-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VpAqU8LgvF9bQmFl6jNNeH/m/6FEX1npPXA8tf9GG2kgwrpC2kFoZE2fZ8TE4vK1 o0fmD1dn94b9cyWjcIWrTg== 0001144204-04-012764.txt : 20040820 0001144204-04-012764.hdr.sgml : 20040820 20040820124426 ACCESSION NUMBER: 0001144204-04-012764 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGU Entertainment Corp. CENTRAL INDEX KEY: 0001168932 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 841557072 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-86244 FILM NUMBER: 04988223 BUSINESS ADDRESS: STREET 1: 11077 BISCAYNE BLVD STREET 2: SUITE 100 CITY: MIAMI STATE: FL ZIP: 33161 BUSINESS PHONE: 305-899-6100 MAIL ADDRESS: STREET 1: 11077 BISCAYNE BLVD STREET 2: SUITE 100 CITY: MIAMI STATE: FL ZIP: 33161 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON BARRON TECHNOLOGIES INC DATE OF NAME CHANGE: 20020312 10QSB 1 v05780.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934 For the transition period from ________ to ________ COMMISSION FILE NUMBER: 005-79752 AGU ENTERTAINMENT CORP. --------------------------------------------------------------------- (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) COLORADO 84-1557072 --------------------------------- ------------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 11077 BISCAYNE BLVD., SUITE 100 MIAMI, FL 33161 --------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (305) 899-6100 --------------------------------------------------------------------- (ISSUER'S TELEPHONE NUMBER) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the issuer's common stock, no par value, outstanding as of August 16, 2004 was 21,395,791. Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X]
AGU ENTERTAINMENT CORP. (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) FORM 10-QSB INDEX PAGE PART I. UNAUDITED FINANCIAL INFORMATION ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheet as of June 30, 2004 (unaudited) 3 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2003 (unaudited) 4 Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2004 and 2003 and Inception through June 30, 2004 (unaudited) 5 Condensed Consolidated Statement of Changes in Shareholders Deficiency 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 and Inception through June 30, 2004 (unaudited) 7 Notes to Condensed Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Controls and Procedures 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other information 16 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 17
FORWARD LOOKING STATEMENTS This report includes a number of "forward-looking statements" as that term is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements reflect management's current views with respect to future events and financial performance and include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of such factors. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. 2 PART 1. UNAUDITED FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2004 (UNAUDITED) ASSETS Current Assets: Cash $ 600 Note receivable, related party 15,500 Prepaid expenses 101,588 ----------- Total current assets 117,688 Property and Equipment, net of accumulated depreciation of $54,385 283,252 Intangibles, net 971,935 Other assets 26,604 ----------- Total Assets $ 1,399,479 =========== LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current Liabilities: Accounts payable and accrued liabilities $ 663,722 Subordinated convertible notes 50,000 Notes payable, related parties 428,812 Notes payable, other 1,699,000 Capital leases payable, current 12,439 Equipment note, current 11,739 Other current liabilities 724,796 ----------- Total current liabilities 3,590,508 Capital leases payable - non current 18,019 Equipment note - non current 42,841 Notes payable, related parties - non current 245,493 ----------- Total liabilities 3,896,861 ----------- Commitments and Contingencies -- Shareholders' Deficiency: Preferred stock, no par value; 10,000,000 shares authorized 0 shares issued and outstanding -- Common stock, no par value; 50,000,000 shares authorized, 21,395,791 shares issued and outstanding 769,779 Deficit accumulated during development stage (3,267,161) ----------- Total shareholders' deficiency (2,497,382) ----------- Total liabilities and shareholders' deficiency $ 1,399,479 =========== See accompanying notes to condensed consolidated financial statements 3 AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED) 2004 2003 ------------ ------------ Revenues $ 15,000 $ -- ------------ ------------ Operating Expenses Promotion and advertising 394,263 -- Depreciation and amortization 54,689 -- Other general and administrative costs 1,091,421 26,242 ------------ ------------ Total operating expenses 1,540,373 26,242 ------------ ------------ Operating loss (1,525,373) (26,242) Interest expense 32,640 -- ------------ ------------ Loss before income taxes (1,558,013) (26,242) Income tax provision -- -- ------------ ------------ Net loss $ (1,558,013) $ (26,242) ============ ============ Basic and diluted loss per share $ (0.07) $ (0.00) ============ ============ Weighted average common shares outstanding - Basic and diluted 21,318,560 6,664,014 ============ ============ See accompanying notes to condensed consolidated financial statements 4
AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003, AND FOR THE PERIOD MAY 20, 2003 (INCEPTION) THROUGH JUNE 30, 2004 (UNAUDITED) INCEPTION TO 2004 2003 JUNE 30, 2004 ------------ ------------ ------------ Revenues $ 15,000 $ -- $ 108,209 ------------ ------------ ------------ Operating Expenses Promotion and advertising 528,230 -- 558,532 Depreciation and amortization 66,987 -- 83,485 Other general and administrative costs 1,830,523 26,242 2,684,236 ------------ ------------ ------------ Total operating expenses 2,425,740 26,242 3,326,253 ------------ ------------ ------------ Operating loss (2,410,740) (26,242) (3,218,044) Interest expense 45,154 -- 49,117 ------------ ------------ ------------ Loss before income taxes (2,455,894) (26,242) (3,267,161) Income tax provision -- -- -- ------------ ------------ ------------ Net loss $ (2,455,894) $ (26,242) $ (3,267,161) ============ ============ ============ Basic and diluted loss per share $ (0.14) $ (0.01) $ (0.20) ============ ============ ============ Weighted average common shares outstanding - Basic and diluted 18,125,528 3,332,007 16,306,945 ============ ============ ============
See accompanying notes to condensed consolidated financial statements 5
AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY FOR THE PERIOD MAY 20, 2003 (INCEPTION) THROUGH JUNE 30, 2004 (UNAUDITED) ACCUMULATED COMMON STOCK DEFICIT DURING SHARES AMOUNT DEVELOPMENT STAGE TOTAL ----------- ----------- ----------- ----------- Common stock issued in exchange for cash on May 20, 2003 (inception) 14,628,324 $ 400 $ -- $ 400 Common stock issued in exchange for services, March 22, 2004 2,294,140 28,677 -- 28,677 Recapitalization as a result of merger with Lexington Barron Technologies, Inc. on April 1, 2004 4,230,614 -- -- -- Convertible subordinate notes and accrued interest converted into common stock, April 18, 2004 203,482 610,445 -- 610,445 Notes payable and accrued interest converted into common stock, June 30, 2004 39,231 130,257 -- 130,257 Net loss -- -- (3,267,161) (3,267,161) ----------- ----------- ----------- ----------- Balance at June 30, 2004 21,395,791 $ 769,779 $(3,267,161) $(2,497,382) =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements 6
AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003, AND FOR THE PERIOD MAY 20, 2003 (INCEPTION) THROUGH JUNE 30, 2004 INCEPTION TO 2004 2003 JUNE 30, 2004 ----------- ----------- ----------- Cash flows from operating activities: Net loss $(2,455,894) $ (26,242) $(3,267,161) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 66,987 -- 83,485 Common stock issued as payment for services 28,677 -- 28,677 Decrease in accounts receivable 40,671 -- -- Increase in prepaid expenses (101,588) -- (101,588) Increase in other assets (22,219) -- (26,604) Increase in accounts payable and accrued liabilities 337,213 -- 674,424 Increase in other liabilities 124,796 -- 124,796 ----------- ----------- ----------- Net cash used in operating activities (1,981,357) (26,242) (2,483,971) ----------- ----------- ----------- Cash flows from investing activities: Disbursements for intangibles (51,035) -- (51,035) Increase in note receivable, related party -- -- (15,500) Disbursements for property and equipment (182,159) (350) (236,895) ----------- ----------- ----------- Net cash used in investing activities (233,194) (350) (303,430) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from convertible subordinated notes 50,000 -- 650,000 Proceeds from notes payable to related parties 235,000 -- 349,400 Payment on capital leases (5,224) -- (6,409) Payment of notes payable (30,673) -- (34,390) Proceeds from the sale of common stock -- 400 400 Proceeds from other notes payable 1,829,000 38,182 1,829,000 ----------- ----------- ----------- Net cash provided by financing activities 2,078,103 38,582 2,788,001 ----------- ----------- ----------- Net (decrease) increase in cash (136,448) 11,990 600 Cash, beginning of period 137,048 -- -- ----------- ----------- ----------- Cash, end of period $ 600 $ 11,990 $ 600 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for income taxes $ -- $ -- $ -- =========== =========== =========== Cash paid for interest $ 6,515 $ -- $ 6,515 =========== =========== =========== Non-cash financing activities: Common stock issued as payment for services $ 28,677 $ -- $ 28,677 =========== =========== =========== Conversion of liabilities to common stock $ 740,702 $ -- $ 740,702 =========== =========== =========== Equipment acquired through capital lease obligations $ 12,940 $ -- $ 36,452 =========== =========== =========== Equipment acquired through notes payable $ -- $ -- $ 63,875 =========== =========== ===========
