10QSB/A 1 v051743_10qsba.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Amendment No. 1)

(Mark one)

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

For the quarterly period ended September 30, 2005

TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 000-52067

The Tube Media Corp.
(Exact name of small business issuer as specified in its charter)

Delaware	84-1557072
(State or other jurisdiction of organization)	(IRS Employer Identification No.)

1451 West Cypress Creek Road Ft. Lauderdale, FL 33309
(Address of principal executive offices)

(954) 714-8100
(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 o

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

Yes o No x

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of November 30, 2005 was 25,605,615.

Transitional Small Business Disclosure Format (check one): Yes o No x

Explanatory Note

In connection with the preparation of our annual report on Form 10-KSB for the year ended December 31, 2005, we determined that we needed to restate our quarterly financials for the fiscal year ended December 31, 2005 to reflect discontinued operations and the issuance of stock to a former director in connection with an employment agreement. Our Form 10-KSB for the fiscal year ended December 31, 2005 has taken into account the discontinued operations, the issuance of stock to a former director in connection with an employment agreement and the issuance of stock to co-founders in connection with the settlement of a dispute.

This Amendment No. 1 on Form 10-QSB/A to our quarterly report on Form 10-QSB for the quarter ended September 30, 2005, initially filed with the Securities and Exchange Commission on December 9, 2005 (the “Initial Filing”), is being filed to reflect the restatement of our unaudited condensed consolidated balance sheet at September 30, 2005 and our unaudited condensed consolidated statements of operations, condensed consolidated statements of changes in stockholders’ equity and condensed consolidated statements of cash flows for the three and/or nine months ended September 30, 2005 and the notes related thereto. For a more detailed description of this restatement, see Note 1, “Nature of Operations and Basis of Presentation - Restatement” and Note 9, “Discontinued Operations” to the accompanying condensed consolidated financial statements and the section entitled “Restatement” in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-QSB/A. We have amended Item 5 of Part II to disclose the entry into an agreement with Crawford Communications, Inc. This Form 10-QSB/A only amends and restates Items 1, 2, and 3 of Part I and Item 5 of Part II of the Initial Filing and no other material information in the Initial Filing is amended hereby. The foregoing items have not been updated to reflect other events concerning our business or financial condition occurring after the Initial Filing or to modify or update those disclosures affected by subsequent events except that we updated the information contained in such sections to include recent accounting pronouncements and to reflect our name change from AGU Entertainment Corp. to The Tube Media Corp., our change in address, the change in our state of incorporation from Colorado to Delaware on February 25, 2006 and the receipt of a new commission file number. We also corrected typographical errors. In addition, pursuant to the rules of the SEC, Item 6 of Part II to the Initial Filing has been amended to contain currently-dated certifications from our Principal Executive Officer and Principal Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Principal Executive Officer and Principal Financial Officer are attached to this Form 10-QSB/A as Exhibits 31.1, 31.2 and 32.1, respectively.

The Tube Media Corp.

(formerly AGU Entertainment Corp.)

Form 10-QSB/A

INDEX

	Page
PART 1. UNAUDITED FINANCIAL INFORMATION		2

Item 1. FINANCIAL STATEMENTS		2

Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004		2

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited)		3

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency) for the Nine Months Ended September 30, 2005 (Unaudited)		4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (unaudited)		5

Notes to Condensed Consolidated Financial Statements September 30, 2005 (unaudited)		6

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.		20

Item 3. CONTROLS AND PROCEDURES		28

PART II. OTHER INFORMATION		28

Item 5. OTHER INFORMATION		28

Item 6. EXHIBITS		30

SIGNATURES		34

FORWARD LOOKING STATEMENTS

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

This report may include a number of “forward-looking statements” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management’s current views with respect to future events and financial performance and include statements regarding management’s intent, belief or current expectations, which are based upon assumptions about future conditions that may prove to be inaccurate. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risk and uncertainties, and that as a result, actual results may differ materially from those contemplated by such forward-looking statements. Such risks include, among other things, the volatile and competitive markets in which we operate, our limited operating history, our limited financial resources, our ability to manage our growth and the lack of an established trading market for our securities. When considering forward-looking statements, readers are urged to carefully review and consider the various disclosures, including risk factors and their cautionary statements, made by us in this report and in our other reports filed with the Securities and Exchange Commission.

PART 1. UNAUDITED FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE TUBE MEDIA CORP. (Formerly AGU Entertainment Corp.) and SUBSIDIARIES

Condensed Consolidated Balance Sheets

As of September 30, 2005 (unaudited) and December 31, 2004

	September 30, 2005			December 31, 2004
	(Unaudited) (RESTATED)

Assets
Current Assets:
Cash	$	4,796		$	771,533
Accounts receivable, net of allowance of $109,341 and $0		500,956			507,482
Prepaid expenses		80,617			225,037

Total current assets		586,369			1,504,052
Property and equipment, net of accumulated depreciation of $255,717 and $103,442		566,514			246,144
Property and equipment from discontinued operations, net of accumulated depreciation of $96,984 and $19,818		8,847,212			8,864,229
Intangibles, net of accumulated amortization		1,184,213			913,735
Other assets		143,296			164,737

Total assets	$	11,327,604		$	11,692,897

Liabilities and Stockholders’ (Deficiency) Equity
Current Liabilities:
Accounts payable	$	1,430,625		$	501,514
Accounts payable - related parties		339,065			169,258
Notes payable, related parties - current portion		1,468,008			445,642
Convertible notes payable, net of unamortized discount		1,154,236			150,000
Convertible notes payable from discontinued operations		7,000,000			7,000,000
Equipment note - current portion		12,769			12,140
Capital leases payable - current portion		8,282			13,881
Accrued expenses		1,496,742			910,418
Other current liabilities		8,056			36,965

Total current liabilities		12,917,783			9,239,818

Capital leases payable - long term portion		6,099			11,876
Equipment note - long term portion		27,012			36,668
Convertible notes payable - net of unamortized discounts		2,292,445			854,178

Total liabilities		15,243,339			10,142,540

Stockholders’ (Deficiency) Equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, -0- shares issued and outstanding		—			—
Common stock, $0.0001 par value; 100,000,000 shares authorized, 25,605,615 and 23,392,576 shares issued and outstanding		2,561			2,339
Additional paid-in capital		16,671,326			8,249,675
Accumulated deficit		(20,589,622	)		(6,701,657	)

Total stockholders’ (deficiency) equity		(3,915,735	)		1,550,357

Total liabilities and stockholders’ (deficiency) equity	$	11,327,604		$	11,692,897

See accompanying notes to condensed consolidated financial statements

THE TUBE MEDIA CORP. (Formerly AGU Entertainment Corp.) and SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2005 and 2004

(Unaudited)

	Three Months						Nine Months
	2005			2004			2005			2004
	(RESTATED)						(RESTATED)
Revenues	$	76,670		$	—		$	252,751		$	15,000
Cost of sales and services performed		7,223			—			36,598			—
Gross profit		69,447			—			216,153			15,000

Operating Expenses
Promotion and advertising		58,206			575,618			167,068			1,072,849
Depreciation and amortization		171,011			56,970			348,587			123,958
Other general and administrative costs		1,611,755			1,168,610			8,061,901			3,030,132

Total operating expenses		1,840,972			1,801,198			8,577,556			4,226,939

Operating loss		(1,771,525	)		(1,801,198	)		(8,361,403	)		(4,211,939	)
Interest expense		2,192,470			54,752			5,013,562			99,905
Other income		—			(10,760	)		—			(10,760	)

Loss from continuing operations		(3,963,995	)		(1,845,190	)		(13,374,965	)		(4,301,084	)
Loss from discontinued operations		(189,682	)		—			(513,000	)		—

Net loss	$	(4,153,677	)	$	(1,845,190	)		(13,887,965	)	$	(4,301,084	)

Basic and diluted loss per share	$	(0.16	)	$	(0.09	)	$	(0.56	)	$	(0.22	)
Loss per share from continuing operations	$	(0.15	)	$	(0.09	)	$	(0.54	)	$	(0.22	)
Loss per share from discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.00	)
	$	(0.16	)	$	(0.09	)	$	(0.56	)	$	(0.22	)
Weighted average common shares outstanding - Basic and diluted		25,430,713			21,509,819			24,592,778			19,244,705

See accompanying notes to condensed consolidated financial statements

THE TUBE MEDIA CORP. (Formerly AGU Entertainment Corp.) and SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)

For the Nine Months Ended September 30, 2005

(Unaudited)

	Shares		Amount		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total

Balance at December 31, 2004		23,392,576	$	2,339	$	8,249,675		$	(6,701,657	)	$	1,550,357
Issuance of shares of common stock for services		398,683		40		1,011,526			—			1,011,566
Issuance of shares of common stock to employees for compensation		45,540		5		107,469			—			107,474
Issuance of common stock as a price adjustment for certain investors		405,000		41		(41	)		—			—
Common stock issued in connection with the acquisition of property plant and equipment		97,800		10		244,490			—			244,500
Issuance of warrants in connection with the issuance of convertible debt		—		—		4,016,142			—			4,016,142
Issuance of shares in settlement of liabilities		121,875		12		337,488			—			337,500
Issuance of shares of common stock to directors for services		20,000		2		54,248			—			54,250
Other issuances of common stock to co-founders as an adjustment of shares previously issued		500,000		50		1,179,950			—			1,180,000
Issuances of shares of common stock in connection with amending the terms of certain notes payable		60,000		6		137,994			—			138,000
Issuance of shares of common stock as interest expense		8,575		—		21,301			—			21,301
Issuance of shares of common stock to a director as an adjustment of shares previously issued		444,000		44		1,047,796						1,047,840
Issuance of shares of common stock to a director in connection with a termination letter		111,566		12		263,288			—			263,300
Net loss (As Restated)		—		—		—			(13,887,965	)		(13,887,965	)
Balance at September 30, 2005 (As Restated)		25,605,615	$	2,561	$	16,671,326		$	(20,589,622	)	$	(3,915,735	)

See accompanying notes to condensed consolidated financial statements

THE TUBE MEDIA CORP. (Formerly AGU Entertainment Corp.) and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2005 and 2004

