered into a 10-year licensing agreement with Ciocan for
their music library catalogue. This library consists of 33 finished albums (over
300 tracks) by 8 different artists who are exclusively recording with Ciocan for
the release of other future projects. Ciocan has marketed the catalogue to the
Latin market, but we plan to penetrate the non-Hispanic markets and develop the
current marketing efforts within the Latin base. We plan to develop live
productions for artists we intend to sign. The agreement to license Ciocan's
music requires us to pay a royalty of 25% of the net sales proceeds quarterly
from sales.
  The
President and CEO of the Company own 100% of the rights to a popular film he
owns and produced in Cuba called Zafiros Lucura Azul (Sapphire Blue
Maddness).  This film has never been distributed or commercialized. We
acquired from Mr. Hugo Cancio the right to market, promote, and distribute the
film in all formats: Theatrical release, Television, cable, DVD. This is part of
a 10 year licensing agreement in which Fuego Entertainment will keep 75% of the
net revenues generated. There was no payment of any kind involved in the
transaction.  We will account for all sales and costs on a gross
basisfor the above
agreements in accordance with the criteria set forth in Emerging Issues Task
Force Abstract Issue No. 99-19, since we will be responsible for all
production and distribution costs and expenses, and have full discretion in
selecting suppliers and product specifications. If there are no net proceeds
after one year, all rights revert to the producer.
 
  13
  Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations- continued
  Additional
sources of income may include projects where we will also act as an agent and
contract organization for certain entertainment projects that are fully
developed by others. These services may include marketing, distribution,
principal photography, development, pre- and post-production, introductory
services, and many others that are within our realm of expertise. To date, we
currently do not have any agreements or projects whereby we act as an
agent.
 
 For the
past twelve months, we have continued to generate revenues by engaging in work
for hire projects and through the sales of our music CD’s.  Although we
continued to work on our television projects, our main focus was shifted to our
music business divisions FEMI and FPG.
 
 In the
past few month we have brached out into the production of live music events. Our
goal is  utilize our relationships our recording artist to also
produce our live music events. We believe have access to the artist recordings,
marketing, distributing their recording and producing their live acts will be a
great opportunity to expose our products and create a new source of
revenues. We have scheduled over 12 live music events during the next coming
months. These events will include some of Cuba’s most popular
artist  which we hope to optain visas and working permits
permissable.  In order to fully achieve our plans, we require
additional capital of$ 475,000.
 
 Fuego has
an arrangement with Tota Productions, a music and video production company
located in Torino, Italy, that produces Spanish Hip Hop and Pop artists from
Europe.  Under the arrangement we obtained the ownership of over 300 CD
masters and supporting data with which to market the
library.
  We have
generated revenues from sales of our music, television and film content,
publishing revenues and work for hire such as the production of corporate videos
and consulting services. It is our intention to continue offering
these services as they incur no material costs or expenses by the
Company, as they are mostly borne by the clients.  Our efforts
are provided by Mr. Cancio whose compensation has been and will continue to be
contributed to the Company until we reach profitable ongoing operations. We have
also generated revenues by providing consulting services to companies that are
in need of reaching the US Hispanic/ Latino Markets with their products or
services. Consulting services do not incur material costs or expenses since such
services are provided solely by Mr. Cancio. We will continue seeking these
consulting activities in order to generate revenues.
 
 Results
of Operations for the Three Month and Six Month Periods ended November 30, 2008,
Compared to prior year periods ended November 30, 2007
  Revenues
and Cost of Filming and Music
 
 The
Company's major revenue source has shifted from filming based to music based. As
a result, in the prior year ended May 31, 2007, filming revenue represented 80%
of all revenues generated and music revenue producing projects had not yet been
entered into. In the current year ended May 31, 2008 and six month ended
November 30, 2008, filming revenues represented  0% of total revenues.
We earned $5,220 for the three months ended November 30, 2008 as compared to
$575 for the three months ended November 30, 2007.  We earned a net
negative revenue of $5,590 for the six months ended November 30, 2008 as compare
to $11,951 for the six months ended November 30, 2008.  The current
direction of the Company is towards generating revenues from music sales and
live concert events.
 