See accompanying notes to condensed consolidated financial statements 7 AGU ENTERTAINMENT CORP. AND SUBSIDIARIES (FORMERLY LEXINGTON BARRON TECHNOLOGIES, INC.) (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION NATURE OF OPERATIONS AGU Entertainment Corp. (formerly Lexington Barron Technologies, Inc.) was incorporated on August 23, 2000 to engage in financial, operational and systems consulting to startup and small businesses. With the exception of the Share Exchange Agreement described in Note 2, AGU Entertainment Corp. ("AGU") was an inactive development stage, public reporting company and did not engage in any significant operations or enter into any material transactions during the first six months of 2004. Prior services have included market research, business plan development, strategy development, financial modeling and forecasting, and pre-IPO and IPO consulting. Effective April 1, 2004, AGU entered into a Share Exchange Agreement with Pyramid Music Corp. ("PMC"), a Florida corporation having an inception date of May 20, 2003, whereby AGU acquired 100% of the outstanding common stock of PMC in exchange for issuing 16,922,464 shares of its common stock (see Note 2). PMC is a development stage company and was formed for the purpose of developing market share in the recording and broadcast media industries through the establishment of a media distribution channel and archived video and music collection libraries. PMC has two wholly-owned operating subsidiaries that are or will become engaged in the following services: (i) the formation and operation of a television network, The Tube Music Network, Inc., ("The Tube") that plans to air traditional music videos and live concerts of contemporary music material that is derived from archived video and music collection libraries, and (ii) a production, marketing and distribution record company, Pyramid Records International, Inc. ("PRI"), that has merged audio, visual and Internet content into one corporate concept. On March 26, 2004, in anticipation of the completion of the share exchange, Lexington Barron Technologies, Inc. changed its name to AGU Entertainment Corp. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of AGU and its subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the regulations of the Securities and Exchange Commission ("SEC") for quarterly reporting. The interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in AGU's annual report on Form 10-KSB as filed with the SEC for the year ended December 31, 2003, and with the audited consolidated financial statements of PMC and its subsidiaries included in the Company's Form 8-K/A filed with the SEC on June 15, 2004. Management acknowledges its responsibility for the preparation of the accompanying interim condensed consolidated financial statements which reflect all adjustments considered necessary, in the opinion of management, for a fair statement of the results of interim periods presented. The accompanying financial statements reflect the results of operations of PMC and its subsidiaries for all periods presented (see Note 2) and the results of AGU beginning April 1, 2004. Because PMC was not formed until May 20, 2003, the financial statements for 2004 are not comparable to those of the prior year. In addition, the results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year. 8 USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SHARE EXCHANGE AGREEMENT On April 1, 2004, under the terms of the Share Exchange Agreement, AGU (an inactive public reporting company) acquired 100% of the stock of PMC in exchange for 16,922,464 newly issued shares of common stock of AGU. The number of shares of AGU exchanged in this transaction represented approximately 80% of the issued and outstanding common stock of AGU. As a result of this transaction, the former shareholders of PMC own, on a fully diluted basis, approximately 80% of the outstanding common stock of the Company, resulting in a change in control. The transaction was accounted for as a reverse merger and recapitalization whereby PMC is deemed to be the acquirer for accounting purposes. Because PMC is deemed to be the surviving accounting and reporting entity, only PMC's historical balances and results of operations are reflected in the accompanying financial statements for all periods presented. At April 1, 2004, AGU had no identifiable assets or liabilities, and the transaction did not have a material effect on PMC's financial condition or results of operations. 3. PREPAID EXPENSES Prepaid expenses include a deposit to an escrow account in connection with a joint venture agreement (see Note 8). On March 25, 2004, PRI committed to a marketing and promotional budget in the amount of $400,000 in connection with a record and DVD distribution project. Of this amount, $200,000 was deposited into an escrow account with an independent trustee by one of the Company's promissory note holders, pursuant to the terms of a trust agreement. As of June 30, 2004 approximately $98,000 had been spent in accordance with the trust agreement and approximately $102,000 remained in the escrow account, reflected as prepaid expenses on the Company's balance sheet. The Company expects to incur the remainder of the expenditure commitment amount prior to December 31, 2004. 4. INTANGIBLES Intangible assets at June 30, 2004 are as follows: Value at Accumulated Balance at acquisition amortization June 30, 2004 ---------- ---------- ---------- Distribution agreement (see Note 5) $ 350,000 $ (29,100) $ 320,900 Other intangibles 651,035 -- 651,035 ---------- ---------- ---------- Total intangibles $1,001,035 $ (29,100) $ 971,935 ========== ========== ========== The distribution agreement is being amortized on a straight line basis over a period of three years. Other intangibles pertain to costs to develop network logos, graphic templates and on-air intersticials for The Tube (see Note 8), which is expected to commence operations in the fourth quarter of 2004. The Company will begin amortizing these assets over their estimated useful lives upon the launch of The Tube. Aggregate amortization expense over the next four years is expected to be as follows: 9 For the year ending December 31: Remainder of 2004 $ 58,333 2005 $442,184 2006 $442,184 2007 $ 29,234 5. DEBT On March 3, 2004, PRI entered into an Assignment and Assumption Agreement with Pyramid Media Group, Inc. ("PMG") (of which a related party and a shareholder of the Company own a controlling interest), whereby PRI agreed to assume all of the covenants and obligations of a Distribution Agreement between PMG and ARK 21 Records, LP ("ARK21"). The Distribution Agreement provides that ARK21 be the exclusive manufacturer and distributor of recorded music, in all contemporary formats, for PRI through normal retail channels throughout the United States. In exchange for the rights to the Distribution Agreement and certain assets of PMG, PRI assumed the obligation to repay $350,000 of notes payable to certain principals of PMG. PMC has guaranteed the payment of these notes, which have an annual interest rate of 8%. Approximately $25,000 of these notes were paid in 2004 and the outstanding balance as of June 30, 2004 is approximately $325,000. At March 31, 2004, the Company had outstanding $650,000 of 5% Convertible Subordinated Notes due November 30, 2004. On April 18, 2004 $600,000 of these notes, plus $10,445 of accrued interest, were converted into 203,482 shares of the Company's common stock at a price of $3 per share, and $50,000 of Convertible Subordinated Notes remained outstanding as of June 30, 2004. In addition to the aforementioned Convertible Subordinated Notes, the Company has issued, since its inception, 5% Promissory Notes in the aggregate amount of $2,178,400 to fund its operations. On June 30, 2004 $130,000 of these notes plus accrued interest were converted into 39,231 shares of the Company's common stock at an average price of $3.30 per share. The outstanding balance on these notes, including those payable to related parties, was approximately $2,048,000 at June 30, 2004, of which $1,150,000 were due at June 30, 2004. On August 13, 2004, the Noteholders agreed to extend the maturity on these notes until October 30, 2004. 6. STOCKHOLDERS' EQUITY On April 18, 2004 $600,000 of the Company's Convertible Subordinated Notes, plus $10,445 of accrued interest, were converted into 203,482 shares of the Company's common stock at a price of $3 per share. On June 30, 2004 $130,000 of notes payable plus accrued interest of $257 were converted into 39,231 shares of the Company's common stock at an average price of $3.30 per share. On March 22, 2004 the Company recognized expense of $28,677 based on the estimated fair value of the shares issued in connection with services rendered to the Company. 7. EARNINGS (LOSS) PER SHARE Basic income or (loss) per share is computed by dividing net income or (loss) attributable to common shareholders by the weighted average number of shares outstanding during the year. Diluted income or loss per share attributable to common shareholders further considers the impact of dilutive common stock equivalents. Diluted (loss) per share has not been presented separately for the three and six months ended June 30, 2004 and 2003 because the effect of the additional shares which would be issued, assuming conversion of the convertible debentures, are anti-dilutive for the aforementioned periods. 10 8. COMMITMENTS AND CONTINGENCIES In June of 2004 the Company entered into an agreement with Radical Media Inc. ("Radical") whereby Radical will design and develop network logos, graphic templates, and on-air intersticials for The Tube. In accordance with the terms of the agreement, the Company paid $50,000 to Radical as of June 30, 2004 and an additional $100,000 in July of 2004. The Company is required to pay an additional $50,000 prior to August 31, 2004, and is required to issue 112,500 shares of its common stock, which the contract values at $450,000, to Radical prior to August 31, 2004. The Company has recorded the entire $650,000 commitment as an intangible asset and the remaining $600,000 of cash and stock consideration yet to be paid as of June 30, 2004 is reflected in Other Current Liabilities on the Company's balance sheet. In accordance with the terms of one of the Company's music projects, the Company has committed to a marketing and promotion expenditure budget of $400,000 to support the project. As of June 30, 2004, the Company has spent approximately $98,000 and expects to spend the remaining $302,000 prior to December 31, 2004. In connection with this commitment, the Company has approximately $102,000 remaining in an escrow account from the proceeds of one of its promissory note issuances. The Company, as of June 30, 2004, had no legal proceedings. From time to time, the Company may be involved as plaintiff or defendant in various legal proceedings arising in the usual course of business. 9. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides guidance for identifying a controlling interest in a variable interest entity ("VIE") established by means other than voting interests. FIN No. 46 also requires consolidation of a VIE by an enterprise that holds such a controlling interest. In December 2003, FASB completed its deliberations regarding the proposed modification to FIN No. 46 and issued Interpretation Numbers 46 (R) "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No. 46 (R)"). The decisions reached included a deferral of the effective date and provisions for additional scope exceptions for certain types of variable interests. Application of FIN No. 46 (R) is required in financial statements of public entities that have interests in VIEs or potential VIEs commonly referred to as special purpose entities for periods ending after December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an impact on the Company's consolidated financial position, results of operations or cash flows. In March 2004, the U.S. Securities and Exchange Commission's Office of the Chief Accountant and the Division of Corporate Finance released Staff Accounting bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative Instruments". This bulletin contains specific guidance on the inputs to a valuation-recognition model to measure loan commitments accounted for at fair value, and requires that fair-value measurement include only differences between the guaranteed interest rate in the loan commitment and market interest rate, excluding any expected future cash flows related to the customer relationship or loan servicing. In addition, SAB 105 requires the disclosure of the accounting policy for loan commitments, including methods and assumptions used to estimate the fair value of loan commitments, and any associated hedging strategies. SAB 105 is effective for derivative instruments entered into subsequent to March 31, 2004 and should also be applied to existing instruments as appropriate. The Company has not yet completed its evaluation of SAB 105, but does not anticipate a material impact on the financial statements. 