(Unaudited)

	2005			2004
	(restated)
Cash flows from operating activities:
Net loss	$	(13,374,965	)	$	(4,301,084	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		430,962			123,958
Common stock issued for services		1,123,890			245,077
Common stock issued as compensation to a director		1,047,840			—
Common stock issued as settlement expense		1,180,000			—
Loss from discontinued operations		(513,000	)		—
Amortization of discount on note payable		4,189,409			11,644
Amortization of deferred financing fees		55,370			—
Decrease in accounts receivable		6,526			30,007
Decrease (increase) in prepaid expenses		144,417			(5,037	)
Increase in other assets		(33,926	)		(122,219	)
Increase in accounts payable and accrued liabilities		2,022,743			644,575
(Decrease) increase in other liabilities		(28,909	)		30,000
Net cash used in operating activities		(3,749,643	)		(3,343,079	)

Cash flows from investing activities:
Disbursements for intangibles		—			(151,035	)
Disbursements for property and equipment		(288,293	)		(206,137	)
Net cash used in investing activities		(288,293	)		(357,172	)

Cash flows from financing activities:
Payment of notes payable		(502,464	)		(8,439	)
Proceeds from notes payable to related parties		1,026,003			281,910
Payment of notes payable to related parties		(5,900	)		(40,094	)
Payment on capital leases		(11,376	)		(8,474	)
Proceeds from the sale of common stock		—			60,000
Proceeds from convertible and other notes payable		2,764,936			3,279,000
Net cash provided by financing activities		3,271,199			3,563,903
Net (decrease) increase in cash		(766,737	)		(136,348	)
Cash, beginning of period		771,533			137,048
Cash, end of period	$	4,796		$	700

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	—		$	—
Cash paid for interest	$	537,295		$	16,404

Non-cash financing activities:
Common stock issued as payment for services	$	1,173,290		$	245,077
Common stock issued as compensation to a director	$	1,047,840		$	—
Common stock issued as settlement expense	$	1,180,000		$	—
Conversion of liabilities to common stock	$	337,500		$	740,702
Equipment acquired through issuance of common stock	$	244,500		$	—
Equipment acquired through capital lease obligations	$	—		$	14,637
Common stock issued for financing expenses	$	159,301		$	—
Warrants issued for convertible debt	$	4,016,142		$	—

See accompanying notes to condensed consolidated financial statements

THE TUBE MEDIA CORP. (Formerly AGU Entertainment Corp.) and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2005 (unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

AGU Entertainment Corp. (formerly Lexington Barron Technologies, Inc.) was incorporated in the state of Colorado on August 23, 2000 to engage in financial, operational and systems consulting to startup and small businesses. Prior to April 1, 2004, AGU Entertainment Corp. (“AGU”) was a development stage, public reporting company and did not engage in any significant operations or enter into any material transactions.

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 to the stockholders of PMC. PMC was 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 music oriented television network and archived video and music collection libraries.

On October 20, 2004, AGU was reincorporated in the state of Delaware through a merger of AGU into a wholly owned subsidiary corporation incorporated in the State of Delaware. The reincorporation resulted in AGU becoming a Delaware corporation effective as of October 21, 2004 and did not result in any change in the company’s name, business, assets, liabilities or net worth.

At March 31, 2005, AGU had two wholly-owned operating subsidiaries that were engaged in the following services: (i) the formation and operation of a television network, The Tube Music Network, Inc., (“The Tube”) that airs 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, AGU Music, Inc. (“AGU Music”), formerly Pyramid Records International, Inc. In February of 2005, the Company formed two new subsidiaries, AGU Studios, Inc. (“AGU Studios”), a Florida corporation, and 3200 Oakland Park Boulevard, Inc., a Florida corporation for the purpose of developing a media center for the film and entertainment business.

On February 25, 2006, AGU Entertainment Corp. changed its name to The Tube Media Corp. The name change was effected pursuant to Section 253 of the General Corporation Law of the State of Delaware by the merger of a wholly-owned subsidiary of the Company into the Company. The Company was the surviving corporation and, in connection with the merger, the Company amended its Certificate of Incorporation to change its name pursuant to the Certificate of Ownership and Merger filed with the Secretary of State of the State of Delaware. The Company also amended its Bylaws to reflect the name change and restated its Certificate of Incorporation.

Basis of Presentation

The unaudited condensed consolidated financial statements of The Tube Media Corp. (formerly AGU Entertainment Corp.) 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 the Company’s annual report on Form 10-KSB as filed with the SEC for the year ended December 31, 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. Because the Company was a development stage enterprise for most of 2004, the financial statements for 2005 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.

The accompanying financial statements reflect the results of the operations of the Company and its subsidiaries for the three and nine months ended September 30, 2005 and 2004.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of The Tube Media Corp. (formerly AGU Entertainment Corp.) and its subsidiaries. All significant intercompany transactions have been eliminated.

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.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123, Share-Based Payments (revised 2004), (“SFAS No. 123R”). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, to stock based compensation issued to employees. The Statement requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award at the date of grant, and recognize that cost over the period during which an employee is required to provide services in exchange for the award. The adoption of SFAS No. 123R could have a material effect on the Company’s results of operations. SFAS 123R must be adopted no later than the first annual reporting period of the first fiscal year that begins after December 15, 2005 by small business issuers.

Restatement

The Company has restated its previously issued, September 30, 2005 unaudited condensed consolidated financial statements for matters related to the following previously reported items: discontinued operations, the issuance of stock to a former director in connection with an employment agreement and expenses in connection with the settlement of a dispute.

The following is a summary of the unaudited restatements for the three months ended September 30, 2005:

Loss from continuing operations as originally reported at September 30, 2005	$	(4,153,677	)

Less;
Reclassification of loss attributable to discontinued operations		189,682

Loss from continuing operations at September 30, 2005 as restated	$	(3,963,995	)

Loss from Discontinued operations	$	(189,682	)

The following is a summary of the unaudited restatements for the nine months ended September 30, 2005:

Loss from continuing operations as originally reported at September 30, 2005	$	(11,660,125	)

Less;
Additional compensation expense recorded in connection with the
issuance of common stock, (See Note 4)		(1,047,840	)

Additional expenses in connection with the settlement of a dispute,
(See Note 4)		(1,180,000	)

Reclassification of loss attributable to discontinued operations		513,000

Loss from continuing operations at September 30, 2005 as restated	$	(13,374,965	)

Loss from Discontinued operations	$	(513,000	)

The effect on the Company’s previously issued unaudited September 30, 2005 financial statements are summarized as follows:

Balance Sheet (unaudited) as of September 30, 2005:

	*Previously* *Reported*			*Increase* *(Decrease)*			*Restated*
Current Assets	$	9,433,581		$	(8,847,212	)	$	586,369
Property and Equipment, from discontinued operations		—			8,847,212			8,847,212
All Other Assets		1,894,023			—			1,894,023
Total Assets	$	11,327,604			—		$	11,327,604
Current Liabilities	$	12,917,783			—		$	12,917,783
Long Term Debt		2,325,556						2,325,556
Total Liabilities		15,243,339			—			15,243,339
Stockholders’ Deficit:
Common Stock		2,561			—			2,561
Additional paid-in-capital		14,443,486			2,227,840			16,671,326
Accumulated deficit		(18,361,782	)		(2,227,840	)		(20,589,622	)
Total Liabilities and Stockholders’ Deficit	$	11,327,604		$	—		$	11,327,604

Statement of Operations (unaudited) for the Three Months Ended September 30, 2005:

	Previously Reported			Increase (Decrease)			*Restated*
Revenue	$	94,080		$	(17,410	)	$	76,670
Cost of Sales		7,223			—			7,223
Gross Profit		86,857			(17,410	)		69,447
Total Operating Expenses		1,895,755			( 54,783	)		1,840,972
Loss from Operations		(1,808,898	)		(37,373	)		(1,771,525	)
Interest Expense		2,344,779			152,309			2,192,470
Loss from Continuing Operations		(4,153,677	)		(189,682	)		(3,963,995	)
Loss from Discontinued Operations		—			189,682			(189,682	)
Net Loss	$	(4,153,677	)	$	—		$	(4,153,677	)

Statement of Operations (unaudited) for the nine Months Ended September 30, 2005:

	*Previously* *Reported*			*Increase* *(Decrease)*			*Restated*
Revenue	$	352,062		$	(99,311	)	$	252,751
Cost of Sales		57,306			(20,708	)		36,598
Gross Profit		294,756			(78,603	)		216,153
Total Operating Expenses		6,513,178			2,064,378			8,577,556
Loss from Operations		(6,218,422	)		(2,142,981	)		(8,361,403	)
Interest Expense		5,441,703			(428,141	)		5,013,562
Loss from Continuing Operations		(11,660,125	)		(1,714,840	)		(13,374,965	)
Loss from Discontinued Operations		—			(513,000	)		(513,000	)
Net Loss	$	(11,660,125	)	$	(2,227,840	)	$	(13,887,965	)

Shareholders Equity (unaudited) as of September 30, 2005

Number of Shares

Common Stock

Additional Paid in Capital

Accumulated Deficit

Total Stockholders Equity

Balance at September 30, 2005, as previously reported	25,605,615	$	2,561	$	14,443,486	$	(18,361,782	)	$	(3,915,735	)
Additional compensation expense and settlement expenses recorded from the issuance of common stock (See Note 4)	—		—		2,227,840		(2,227,840	)		—
Balance at September 30, 2005, as restated	25,605,615	$	2,561	$	16,671,326	$	(20,589,622	)	$	(3,915,735	)

2. INTANGIBLES

Intangible assets at September 30, 2005 are as follows

	Value at acquisition		Accumulated amortization			Balance at September 30, 2005
Distribution agreement
(see note 3)	$	350,000	$	(174,800	)	$	175,200
Contract rights		472,000		(23,600	)		448,400
Other intangibles		651,035		(90,422	)		560,613
Total intangibles	$	1,473,035	$	(288,822	)	$	1,184,213

