UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Amendment No. 1)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended August 31, 2013

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

For the transition period from _______________ to __________________

Commission File Number: 000-34039

RED GIANT ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

 

Nevada   98-0471928
(State or other jurisdiction of
 incorporation or organization)
  (I.R.S. Employer Identification No.)
     
614 E. Hwy 50, Suite 235, Clermont, Florida   34711
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (866) 926-6427

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value per share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ] No [X]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of February 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was $41,384,280 (based on 311,160,000 shares at $0.133 per share).

 

The registrant had 457,558,273 shares of common stock outstanding as of November 29, 2013.

 

 

EXPLANATORY PARAGRAPH

 

This Amendment No. 1 (this “Amendment”) to our Annual Report on Form 10-K originally filed on December 5, 2013 is made to adjust financial statements presented for omitted account and transactions related to convertible notes received and directly disbursed for amounts payable. Additional adjustment has been made for accounting for acquisition. Please refer to Note 1 to our financial statements regarding restatement of the originally reported financial statements. We have also revised “Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters, And Issuer Purchases Of Equity Securities— Recent Sales of Unregistered Securities” and “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” due to the previously omitted transactions. The financial statements and disclosures herein do not reflect events that may have occurred subsequent to December 5, 2013, the original date of filing, and do not modify or update any filings made with the Securities and Exchange Commission after December 5, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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TABLE OF CONTENTS

 

PART I       1
ITEM 1.   BUSINESS   1
ITEM 1A   RISK FACTORS   6
ITEM 1B   UNRESOLVED STAFF COMMENTS   6
ITEM 2.   PROPERTIES   6
ITEM 3.   LEGAL PROCEEDINGS   6
ITEM 4.   MINE SAFETY DISCLOSURES   6
PART II       6
ITEM 5   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,   AND ISSUER PURCHASES OF EQUITY SECURITIES   6
ITEM 6.   SELECTED FINANCIAL DATA   13
ITEM 7   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION   13
ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     16
ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   17
ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   36
ITEM 9A.   CONTROLS AND PROCEDURES   36
ITEM 9B.   OTHER INFORMATION   37
PART III       38
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE   38
ITEM 11.   EXECUTIVE COMPENSATION   41
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   42
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   44
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES   45
PART IV       46
ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES   46
SIGNATURES       47
EXHIBIT INDEX   48

 

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PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, and projections about us and our industry. You can identify these forward-looking statements when you see us using words such as “expect,” “anticipate,” “estimate,” “plan,” “believe,” “seek,” and other similar expressions that are intended to identify forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted. All statements other than statements of historical facts included in this Annual Report including, without limitation, any projections and assumptions in this Annual Report, are forward-looking statements.

You should not place undue reliance on these forward-looking statements, which reflect our management’s view only on the date of this Annual Report. We undertake no obligation to update these statements or to report the result of any revision to the forward-looking statements that we may make to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

ITEM 1. BUSINESS

GENERAL

Red Giant Entertainment, Inc. (OTCQB: REDG) is a developer of comic book style properties intended for both the print and online comic book market and also for use in other media such as movies, video games, television, novels, toys, apparel, and apps. As used herein, “the registrant,” “we,” “our,” and similar terms include Red Giant Entertainment, Inc. and its subsidiaries, unless the context indicates otherwise.

We were incorporated in the State of Nevada on June 27, 2005 under the name Castmor Resources, Ltd. Prior to June 2012, we were primarily engaged in the acquisition and exploration of mining properties which were ultimately forfeited. Since we had minimal operations, we were considered a “shell company” as that term is defined under Rule 405 of the Securities Exchange Act of 1934 (the “Exchange Act”). Effective with the acquisition of Red Giant Entertainment, Inc., a Florida corporation (“RGE”), on June 11, 2012, we became an operating company and are no longer considered a “shell company.”

For accounting and operational purposes, our acquisition of RGE was a recapitalization conducted as a reverse acquisition with RGE being regarded as the acquirer. Consistent with reverse acquisition accounting, all of the assets, liabilities and accumulated earning (deficit) of RGE are retained on our financial statements as the accounting acquirer.