11 10. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company's financial condition and operating results, specifically a working capital deficiency of approximately $3.5 million, a shareholders' deficiency of approximately $2.5 million, a net loss from operations since inception of approximately $3.3 million and net cash used in operations since inception of approximately $2.5 million, raise substantial doubt about its ability to continue as a going concern. The Company's existence is dependent on Management's ability to develop profitable operations and resolve the Company's liquidity problems. Management anticipates that the Company will attain profitable status and improve its liquidity through the continued development of market share in the recording and broadcast media industries through the development of a media distribution channel and archived video and music collection libraries. The Company is attempting to complete a substantial equity offering prior to December 31, 2004 in order to provide for working capital, capital expenditures and business expansion. There can be no assurances that the Company will be successful in completing such an offering. If the Company is not successful in raising additional capital, its financial condition and business operations will be adversely affected. Moreover, if the Company is successful in implementing its initial business plan, it will need to raise additional funds in order to finance more rapid expansion, develop new and enhanced services and products, and respond to competitive pressures. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 11. RELATED PARTY TRANSACTIONS On July 25, 2003 the Company executed three promissory notes with three shareholders, totaling $114,400. The notes are due November 30, 2004 and bear interest at 5% annually. During June 2004, the Company received loans from two shareholders totaling $235,000 and executed 5% promissory notes, which are due June 30, 2005. On March 3, 2004, in connection with the Distribution Agreement and assignment of certain assets of PMG (see Note 5), the Company assumed the obligation to repay $350,000 of notes payable to two shareholders of the Company. The notes have an annual interest rate of 8%. Payments commenced in March of 2004, and the balance due as of June 30, 2004 was approximately $325,000. Accounts payable to related parties at June 30, 2004 totaled approximately $165,000. Included in this amount was $36,000 in computer and internet services provided by a shareholder, $59,000 in consulting services and expenses provided by another shareholder, and $21,000 in consulting services provided by a director. An officer, shareholder and director of the Company agreed to defer a portion of salary, payable under an employment agreement, until such time as adequate funds become available. The amount deferred at June 30, 2004 was $89,000. Additionally, there was also a note receivable from this officer at June 30, 2004 of $15,500. 12. SUBSEQUENT EVENTS In July of 2004, the Company issued additional 8% Promissory Notes in the aggregate principal amount of $600,000. The notes are due October 31, 2004. On August 13, 2004, the Noteholders of $1,150,000 of promissory notes due June 30, 2004, agreed to extend the maturity on these notes until October 30, 2004. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW AGU Entertainment Corp. (formerly Lexington Barron Technologies, Inc.) was incorporated on August 23, 2000 to engage in financial, operational and systems consulting to startup and small businesses. With the exception of the Share Exchange Agreement described in Note 2, AGU Entertainment Corp. ("AGU") was an inactive development stage, public reporting company and did not engage in any significant operations or enter into any material transactions during the first six months of 2004. Prior services have included market research, business plan development, strategy development, financial modeling and forecasting, and pre-IPO and IPO consulting. Effective April 1, 2004, AGU entered into a Share Exchange Agreement with Pyramid Music Corp. ("PMC"), a Florida corporation having an inception date of May 20, 2003, whereby AGU acquired 100% of the outstanding common stock of PMC in exchange for issuing 16,922,464 shares of its common stock (see Note 2). PMC is a development stage company and was formed for the purpose of developing market share in the recording and broadcast media industries through the establishment of a media distribution channel and archived video and music collection libraries. PMC has two wholly-owned operating subsidiaries that are or will become engaged in the following services: (i) the formation and operation of a television network, The Tube Music Network, Inc., ("The Tube") that plans to air traditional music videos and live concerts of contemporary music material that is derived from archived video and music collection libraries, and (ii) a production, marketing and distribution record company, Pyramid Records International, Inc. ("PRI"), that has merged audio, visual and Internet content into one corporate concept. On March 26, 2004, in anticipation of the completion of the share exchange, Lexington Barron Technologies, Inc. changed its name to AGU Entertainment Corp. LIQUIDITY AND CAPITAL RESOURCES As a development stage company with no operating history, we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. We cannot assure you that the business will continue as a going concern or ever achieve profitability. Due to the absence of an operating history and the emerging nature of the market in which we compete, we anticipate operating losses until such time as we can develop a substantial and stable revenue base. From our inception on May 20, 2003 through June 30, 2004, we had revenues of $108,000 and incurred a net loss of $3.3 million. Our financial condition and operating results, specifically a working capital deficiency of approximately $3.5 million, a shareholders' deficit of approximately $2.5 million, and net cash used in operations of approximately $2 million in the first six months of 2004, raise substantial doubt about our ability to continue as a going concern. Since our inception, we have financed our operations through numerous debt issuances. We issued $650,000 of 5% Convertible Subordinated Notes, $600,000 of which were subsequently converted into 203,482 shares of common stock of the Company at a price of $3 per share. The remaining $50,000 matures on November 30, 2004. We also issued approximately $2,178,000 of 5% Promissory Notes since our inception, $130,000 of which were converted into 39,231 shares of the Company's common stock on June 30, 2004. We are currently in negotiations to extend the maturities of the Promissory Notes, of which $1,150,000 were due at June 30, 2004, and the remainder of which mature on October 31, 2004. On August 13, 2004, the Noteholders agreed to extend the maturity on these notes until October 30, 2004. We believe that we will be successful in extending these maturities and do not expect to receive any demands for repayment prior to the completion of a substantial equity offering. While there can be no assurances, it is also possible that some or all of these notes may be converted into equity. 13 On March 3, 2004 PRI entered into an Assignment and Assumption Agreement with Pyramid Media Group, Inc. ("PMG") whereby PRI agreed to assume all of the covenants and obligations of a Distribution Agreement between PMG and ARK 21 Records, LP ("ARK21"). In exchange for the rights to the Distribution Agreement and certain assets of PMG, PRI assumed the obligation to repay $350,000 of notes payable to certain principals of PMG. PMC has guaranteed the payment of these notes, which have an annual interest rate of 8%. Allen Jacobi, President of PRI, is an owner and controlling shareholder of PMG. Approximately $25,000 of these notes were paid in 2004 and the outstanding balance as of June 30, 2004 is approximately $325,000. In June of 2004 we entered into an agreement with Radical Media Inc. ("Radical") whereby Radical will design and develop network logos, graphic templates, and on-air intersticials for The Tube. As of July 31, 2004, in accordance with the terms of the agreement, the Company has paid $150,000 to Radical and will be required to pay an additional $50,000 prior to August 31, 2004. The Company will also be required to issue 112,500 shares of its common stock to Radical prior to August 31, 2004. In accordance with the terms of one of our music projects, we have committed to a marketing and promotion expenditure budget of $400,000 to support the project. As of June 30, 2004, we have spent approximately $98,000 and expect to spend the remaining $302,000 prior to December 31, 2004. In connection with this commitment, we have approximately $102,000 remaining in an escrow account from the proceeds of one of our promissory note issuances. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long term objectives. In the event additional capital is raised, it may have a dilutive effect on the existing shareholders of the Company. We are attempting to complete a substantial equity offering prior to December 31, 2004 in order to provide for working capital, capital expenditures and business expansion. We cannot assure you that we will be successful in completing such an offering, in executing the business plan or achieving profitability. If we are not successful in raising additional capital, our financial condition and business operations will be adversely affected. Moreover, if we are successful in implementing our initial business plan, we will need to raise additional funds in order to finance more rapid expansion, develop new and enhanced services and products, and respond to competitive pressures. Cash used in operations for the six months ended June 30, 2004 was $1,981,000, as we did not generate any significant revenues to offset our cash operating expenses, which consisted primarily of payroll, promotion and advertising expenses and fees for professional services. We expect this trend to continue until such time as we can complete a substantial equity offering, launch The Tube and emerge from the development stage. Cash used in investing activities amounted to $233,000, as we spent $50,000 in cash under the agreement with Radical and $182,000 on property, plant and equipment. We received cash from financing activities in the amount of $2,078,000 as a result of the issuance of notes payable, including $235,000 from two of our shareholders. We believe we will continue to be successful in raising additional capital. In July, we received, from an existing Noteholder, an additional $600,000 in exchange for promissory notes due October 30, 2004. RESULTS OF OPERATIONS For the three months ended June 30, 2004 we had revenues of $15,000, incurred operating expenses of $1,540,000 and a net loss of $1,558,000. Our business activities to date have been primarily to develop the infrastructure necessary to market and launch The Tube, and to explore potential musical projects as we build our recorded music distribution business. We do not expect to generate significant revenues until we exit our development stage, which we anticipate will be late in 2004 or early 2005. For the six months ended June 30, 2004 we had revenues of $15,000, operating expenses of $2,426,000 and a net loss of $2,456,000. 