 Operating
Expenses
 
 The
current year's operating activities were more involved since they included the
stock based compensation. For the three month period ended November 30, 2008 we
incurred $59,816 of stock-based compensation as compared to $93,863 for the
three month period ended November 30, 2007.  We incurred $88,366 in
stock-based compensation for the six month period ended November 30, 2008 and
$157,675 for the six month period ended November 30, 2007.  However it
should be noted that the stock based compensation of $137,500 reported for 2007
was later recaptured as income for services not rendered by certain directors.
Other selling, general and administrative expenses were $39,912 for the three
month period ended November 30, 2008 as compared to $119,634 for the three month
period ended November 30, 2007.  We incurred $170,853 for the six
month period ended November 30, 2008 as compared to $154,784 for the six month
period ended November 30, 2008. In the prior fiscal year, development expenses
incurred towards the effort to determine the viability of a Puerto Rico
television station of $97,146 and the non recoverability of an Affiliation
Agreement of $50,000  were incurred. Other selling, general and
administrative expenses of the current year were in line with the level of
expenses incurred in the prior year.
  14
 
 Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations- continued
  Liquidity
and Capital Resources
 
 The
Company has a deficit in working capital at year end, and is past due on the
majority of its accounts payable. It has no line of credit or other outside
financing sources presently to enable it to finance exist operations, and is
dependent on its music sales and the occasional planned sales of its investment
in securities in Beverage Plus AG for current cash flows. Accordingly, it is
presently seeking financing to continue in existence. Up to the date of this
report, the Company is primarily dependent on its President/CEO for all revenue
generating opportunities as well as on-going cash flow
requirements.
  Material
Commitments
 
 We have
no material commitments as at the date of this registration
statement.
 
 Purchase
of Significant Equipment
 
 We do not
intend to purchase any significant equipment during the next twelve (12)
months.
 
 Recent
Accounting Pronouncements
  In
December 2004, the FASB issued SFAS 123R, Share Based Payments. SFAS 123R is
applicable to transactions in which an entity exchanges its equity instruments
for goods and services. It focuses primarily on transactions in which an entity
obtains employee services in share-based payment transactions. SFAS No. 123R
supersedes the intrinsic value method prescribed by APB No. 25, requiring that
the fair value of such equity instruments be recorded as an expense as services
are performed. Prior to SFAS 123R, only certain pro forma disclosures of
accounting for these transactions at fair value were required. SFAS 123R will be
effective for the first quarter 2006 financial statements, and permits varying
transition methods including retroactive adjustment of prior periods or
prospective application beginning in 2006. The Company adopted SFAS 123R using
the modified prospective method effective January 1, 2006. Under this transition
method the Company will begin recording stock option expense prospectively,
beginning with that date.
   Item
3. Quantitative and Qualitative Disclosures About Market Risk
  Not
required.
   Item
4T. Controls and Procedures
  Evaluation
of Disclosure Controls and Procedures
  Disclosure
controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports
filed under the Securities Exchange Act of 1934 is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
  As of the
end of the period covered by this report, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of our Principal Executive Officer
and Principal Financial Officer. Based upon that evaluation, he concluded that
our disclosure controls and procedures were ineffective in gathering, analyzing
and disclosing information needed to satisfy our disclosure obligations under
the Exchange Act.
  There
were no changes in internal controls over financial reporting that occurred
during the last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the internal control over financial
reporting.  We also note the incorrect characterization of production
costs in our statement of cash flows that resulted in a material change to cash
flows from operating and investing activities.
  In
connection with the development of a leased TV channel in Puerto Rico, the
Company shared in paying for certain expenses including travel, lodging and
meals for its President, in connection with the pursuit of available TV
programming in that area. There was inadequate documentation to support the
allocation of such expenses between the Company and the TV station owned by the
Company’s president. In addition there were no signed agreements between the
Company and the personnel retained to perform services in connection with
obtaining TV programming which should disclose as a minimum, the nature of the
services to be rendered, the amount of periodic compensation being paid and the
term of the services.
  The lack
of support concerning the above matters was considered to be a material weakness
in internal control, which weakness commenced during the entire period from
inception of the Company as to the first matter and the last quarter of the
fiscal year ended May 31, 2008, as to the second matter.
  The
President of the Company has since required documentation for all disbursements,
has recorded in a journal the information necessary to allocate amounts among
entities, and will obtain written agreements for all services to be provided to
the Company.
  Changes
in Internal Controls
  There
were no changes in our internal controls or in other factors that could
significantly affect those controls since the most recent evaluation of such
controls.
 