On June 26, 2012, we changed our name to Red Giant Entertainment, Inc., and on July 19, 2012, we effectuated a 6-for-1 forward split of our common stock.

On March 4, 2013, we acquired ComicGenesis, LLC (“ComicGenesis”), a Nevada limited liability company that operates a user-generated comic site that hosts over 10,000 independent webcomics.

Our principal executive offices are located at 614 E. Highway 50, Suite 235, Clermont, Florida 34711, and our telephone number is (866) 926-6427. Our corporate website is www.redgiantentertainment.com. The contents of our corporate website are not incorporated into this Annual Report and our corporate website should be considered to be a website under development.

 

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OUR BUSINESS PLAN

We acquire co-ownership, development, publishing or other rights from creators of comic properties and other properties, such as films and novels, including properties created and initially owned by our officers. We expect to leverage our officers’ years of experience in the comic book and film industry to discover up and coming properties we can acquire rights in and creators we can forge relationship with. Our officers and their affiliates have ownership or other rights to several comic book properties to which we may acquire ownership or other rights.

We anticipate that our purchase of ComicGenesis will give us even greater access to up and coming comic properties and their creators in addition to providing new opportunities to sell advertising and increase consumer recognition. In addition, we expect that our relationship with Intrinsic Value Films (“Intrinsic”), a developer, producer and seller of independent films that is headed and co-owned by Isen Robbins and Amy Schoof, two of our officers and members of our Board of Directors (the “Board”), will enable us to identify films that we can adapt into comic book form. Intrinsic films are showcased on our corporate website so that we can educate audiences as to properties we may wish to develop and to gauge potential interest in such films among visitors to our website, and we may explore options to convert Intrinsic films into comic book form on a case-by-case basis.

We primarily intend to develop properties to which we or our affiliates have ownership or other rights for the comic book market, with many properties being published in Webcomic form to be accessible to consumers at no charge. We may also develop properties for use in other media such as movies, video games, television, and novels, and develop toys, and apparel and telephone wireless applications based on such properties depending on their popularity and demand. We may engage in either the direct production of such properties or enter into licensing agreements with others to accomplish these goals.

We have not established a timeline to reflect our anticipated plan of operations and we have not established any anticipated operational milestones.

CREATIVE AND PRODUCTION PROCESS

Our creative process generally begins with the development of a story line, following which a writer develops characters’ actions and motivations into a plot. After a writer has developed the plot, a pencil artist translates it into an action-filled pictorial sequence of events. The penciled story then is returned to the writer who adds dialogue, indicating where the balloons and captions should be placed. The completed dialogue and artwork are forwarded to a letterer who letters the dialogue and captions in the balloons. Next, an inker enhances the pencil artist’s work in order to make the drawing appear three dimensional.

The artwork is then sent to a coloring artist. Typically using only four colors in varying shades, the coloring artist uses overlays to create over 100 different tones. This artwork is subcontracted to a color separator who produces separations and sends the finished material to the printer.

We intend to retain freelance artists and writers who generally are paid on a per-page basis throughout this creative process, including artists and writers whose comic properties are being published by us or ComicGenesis. We may also use our officers or their affiliates at any stage of the creative process. Artists and writers will be eligible to receive incentives or royalties based on the number of copies sold (net of returns) of the titles in which their work appears. Rates of payment for these artists and writers will vary widely depending on the artist or writer, and on the work required. Benny R. Powell, our Chief Executive Officer, President, Chief Financial Officer, and Secretary, and a member of the Board, has entered into an independent contractor agreement with a third-party artist to provide creative services (e.g., artwork, writing, advertising and other creative endeavors) with respect to Wayward Sons™ and related properties. Mr. Powell’s contract with the third party artist contemplates paying such artist out of net revenues derived from the respective titles. We have not directly entered into any agreements with any artists or writers, and there is no guarantee that we will be able to enter into agreements with such artists and writers on favorable terms, if at all. In addition, from time to time, we may retain Glass House Graphics, a sole proprietorship owned by David Campiti, our Chief Operating Officer and a member of the Board, to perform creative services for us.