The distribution agreement is being amortized on a straight line basis over a period of three years. Contract rights, which were acquired in April 2005 for stock, are being amortized over a five year period beginning in July of 2005, which corresponds to the initial term of an agreement to air The Tube in certain markets. Other intangibles pertain to costs to develop network logos, graphic templates and on-air interstitials for The Tube. The estimated useful life of these assets is three years, and amortization of these assets commenced in the second quarter of 2005. Aggregate amortization expense over the next five years, assuming an estimated useful life of two years for the other intangibles, is expected to be as follows:

For the year ending December 31:

Remainder of 2005	$	107,153
2006		428,212
2007		340,612
2008		166,737
2009		94,400
2010		47,200

3. NOTES PAYABLE

Convertible Notes

Convertible Notes Payable consists of the following at September 30, 2005 and December 31, 2004:

	2005			2004

First mortgage note secured by real property	$	6,750,000		$	7,000,000
Second mortgage note secured by real property		3,000,000			3,000,000
Other convertible notes and subordinated debentures		3,994,236			1,475,000
		13,744,236			11,475,000
Less: current portion		(8,154,236	)		(7,150,000	)
Less: Discount on convertible mortgage and notes payable		(3,297,555	)		(3,470,822	)
Notes payable, long term portion, net of discounts	$	2,292,445		$	854,178

On December 22, 2004, the Company closed on the purchase of a 162,000 square foot facility situated on 23 acres of land in Lauderdale Lakes, Florida (the “Lauderdale Property”). In connection with the purchase of the Lauderdale Property, the Company issued to the seller, on December 22, 2004, a convertible mortgage promissory note in the principal amount of $7,000,000. The note pays interest at an annual rate of 6.5% and is convertible at any time at the seller’s option into shares of the Company’s common stock at a conversion price of $2.50 per share. A principal payment of $250,000 was due on June 20, 2005 and was paid on July 1, 2005. The remaining balance of the note matures on December 20, 2005. The terms of the convertible mortgage promissory note require quarterly prepayments of $145,000 into an escrow account for interest on the note and real estate taxes on the property. Additional quarterly prepayments of interest and real estate taxes in the amount of $145,000 were required to be put into escrow beginning March 20, 2005. The Company did not make the required prepayment on March 20, 2005. This amount was paid on behalf of the Company by the holder of the $3 million second mortgage note (the “Mitchell Note”) on April 22, 2005, at which time the Company received a letter from the holder of the first mortgage note acknowledging the cure of the payment default. The quarterly payment due June 20, 2005 was paid on July 1, 2005. The remaining balance of the note matures on December 22, 2006. All of the Company’s obligations to the holder of this convertible promissory note and related agreements are secured by a first mortgage on the Lauderdale Property, including all of the Company’s rights, title and interest as lessor in and to all leases or rental arrangements of the Lauderdale Property.

On May 13, 2005, the Company executed a letter agreement with the holder of the Mitchell Note whereby the Company agreed that the $145,000 interest and real estate tax payment made on behalf of the Company, the $100,000 that was advanced to the Company on April 29, 2005 by the holder of the Mitchell Note, the unpaid interest on the Mitchell Note for March and April 2005 and the legal fees incurred by the holder in connection with the letter agreement, would accrue interest at the default rate of 18% and would be due and payable by the Company on August 1, 2005. The letter agreement also extended the deadline for which the Company was to have filed a registration statement to register the Company’s common stock pertaining to the Mitchell Note and related warrants from April 30, 2005 to June 30, 2005, and extended the date for which the registration statement is required to be declared effective to November 30,2005. The $145,000 payment made on behalf of the Company and the $100,000 advanced to the Company are reflected in the Company’s balance sheet as Other Notes Payable. The Company also agreed to grant the holder of the Mitchell Note an additional 150,000 warrants to purchase the Company’s common stock at an exercise price of $1.50 per share, with the same registration and anti-dilution protections contained in the warrants originally granted to the holder of the Mitchell Note. These warrants were valued at $169,025 and were recorded as a discount to the $245,000 loan. The discount is being amortized through August 1, 2005, and the unamortized balance of this discount at June 30, 2005 is $54,902. The Mitchell Note is secured by a second mortgage on the Lauderdale Property and by substantially all of the Company’s other assets, including the capital stock of its subsidiaries. Because the Company did not pay the required monthly interest payments for March and April 2005, the interest rate on the note was increased to the default rate of 18%.

The Company did not pay the $245,000 plus accrued interest and lender legal fees that was due on August 1, 2005, in accordance with the May 13, letter agreement, nor has it filed a registration statement to register the required securities. The holder of the Mitchell Note issued a default letter on August 2, 2005. On August 11, 2005, the Company entered into two letter agreements with the holder of the Mitchell Note, pursuant to which (i) the holder of the Mitchell Note agreed that the payment due on August 1, 2005 would be deferred until September 1, 2005; (ii) the parties agreed that, until maturity of the Mitchell Note, all monies due under the Mitchell Note, other than monies that accrue interest at the 18% default rate, will bear interest at the lower of 18% per annum or the highest rate permitted by law; (iii) the Company agreed to pay the holder, upon the first monies it receives, in addition to the sums otherwise due under the Mitchell Note, approximately $512,000 plus interest, attorneys’ fees in the amount of $1,000 and any further costs of collection (the “September Payment”); (iv) the Company agreed to pay the holder, up to the September Payment, any monies it receives upon the consummation of the terms of anon-binding letter of intent relating to the sale of the Lauderdale Property;(v) the lender agreed to extend the filing date and effective date of the registration statement to December 31, 2005 and March 31, 2006, respectively; and (vi) the parties agreed that there would be no further grace periods allowed under the Mitchell Note. In addition, the letter agreement provides for the issue to the holder of warrants to purchase an additional 150,000 shares of the Company’s common stock at an exercise price of $1.50 per share under the same terms and conditions as the common stock purchase warrants previously issued to the holder. The September Payment was made in September of 2005.

During the first nine months of 2005, the Company issued convertible promissory notes to various accredited investors in the aggregate principal amount of $715,000. These convertible promissory notes pay interest at 10% and are due on the second anniversary of their issuance date and are convertible into shares of the Company’s common stock at the option of each holder at a conversion price of $3.00 per share. The Company issued a convertible promissory note to an accredited investor in the aggregate principal amount of $50,000, which pays interest at 4 1/2% and is due on the second anniversary issuance and is convertible into shares of the Company’s common stock at the option of each holder at a conversion price of $2.00 per share. The Company issued a convertible promissory note to an accredited investor in the aggregate principal amount of $500,000, which pays interest at 4 1/2% and is due on January 1, 2007 and is convertible into shares of the Company’s common stock at the option of each holder at a conversion price of $2.00 per share. The Company also issued an additional $700,000 of promissory notes on September 1, 2005 to a significant stockholder, which mature on various dates between September 10, 2005 and December 15, 2005. The Company also issued a 10% promissory note of $150,000 to an accredited investor on June 27, 2005, which is due on its second anniversary.

Related Party Notes

On March 3, 2004, AGU Music entered into an Assignment and Assumption Agreement with Pyramid Media Group, Inc. (“PMG”) (of which a related party and a stockholder of the Company own a controlling interest), whereby AGU Music 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 manufacturer and distributor of certain recorded music projects for AGU Music through normal retail channels throughout the United States. In exchange for the rights to the Distribution Agreement and certain assets of PMG, AGU Music assumed the obligation to repay $350,000 of notes payable (“the ARK 21 Notes”) to certain principals of PMG. The Company has guaranteed the payment of the ARK 21 Notes, which have an annual interest rate of 8%, and were to have matured on May 1, 2007. Approximately $19,000 of these notes was paid in 2004 and the outstanding balance as of September 30, 2005 is approximately $331,000. The terms of the ARK 21 Notes require monthly payments of principal and interest. The Company has not made the required monthly principal and interest payments since June of 2004. On May 5, 2005, the Company entered into a settlement agreement with the holders of the ARK 21 Notes, who are significant stockholders of the Company. Under the terms of the settlement agreement, the ARK 21 Notes were cancelled and were replaced with new notes containing the same terms and conditions as the old notes, except that the new notes have a beginning principal balance of $345,806 ($331,000 plus accrued interest of $14,508) and require, in addition to the monthly payment of approximately $8,500, the repayment of principal in the amount of $50,000 for every $1,000,000 in equity capital raised by the Company. In addition, upon the Company’s closing of a capital raising of at least $250,000, the Company must pay all the principal and interest due under the original notes for the period January through April, 2005 in the amount of approximately $36,000. The Company has not made any of the required payments under the settlement agreement and received a default letter on August 1, 2005 demanding immediate repayment of all amounts due under the ARK 21 Notes and related settlement agreement. The Company is in discussions with the note holders to remedy the default. The Company does not have the resources to satisfy this obligation.

During the first nine months of 2005, the Company received loans in the aggregate amount of $977,803 from a stockholder of the Company who is a related party. The loans pay interest at 10% and are due on December 31, 2005. The Company also received loans from significant stockholders during the first nine months of 2005 in the aggregate amount of $79,100. These loans pay interest at 10% and are due on September 30, 2005 and December 31, 2005. During the third quarter of 2005, $5,900 of these loans was repaid. At September 30, 2005, $30,000 of these loans was outstanding.

4. STOCKHOLDERS’ EQUITY

During the first nine months of 2005, the Company issued 398,683 shares of common stock to third parties in exchange for services performed. These services were valued at $1,011,566 and this amount was charged to earnings during the period. The Company also issued 65,540 shares of common stock to employees and directors during the first nine months of 2005 and recorded compensation expense of $161,724. In addition, the Company issued 444,000 shares of common stock to its former chairman as an adjustment to the shares allocated to the original investors of the Company having a fair value of $1,047,840 (See Note 1 Restatement) and 111,566 shares of common stock in connection with the terms of his termination agreement and recorded compensation expense of $263,300, 405,000 shares of common stock as a share price adjustment for certain investors, 97,800 shares of common stock in connection with the acquisition of property and equipment for $244,500 and 121,875 shares of common stock in settlement of a liability of $337,500. Also during this period, the Company issued 60,000 shares in connection with amending the terms of certain notes payable and 8,575 shares for payment of interest expense in lieu of cash. The Company also issued 500,000 shares of common stock to two co-founders of the Company as a settlement adjustment to the shares allocated to the original investors of the Company, having a fair value of $1,180,000 (See Note 1 Restatement).