 
 15
  PART
II - OTHER INFORMATION
  Item
1. Legal Proceedings
  Other
than what is disclosed in this section, we were not a party to any legal
proceedings during the reporting period, and we know of no legal proceedings
pending or threatened or judgments entered against any director or officer of
the Company in their capacity as such.
  In the
matter of the Miami case of Apple Corp Vs. Hugo Cancio and Fuego Entertainment,
We entered into a private settlement agreement with Apple Corps Limited and
Apple Records, Inc. (representing The Beatles) which resolves the lawsuit
against Fuego Entertainment and others to the parties' mutual
satisfaction.  Fuego has agreed not to release, distribute, sell or
otherwise exploit any recordings containing The Beatles performances from the
Star Club in Hamburg, Germany in 1962.
 
 In the
matter of the lawsuit filed by, Genovesse, Joblove and Battista as the result of
a billing dispute over the final legal bill. We are yet to file an answer to
plaintiff complaint. We have requested several extensiond to file our
response while working with plaintiff to resolve this legal dispute in
private.
  In the
matter of Fuego Entertainment, Inc Vs. Var Growth Corporation and Barry Davis
and Ice Cold Stocks, Fuego filed a lawsuit against this individuals for money
damages and for injunctive relief as to shares issued to the Defendants but
allegedly not earned. In July, 2008, the case was settled out of court via
private agreement and the lawsuit dismissed. Fuego agreed to drop all legal
action against Var Growth. Var Growth retained 400,000 shares of Fuego stock and
Var Growth returned 475,000 shares of Fuego stock.
  In the
Nevada case in the matter of Fuego Entertainment, Inc Vs. Nicole Durr and
Viashow Inc., Fuego filed a lawsuit against these organizations and individuals
associated with an allegation that the Defendants failed to pay necessary
royalties to Fuego and that the Defendants failed to conduct a full five-city
schedule of the Havana Night Club show. The show originally appeared in Miami,
FL and was scheduled to appear in New York, New Jersey, Chicago, Dallas, Houston
and or California. The Defendants failed to run any of these shows. The case is
not yet set for a hearing. The parties entered into initial settlement
negotiations. There is no resolution of the case as of the date of this
filing.
   Item
1A. Risk Factors.
 Not
required.
  Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
 Item 3.
Defaults Upon Senior Securities
  None
  16
 Item
4. Submission of Matters to a Vote of Security Holders
  None.
   Item 5. Other
Information
  None.
   Item
6. Exhibits
 Exhibit
    Number
                      Description31.1
                      Certification of Chief Executive Officer pursuant
      to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200231.2
                      Certification of Chief Financial Officer pursuant
      to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1
                      Certification of Chief Executive Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
                      Certification of Chief Financial Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
   SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  Fuego Entertainment,
      Inc.Date: January
      20, 2009
                          By:
                          /s/ 
      Hugo M. CancioHugo
      M. CancioTitle:
      Principal Executive Officer




Date:
      January 20, 2009
              By:
              /s/ 
      Hugo M. CancioHugo
      M. CancioTitle:
      Principal Accounting Officer




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




Date:
      January 20, 2009
            By:
            /s/ 
      Hugo M. CancioHugo
      M. CancioTitle:
      Director


17