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To the extent that we have our officers or their affiliates perform any work for us, such persons will not receive compensation in excess of what we would expect to pay to an unrelated third party with comparable experience and quality.

 

 

It is anticipated that printing services for our print form titles will be done by Active Media Publishing LLC (“Active Media”), an entity controlled by Benny R. Powell, our Chief Executive Officer, President, Chief Financial Officer, and Secretary, and a member of the Board.

Digital form publication of our titles will be done on Keenspot Entertainment’s (“Keenspot”) Keenspot.com hosted websites pursuant to our exclusive web publishing agreement with Keenspot.

PRODUCTS AND SERVICES

Properties to which we or our affiliates have ownership or other rights are currently available in webcomic form and collected volume form. We intend to engage in the direct production of a “Giant-Size” line of titles that will be provided at no charge, with revenue being earned through selling advertising in such Giant-Size titles. In addition, we may license the development and publication of such properties in comic book or other forms to affiliates and third parties.

While our current lineup of titles is geared mainly toward the young-adult market, we also have family-friendly titles suitable for all ages. While many of our titles naturally are from the superhero or supernatural genre, we also have titles from the horror, science fiction, historical and other genres.

ELECTRONIC BOOK DISTRIBUTION

We have been operating under an agreement with Keenspot to host the internet webcomic versions of our titles on an exclusive basis as well as handle the digital application and mobile media distribution channels. Keenspot.com currently has comic properties which include a network of more than five dozen Keenspot webcomic sites and receives over two million unique visitors each month according to Google Analytics Data. As of the date of this Annual Report, the following properties we or our affiliates co-own or have rights to have Keenspot sites: Banzai Girl™, Buzzboy™, Exposure™, Jade Warriors™, Katrina™, Medusa’s Daughter™, Porcelein™, Shockwave: Darkside™, Supernovas™ and Wayward Sons™. Our Keenspot sites have received an average of 376,855 visits per month in the fiscal year ended August 31, 2013. Keenspot also manages the web publication of properties to which we or our affiliates have ownership or other rights through comiXology’s main app for the iPhone, iPad, Android, Kindle, and Windows 8 as well as on comiXology’s website. The contents of our titles’ Keenspot sites or any comiXology app or website are not incorporated into this Annual Report.

We anticipate continuing to offer our titles through our Keenspot sites at no charge and obtaining revenues from advertising rather than sales, but may offer certain titles on a subscription basis on the Internet depending on their popularity and demand. We expect that this strategic partnership with Keenspot will increase consumer recognition and demand for properties to which we or our affiliates have ownership or other rights that we anticipate will enable us to collect issues of popular titles into our Collected Book line for sale, either directly or through a third-party distributor.

COLLECTED BOOK DISTRIBUTION

Our “Collected” line consists of four to five issues bundled together with extra material to create what is called a “graphic novel.” These books can be in either hardcover or softcover and currently are sold direct to consumers through an online store which we maintain on our website and at conventions we attend at prices currently ranging from $14.95 to $49.95 before taxes or shipping. We sell products on Amazon through its standard terms of service. The price points for our Collected line of products varies based on page count, type of cover and binding and other factors.

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While we do not have any active third-party distribution as of the date of this Annual Report, we retain the ability to distribute our titles to book retailers, specialty shops and comic book shops through Diamond Comic Distributors, Inc. (“DCD”) under their standard terms, as we had distributed products through DCD prior to February 2012. We may also seek other third-party distribution opportunities.

 

We anticipate collecting issues of titles published online through our Keenspot sites or included in our Giant-Size line (as discussed below) (collectively, “free titles”) into our Collected line depending on their popularity and demand. There is no guarantee, however, that any of the free titles will ever acquire sufficient consumer recognition to make it to our Collected line.