14 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not have any major market risk exposure to changing interest rates. We currently do not engage in any hedging activities to manage this risk. At June 30, 2004, we had no outstanding indebtedness that was subject to changes in interest rates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides guidance for identifying a controlling interest in a variable interest entity ("VIE") established by means other than voting interests. FIN No. 46 also requires consolidation of a VIE by an enterprise that holds such a controlling interest. In December 2003, FASB completed its deliberations regarding the proposed modification to FIN No. 46 and issued Interpretation Numbers 46 (R) "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No. 46 (R)"). The decisions reached included a deferral of the effective date and provisions for additional scope exceptions for certain types of variable interests. Application of FIN No. 46 (R) is required in financial statements of public entities that have interests in VIEs or potential VIEs commonly referred to as special purpose entities for periods ending after December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an impact on the Company's consolidated financial position, results of operations or cash flows. In March 2004, the U.S. Securities and Exchange Commission's Office of the Chief Accountant and the Division of Corporate Finance released Staff Accounting Bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative Instruments." This bulletin contains specific guidance on the inputs to a valuation-recognition model to measure loan commitments accounted for at fair value, and requires that fair-value measurement include only differences between the guaranteed interest rate in the loan commitment and market interest rate, excluding any expected future cash flows related to the customer relationship or loan servicing. In addition, SAB105 requires the disclosure of the accounting policy for loan commitments, including methods and assumptions used to estimate the fair value of loan commitments, and any associated hedging strategies. SAB 105 is effective for derivative instruments entered into subsequent to March 31, 2004 and should also be applied to existing instruments as appropriate. The Company has not yet completed its evaluation of SAB 105, but does not anticipate a material impact on the financial statements. ITEM 3. CONTROLS AND PROCEDURES (a) As of June 30, 2004, the Company had performed an evaluation, under the supervision its chief executive officer and chief financial officer, of the effectiveness of the design and operation of the company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) or 15d-15(e)). Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and its consolidated subsidiaries required to be included in the Company's reports filed or submitted under the Exchange Act. Due to the inherent limitations of the effectiveness of any established disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be met. (b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company, as of June 30, 2004, had no legal proceedings. From time to time, the Company may be involved as plaintiff or defendant in various legal proceedings arising in the usual course of business. ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. On April 1, 2004, the Company acquired 100% of the stock of Pyramid Music Corp., ("PMC") in exchange for 16,922,464 shares of common stock of the Company. Following the completion of this transaction the former shareholders of PMC owned, on a fully diluted basis, approximately 80% of the then issued and outstanding shares of common stock of the Company. As of April 1, 2004 the Company had issued and outstanding 21,053,076 shares of common stock and the former principal owners of Lexington Barron Technologies, Inc.'s common stock owned 4,230,612 shares, or approximately 20% of the outstanding common stock of the Company. During the three months ended June 30, 2004 $730,000 of notes payable and $10,702 of accrued interest were converted into 242,713 shares of common stock. No cash proceeds were received by the Company from the holders of the notes. The transactions were exempt from registration under the Securities Act in reliance upon Section 3(a)(9) of the Securities Act as a security exchanged by the issuer with its existing security holders exclusively where no commission or remuneration was paid or given directly or indirectly for soliciting such exchange. On June 23, 2004, effective as of April 26, 2004, the Company entered an agreement with Radical Media Inc., pursuant to which the Company will be required to issue 112,500 shares of its common stock to Radical prior to August 31, 2004. This issuance will be exempt from registration under the Securities Act in reliance upon Section 4 (2) of the Securities Act and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. The recipient of the securities will represent their intentions to acquire the securities for investment only and not with a view to sell in connection with any distribution thereof, and appropriate legends will be affixed to the securities issued in such transaction. The recipient will have adequate access, through its relationships with the Company, to information about the Company. No underwriters will be employed in the transaction. The securities will be deemed restricted securities for purposes of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION. (a) On July 29, 2004, the Board of Directors of the Company adopted the 2004 Stock Option and Stock Incentive Plan ("Plan"). The shareholders of the Company will vote on the plan at the next annual meeting of shareholders of the Company. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 Agreement with GSMB regarding marketing and promotional expenditure commitment. 10.2 Trust Agreement in connection with the marketing and promotional expenditure commitment. 10.3 Agreement with Radical Media Inc 31 - Section 302 Certification 32 - Section 906 Certification (b) Reports on Form 8-K On April 16, 2004, the Company filed a Report on Form 8-K, subsequently amended on April 21, 2004 to report that the Company had acquired 100% of the stock of Pyramid Music Corp. in exchange for 16,922,464 shares of common stock of the Company, and on June 15, 2004 to report a change in the Company's independent certified public accountants. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: AUGUST 20, 2004 /s/ David C. Levy ---------------------------- David C. Levy Chief Executive Officer and Chief Financial Officer 17 EX-10.1 2 v05780_ex10-1.txt Exhibit 10.1 PHONORECORD RELEASE AND PROMOTIONS AGREEMENT This Agreement is made and entered into effective as of this 15th day of November, 2003 by and between Pyramid Records International, Inc., a Florida corporation, with a principal place of business located at 11077 Biscayne Boulevard, Suite 200, Miami, Florida, 33161, (hereinafter referred to as "Company") and GSMB, LLC, a California limited liability company, c/o Michael J. Cronen, Law Offices of Harris Zimmerman, located at 1330 Broadway, Suite 710, Oakland, CA 94612-2506 (hereinafter referred to as "GSMB"). WHEREAS, GSMB co-sponsored a non-profit, cultural music exchange event in Havana, Cuba, which took place from March 21 through March 29, 1999 (the "Event"), which has been documented in various audio and audiovisual media, pursuant to United States Department Of The Treasury License, including License Nos. C-36173, CU-59857, CU64491 and CU-64491-a, as agent for selected charity(ies); and WHEREAS, GSMB owns copyrights, including without limitation, Copyright Registration No. SRu-453-038 in and to certain pre-existing documentary sound recordings (hereinafter referred to as the "Sound Recordings") and audiovisual works (hereinafter referred to as the "Footage") made in connection with the Event, including Sound Recordings and Footage documenting interviews and original musical compositions performed by such artists as Mick Fleetwood, Gladys Knight, Burt Bacharach and further artists ("Artists") as listed in Exhibit A attached hereto and made a part hereof; and WHEREAS, Company provides marketing, promotion and sales services in the field of music and video recording, including radio and other promotions, record production (manufacturing), distribution and sales; and WHEREAS, Company and GSMB are desirous of obtaining agreement whereby Company obtains marketing and sales rights, including promotion, documentary record and DVD production (manufacturing), distribution and sales of phonorecords and DVD's embodying the Sound Recordings and certain concert, interview, and scenery Footage for the production of a DVD, as limited herein, it being understood that GSMB is reserving the rights for the utilization of any or all of the Footage and Sound Recordings in connection with a proposed feature film and/or the future release of Sound Recordings of musical compositions that are not included in phonorecords or DVDs released by Company under this Agreement; 1 NOW, THEREFORE, in consideration of the provisions set forth herein, and for other good and valuable consideration, the amount and sufficiency of which is hereby acknowledged by the parties hereto, it is agreed as follows: 1. EXCLUSIVE RIGHTS TO SOUND RECORDINGS GSMB hereby grants to Company, throughout the world and during the effective term of this Agreement (life of copyright), subject to the terms of this Agreement, all of which are conditions of such grant, an exclusive right to reproduce the documentary Sound Recordings in phonorecords and to distribute said phonorecords to the public, in any form now known or which becomes known in the future, including but not limited to internet downloading. Said Sound Recordings are presently titled "Building a Bridge to Havana", which may be renamed by Company in its discretion. It is understood by the parties that GSMB hereby grants to Company the right to post-produce and finish a documentary music "DVD" that, once fully edited, will be sold in that format exclusively by Company, which may include portions of the Footage as described in Paragraph 2 below. Nothing contained herein, however, shall prohibit GSMB from licensing the same or similar Footage or Sound Recordings to a third party for use in connection with a feature film. It is further understood and agreed between the parties that GSMB shall also retain the right to license any Sound Recordings that are not included in phonorecords or DVDs released by Company within seven (7) years from the effective date of this Agreement. 