During the first nine months of 2005, the Company issued 2,395,000 detached common stock purchase warrants to acquire the Company’s common stock in connection with the issuance of convertible promissory notes. The warrants have an exercise price between $2.00 and $3.00 per share and expire on the maturity dates of the respective convertible promissory notes with which they were issued. In addition, the Company issued 2,550,000 common stock purchase warrants at an exercise price of $3.00 per share and 3,575 common stock purchase warrants at an exercise price of $2.00 per share to a significant stockholder inconsideration for converting a substantial portion of his holdings of Company promissory notes to common stock and for extending the maturity dates of some of the other promissory notes of the Company. The Company also issued 300,000 warrants at an exercise price of $1.50 per share to the holder of the Mitchell Note in connection with advances made to the Company during the second quarter of 2005. The aggregate value of the warrants issued during the first nine months of 2005 was $4,016,042, and this amount was recorded as a discount on the Company’s convertible debt with an offset to paid-in-capital. The discount is being amortized on a pro rata basis over the life of the respective convertible debt instruments. The unamortized balance of the discount for these notes as of September 30, 2005 was $1,170,654. No warrants were exercised during the first nine months of 2005 and 7,880,911 warrants were outstanding at September 30, 2005. The unamortized balance of the discount for all notes as of September 30, 2005 was $3,297,555.

5. LOSS PER SHARE

Basic income or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares outstanding during the year. Diluted income or loss per share attributable to common stockholders 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 September 30, 2005 and 2004 because the effect of the additional shares which would be issued, assuming conversion of the convertible notes and common stock purchase warrants, are anti-dilutive for the aforementioned periods.

6. COMMITMENTS AND CONTINGENCIES

On September 1, 2005, the Company entered into an agreement to sell the Lauderdale Property to a local real estate developer. The purchase price to be received for the Lauderdale Property is $15.0 million and is expected to be paid in cash. The purchaser had until November 1, 2005 to examine the Lauderdale Property, and if for any reason the purchaser was not satisfied with its investigation, then prior to November 1, 2005, the purchaser was required to notify the Company in writing that it was exercising its right to terminate the purchase agreement. Because the Company did not receive such a notice prior to November 1, the $1.5 million deposit placed into escrow by the purchaser upon executing the purchase agreement became non-refundable.

Pursuant to the terms of the purchase agreement, the closing date is expected to be prior to December 31, 2005. If the transaction fails to close due to a default on the part of the purchaser, the deposit will be delivered by the escrow agent to the Company as liquidated damages, and if the transaction fails to close due to a default on the part of the Company, at the option of the purchaser, the Deposit will be returned to the purchaser. Any such return will not limit the purchaser’s right to maintain an action for specific performance by the Company. The Company may be required to obtain stockholder approval for the sale of the Lauderdale Property.

In connection with the purchase and sale agreement for the Lauderdale Property, the purchaser agreed to loan $2.5 million to the Company, to be advanced in three tranches upon the Company meeting certain conditions. The first two tranches, totaling $1.5 million, were received by the Company on October 21, 2005. The third tranche of $1.0 million was received by the Company on November 17, 2005.

The loan will accrue interest at a rate per annum of 6.5% with interest due and payable monthly; provided however, in the event that no event of default exists, the interest will be deferred and paid upon the maturity of the Loan. The Loan will mature no later than a date that is earlier to occur of (i) the date of closing of the purchase and sale of the Lauderdale Property and (ii) December 23, 2005. In addition, the Loan will be secured by a third mortgage on the Lauderdale Property. The proceeds of the loan were used to pay down certain indebtedness and for working capital to continue the Company’s business operations.

The Company’s Board of Directors and management determined that it was in the best interest of the Company’s stockholders to abandon the AGU Studios concept and use the proceeds from the sale of the property to help alleviate the Company’s liquidity crisis, retire currently maturing debt, and provide additional funds for working capital (See Note 9). The Company’s Board of Directors and management believe that selling the Lauderdale Property and focusing on the Company’s core businesses, the Tube Music Network Inc. and AGU Music, Inc. will attract additional investors to the Company. The Company is currently unable to predict the costs of relocating its continuing operations from the Lauderdale Property into a permanent replacement facility.

On January 27, 2005, the Company was served with a summons with notice by Jarred Weisfeld and Cherry Jones, individually and doing business as JarredCherry Productions LLC, referred to herein as the plaintiffs, which indicates that the plaintiffs commenced an action against the Company. The plaintiffs alleged, among other things, breach of contract, and breach of implied covenant of good faith and fair dealing, unfair competition, tortuous misappropriation of goodwill, and deceptive acts and practices pursuant to Section 349 of the New York General Business Law. The dispute originated from an alleged agreement between the plaintiffs and the Company related to the works of the late Mr. Russell Jones, who was the son of Ms. Jones and the management client of Mr. Weisfeld. The complaint indicated that the plaintiffs were seeking compensatory and punitive damages of no less than $1,812,500 for each of the six causes of action alleged. On June 20, 2005, the Company and the Plaintiffs entered into a Confidential Settlement Agreement and Mutual Release (the “Agreement”) wherein the parties agreed to resolve their differences without admitting or acknowledging the validity of the position taken by the other parties in the course of the litigation. Under the terms of the Agreement, the Company paid JarredCherry $10,000 on June 28, 2005, and will pay $10,000 per month for eight consecutive months commencing 30 days from the date of the Agreement, as full and final settlement of the disputes. The complaint filed by the Plaintiffs has since been dismissed.

On October 13, 2004, The Tube received notification from a television channel featuring music related programming that the circle logo used by The Tube is “confusingly similar” to the circle logo used by that television channel, supporting claims of trademark infringement and unfair competition. On November 3, 2004, the Company responded to the October 13, letter stating it does not believe the logos are confusingly similar or that any trademark infringement has occurred. The Company has not received a response to its November 3, 2004 letter. The Company intends to vigorously defend any challenge to its use of its logo.

The Company is subject to claims and legal actions that arise in the ordinary course of its business. The Company believes that the ultimate liability, if any, with respect to these claims and legal actions, will not have a material effect on the financial position or results of operations of the Company.

7. RECENT ACCOUNTING PRONOUNCEMENTS

8. SEGMENT REPORTING

The Company has two reportable operating segments: The Tube and AGU Music. AGU Studios operations have been discontinued and are being reported as discontinued operations (see Note 9). The Tube airs traditional music videos and live concerts of contemporary music material that is derived from archived video and music collection libraries. When fully operational, the Company expects that The Tube will generate revenues by selling advertising time and through direct sales of music related to the content broadcasted on the network. AGU Music is a record company engaged in the release of recorded music materials acquired through artist signings and acquisitions. AGU Studios was originally conceived as a comprehensive media entertainment center, which will offer film, television and music production facilities, sound stages for recording, and executive offices for the Company’s operations and other entertainment industry organizations. However, the Company’s continued liquidity problem requires the Company to sell the Lauderdale Property and cease operations with respect to AGU Studios (see Note 6 for further information). Each segment is separately managed and is evaluated by the Company’s chief operating decision makers for the purpose of allocating the Company’s resources. The Company also has a corporate headquarters function, which does not meet the criteria of a reportable operating segment.

The table below presents information about reportable segments for the three and nine months ending September 30, 2005 and 2004.

	Three Months						Nine Months
	2005			2004			2005			2004
Revenues
AGU Music	$	76,670		$	—		$	252,751		$	15,000
The Tube		—			—			—			—
Consolidated revenues before discontinued operations		76,670			—			252,751			15,000
Discontinued operations		17,410			—			99,311			—
Consolidated revenues	$	94,080		$	—		$	352,062		$	15,000

Operating loss
AGU Music		(85,586	)		(551,837	)		(492,966	)		(1,504,418	)
The Tube		(470,993	)		(709,217	)		(2,365,665	)		(1,485,253	)
Segment loss before corporate and discontinued operations		(556,579	)		(1,261,054	)		(2,858,631	)		(2,989,671	)
Corporate		(1,214,946	)		(540,144	)		(5,502,772	)		(1,222,268	)
Discontinued operations		(189,682	)		—			(513,000	)		—
Consolidated operating loss	$	(1,961,207	)	$	(1,801,198	)	$	(8,874,403	)	$	(4,211,939	)

The table below reconciles the measurement of segment profit shown in the previous table to the Company’s consolidated income before taxes:

	Three Months						Nine Months
	2005			2004			2005			2004
Total segment loss	$	(556,579	)	$	(1,261,054	)	$	(2,858,631	)	$	(2,989,671	)
Operating loss - corporate		(1,214,946	)		(540,144	)		(5,502,772	)		(1,222,268	)
Loss from discontinued operations		(189,682	)		—			(513,000	)		—
Other income		—			10,760			—			10,760
Interest expense		(2,192,470	)		(54,752	)		(5,013,562	)		(99,905	)
Loss before income tax	$	(4,153,677	)	$	(1,845,190	)	$	(13,887,965	)	$	(4,301,084	)

9. DISCONTINUED OPERATIONS

During the third quarter of 2005, the Company determined to discontinue the operations of AGU Studios and sell the Lauderdale Property. The Company decided to sell the building and discontinue the studio operations primarily due to liquidity issues and to provide additional funds for working capital and the repayment of debt. The sale of the building took place on December 28, 2005. AGU Studios revenues reported in discontinued operations, for the years ended December 31, 2005 were $44,576. There were no revenues from AGU Studios in 2004. Prior year financial statements for 2005 have been restated to reflect the operations of AGU Studios as a discontinued operation.