GIANT-SIZED BOOK DISTRIBUTION

Our planned Giant-Size line is expected to consist of four main monthly books with a fifth quarterly book that will fill out the calendar for a full 52 week schedule. We do not intend to reprint properties published online on our Keenspot sites online for these books; instead, each book will have new material and stories. Initial books are planned to feature works such as Duel Identity™, Tesla™, a modern version of Wayward Sons™, Pandora’s Blog™, and four to six other works in any given month. Currently anticipated names for our monthly books are “Giant-Size Action™,” “Giant-Size Fatales™,” “Giant-Size Thrills™,” “Giant-Size Fantasy™,” and “Giant-Size Quarterly™.”

Each book will appeal to a diverse demographic group by hosting a different genre of stories. Giant-Size Action will feature mainstream science-fiction, fantasy, action, and adventure stories that appeal to a wide audience. Giant-Size Fatales will feature works by women creators that appeal to audiences of all genders, but are told from a female’s perspective. Giant-Size Thrills will feature works of suspense, horror, thrillers and nail-biters of all sorts that appeal to the older teen and adult audiences. Giant-Size Fantasy will play host to all-ages fare suitable and enjoyable for the whole family. Their Giant-Size Quarterly book will rotate a wide range of books that will touch on each of these targets in a unique manner.

Each book is intended to be offered at no charge to book retailers, specialty shops and comic book shops through a third-party distributor, with revenues earned through selling advertising space in the books. By providing these books free of charge, we expect to build consumer recognition and demand that we anticipate will allow us to collect issues of popular titles into our Collected Book line for sale, either directly or through a third-party distributor.

Currently, we anticipate that each book will have two issues (one from each of two titles) for approximately 32 pages of content, with two to four pages for editorial and up to 30 interior pages and three “premium” cover pages (inside front, inside back and back cover) for advertising. The “Center Spread” will also be a premium spot and will always be reserved for advertisements. We intend to use the saddle stitch binding typically used for individual comic book issues for our Giant-Size line.

ADVERTISING

We intend to sell advertising space on our Keenspot websites and in our Giant-Size line, as well as on our corporate website.

Keenspot and we share 50% of revenues generated by Keenspot from advertising on our Keenspot sites and from Keenspot’s management of the web publication of properties to which we or our affiliates have ownership or other rights. We share 25% of the revenue generated from advertising on our corporate website with Project Wonderful for its services. All rates are based upon bids by advertisers and are not set by us.

Other than our agreements with Keenspot and our acceptance of Project Wonderful’s standard terms of service, however, we have not entered into any agreements for advertising and there is no assurance that other companies will want to advertise in our websites or Giant-Size Books on favorable terms, if at all.

There is no guarantee that we will generate enough revenues from selling advertising space on our Keenspot websites or in our Giant-Size line to either (i) recoup the expenses we incur in producing such products; or (ii) make such products profitable without considering their potential contribution to any profits made through the sale of our Collected line.

 

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LICENSING AND FILM ADAPTATION

We may license the use of properties to which we or our affiliates have ownership or other rights for merchandising as toys and apparel and for production in comic book or Webcomic form or as novels, video games, apps, films or television shows. In addition, several properties to which we or our affiliates have ownership or other rights have either been developed into feature-length films or are in process of being so developed, including without limitation Journey to Magika™, Supernovas™, Wayward Sons: Legends™, Last Blood™, and Katrina™. We expect to receive royalties on the production of such properties in any form by licensees. We have not reached any final agreement with any licensee, and there can be no guarantee that we will be able to license such properties for any specific product-type on favorable terms, if at all.

OTHER ACTIVITIES

We also provide creative services (e.g., artwork, writing, advertising and other creative endeavors) for outside clients through our network of artists and writers, and obtain revenues through the sale of advertising space on our corporate website through ProjectWonderful.com (“Project Wonderful”) under their standard terms of service.

COMPETITION

The comic book and related intellectual development industries are highly competitive with little or no barriers to entry. We compete with publishers and creative individuals.

Most of our competitors are part of integrated entertainment companies and all have greater resources and financing than us. We also face competition from other entertainment media, such as movies and video games.