2. NON-EXCLUSIVE DVD RIGHTS TO LIMITED FOOTAGE It is understood that GSMB has been involved in negotiations with various film production entities for the purposes of producing and publicly releasing a documentary film using the Footage and synchronized Sound Recordings. Therefore, GSMB's license of Footage to Company under this Agreement is limited to the right to reproduce Footage of the Event in DVD format only in combination with phonorecords of the Sound Recordings, and in connection with the promotion, marketing and sale of the Sound Recordings and the promotion, marketing and sale of the music DVD. Such Footage licensed to Company hereunder is limited to no more than seventy (70) continuous minutes in total length, and to Footage primarily of the Event concert held on Saturday, March 27, 1999 and Company's selection of Footage of Event participant interviews, said interviews not to exceed fifteen (15) minutes. Company has the right to edit the Footage for use in DVD format and in marketing of said DVD and the Sound Recordings or both together, subject to GSMB's prior written approval. Such written approval will not be unreasonably withheld. 2 3. TERM This Agreement shall continue in full force and effect for the life of GSMB's copyrights in the Sound Recordings and Footage unless this Agreement is sooner terminated as herein provided. 4. DELIVERY COMMITMENT GSMB shall deliver to Company commercially satisfactory master audio recordings of the Sound Recordings and Footage free and clear of liens or other financial encumbrances. Said delivered Footage shall comprise all of the footage of the March 27, 1999 Event concert available to GSMB and approximately seventy-five minutes (75) of interviews and scenery as mutually agreed upon by the parties in writing, and which may include Footage and Sound Recordings previously used in connection with the documentary film entitled Five Days In March by Haskell Wexler, and that certain 22 minute promotional video previously prepared by GSMB for marketing purposes. GSMB shall also deliver to Company copies of all Songwriter/Artist Release[s] GSMB has obtained to date in connection with the Artists' performances embodied in the Sound Recordings, a list of persons who have signed said Songwriter/Artist Release[s] is attached hereto and made a part hereof as Exhibit B. 5. RIGHTS GSMB shall timely supply Company with information in the possession, custody or control of GSMB that Company may reasonably request in order: (i) to make payments due in connection with phonorecords embodying the Sound Recordings; and (ii) to assist Company in obtaining final release approval from Artists, their publishers, record companies, etc. for the public release of Sound Recordings and DVD format Footage as provided for in this Agreement. 3 6. APPROVAL OF GRANT OF RIGHTS It is understood between the parties that the grant of rights by GSMB to Company hereunder is made subject to approvals by the Artists, their publishers, record companies, and any applicable regulations of the United States Department of the Treasury, Office of Foreign Assets Control. As to publicity rights, as set forth above, GSMB shall provide Company with the written Artists permissions GSMB has received to date. Final artist, record company and governmental approval for the reproduction and distribution of DVDs and phonorecords embodying the Sound Recordings and Footage shall be Company's sole and exclusive responsibility. 7. LICENSES FOR MUSICAL COMPOSITIONS Mechanical royalty amounts, if any, for musical compositions embodied in the Sound Recordings and reproduced and distributed in phonorecords shall be determined between Company and the authors of such musical compositions or their designated publishers and, as determined, will be paid by Company or its alliance entity(ies) as identified in paragraph 8(B) below. 8. MARKETING AND PROMOTION EXPENSES (A) Company shall diligently and in good faith apply its best efforts to market, promote, manufacture, advertise and sell phonorecords embodying Sound Recordings. Company shall make expenditures of at least four hundred thousand United States Dollars (U.S. $400,000) to market, promote, advertise and sell phonorecords embodying the Sound Recordings, excluding the costs of manufacturing said phonorecords. Company's expenditures hereunder shall be in substantial accordance with the Budget attached hereto as Exhibit C and shall include expenditures of not more than fifteen thousand dollars ($15,000.00) for expenses incurred for post-production of the documentary music DVD hereunder. Said Budget shall include time lines for the marketing and promotion expenditures. The cost of manufacturing phonorecords embodying Sound Recordings hereunder shall be borne by Company or an alliance entity(ies) as identified in paragraph 8(B) below. It is understood that a portion of the marketing and promotion funds will be advanced by Company's distributor, not to exceed seventy five thousand ($75,000) Dollars, which sum shall be in addition to Company's expenditures of at least four hundred thousand United States Dollars (U.S. $400,000) as set forth in this Paragraph 8(A). 4 (B) It is a condition of this Agreement that Company has the financial resources to expend and in fact expends all funds necessary to commercially release, market and promote the distribution and sales of phonorecords and DVDs embodying the Sound Recordings and/or Footage either through an alliance(s) with major multi-national record company(ies) (Warners, BMG, EMI, Universal or Sony), which alliance(s) shall be fully disclosed to GSMB, in writing, or by Company's own expenditures in accordance with paragraph 8(A) above. In either event, Company shall, deposit, within fifteen days of the effective date of this Agreement, the sum of four hundred thousand United States Dollars (U.S. $400,000.00) in an escrow account with a third party attorney mutually selected by the parties and located in the State of Florida, said third party attorney having errors and omissions insurance in an amount of not less than one million five hundred thousand dollars ($1,500,000.00), to be controlled by the laws of the State of Florida for attorney escrow accounts, to be held in trust by said third party attorney with instructions for expenditures in accordance with paragraph 8(A) above and the Budget attached hereto as Exhibit C. Said instructions for expenditures shall be mutually agreed upon by the parties. It is further understood and agreed that expenditures hereunder shall only be made to entities that are unaffiliated with Company. Such unaffiliated entities hereunder may include any entity in which Company and its principals and agents have an ownership interest of less than ten percent (10%). Notwithstanding the provisions of this Paragraph 8(B), however, it is understood and agreed between the parties that Company shall have the right to expend sums in an amount not to exceed ten thousand dollars ($10,000.00) to retain the services of Impact Music Marketing, a promotional entity affiliated with Company and in which Company or its principals and agents have an ownership interest of more than ten percent (10%). In the event that Company enters into an alliance(s) with a major multinational record company(ies) as provided in this Paragraph 8(B), then the Company shall use is best efforts and request to enter into a written agreement requiring the direct payment of Revenues by said alliance entity(ies) to GSMB in accordance with the provisions of Paragraph 10 below. In the event it is impossible to secure such direct payment to GSMB by Company's distributor, then all revenue derived from the exploitation of the project shall be deposited in 5 the above identified third party attorney escrow account, or such other account as the parties may mutually agree, and each party shall be paid directly therefrom in accordance with the terms of this Agreement. The various marketing and promotional expenses incurred by Company under this Agreement shall be paid by Company out of its promotional budget and these costs shall not be treated as an advance against payments of Revenues to GSMB as agent for the selected charity(ies) as set forth in this Agreement. It is specifically agreed and understood that Company shall pay Company's distributor for such items as special discounts, incentive programs and co-op advertising and that such payments will be made as part of Company's expenditures of funds as provided for in this Paragraph 8. It is expressly understood that Company's expenditures hereunder shall not include payments for manufacturing CDs and DVDs embodying the Sound Recordings or Footage. 9. GUARANTEED RELEASE AND PROMOTION/REVERSION OF RIGHTS (A) Company agrees to commercially release for retail purchase in the ordinary course of commerce, copies of a phonorecord album ("Album") embodying Sound Recordings and DVD format Footage, within one hundred eighty (180) days after GSMB's delivery of master recordings of the Sound Recordings and the Footage to Company. Such Album shall include master recordings of at least ten (10) musical compositions selected by Company from the musical compositions included in the Sound Recordings. (B) It is understood and agreed that if Company fails to commercially release said Album as set forth in Paragraph 9(A) above, GSMB shall have the right, following the expiration of said one hundred eighty (180) days, to provide written notice that this Agreement shall terminate unless Company performs its obligation to commercially release said Album. Company shall thereafter have sixty (60) days to perform its obligation to commercially release said Album. If Company fails to commercially release said Album within sixty (60) days after such notice, this Agreement shall terminate. Upon termination of the Agreement, all rights to the Sound Recordings and Footage granted to Company hereunder shall automatically revert to GSMB. Company further agrees to provide GSMB with copies of all documents and things in Company's possession, custody or control that relate or pertain to the subject matter of this Agreement and to return to GSMB any materials, including the Sound Recordings and Footage, which GSMB delivers to Company hereunder, upon termination of the Agreement. 6 (C) Company reserves the right, at its election upon written notice to GSMB, to suspend the operation of this Agreement for the duration of any of the following contingencies, only if by reason of any such contingency Company is materially hampered in the performance of its obligations under this Agreement or its normal business operations are delayed or become impossible or commercially impracticable: Acts of God, fire, catastrophe, labor disagreement or action of any labor union or association affecting Company or the industry in which it is engaged, delays in the delivery of materials and supplies. Any such suspension due to a labor controversy shall be limited to a period of no more than six (6) months. 