10. RELATED PARTY TRANSACTIONS

During the first nine months of 2005, the Company received loans in the aggregate amount of $977,803 from a stockholder of the Company who is a related party. The loans pay interest at 10% and are due December 31, 2005. The Company also received loans from significant stockholders during the first nine months of 2005 in the aggregate amount of $48,200. These loans pay interest at 10% and are due December 31, 2005. In addition to the ARK 21 Notes, as of September 30, 2005, the Company had outstanding loans payable to related parties in the aggregate amount of $114,400 that were due Nov. 1, 2004. The Company currently does not have the resources to pay these loans upon their maturity

On May 5, 2005, the Company entered into a settlement agreement, effective April 15, 2005, with the holders of the ARK 21 Notes, who are significant stockholders of the Company. Under the terms of the settlement agreement, the ARK 21 notes were cancelled and were replaced with new notes containing the same terms and conditions as the old notes, except that the new notes have a beginning principal balance of $345,806 and require, in addition to the monthly payment of approximately $8,500, the repayment of principal in the amount of $50,000 for every $1,000,000 in equity capital raised by the Company. In addition, upon the Company’s closing of a capital raising of at least $250,000, the Company must pay all the principal and interest due under the original notes for the period January through April 2005 in the amount of approximately $36,000. The Company has not made any of the required payments under the settlement agreement and received a default letter on August 1, 2005 demanding immediate payment of all amounts due under the Ark21 Notes and related settlement agreement.

For the period from January 1, 2005 through September 30, 2005, the Company received various consulting services totaling approximately $193,000 from two stockholders. At September 30, 2005 approximately $124,000 was unpaid.

Additionally, two officers of the Company agreed to defer a portion of their salary, payable under their employment agreements until such time as adequate capital has been raised by the Company. The amount deferred as of September 30, 2005 was approximately $193,000.

Accounts payable to related parties at September 30, 2005 totaled approximately $339,000. Included in this amount was $6,700 in director’s fees payable to a certain director and a $5,000 director’s fee payable to a second director.

During October and November 2005, the Company received various loans from two significant stockholders totaling $111,000. These loans were repaid during the same period from proceeds received in connection with the sale of the Lauderdale property.

11. 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 $12.3 million and a stockholders deficiency of approximately $3.9 million at September 30, 2005, as well as a net loss and net cash used in operations of approximately $13.9 million and $3.8 million, respectively, for the nine months ending September 30, 2005 and de-minimus cash on hand, 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 the Company’s television network, recorded music business and the sale of the Lauderdale Property.

These financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unsuccessful in obtaining the additional capital necessary to fund its operations, it may be forced to downsize certain operations, restructure its current debt obligations on terms less favorable to the Company than the existing obligations or sell some of its assets. It may also need to seek protection under the federal bankruptcy laws or be forced into bankruptcy by its creditors. There can be no assurance the Company will be successful in its efforts to raise additional financing.

12. SUBSEQUENT EVENTS

In connection with the purchase and sale agreement for the Lauderdale Property (see Note 6), the purchaser agreed to loan $2.5 million to the Company, to be advanced in three tranches upon the Company meeting certain conditions. The first two tranches, totaling $1.5 million, was received by the Company on October 21, 2005. The third tranche of $1.0 million was received by the Company on November 17, 2005.

On October 21, 2005, the Company issued a promissory note in the aggregate principal amount of $250,000 (the “Buntrock Note”) to the holder of the first mortgage note secured by the Lauderdale Property, as consideration for past defaults by the Company under the first mortgage. The Company did not receive any additional cash proceeds in connection with the Buntrock Note. The Buntrock Note bears interest at the applicable Internal Revenue Service federal interest rate per annum, as adjusted from time to time, and matures on the earlier of (i) the date of closing of the purchase and sale of the Lauderdale Property or (ii) December 23, 2005. In the event of the continuation of any default in payment for a period of ten days after such payment is due, the holder of the Buntrock Note may declare the entire unpaid principal and interest immediately due and payable. In order to compensate the holder of the Buntrock Note for loss and expense occasioned by handling delinquent payments, the Company must pay, in addition to any interest, a service charge equal to 5% of the amount of any payment received by the holder ten days or more after the due date thereof. Upon the occurrence of any default under the Buntrock Note or any default under the loan documents related to the first mortgage on the Lauderdale Property, the Company must pay the holder, on demand, interest on all sums outstanding under the Buntrock Note at the lesser of (i) the maximum rate permitted by applicable law or (ii) 18% per annum.

In addition, in connection with the Buntrock Note, the Company and the holder of the first mortgage note on the Lauderdale Property entered into an agreement pursuant to which the holder agreed to waive certain defaults under the first mortgage and the Company agreed to issue 175,000 shares of the Company’s common stock to the holder and 125,000 shares the holder’s legal counsel.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We were formerly known as Lexington Barron Technologies, Inc. and were incorporated in the State of Colorado on August 23, 2000 for the purpose of addressing the specific needs of small businesses and startup organizations by providing a broad range of consulting and advisory services, ranging from market research and analysis to business plan and systems development to financial consulting. In early 2004, our former management determined that their business model was not progressing and that we should either merge with or acquire an operating company with an operating history and assets.

Effective April 1, 2004, we completed a Share Exchange Agreement with Pyramid Music Corp., a Florida corporation (“PMC”). Under the terms of the Share Exchange Agreement, we acquired 100% of the outstanding common stock of PMC in exchange for 16,922,464 shares of our common stock. On March 26, 2004, in anticipation of the completion of the share exchange, we changed our name to AGU Entertainment Corp. Upon completion of this transaction, the former stockholders of PMC owned, on a fully diluted basis, approximately eighty percent of the outstanding common stock of AGU Entertainment Corp. as of April 1, 2004, resulting in a change in control. The transaction was accounted for as a reverse merger and recapitalization whereby PMC, which became a wholly owned subsidiary of AGU Entertainment Corp., is deemed to be the acquirer for accounting purposes. In addition, we had no identifiable assets and liabilities as of April 1, 2004. As a result, PMC is deemed to be the surviving accounting and reporting entity, and all of the historical financial information presented in this Form 10-KSB, including the consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations, reflect the assets, liabilities, results of operations and cash flows of PMC and its subsidiaries, The Tube Music Network, Inc., a Florida corporation (“The Tube”) and Pyramid Records International, inc., a Florida corporation (“PRI”).

As a result of the share exchange, AGU became the parent company of PMC, which was a development stage company with an inception date of May 20, 2003 with two wholly-owned operating subsidiaries that are engaged in the following services: (i) the formation and operation of a television network, The Tube Music Network, Inc., (“The Tube”) that airs 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”). PMC was dissolved in July of 2004 and at that time The Tube and PRI became wholly-owned subsidiaries of AGU Entertainment Corp. In February 2005, PRI officially changed its name to AGU Music, Inc. (“AGU Music”).

The Tube is a 24-hour per day broadcast digital television network that delivers high quality music video, audio, pay-per-view options and commerce to digital viewers nationally. Its national launch is expected to take place in the third quarter of 2005. The Tube can currently be seen in a limited number of households in various parts of the United States.

In the late 1990’s, broadcasters throughout the country were granted portions of the airwaves at no cost with the understanding that they would provide free digital signals as part of the U.S. government’s desire for high definition television. However, due to improvements in digital signal compression, the bandwidth required to broadcast digital television was substantially reduced, leaving broadcasters with excess bandwidth to use at their discretion. As a result, there are currently a number of media companies that have the ability to offer a digital quality picture over the air directly to consumers and indirectly through the cable and satellite operators’ digital box using surplus bandwidth from local broadcasters. These media outlets can offer additional channels to broadcast local news, sports, weather or other specialty services like The Tube. This new broadcasting concept is referred to as “multicasting.” In April of 2005, we signed an agreement with Raycom Media, Inc. (“Raycom”), which will enable consumers in all of the markets served by Raycom to receive The Tube with digital cable service or with television sets that are enabled with digital tuners. Raycom owns and operates 39 television stations in 20 states, which cover over 10% of United States television households. We are currently in negotiations with several other broadcasters with multicasting capabilities, and expect to eventually leverage this market penetration into households served by larger cable and satellite systems. There can be no assurance as to whether or when these negotiations will result in additional definitive agreements. We expect that The Tube will earn revenues through advertising sales and through e-commerce with respect to music and related products that will be seen by consumers on The Tube.

AGU Music produces both studio albums and DVD concerts. It entered into several agreements for distribution and released three albums to the public in 2004. Our ability to produce new albums and DVD concerts in 2005 and beyond will be dependent on the amount of working capital available to us (see Liquidity and Capital Resources) for the required marketing, promotional and other operating expenses necessary to produce recorded music projects. We have not produced any new music projects in 2005, and do not expect to release any new projects until our liquidity situation improves.

In the third quarter of 2004, our board of directors decided to purchase and develop a facility that would serve as a comprehensive media entertainment recording and production facility that would encompass film, television and musical projects. On December 22, 2004, we closed on the purchase of a 162,000 square foot facility situated on 23 acres of land in Lauderdale Lakes, Florida (the “Lauderdale Property”). Our business plan envisioned a facility that will consist of approximately 75,000 square feet of office space available for lease, as well as six sound stages, an audio production studio and a two and a half acre back lot for film projects. The Company’s expectation was that revenue would be generated by offering technical and production services in the areas of film, television and music production, and through the rental of office and studio space. A limited amount of production activity did take place on the Lauderdale Property in 2004 and in the first nine months of 2005, and in February 2005 we formed a separate subsidiary, AGU Studios, Inc., a Florida Corporation, under which our studio development and production activities were to have taken place. However, due to the Company’s continuing liquidity problems (see Liquidity and Capital Resources), we have decided to sell the Lauderdale Property, and use the proceeds, $2.5 million of which the Company received in October and November 2005 in the form of a bridge loan from the purchaser, to pay down maturing debt and for working capital and to discontinue the operations of AGU Studios.

Because of the start up nature of our business throughout most of 2004, our results of operations and cash flows in the third quarter of 2005 are not comparable to the same period of a year ago.

Restatement

The Company has restated its previously issued, September 30, 2005 unaudited (condensed) consolidated financial statements for matters related to the following previously reported items: discontinued operations; issuance of stock as compensation to a director in connection with an employment contract and the issuance of stock in connection with the settlement of a dispute.