The market for digital distribution of content and products and related Internet services and products is intensely competitive. Since there are no substantial barriers to entry, we expect competition in these markets to intensify. We believe that the principal competitive factors in these markets are name recognition, performance, ease of use and functionality. Our existing competitors, as well as a number of potential new competitors, may have longer operating histories in the digital distribution market, greater name recognition, larger customer bases and databases and significantly greater financial, technical, and marketing resources. Such competitors may be able to undertake more extensive marketing campaigns and make more attractive offers to potential employees. Further, there can be no assurance that our competitors will not develop services and products that are equal or superior to ours or that achieve greater market acceptance than our offerings in the area of name recognition, performance, ease of use and functionality. There can be no assurance that we will be able to compete successfully against our current or future competitors or that competition will not have a material adverse effect on our business, results of operations and financial condition.

Our competitors include DC Entertainment, home to DC Comics, Vertigo, and Mad Magazine; and Marvel Entertainment, LLC, a wholly-owned subsidiary of The Walt Disney Company.

PATENT, TRADEMARK, LICENSE AND FRANCHISE RESTRICTIONS AND CONTRACTUAL OBLIGATIONS

We do not currently have any patent or trademark applications pending, but we plan to obtain protection with applicable patents and trademarks. We also intend to protect our intellectual properties from license infringements or violations through our contracts with third parties.

We have not entered into any franchise agreements or other contracts that have given, or could give rise to obligations or concessions.

Our success depends in part upon our protection of our intellectual properties. We will principally rely upon copyright and contract law to protect our proprietary properties. There can be no assurance that the steps taken will be adequate to prevent misappropriation of our intellectual properties.

 

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EMPLOYEES

We currently have one employee, Benny R. Powell, and four independent contractors, consisting of our remaining officers.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 1B . U NRESOLVED STAFF COMMENTS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2 . PROPERTIES

We lease a virtual office at 614 E. Highway 50, Suite 235, Clermont, Florida 34711 on a month-to-month basis for $300 per month. We will continue to use this space for our executive offices for the foreseeable future. Other office space and storage space for print products is provided to us by our officers at no charge.

ITEM 3 . LEGAL PROCEEDINGS

We are not currently a party to, nor are any of our property currently the subject of, any other material legal proceeding other than as set forth herein. None of our directors, officers, or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

On May 13, 2013, George Sharp (“Plaintiff”) filed a Complaint in San Diego Superior Court, Central District, Case No. 37-2013-00048310-CU-MC-CTL, against 14 companies, including us (collectively, “Defendants”). We were served with the Complaint on May 23, 2013. The Complaint alleges that the Plaintiff received unsolicited promotional emails being sent by Defendant, Victory Mark Corp. Ltd., discussing the other 13 corporate Defendants, including us. The Plaintiff is seeking liquidated damages in the amount of $1,000 for each email he received for a total of $1,204,000 collectively for all Defendants. After denial of our Demurrer to the Complaint, we filed an Answer to the Complaint. The Plaintiff has filed a Demurrer to our Answer, which will be heard February 14, 2014.

In the ordinary course of business, we may be from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters could have a material adverse effect upon our financial condition and/or results of operations.

ITEM 4 . MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 . MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR COMMON EQUITY

Our common stock is traded on the OTCQB tier of the OTC Markets under the symbol “REDG.” Prior to August 28, 2012, our symbol was “CASL.”

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There is a limited trading market for our common stock at present. There is no assurance that an active trading market will ever develop or, if such a market does develop, that it will continue. Prior to December 21, 2012, the only trade known to us was a private sale of 10,080,000 shares of our common stock on April 4, 2012, at a price of $0.0022 per shares, as reported on a Form 4 filed with the SEC on April 4, 2012.

The following table sets forth, for the periods indicated the quarterly high and low bid prices per share as reported by OTC Markets. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.

 

Period High Price(Bid) Low Price(Bid)
Year ended August 31, 2013
First Quarter (Sep-Nov) $0.25 $0.25
Second Quarter (Dec-Feb) $0.26 $0.07
Third Quarter (Mar-May) $0.20 $0.01
Fourth Quarter (Jun-Aug) $0.02 $0.01

There was no volume of trading for the first quarter of 2013. We have engaged in a stock repurchase program since June 25, 2013 (see “Stock Repurchase Plan” below).