10. JOINT REVENUE PARTICIPATION (A) "Revenue(s)" as used in this Agreement shall include all fees, commissions, payments of any sort, and any other form of consideration received by or on behalf of Company in connection with the Sound Recordings and Footage, from any source, including without limitation, Company's representatives, agents, and affiliates, distributors or sub-distributors, throughout the world, including but not limited to Ark 21, Universal, Broadcast revenue, Apple's I Tunes and any other internet distributor. Revenues generated hereunder from the exploitation of Sound Recordings and DVD format Footage, shall be allocated and paid as follows: (i) ten percent (10%) of all Revenues shall be paid to a charity(ies), preferably a music oriented charity(ies), to be selected jointly by Company and GSMB (the deductions for the charity(ies) shall be shared equally by the parties); and (ii) Revenues after said payments to charity(ies) shall be shared equally by the parties with 50% of said remaining Revenues to be paid to Company, and 50% of said remaining Revenues to be paid to GSMB to recoup its costs. It is understood however, that a service fee of four percent (4%) of Revenues generated from sales within the United States shall be paid to Company before the allocation and payment of Revenues to the parties and the charity(ies) as set forth herein. For example, if Revenues generated to Company 7 from sales within the United States equal $100.00, allocation under this Paragraph 10(A) is as follows: A $4.00 service fee shall be paid to Company; $9.60 shall be paid to Charity(ies) as provided herein; $43.20 shall be paid to Company; and $43.20 shall be paid to GSMB. It is further understood and agreed that in the event the parties are not able to jointly agree upon the selection of a charity(ies) hereunder, then GSMB shall have the right to select said charity(ies) in its sole and exclusive discretion. (B) The allocation of Revenues set forth in Paragraph 10(A) above shall continue until GSMB recoups its costs. Once GSMB recoups its costs, Revenues shall be shared equally by the parties with 50% of Revenues to be paid to Company and 50% of Revenues to be received by GSMB as agent for charity(ies) jointly by Company and GSMB. It is understood however, that a service fee of four percent (4%) of Revenues generated hereunder from sales within the United States shall be paid to Company before the allocation and payment of Revenues to the parties as set forth herein. For example, if Revenues generated to Company from sales within the United States equal $100.00, the allocation under this Paragraph 10(B) is as follows: A $4.00 service fee shall be paid to Company; $48.00 shall be paid to Company; and $48.00 shall be received by GSMB as agent for charity(ies) as provided herein. It is further understood and agreed that in the event the parties are not able to jointly agree upon the selection of charity(ies) hereunder, then GSMB shall have the right to select said charity(ies) in its sole and exclusive discretion. (C) It is further understood and agreed that Company or its alliance entity(ies) shall pay any mechanical royalty payments required to be paid by virtue of any agreements reached between Company and the copyright proprietors of the musical compositions selected to be included on the CD audio release and/or the DVD format release. In the event that Company in fact makes any such mechanical royalty payments to said copyright proprietors then such payments shall be deducted from Revenues hereunder before allocation and payment to the parties as provided herein. Company shall endeavor and request that the copyright revenue, which would otherwise be payable to the songwriter and the publisher, if any, be paid to the charity(ies) as provided for hereunder. 8 (D) Company presently has an agreement with Ark 21 / Universal concerning distribution of phonorecords embodying the Sound Recordings. A copy of this distribution agreement is attached hereto as Exhibit D. Company shall instruct Ark 21 / Universal to make any payments under said distribution agreement directly to Company and GSMB. In the event that Ark 21 / Universal, or any other distributor(s) or alliance entity(ies) selected by Company, do not agree to make direct payments to the parties, then Company shall require that such payments be made to the escrow account identified in paragraph 8(B) above to be distributed and allocated to the parties in accordance with the terms of this Agreement. (E) GSMB's share of Revenues hereunder shall be paid to GSMB by the third party attorney as set forth in Paragraph 8(B) hereof in accordance with the terms of this Agreement within ten (10) days after the close of each calendar month. Company shall deliver to GSMB a statement of Revenue based activities performed by Company under this Agreement within ten (10) days after the close of each calendar month which shall contain such other information as GSMB may reasonably require. It is understood and agreed between the parties, however, that payments to Company and GSMB from Company's distributor(s) or alliance entity(ies) may be withheld by said distributor(s) or alliance entity(ies) for a period of approximately ninety (90) days. In the event that monies due from Company are not paid, a late fee in the amount of six percent (6%) of the amount due and unpaid shall be assessed against Company, and interest at the rate of ten percent (10%) per annum shall be assessed on all amounts due and unpaid. It is expressly understood that GSMB, by accepting interest on all unpaid amounts, and late fees, does not waive any rights, powers or privileges under this Agreement. (F) Company shall keep at its principal place of business accurate and complete records of all phonorecords embodying Sound Recordings and DVD format Footage manufactured, leased, sold, used or otherwise delivered to other parties by or on behalf of Company and of all details in connection with the aforesaid activities necessary to enable Company to comply with this Agreement. Company further agrees to provide GSMB with copies of all documents and things in Company's possession, custody or control that relate or pertain to the subject matter of this Agreement and to return to GSMB any materials, including the Sound Recordings and Footage, which GSMB delivers to Company hereunder, upon Company's commercial release of CDs and/or DVDs embodying the Sound Recordings and Footage selected by Company. 9 11. AUDIT GSMB shall have the right, upon ten (10) days written notice and during regular business hours, and at the expense of GSMB, to have an independent auditor audit at the place of business of Company or other place agreeable to the parties, the aforesaid records, and to report compliance or non-compliance with the payment, record maintenance and all other reporting requirements of this Agreement. If an audit shall reveal that in any six month period Company has made an error of eight percent (8%) or more in its favor in any payment due to GSMB, or designated charity(ies), Company shall bee obligated to pay the audit fee in respect of such audits. 12. CREDITS The parties agree to cooperate to provide appropriate written credits in connection with the Sound Recordings and Footage embodied in phonorecords and DVDs released by Company under this Agreement. It is further agreed that such written credits shall include the following: 1.) Executive Producer: Joel Geldermann; 2.) Producer: Todd Wood; 3.) Co-Producer: Jerry Merrill; 4.) Legal: Steve Nelson, Mike Cronen. 13. WARRANTIES AND REPRESENTATIONS; INDEMNITIES (A) GSMB warrants and represents that: (i) To the best of GSMB's knowledge, information and belief, and except as otherwise set forth in this Agreement, there are no encumbrances to its performance of this Agreement; (ii) GSMB shall fulfill its delivery obligations under this Agreement in a timely manner; and (iii) GSMB agrees to indemnify, save and hold Company harmless from any and all loss and damage arising out of, connected with or as a result of any breach by GSMB of any warranty, representation, agreement, undertaking or covenant contained in this Paragraph 13. 10 (B) Company warrants and represents that: (i) To the best of Company's knowledge, information and belief, and except as otherwise set forth in this Agreement, there are no encumbrances to its performance of this Agreement; (ii) Company shall fulfill its phonorecord release and promotional obligations under this Agreement in a timely manner; and (iii) Company agrees to indemnify, save and hold GSMB harmless from any and all loss and damage arising out of, connected with or as a result of any breach by Company of any warranty, representation, agreement, undertaking or covenant contained in this Paragraph 13. 14. NOTICES (A) Except as otherwise specifically provided herein, all notices under this agreement shall be in writing and shall be given by courier or other personal delivery, by overnight delivery by an established overnight delivery service (e.g., Federal Express or United Parcel Service), or by registered or certified mail (return receipt requested) at the addresses first written above, or at a substitute address designated in a written notice sent by the party concerned to the other party hereto. (B) Each notice to Company shall be addressed to the attention of Allen Jacobi, Pyramid Records International, Inc., 11077 Biscayne Boulevard, Suite 200, Miami, Florida, 33161. Notices shall be deemed given when mailed or deposited into the custody of an overnight delivery service for overnight delivery, or, if personally delivered, except that a notice of change of address shall be effective when in writing and only from the date of its receipt. (C) Each notice to GSMB shall be addressed c/o Michael J. Cronen, Law Offices of Harris Zimmerman, located at 1330 Broadway, Suite 710, Oakland CA 94612-2506. Notices shall be deemed given when mailed or deposited into the custody of an overnight delivery service for overnight delivery, or, if personally delivered, when so delivered, except that a notice of change of address shall be effective when in writing and only from the date of its receipt. 11 15. SOUND RECORDINGS AND FOOTAGE/MUSICAL COMPOSITIONS It shall be Company's obligation to make all necessary and/or required payments to the copyright proprietors of the musical works embodied in the Sound Recordings and Footage. GSMB will provide Company with documents in the possession, custody or control of GSMB to assist Company in entering into any licenses with said copyright proprietors. 16. ASSIGNMENT GSMB shall have the right without Company's consent to assign this Agreement in whole or in part. Company shall not have the right to assign this Agreement or any of Company's rights or obligations hereunder in whole or in part without GSMB's prior written consent, except in the case where a third party acquires at least forty nine (49%) percent of the ownership of Company and does not alter management or distributor. 17. ENTIRE UNDERSTANDING This Agreement constitutes the entire understanding of the parties concerning the subject matter hereof and revokes and supersedes all prior agreements between the parties. This Agreement shall not be modified or amended except in writing signed by the party to be charged with any such modification or amendment. 