Liquidity and Capital Resources

We do not have adequate cash to meet our current obligations as well as our short and long term objectives, and we do not have the capital resources necessary to implement our business plan. The growth and development of our business will require a significant amount of additional working capital. We currently have very limited financial resources and will need to raise additional capital in order to continue as a going concern. If we are unsuccessful in obtaining the additional capital necessary to fund our operations, we may be forced to downsize certain operations, restructure our current debt obligations on terms less favorable to us than the existing obligations or sell some of our assets. We may also need to seek protection under the federal bankruptcy laws or be forced into bankruptcy by our creditors.

Our financial condition and operating results, specifically a working capital deficiency of approximately $12.3 million, a stockholders deficiency of approximately $3.9 million and de-minimus cash on hand as of September 30, 2005, as well as a net loss and net cash used in operations of approximately $13.9 million and $3.8 million, respectively, for the nine months ending September 30, 2005 raise substantial doubt about our ability to continue to operate as a going concern.

As a company that has recently emerged from the start-up phase with a limited 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, the emerging nature of the market in which we compete and lack of sufficient capital to fund our operations and implement our business plan, we anticipate operating losses until such time as we can successfully implement our business strategy, which includes the national launch of The Tube and, potentially, new projects for AGU Music. Because of losses incurred by us through our most recent fiscal year end and our general financial condition, our independent registered public accounting firm inserted a going concern qualification in their audit report for the most recent fiscal year that raises substantial doubt about our ability to continue as a going concern.

Since May 20, 2003, we have financed our operations through numerous debt and equity issuances. In addition to the convertible notes discussed below, we issued approximately $6,948,000 of convertible notes or debentures, approximately $3,379,000 of which plus accrued interest, were subsequently converted into 1,173,540 shares of common stock of the Company and $75,000 of which was repaid in 2004. Approximately $3,344,000 of the remaining convertible promissory notes mature between the fourth quarter of 2006 and the third quarter of 2007, and a $150,000 promissory note was to have matured on June 30, 2005. On August 2, 2005, we issued 5,000 shares of our common stock and warrants to purchase 25,000 shares of our common stock at an exercise price of $1.50 per share in exchange for the holder of this note extending the maturity date of this note to October 1, 2005. While these convertible notes are convertible into shares of our common stock at a conversion price of $3.00 per share, there can be no assurances that these notes will be converted prior to their becoming due. We currently do not have the financial resources to repay these promissory notes without completing an additional financing, reducing expenses, selling assets or extending the maturities of this debt. If we are unsuccessful in obtaining the additional capital necessary to fund our operations and service our debt, we may be forced to downsize certain operations, restructure our current debt obligations, find a strategic partner, and or sell some of our assets. We may also need to seek protection under the federal bankruptcy laws or be forced into bankruptcy by our creditors.

As part of the purchase price of the Lauderdale Property, we issued to the seller on December 22, 2004 a convertible promissory note in the principal amount of $7,000,000. The note pays interest at an annual rate of 6.5% and is convertible at any time at the seller’s option into shares of our common stock at a conversion price of $2.50 per share. A principal payment of $250,000 was due on June 25, 2005 and was paid on July 1, 2005. The remaining balance of the note matures on December 22, 2005. All of our obligations to the seller under this convertible promissory note and related agreements are secured by a first mortgage on the Lauderdale Property, including all of our rights, title and interest as lessor in and to all leases or rental arrangements of the Lauderdale Property. At the closing of the purchase of the Lauderdale Property, we made a prepayment into an escrow account of $150,000 for interest on the note and real estate taxes on the Lauderdale Property covering the quarterly period ending March 31, 2005. Additional quarterly prepayments of $145,000 are required to be put into escrow beginning March 22, 2005. We did not make the required prepayment on March 22, 2005. This amount was paid on behalf of the Company by one of our other creditors (see below) on April 22, 2005, at which time we received a letter from the holder of the first mortgage note acknowledging the cure of the payment default. The quarterly prepayment, which was due June 22, 2005, was paid by the Company on July 1, 2005, with the proceeds of a note issued on the same date by the Company to a related party.

On September 1, 2005, we entered into an agreement to sell the Lauderdale Property to a local real estate developer. The purchase price to be received for the Lauderdale Property is $15.0 million and is expected to be received in cash. The purchaser had until November 1, 2005 to examine the Lauderdale Property, and if for any reason the purchaser was not satisfied with its investigation, then prior to November 1, 2005, the purchaser was required to notify us in writing that it was exercising its right to terminate the purchase agreement. Because we did not receive such a notice prior to November 1, the $1.5 million deposit placed into escrow by the purchaser upon executing the purchase agreement became non-refundable.

Pursuant to the terms of the purchase agreement, the closing date is expected to be prior to December 31, 2005. If the transaction fails to close due to a default on the part of the purchaser, the deposit will be delivered by the escrow agent to us as liquidated damages, and if the transaction fails to close due to a default on our part, at the option of the purchaser, the deposit will be returned to the purchaser. Any such return will not limit the purchaser’s right to maintain an action for specific performance by us. We may also be required to obtain stockholder approval for the sale of the Lauderdale Property.

In connection with the purchase and sale agreement for the Lauderdale Property, the purchaser agreed to loan $2.5 million to us, which was advanced to us in three tranches during October and November of 2005. The loan will accrue interest at a rate per annum of 6.5% with interest due and payable monthly; provided however, in the event that no event of default exists, the interest will be deferred and paid upon the maturity of the Loan. The Loan will mature no later than a date that is earlier to occur of (i) the date of closing of the purchase and sale of the Lauderdale Property and (ii) December 23, 2005. In addition, the Loan will be secured by a third mortgage on the Lauderdale Property. The proceeds of the loan were used to pay down certain indebtedness and for working capital to continue our business operations.

Our Board of Directors and management determined that it was in the best interest of our stockholders to abandon the AGU Studios concept and use the proceeds from the sale of the property to help alleviate our liquidity crisis, retire currently maturing debt, and provide additional funds for working capital. We believe that selling the Lauderdale Property and focusing on our core businesses, the Tube Music Network Inc., and AGU Music, Inc., will attract additional investors to the Company. We are currently unable to predict the costs of relocating our continuing operations from the Lauderdale Property into a permanent replacement facility.

Also on December 22, 2004, we issued a secured convertible term note in the principal amount of $3,000,000 to Mitchell Entertainment Company (the “Mitchell Note”). The note pays interest monthly at an annual rate of 10% and has a maturity date of December 19, 2006. The note can be converted at any time by the lender into shares of our common stock at an initial conversion price of $1.50 per share, subject to anti-dilution protections and certain other adjustments. The Mitchell note is secured by a second mortgage on the Lauderdale Property and by substantially all of our other assets, including the capital stock of our subsidiaries.

On May 13, 2005, we executed a letter agreement with the holder of the Mitchell Note whereby we agreed that the $145,000 interest and real estate tax payment made on behalf of the Company, the $100,000 that was advanced to us on April 29, 2005 by the holder of the Mitchell Note, the interest installments on the Mitchell Note for April 1, 2005 and May 1, 2005 and the legal fees incurred by the holder in connection with the letter agreement, together with the interest due on the foregoing amount would accrue interest at the default rate of 18% and would be due and payable by us on August 1, 2005. The letter agreement also extended the deadline for which we were to have filed a registration statement to register the Company’s common stock pertaining to the Mitchell Note and related warrants from April 30, 2005 to June 30, 2005, and extended the date for which the registration statement is required to be declared effective to November 30, 2005. We also agreed to grant the holder of the Mitchell Note additional warrants of 100,000 and 50,000 respectively, to purchase our common stock at an exercise price of $1.50 per share, with the same registration and anti-dilution protections contained in the warrants originally granted to the holder of the Mitchell Note. Because we did not pay the required monthly interest payments for March and April 2005, which resulted in our receiving a default letter from the holder of the Mitchell Note on April 8, 2005, the interest rate on the note was increased to the default rate of 18%.

On March 3, 2004, our AGU Music subsidiary entered into an Assignment and Assumption Agreement with Pyramid Media Group, Inc. (“PMG”) whereby AGU Music 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, AGU Music assumed the obligation to repay $350,000 of notes payable to certain principals of PMG (the “ARK 21 Notes”). The Company has guaranteed the payment of the ARK 21 notes, which have an annual interest rate of 8% and mature on May 1, 2007. Allen Jacobi, the former President of AGU Music, is an owner and controlling stockholder of PMG. Approximately $19,000 of these notes was paid in 2004 and the outstanding balance as of March 31, 2005 was approximately $331,000. The terms of these notes require monthly payments of principal and interest. We have not made the required monthly principal and interest payments since June of 2004. On May 5, 2005, we entered into a settlement agreement with the holders of the ARK 21 Notes, who are significant stockholders of the Company. Under the terms of the settlement agreement, the ARK 21 Notes were cancelled and were replaced with new notes containing the same terms and conditions as the old notes, except that the new notes have a beginning principal balance of $345,806 and require, in addition to the monthly payment of approximately $8,500, the repayment of principal in the amount of $50,000 for every $1,000,000 in equity capital raised by us. In addition, upon the our closing of a capital raising of at least $250,000, we must pay all the principal and interest due under the original notes for the period January through April, 2005 in the amount of approximately $36,000. We also agreed to issue 500,000 restricted shares of the Company’s common stock to the holders of the ARK 21 Notes. We have not made any of the required payments under the settlement agreement and received a default letter on August 1, 2005 demanding immediate repayment of all amounts due under the ARK 21 Notes and related settlement agreement. We currently do not have the financial resources to repay these notes without completing an additional financing, reducing expenses, selling assets or extending the maturity of the ARK 21 Notes. In addition, defaults under the ARK 21 Notes cause a default, pursuant to the cross default provision, under the first mortgage note of the Lauderdale Property. To date, the holder of the first mortgage has not issued a default notice relating to our default on the ARK21 Notes.