HOLDERS

As of November 29, 2013, there were 40 holders of record of our common stock.

DIVIDENDS

We have paid no dividends on our common stock since inception and do not anticipate or contemplate paying cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

As disclosed under “Item 13. Certain Relationships and Related Transactions, and Director Independence,” we issued 500,000 shares of our common stock to Chris Crosby, our Chief Technology Officer and a member of the Board, in exchange for all of the shares of ComicGenesis.

The following is a summary of the following transactions and is qualified in its entirety by reference to the full text of the documents underlying those transactions as filed by us with the SEC as shown our Exhibit Index hereto, which full text is incorporated herein by this reference.

 

TRANSACTIONS WITH ICONIC HOLDINGS, LLC (“ICONIC”)

 

As of April 15, 2013, we entered into a Securities Purchase Agreement (the “Iconic SPA”) with Iconic providing that at any time during the period beginning upon the effective date of a registration statement for the registration of the resale by Iconic of the restricted shares of our common stock issued under, or issuable upon exercise of any warrants issued under, the Iconic SPA (the “Registration Statement”) (the “Effective Date”) and ending on the earliest to occur of:

(1) the date on which Iconic has purchased a total of $5,000,000 worth of our common stock pursuant to the Iconic SPA; or

(2) the date of termination of the Iconic SPA; or

(3) the date which is 36 months from the Effective Date or 48 months from the Effective Date if 36 months after the Effective Date, we file an amendment to the Registration Statement or a new registration statement is declared effective, (the “Commitment Period”);

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we may sell shares of our common stock to Iconic for a purchase price of:

 

(1) 92.5% of the lowest trading price of our common stock during the five consecutive trading days including and immediately following the date of our notice of sale (the “Market Price”); or

(2) 90% of the Market Price if our common stock is eligible for Deposit/Withdrawal at Custodian (“DWAC”); or

(3) 80% of the Market Price if our common stock is under a chill order of the Depository Trust & Clearing Corporation.

Pursuant to the Iconic SPA, we agreed to issue to Iconic shares of our common stock as a commitment fee valued at $100,000 in aggregate, with 10% of such value issued at execution, 45% issued 90 days following execution, and 45% issued 180 days after execution. At each issuance date, the stock was valued at the average volume weighted average price of our common stock during the five business days immediately preceding the date of issuance as quoted on Bloomberg, LP. Under this provision, we issued to Iconic an aggregate of 8,252,546 shares, of which 772,798 shares were transferred to Iconic from shares held by Benny R. Powell, our President.

We also entered into a Registration Rights Agreement with Iconic as of April 15, 2013 (the “Registration Rights Agreement”) under which we are required, among other things, to file the Registration Statement prior to selling any securities to Iconic under the Iconic SPA, to keep the Registration Statement effective until the fulfillment of the Commitment Period and to pay all expenses incurred in connection with the registration.

In addition, on April 15, 2013, we issued Iconic a 9.9% Secured Convertible Promissory Note in the amount of $130,000 for which we received $125,000 (the “Iconic Note”) with an original issue discount of $5,000.  The Iconic Note matures on April 15, 2014. If an event of default is in effect, the interest rate increases to 20% per annum, the amount due and payable under the Iconic Note increases to 150% of the outstanding principal plus accrued and unpaid interest and other fees and amounts due, and liquidated damages of $500 per day are imposed, all of which increases shall be added to the principal balance of the Iconic Note.

The Iconic Note is convertible into our common stock at 60% of the lowest trading price of any day during the ten consecutive trading days prior to the date of conversion.  The shares of common stock into which the Iconic Note is convertible are not being registered in the Registration Statement. As of the date of this report Iconic has converted $62,000 of amounts owed to it under the Iconic Note into 22,636,273 shares. If we fail to issue stock to Iconic within three trading days of receipt of a notice of conversion, we must pay $1,000 per day in liquidated damages, which will be added to the principal of the Iconic Note.

No securities have been sold under the Iconic SPA as of the date of this Annual Report.