18. RELATIONSHIP OF THE PARTIES The parties hereto are independent contractors and nothing herein shall be construed as creating a partnership or joint venture between them. Neither party shall have the power to obligate or bind the other except as otherwise agreed upon in writing. 19. AGREEMENT BINDING ON SUCCESSORS The provisions of this Agreement shall bind and shall inure to the benefit of the parties hereto, their heirs, administrators, successors, and assigns. 12 20. WAIVER No waiver by either party of any breach of this Agreement shall be deemed a waiver by such party of any other breach of this Agreement. 21. SEVERABILITY Should any provision of this agreement be adjudicated by a court of competent jurisdiction as void, invalid or inoperative, such decision shall not affect any other provision hereof, and the remainder of this agreement shall be effective as though such void, invalid or inoperative provision had not been contained herein. All accountings and payments required herein, all recoupments permitted herein, and all grants and all warranties made herein, shall survive and continue beyond the expiration or earlier termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement on the day and year first above written. GSMB, LLC By: /s/ Joel F. Geldermann ---------------------- Joel F. Geldermann Its: Manager PYRAMID RECORDS INTERNATIONAL, INC, a Florida corporation By: /s/ Allen Jacobi --------------------- Allen Jacobi Its: President 13 EX-10.2 3 v05780_ex10-2.txt Exhibit 10-2 [LETTERHEAD OF EUSTIS & HARTLEY] March 25, 2004 VIA FACSIMILE David Levy Pyramid Records International, Inc. 11077 Biscayne Blvd. Suite 200 Miami, Florida 33161 Michael J. Cronen, Esq. Law Offices of Harris Zimmerman 1330 Broadway Suite 710 Oakland, California 94612 RE: TRUST HOLDING AGREEMENT ("AGREEMENT") DATED MARCH 25, 2004 AMONG PYRAMID, GSMB AND TIMOTHY M. HARTLEY, PA Dear Messrs. Levy and Cronen: I have executed as Trustee and have delivered to you via e-mail a copy of the fully signed Trust Holding Agreement. Please initial where indicated below to acknowledge that I am authorized to disburse funds pursuant to paragraph 3(a) of the Agreement upon my receipt via facsimile of [ILLEGIBLE] and correct signatures of either Mr. Henle or Mr. Cronen on behalf of GSMB and Mr. Jacobi or Mr. Levy on behalf of Pyramid. I will also require notarized exemplars of the signature of each authorized signer. I have attached for your convenience a form to be completed by each authorized signer. The following are wire transfer instructions for the "Timothy M. Hartley P.A. Trust Account" located at Regent Bank, Fort Lauderdale, Florida: Regent Bank 2205 S. University Drive Davie, Florida 33324 Routing number 067012413 For further credit to: Timothy M. Hartley, P.A. Trust Account Account Number 020800834506 Thank you for placing your trust in my abilities. If you have any questions regarding the foregoing, please feel free to call. Very truly yours, /s/ Timothy M. Hartley - ----------------------- Timothy M. Hartley Timothy M. Hartley, Esq., as Trustee under that certain Trust Holding Agreement dated as of March 25, 2004 among Pyramid, GSMB and Timothy M. Hartley, PA is authorized to disburse funds pursuant to paragraph 3(a) of the Agreement upon receipt, via facsimile of the true and correct signatures of Mr. Henle or Mr. Cronen on behalf of GSMB and Mr. Jacobi or Mr. Levy on behalf of Pyramid - -------------------------- Michael J. Cronen, Esq. - -------------------------- David Levy TRUST HOLDING AGREEMENT Parties: Pyramid Records International, Inc. ("Pyramid"), GSMB, LLC ("GSMB") and Timothy M. Hartley PA Esq. ("Trustee") a Florida professional corporation. Concurrently with the execution hereof, Pyramid shall deliver to Trustee the sum of $200,000.00. Pyramid shall deliver to Trustee an additional $200,000.00 on or before April 1, 2004, less the amount of approved budget items spent by Pyramid prior to May 15, 2004. It is expected that other entities will deliver cash to Trustee from time to time. Trustee hereby agrees to hold in trust and disburse the cash delivered to it in accordance with this agreement. 1. Upon receipt of cash Trustee shall deposit it as interest in Regent Bank, located at 1100 SE 3rd Avenue, City of Fort Lauderdale, County of Broward, Florida. Upon doing so, Trustee shall advice Pyramid and GSMB in writing of the account number. Only Trustee shall have signature power over the funds received and the account in which the same are deposited. 2. Trustee shall maintain in force attorney's errors and omissions insurance with limits not less than Five Hundred Thousand Dollars ($500,000.00) at all times when Trustee holds funds subject to this agreement. 3. Trustee shall hold and disburse funds in trust and under the following terms: a) All disbursements shall be upon the prior written approval of GSMB and Pyramid, the authorized signer for GSMB is either of Thomas N. Henle or Michael Cronen, the authorized signer for Pyramid is either of Allen Jacobi or David Levy. b) All disbursements shall be in payment for, or reimbursement of, items described in Section 8(a) of the Phonorecord Release and Promotion Agreement between GSMB and Pyramid; provided, however, Trustee shall not be concerned with the contents of such agreement between Pyramid and GSMB, the written approval of GSMB and Pyramid of any disbursement shall be all that is required. 4. GSMB and Pyramid jointly and severally indemnify and hold harmless Trustee from any claim, injury, expense, or liability as a result of Trustee serving pursuant to this agreement. GSMB and Pyramid further agree that if Trustee shall receive conflicting demands, Trustee shall take no action and shall await a joint written approval. Trustee shall have no duty to, and shall not affirmatively seek such joint written approval from GSMB and Pyramid. 5. Trustee shall be paid the sum of $750.00, 1/2 from GSMB and 1/2 from Pyramid as inducement to enter into this agreement. Trustee shall receive the additional sum of Fifty Dollars ($50.00) for each disbursement made, which amount the Trustee shall pay itself out of the cash held. 6. Trustee represents to Pyramid and GSMB that neither Trustee nor any law firm with which Trustee has been or is a principal, an associate or affiliated with in any manner has or does represent GSMB, Pyramid or any person who is a principal or employee of either. Trustee further agrees that during the existence of this agreement, neither Trustee nor any law firm with which Trustee has been or is a principal an associate or affiliated with in any manner will undertake the representation of Pyramid, GSMB or any principal or employee of either. 7. This agreement shall be governed by the laws of Florida. Pyramid Records International, Inc. By: /s/ Allen Jacobi ----------------- Allen Jacobi Its President March 4, 2004 Signatures of Authorized Signers for Pyramid Records International, Inc. /s/ Allen Jacobi - ----------------- Allen Jacobi /s/ David Levy - ----------------- David Levy GSMB, LLC By: /s/ Joel F. Geldermann - ----------------- Joel F. Geldermann Its Manager Signatures of Authorized Signers for GSMB, LLC /s/ Thomas N. Henle - ----------------- Thomas N. Henle /s/ Michael Cronen - ----------------- Michael Cronen Trustee: /s/ Timothy M. Hartley, Esq. - ----------------- Timothy M. Hartley For Timothy M. Hartley, P.A., A Florida professional association Florida State Bar No.: 979066 Address: 500 SE Sixth Street Suite 102 Fort Lauderdale, FL 33301 Phone No.: (954) 779-7475 Fax: (954) 337-0222 2 EX-10.3 4 v05780_ex10-3.txt Exhibit 10-3 SERVICES AGREEMENT AGREEMENT, dated June 23, 2004, effective as of April 26, 2004, among @radical.media inc., a New York corporation ("Radical"), AGU Entertainment Corp., a Colorado corporation ("AGU"), and The Tube Music Network, Inc., a Florida corporation (the "Tube"). BACKGROUND The Tube is a wholly-owned subsidiary of AGU and will be launching a 24-hour music television network. AGU and the Tube desire to engage Radical to perform certain branding services for the Tube (the "Project") and Radical desires to provide such services as more fully set forth herein. ACCORDINGLY, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Services. Each of AGU and the Tube hereby engages Radical, on a work for hire basis only, to provide the following branding services in connection with the Project: (a) Design a network logo for the Tube. (b) Create on-air graphic standards and look and feel of the screen, including type treatments and logo placement, and provide template and broadcast style guide for future use by the Tube. (c) Create a template for five promotional campaigns, each consisting of a minimum of three promotional messages. (d) Develop a minimum of 30 unique interstitials, with one cut-down for each, for an aggregate of 60 interstitials. Each interstitial shall be no less than five seconds in length. (e) Provide design services for stage one of a website, consisting of an animated splash page that culminates in presenting contact and network information, which page shall be designed with future stages of the website in mind. (f) Create one top of the hour identification and one bottom of the hour identification consisting of the full corporate name of the Tube. (g) Each of the services provided by Radical in (a) - (f) above shall be performed in a professional manner in accordance with the highest standards of the media industry and completed to the satisfaction of the Tube. (h) All campaign material, logos, designs and services provided by Radical in (a) - (f) above that are approved by AGU or the Tube for use in connection with the Project and are produced and delivered by Radical (the "Final Deliverables") shall, upon full payment of the consideration set forth in Section 3 hereof, be the sole property of AGU and the Tube. All campaign material, logos, designs and services provided by Radical that do not become Final Deliverables shall remain the sole property of Radical and/or its agents; it being understood that to the extent Radical and the Tube mutually agree in writing, the Tube may be permitted to use original camera footage and broll to produce future spots that follow the template established by Radical. Except for the consideration provided in Section 3 hereof, Radical shall not be entitled to any other compensation whatsoever. Except as specifically provided in this Section 1(h), nothing herein shall be deemed to grant any license or other rights to Radical, and Radical shall have no claim to the exclusive ownership or any right of use of the Final Deliverables. 