Prior to the hurricane damage and evacuation of the Lauderdale Property, we had a monthly cash requirement of approximately $550,000, however, the need for temporary office space and dividing the operations into different locations will have an impact on our monthly costs. We are unable to predict the costs of relocating our continuing operations from the Lauderdale Property into a permanent replacement facility but believe our monthly costs will be reduced due to the sale of the Lauderdale Property. We will need to raise additional capital for the remainder of 2005 and 2006, for working capital, capital expenditures, business expansion, repayment of maturing debt and to continue as a going concern. We anticipate that we will need to between $10 to $15 million over the balance of 2005 and through 2006 to provide for these requirements. Management is evaluating several alternatives, including the sale of equity securities or issuance of additional debt, or finding a strategic partner. We cannot assure you that we will be successful in completing such an offering, in executing the business plan or achieving profitability. Notwithstanding the $2.5 million bridge loan we received from the sale of the Lauderdale Property, if we are not successful in raising additional capital and closing on the sale of the Lauderdale Property prior to December 31, 2005, our financial condition, business operations and ability to continue as a going concern will be adversely affected, and we may need to seek protection under the federal bankruptcy laws.

Cash used in operations for the first nine months of 2005 was $3,750,000, which was primarily the result of our operating loss of $13,888,000, partially offset by increases to accounts payable and accrued expenses and the issuance of common stock in exchange for services. Cash used in operations in 2004 was $3,343,000. We expect to continue to generate negative cash flows from operations until such time as we can gain national distribution for, and generate significant advertising revenues from, The Tube. No assurances can be given as to when or if we will be able to develop profitable operations.

Cash used in investing activities in the nine months of 2005 amounted to $288,000, as compared to $357,000 in 2004. The decrease was due to a $51,000 investment for certain intangible assets for The Tube in 2004, and severe liquidity restraints, which have limited our capital expenditures in 2005. Capital expenditures for the remainder of 2005 will depend largely upon our ability to raise additional capital; however, our business plan currently assumes approximately $1.0 million of capital expenditures over the next twelve months.

We received cash from financing activities in the first nine months of 2005 in the amount of $3,271,000, as compared to $3,564,000 in the same period of a year ago. The decrease was due to repayments of certain debt in 2005.

We have experienced liquidity issues since our inception due primarily to our limited ability, to date, to raise adequate capital on acceptable terms. We have historically relied upon the issuance of promissory notes that are convertible into shares of our common stock to fund our operations and currently anticipate that we will need to continue to issue promissory notes and common stock to fund our operations and repay our outstanding debt for the foreseeable future. At September 30, 2005, we had approximately $15.3 million of debt outstanding, approximately $8.2 million of which is due at various dates in 2005. We currently do not have the financial resources to repay any of these or any of the aforementioned obligations without completing the sale of the Lauderdale Property and obtaining additional financing. We also currently do not have funds available for working capital requirements beyond December 15, 2005.

If we are unable to raise the necessary capital to meet our current and future obligations, we will need to consider other alternatives, which could include curtailing our business plan, selling some of our assets or finding a strategic partner. We may also need to seek protection under the federal bankruptcy laws or be forced into bankruptcy by our creditors.

The Company’s financial condition and operating results, specifically a working capital deficiency of approximately $12.3 million and accumulated deficit of approximately $20.6 million at September 30, 2005, as well as a net loss of approximately $13.9 million for the nine months ending September 30, 2005 and de-minimus cash on hand, 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 the Company’s television network, recorded music business and the sale of the Lauderdale Property

Moreover, as a result of our liquidity issues, we have experienced delays in the repayment of certain promissory notes upon maturity. However, certain holders of our promissory notes have agreed to extend the due dates on their promissory notes. If in the future, the holders of our promissory notes demand repayment of principal and accrued interest instead of electing to extend the maturity dates on their notes and if we are unable to repay our debt when due because of our continued liquidity issues, we may be forced into an involuntary bankruptcy filing.

Critical Accounting Policies and Estimates

The accounting policies that we have identified as critical to our business operations and to an understanding of our results of operations are described in detail in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. In other cases, preparation of our unaudited condensed consolidated financial statements for interim periods requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that the actual results will not differ from those estimates.

Results of Operations for the Three Months ended September 30, 2005 and 2004

Revenues from continuing operations were $77,000 for the three months ended September 30, 2005 and $0 for the three months ended September 30, 2004 and were primarily related to recorded music shipments by AGU Music. Approximately $17,000 of revenues were generated by the discontinued operations of AGU Studios. AGU Music had gross profit of $69,000 and the gross profit from discontinued operations was $17,000 during the period.

Our operating loss from discontinued operations for the three months ended September 30, 2005 was $190,000 compared to $0 for the three months ended September 30, 2004.

Operating expenses from continuing operations were $1,961,000 and $1,801,000 for the three months ended September 30, 2005 and 2004, respectively, the majority of which was general and administrative expenses. Thus far in 2005 our liquidity constraints have severely limited our ability to engage in marketing, promotion, advertising and similar expenses necessary to develop our business. We expect this trend to continue until such time as we can complete a substantial debt or equity offering, and complete the sale of the Lauderdale Property.

Interest expense in the three months ended September 30, 2005 was $2,192,000 as compared to $55,000 in 2004, and includes $1,878,000 for the reduction of debt discounts and the amortization of deferred financing fees. The remainder of the increase in interest expense was the result of increased indebtedness in 2005.

We did not record a tax benefit during this period as we determined that it was more likely than not that we would not be able to generate sufficient taxable income to use any net deferred tax assets. As such, we increased our valuation allowance for the net deferred tax asset that existed at December 31, 2004 so that no net tax benefit was recorded in 2005.

Our net loss for the quarter ended September 30, 2005 was $4,154,000, as compared to $1,845,000 in the prior year.

Results of Operations for the Nine Months ended September 30, 2005 and 2004.

Revenues from continuing operations were $253,000 for the nine months ended September 30, 2005 and $15,000 for the nine months ended September 30, 2004 and were primarily related to recorded music shipments by AGU Music. Revenues of approximately $99,000 were generated by the discontinued operations of AGU Studios. AGU Music had gross profit of $216,000 and the gross profit from discontinued operations was $79,000 during the period.

Our operating loss from discontinued operations for the nine months ended September 30, 2005 was $513,000 compared to $0 for the nine months ended September 30, 2004.

Operating expenses from continuing operations were $8,578,000 and $4,227,000 for the nine months ended September 30, 2005 and 2004 respectively, the majority of which was general and administrative expenses. Included in this amount is $1,180,000 of expense in connection with the issuance of common stock in the settlement of a dispute and $1,048,000 for the issuance of common stock as compensation to a director. Thus far in 2005 our liquidity constraints have severely limited our ability to engage in marketing, promotion, advertising and similar expenses necessary to develop our business. We expect this trend to continue until such time as we can complete a substantial debt or equity offering and sale of the Lauderdale Property.

Interest expense for the nine months ended September 30, 2005 was $5,014,000, as compared to $100,000 for the nine months ended September 30, 2004, and includes $4,245,000 for the reduction of debt discounts and the amortization of deferred financing fees. The remainder of the increase in interest expense is the result of increased indebtedness in 2005.

Our net loss for the nine months ended September 30, 2005 was $13,888,000, as compared to $4,301,000 in the prior year.

We anticipate entering into several additional affiliate agreements with digital broadcasters, which will allow The Tube to be seen in approximately 20 million homes in 2006. While we expect this market penetration to generate a substantial increase in marketing, promotion and other expenses at The Tube, we also expect that our revenues will ultimately increase sufficiently enough to cover these increases. Thus, we believe that our results of operations in fiscal 2004 and 2005 are not indicative of our projected results of operations in fiscal 2006 and beyond.

Item 3.

CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, previously evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in reaching a reasonable level of assurance that management is timely alerted to material information related to and during the period when our periodic reports are being prepared. Subsequent to the original evaluation and in connection with the preparation of the Company’s Form 10-KSB for the year ended December 31, 2005, the Company recognized an error in the accounting treatment for the issuance of stock to a director pursuant to an employment agreement and the issuance of stock in settlement of a dispute and that the Company should have reported the operations of AGU Studios as discontinued operations. At that time, the Company determined that it should restate the financial results to correct the accounting treatment of the issuance of stock, the issuance of stock in settlement of a dispute and also reflect discontinued operations. The Company’s disclosure controls and procedures did not detect on a timely basis the additional expense in connection with the issuance of common stock or that the operations of AGU Studios should have been reported as discontinued operations. The methodology for accounting for the issuance of such stock and the reporting of the operations of AGU Studios as discontinued operations were corrected subsequent to the initial filing of the Form 10-QSB for the period covered by this report. As a result of this restatement as discussed further in Note 1 and Note 9 to the condensed consolidated financial statements, the Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, re-evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon this re-evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective in reaching a reasonable level of assurance that management is timely alerted to material information related to and during the period when our periodic reports are being prepared.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 5.

OTHER INFORMATION

On August 4, 2005, we issued a convertible promissory note in the aggregate principal amount of $50,000 and warrants to purchase 16,667 shares of our restricted common stock to an accredited investor. The promissory note accrues interest on the principal balance at an annual rate of 10% and matures on August 4, 2007. At any time, the holder of the promissory note may convert the principal of the promissory note into shares of our common stock at the conversion price of $3.00 per share. The warrants have an exercise price of $3.00 per share and are exercisable until August 4, 2007. We maintain that the issuance of these securities is exempt under the Securities Act of 1933, as amended, in reliance upon Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering.

On August 25, 2005, we issued a convertible promissory note in the aggregate principal amount of $50,000 and warrants to purchase 21,667 shares of our restricted common stock to an accredited investor. The promissory note accrues interest on the principal balance at an annual rate of 4.5% and matures on August 25, 2007. The interest on the promissory note is compounded quarterly beginning November 25, 2005. At any time, the holder of the promissory note may convert the principal and interest of the promissory note into shares of our common stock at the conversion price of $2.00 per share. The warrants have an exercise price of $2.00 per share and are exercisable until February 25, 2007. The Company granted “piggy-back registration” rights for the shares of common stock underlying the promissory note and the warrant. We maintain that the issuance of these securities is exempt under the Securities Act of 1933, as amended, in reliance upon Regulation D promulgated there under as a transaction by an issuer not involving a public offering.