The Iconic Note was issued, and securities under the Iconic SPA will be issued, if at all, to Iconic pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

Iconic has represented to us that it is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

Notes Issued to Gel Properties, LLC (“GEL”)

 

On May 24, 2013, we issued a $50,000 6% Convertible Redeemable Note to GEL (the “Initial GEL Note”) in exchange for $42,500 in cash and $7,500 in legal fees and due diligence fees paid by GEL. On May 24, 2013, we also issued four $75,000 6% Convertible Redeemable Secured Notes (the “Back-End Notes”; together with the Initial GEL Note, the “GEL Notes”), each in exchange for a $75,000 Secured Promissory Note issued by GEL to us and secured by the $75,000 cash value interest in a life insurance policy assigned to GEL by its member, or other collateral with an equivalent or greater cash value. The four GEL Notes have a maturity date of January 24, March 24, May 24 and July 24, 2014, respectively.

The GEL Notes are due and payable on May 24, 2015, with interest payable in shares of our common stock. If we fail to repay the GEL Notes when due, or if other events of default thereunder apply, a default interest rate of 24% per annum will apply. In addition, if we fail to issue unrestricted stock to GEL within three business days of receipt of a notice of conversion, we must pay a $250 per day penalty, which fee increases to $500 per day beginning on the tenth day.

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We may redeem the GEL Notes with a payment of 150% of the outstanding principal amount, and are required to redeem the GEL Notes upon certain sales events as set forth in the GEL Notes.

The GEL Notes are convertible into shares of our common stock at a conversion price equal to 70% of the lowest closing bid price of our common stock for the five trading days on or prior to the date upon which notice of conversion is received. $10,000 had been converted into 2,915,452 shares of our common stock under the Initial GEL Note as of December 5, 2013.

The GEL Notes were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. We believe that GEL is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

Promissory Note to JMJ Financial (“JMJ”)

 

On June 13, 2013, we issued a $335,000 promissory note to JMJ (the “JMJ Note”). Under the terms of the JMJ Note, we have given JMJ a $35,000 original issued discount and anticipate receiving up to $300,000 in installments payable at JMJ’s discretion, of which we have received $55,000 as of the date of this Annual Report. Each installment by JMJ matures and is due and payable one year after receipt thereof. No interest applies to an installment if payment is made within 90 days from receipt thereof. A one-time 12% interest charge applies to payments made after 90 days from receipt of the respective installment.

If we default on the JMJ Note an interest rate of 18% will apply, and we will be required to pay the greater of (i) (A) the outstanding balance (including interest and other fees and amounts), (B) divided by the conversion price and multiplied by the VWAP; or (ii) 150% of the outstanding principal amount along with 100% of the accrued and unpaid interest and other fees and amounts due. In addition, if we fail to issue stock to JMJ within three business days of receipt of a notice of conversion, we must pay a $2,000 per day penalty, which will be added to the principal of the JMJ Note.

The JMJ Note is convertible into shares of our common stock at a conversion price equal to 60% of the lowest trading price of our common stock as reported on the OTCQB for any of the 25 trading days prior to conversion, subject to additional discounts based on DWAC and DTC eligibility. Unless otherwise mutually agreed in writing, however, JMJ may not convert an amount which would cause JMJ to own more than 4.99% of our outstanding common stock. We have granted piggyback registration rights for shares issuable under the JMJ Note.

The terms of the JMJ Note are subject to adjustment if we issue securities with more favorable terms than the JMJ Note, including without limitation terms re: warrant coverage, original issue discount, interest rates, conversion price and lookback periods, etc.

The JMJ Note was issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. We believe that JMJ is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

Transactions with Typenex Co-Investment, LLC (“Typenex”)

 

On June 21, 2013, we entered into a Securities Purchase Agreement (the “Typenex SPA”) with Typenex Co-Investment, LLC (“Typenex”) under which we concurrently issued to Typenex a Secured Convertible Promissory Note in principal amount of $557,500 with an original issue discount of $50,000 plus an additional $7,500 to cover Typenex’s due diligence and legal fees in connection therewith (the “Typenex Note”) in exchange for $100,000 in cash, two secured notes (the “Secured Buyer Notes”) and two unsecured notes (the “Unsecured Buyer Notes”; together with the Secured Buyer Notes, the “Buyer Notes”).