2. Project Phases. The service described in Section 1 above shall be provided in four phases as follows: (a) Phase I shall consist of Radical developing the creative concepts for the Project and shall be conducted during the period from April 26, 2004 through the week of June 7, 2004. (b) Phase II shall consist of Radical presenting the creative concepts for the Project to the Tube and shall be conducted during the period from June 1, 2004 through the week of June 14, 2004. Upon approval by the Tube of the creative concepts, Radical shall determine, based upon the Project budget and the available time for production, the final quantities of the deliverables set forth in Section 1 (subject to the minimum delivery requirements set forth therein) and the timetable for delivery in accordance with the schedule for Phases III and IV of the Project. (c) Phase III shall consist of delivery by Radical of the campaign elements agreed upon at the conclusion of Phase II for the Tube's soft launch scheduled for July 2, 2004. Phase III shall be concluded by July 1, 2004. (d) Phase IV shall consist of delivery by Radical of the campaign elements agreed upon at the conclusion of Phase II for the Tube's hard launch scheduled for September 1, 2004. Phase IV shall be concluded by August 13, 2004. 3. Consideration. (a) As consideration for the services provided by Radical hereunder, AGU shall pay to Radical (or its designee) a fee equal to $650,000 (the "Fee"). The Fee shall be consist of $200,000 in cash and 112,500 shares of non-registered common stock of AGU (the "Shares"). (b) The Fee shall be payable in installments as follows: On or before each of the Payment Dates listed below, AGU shall (i) pay to Radical, by certified check or wire transfer of immediately available funds, an amount equal to $50,000, (ii) deliver to Radical a duly executed stock certificate of AGU evidencing 25,000 shares of the common stock of AGU and (iii) deliver to James Spindler a duly executed stock certificate of AGU evidencing 3,125 shares of the common stock of AGU. The "Payment Dates" shall mean (A) the execution date of this Agreement, (B) June 21, 2004, (C) July 10, 2004 and (D) August 10, 2004. 2 (c) In the event that AGU or the Tube require Radical to perform any services following August 13, 2004, Radical will provide a written estimate of Radical's charges for such services, and will obtain the written authorization of AGU or the Tube regarding such estimate before performing such services. AGU and/or Tube shall pay to Radical any such charges within three days after receipt of Radical's invoice. (d) In the event that AGU or the Tube shall terminate Radical's services at any time, AGU shall immediately pay to Radical any unpaid balance of the Fee (and other charges pursuant to Section 3(c) above) owing through the date of termination. 4. Representations and Covenants by AGU and the Tube. (a) Organization. Each of AGU and the Tube is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. (b) Authority; Enforceability. Each of AGU and the Tube has requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of AGU and the Tube. The Agreement has been duly executed and delivered by each of AGU and the Tube and constitutes the legal, valid and binding obligation of each of them, enforceable in accordance with its terms. (c) Consents. No consent, waiver, approval, order, or authorization of, or registration, declaration or filing with, any governmental entity or any third party is required by or with respect to AGU or the Tube in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated thereby. (d) Shares. The Shares have been duly authorized, validly issued, and are fully-paid and non-assessable, free and clear of any claims, encumbrances, proxies, voting trusts or other voting agreements, calls or commitments of any kind. Upon delivery of the Shares by AGU, Radical (and its designee) will have good and marketable title to the Shares, free and clear of any liens, claims or encumbrances of any kind. The Shares have not been registered under Securities Act of 1933, as amended, and neither the Shares nor the consummation of the transactions contemplated by this Agreement are required to be registered under such act. (e) Compliance. The Company is in material compliance with all laws, rules, regulations and orders applicable to it. 5. Representations by Radical. (a) Organization. Radical is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. 3 (b) Authority; Enforceability. Radical has requisite power and authority to enter into this Agreement and to perform its obligation hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Radical. The Agreement has been duly executed and delivered by Radical and constitutes the legal, valid and binding obligation of Radical, enforceable in accordance with its terms. (c) Consents. No consent, waiver, approval, order or authorization of, or registration, declaration of filing with, any governmental entity or any third party is required by or with respect to Radical in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated thereby. (d) Originality of Material. All deliverables, campaign material, logos, designs and services provided by Radical hereunder as required under Section 1 shall be of original origin and shall not, to the best knowledge of Radical, infringe on the intellectual property rights of any third party. Radical does not license or have any agreement to purchase, make residual payments or provide other compensation to any third party for any of the deliverables, campaign material, logos, designs and services provided by Radical hereunder as required under Section 1. 6. Indemnification. (a) Radical hereby agrees to defend, indemnify and hold AGU, the Tube and their respective officers, directors, shareholders, employees, agents, successors and assigns harmless from and against any and all third party claims, demands, regulatory proceedings, damages, costs (including, without limitation, settlement costs), and expenses, including, without limitation, reasonable attorneys' fees (collectively, "Losses"), arising from (i) any claim pertaining to libel, slander, defamation, copyright infringement, invasion of privacy, piracy, and/or plagiarism arising from the use by AGU or the Tube, consistent with releases and agreements with third parties of any materials Radical creates or supplies to you, except to the extent that such claim arises from materials created or supplied by AGU or the Tube or (ii) any breach by Radical of any representation, warranty, covenant or agreement made by Radical this Agreement. In all events, AGU and the Tube shall have the right, but not the obligation, to participate at their own expense in the defense of such suit or proceeding through counsel of their own choosing. (b) Other than that for which Radical agrees to indemnify AGU and the Tube pursuant to Section 6(a) above, each of AGU and the Tube hereby agrees to indemnify and hold Radical and its officers, directors, shareholders, employees, agents, successors and assigns harmless from and against any and all Losses arising from or relating to (i) any activities undertaken by Radical on behalf of AGU and the Tube, the use by AGU or the Tube or anyone else of any materials that Radical creates or supplies to AGU and the Tube, or the products and services of AGU and the Tube, (ii) any content broadcast on the television network launched by the Tube or (iii) any breach by AGU or the Tube of any representation, warranty, covenant or agreement made by either of them in this Agreement. In all events, Radical shall have the right, but not the obligation, to participate at its own expense in the defense of such suit or proceeding through counsel of its own choosing. 4 7. Trademarks. With respect to any slogans, tag lines or trademarks ("Marks") created by Radical hereunder, AGU and the Tube shall be responsible for performing such trademark searches as may be necessary or advisable and for the registration of any Marks. All such Marks relating to Final Deliverables shall be solely owned by AGU and/or the Tube as they shall determine in their sole discretion. 8. Confidentiality. Each party acknowledges that during the course of Radical providing the services hereunder, each party will have access to information regarding the other hereto that is non-public, confidential or proprietary in nature (collectively, "Confidential Information"). Each party agrees not to disclose Confidential Information without the consent of the disclosing party other than as reasonably necessary to perform its obligations hereunder or as required by law. Confidential Information will not include information which (i) is or becomes publicly available through no act or failure on the part of the receiving party, (ii) was known by the receiving party prior to disclosure to the receiving party or (iii) properly comes into the receiving party's possession from a third party that is not under any obligation to maintain the confidentiality of the information. 9. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) In the event that any provision of this Agreement shall be held to be, in whole or in part, void or unenforceable, the remaining provisions of this Agreement, and the remaining portion of any provision held void or unenforceable in part, shall continue in full force and effect. (c) This Agreement may be executed in one or more counterparts, each of which will be deemed an original and which together shall constitute one and the same instrument. (d) This Agreement may not be assigned by either party without the consent of the other, but shall be binding upon and inure to the benefit of the parties and their respective successors and assigns upon any assignment so permitted. (e) Notwithstanding anything in this Agreement to the contrary, the terms and provisions of this Agreement are intended solely for the benefit of each of the parties hereto. This Agreement shall in no way be construed to inure to the benefit of any third parties. (f) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and hereby supersedes any prior written or oral agreements or understandings between the parties with respect to such subject matter. (g) The parties agree to execute such further documents and to take such further actions as may be necessary to effectuate the terms of this Agreement, including without limitation, the execution and delivery of production services agreements and such other documents as may be necessary or appropriate. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. @RADICAL.MEDIA INC. By: /s/ [ILLEGIBLE] - ------------------------ Name: [ILLEGIBLE] Title: COO/CFO AGU ENTERTAINMENT CORP. By: /s/ David Levy - ------------------------ Name: David Levy Title: President THE TUBE NETWORK INC. By: /s/ [ILLEGIBLE] - ------------------------ Name: [ILLEGIBLE] Title: [ILLEGIBLE] EX-31 5 v05780_ex31.txt Exhibit 31 RULE 13A-14(A)/15D-14(A) CERTIFICATION I, David C. Levy, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of AGU Entertainment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 20, 2004 /s/ David C. Levy - ------------------ NAME: David C. Levy TITLE: Chief Executive Officer and Chief Financial Officer 18 EX-32 6 v05780_ex32.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of AGU Entertainment Corp. (the "Company") does hereby certify with respect to the Quarterly Report of the Company on Form 10-QSB for the period ending June 30, 2004 (the "Report") that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David C. Levy ------------------------------------------- NAME: David C. Levy TITLE: Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----