On November 1, 2005, the Company and Tarragon entered into a First Amendment to the Agreement for Purchase and Sale, dated as of November 1, 2005 (the “First Amendment”), pursuant to which the Company agreed to extend the investigation period from November 1, 2005 to November 15, 2005, during which period Tarragon was permitted to examine the Lauderdale Property.

On December 2, 2005, the Company and Tarragon entered into a Second Amendment to the Agreement for Purchase and Sale, dated as of December 1, 2005 (the “Second Amendment”), pursuant to which the Company agreed to provide Tarragon with an option of extending the closing date of the transaction to December 31, 2005 from December 15, 2005. In order to exercise the option, Tarragon was required to forward to the Company, on or before December 2, 2005, an additional security deposit in an amount equal to $1,000,000 (“Extension Additional Deposit”). On December 2, 2005, Tarragon exercised the option to extend the closing date and paid the Extension Additional Deposit to the Company. The Extension Additional Deposit will be credited to Tarragon’s obligation to pay the purchase price on the closing date and is fully non-refundable to Tarragon, except in the event that the Company defaults under the Agreement for Purchase and Sale or any permitted right of termination under the Agreement for Purchase and Sale in favor of Tarragon.

In connection with the extension of the closing date, Tarragon agreed to provide the Company with a credit at closing to cover the Company’s expenses for the Lauderdale Property during the extension period. In addition, Tarragon also agreed to comply with the Company’s obligations under the Tri-Party Developer’s Agreement, dated as of November 4, 2005, by and among the City of Lauderdale Lakes, the Company and Tarragon to demolish the building on the Lauderdale Lakes property no later than February 15, 2006.

Crawford Communications will issue a credit to us on a monthly basis for any outage, as defined in the services agreement, occurring for ten or more consecutive minutes or for more than fifteen cumulative minutes in a twenty-four hour period. The credit will be equal to the quotient of the monthly fee divided by forty-three thousand two hundred multiplied by the total length of the qualifying outage expressed in minutes rounded to the nearest minute. Crawford Communications, during the term of the services agreement, will offer to us the opportunity to upgrade the services or obtain new services that are made generally available by Crawford Communications on commercially reasonable terms and pricing. Additionally, in the event that Crawford Communications introduces any new technology that substantially or materially increases the overall capacity of the space segment available to Crawford Communications or materially reduces the costs of such capacity, Crawford Communications will promptly notify us and upon written request from us, we and Crawford Communications will negotiate in good faith an equitable reduction in the fees payable by us under the services agreement.

In the event we default under the services agreement, Crawford Communications would be entitled to terminate the services agreement, retain any unapplied portion of the security deposit and exercise any other remedies available to it under the services agreement or applicable law. In the event that Crawford Communications defaults under the services agreement, we would be entitled to terminate the services agreement and exercise any other remedies available to us under the services agreement or applicable law. The services agreement contains representations and warranties that are customary of an agreement of this type.

Item 6.

EXHIBITS

The following exhibits are incorporated by reference herein or filed herewith. The warranties, representations and covenants contained in the agreements listed below as exhibits should not be relied upon by buyers, sellers or holders of the Company’s securities and are not intended as warranties, representations or covenants to any individual or entity except as specifically set forth in the agreements.

Number		Title

2.1		Share Exchange Agreement, dated March 15, 2004, between the stockholders of Pyramid Music Corp., Pyramid Music Corp. and Lexington Barron Technologies, Inc. (Incorporated by reference to the Registrants Form 8-K filed April 21, 2004, as amended)

2.2		Agreement and Plan of Merger, dated as of September 30, 2004, by and between AGU Entertainment Corp., a Colorado corporation, and AGU Entertainment Corp., a Delaware corporation (incorporated herein by reference to the Registrant’s Form 10-QSB filed November 12, 2004)

3.1		Certificate of Incorporation of AGU Entertainment Corp., a Delaware corporation (incorporated herein by reference to the Registrant’s Form 10-QSB filed November 12, 2004)

3.2		Bylaws of AGU Entertainment Corp., a Delaware corporation (incorporated herein by reference to the Registrant’s Form 10-QSB filed November 12, 2004)

3.4		Specimen certificate of the common stock of AGU Entertainment Corp., a Delaware company (incorporated herein by reference to the Registrant’s Registration Statement on Form SB-2 (File No. 333-86244)).

4.1		Convertible Promissory Note dated September 13, 2004, made by AGU Entertainment Corp. in favor of Galt Financial Corp. (incorporated herein by reference to the Registrant’s Form 8-K filed September 20, 2004)

4.2		Warrant to subscribe for 500,000 shares of common stock of AGU Entertainment Corp. issued to Galt Financial Corporation (incorporated herein by reference to the Registrant’s Form 8-K filed September 20, 2004)

4.3		Secured Convertible Term Note issued by AGU Entertainment Corp., The Tube Music Network, Inc., and Pyramid Records International, Inc. to Mitchell Entertainment Company (incorporated herein by reference to the Registrant’s Form 8-K filed December 29, 2004)

4.4		Common Stock Purchase Warrant of AGU Entertainment Corp. issued to Mitchell Entertainment Company (incorporated herein by reference to the Registrant’s Form 8-K filed December 29, 2004)

4.5		Promissory Note issued by AGU Entertainment Corp. to Charley Zeches, in her capacity as trustee of Lakes Holding Trust U/A (incorporated herein by reference to the Registrant’s Form 10-KSB filed March 31, 2005)

4.6		Common Stock Purchase Warrant of AGU Entertainment Corp. issued to Mitchell Entertainment Company (incorporated herein by reference to the Registrant’s Form 8-K filed August 2, 2004)

4.7		Promissory Note issued by AGU Entertainment Corp. to Robert Jaffee (incorporated by reference to the Registrant’s Form 8-K filed August 2, 2005).

4.8		Warrant to purchase up to 400,000 shares of common stock of AGU Entertainment Corp. issued to Robert Jaffee (incorporated by reference to the Registrant’s Form 8-K filed August 2, 2005).

4.9		$500,000 Promissory Note, dated August 31, 2005, issued to Robert Alan Kast by AGU Entertainment Corp. (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.10		$200,000 Promissory Note, dated August 31, 2005, issued to Daniel K. Kast and Lenore S. Kast by AGU Entertainment Corp. (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.11		Warrant to subscribe for 100,000 shares of common stock of AGU Entertainment Corp. issued to Robert Alan Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.12		Warrant to subscribe for 200,000 shares of common stock of AGU Entertainment Corp. issued to Robert Alan Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.13		Warrant to subscribe for 100,000 shares of common stock of AGU Entertainment Corp. issued to Robert Alan Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.14		Warrant to subscribe for 150,000 shares of common stock of AGU Entertainment Corp. issued to Robert Alan Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.15		Warrant to subscribe for 200,000 shares of common stock of AGU Entertainment Corp. issued to Daniel K. Kast and Lenore S. Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

4.16*		Warrant to subscribe for 21,667 shares of common stock of AGU Entertainment Corp. issued to Arnold Palmer.

4.17*		$50,000 Promissory Note issued by AGU Entertainment Corp. to Arnold Palmer.

4.18*		Warrant to subscribe for 16,667 shares of common stock of AGU Entertainment Corp. issued to Ron Moore.

4.19		$50,000 Promissory Note issued by AGU Entertainment Corp. to Ron Moore. 10.1 Loan Agreement dated July 25, 2005, David Levy, Les Garland, Victoria Levy, Marc Gelberg, Greg Catinella and John W. Poling (incorporated herein by reference to the Registrant’s Form 8-K filed August 2, 2004).

10.2		Letter Agreement, dated August 11, 2005, by and between AGU Entertainment Corp. and Mitchell Entertainment Company regarding extension of maturity date (incorporated by reference to the Registrants Form 10-QSB for the fiscal quarter ended June 30, 2005).

10.3		Letter Agreement, dated August 11, 2005, by and between AGU Entertainment Corp. and Mitchell Entertainment Company regarding extension of due date for filing of registration statement (incorporated by reference to the Registrants Form 10-QSB for the fiscal quarter ended June 30, 2005).

10.4		Agreement for Purchase and Sale, dated as of August 29, 2005, by and between AGU Entertainment Corp. and Tarragon South Development Corp. (includes the Side Letter) (incorporated herein by reference to the Registrant’s Form 8-K filed on November 17, 2005).

10.5		Consulting Agreement dated as of August 31, 2005, by and between AGU Entertainment Corp. and DKK-RK Enterprises, Inc. (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

10.6		Letter Agreement, dated September 2, 2005, by and between AGU Entertainment Corp., The Tube Music Network, Inc. and AGU Music Inc. and Robert Alan Kast (incorporated herein by reference to the Registrant’s Form 8-K filed on September 8, 2005).

10.7*		Amendment No. 3 to Agreement for Purchase and Sale, dated as of December 2, 2005, by and between Charley Zeches, in her capacity as Trustee of Lakes Holding Trust U/A and AGU Entertainment Corp.

10.8*		First Amendment to Agreement for Purchase and Sale, dated as of November 1, 2005, by and between AGU Entertainment and Tarragon South Development Corp.

10.9*		Second Amendment to Agreement for Purchase and Sale, dated as of December 2, 2005, by and between AGU Entertainment and Tarragon South Development Corp.

10.10		Services Agreement by and between The Tube Music Network, Inc. and Crawford Communications, Inc. dated as of July 13, 2005. (incorporated by reference to the Registrant’s Form 10-KSB for the year ended December 31, 2005)

31.1		Certification of D. Patrick LaPlatney, Chief Executive Officer of the Company, dated September 1, 2006, pursuant to Rule 13a - 14(a)/15d - 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Celestine F. Spoden, Chief Financial Officer of the Company, dated September 1, 2006, pursuant to Rule 13a - 14(a)/15d - 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of D. Patrick LaPlatney, Chief Executive Officer of the Company, and Celestine F. Spoden, Chief Financial Officer of the Company, dated September 1, 2006 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Previously filed

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: September 1, 2006		/s/ Celestine F. Spoden
		Name: Celestine F. Spoden
		Title: Chief Financial Officer