The Typenex Note is secured by the Buyer Notes. The Buyer Notes are each dated concurrently with the Typenex SPA and are each in the principal amount of $100,000 and bear interest at the rate of 5% per annum. Unless we fail to meet certain conditions related to our common stock and representations and warranties given in the Typenex Note, the Secured Buyer Notes are due and payable seven and nine months, respectively, after the issuance of the Typenex Note, and the Unsecured Buyer notes are due and payable 11 and 13 months after the issuance of the Typenex Note. Otherwise, each of the Buyer Notes matures two months following the maturity of the Typenex Note. Each of the Buyer Notes may be prepaid in Typenex’s discretion. The Secured Buyer Notes are secured by that certain Membership Interest Pledge Agreement (the “Typenex Pledge Agreement”) dated concurrently with the Typenex SPA under which Typenex has pledged a 40% membership interest in Typenex Medical, LLC, an Illinois limited liability company; provided, however, that Typenex may substitute collateral with a fair market value not less than the aggregate principal balance of the Buyer Notes.

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Payment of the Typenex Note is made on a monthly basis beginning six months after the date we received the initial $100,000 in cash in the amount of $34,843.75 per month plus all unpaid interest and other costs, fees or charges under the Note for each month in which a tranche of the Typenex Note is convertible (as discussed below). Payment may be made in cash or in shares of our common stock or any combination of cash and shares; provided, however, that we may only pay in cash if we fail to meet certain conditions related to our common stock and representations and warranties given in the Typenex Note. We may prepay the Typenex Note with a payment of 125% of the outstanding balance (including interest and other fees and amounts due).

Interest accrues at the rate of 8% per annum. If we fail to repay the Typenex Note when due, or if other events of default thereunder apply, a default interest rate of 22% per annum will apply. In addition, if we fail to issue stock to Typenex within three trading days of receipt of a notice of conversion, we must pay a penalty equal to the greater of (i) $2,000 per day; or (ii) 2% of the product of (A) the number of shares to which Typenex was entitled that were not issued on a timely basis; and (B) the closing sale price of the common stock on the trading day immediately preceding the last day for us to timely issued the shares.

The Typenex Note is convertible into shares of our common stock in five tranches consisting of an initial tranche of $157,500 plus interest and other fees and amounts due and four tranches of $100,000 plus interest and other fees and amounts due, with conversion of the last four tranches conditioned upon payment in full of the Buyer Note corresponding to such tranche. The Typenex Note is convertible at a price equal to the average of the daily closing bid prices for the 15 days immediately prior to the six-month anniversary of the Typenex Note.

Under and concurrently with the Typenex SPA, we also issued to Typenex a warrant (the “Typenex Warrant”) to purchase approximately 37,166,700 shares at a price of $0.015 per share. The Typenex Warrant may also be exercised by cashless exercise.

This conversion price of the Typenex Note, the exercise price of the Typenex Warrant, and the number of shares of our common stock subject to the Typenex Warrant are subject to adjustment for issuance of securities with a lower issuance price (as defined in the Typenex Note). Unless Typenex gives us 61calendar days written notice to the contrary, however, Typenex may not convert the Typenex Note or exercise the Typenex Warrants in an amount which would cause Typenex to own more than 4.99%, or if our market capitalization (as defined in the Typenex Note) is less than $10,000,000, more than 9.99%, of our outstanding common stock.

Under the Typenex SPA, we must pay a penalty of $100 per $10,000 in outstanding principal per trading day that we are late in filing any information required to be filed by us up to ten days, and $200 per day for each trading day after ten days that we are late. Under the Typenex SPA, we also must pay $100 per $10,000 in outstanding principal per trading day past three business days that we do not issue shares of common stock upon conversion of the Typenex Note up to ten days, and $200 per day for each trading day after ten days that we are late, and may be required to pay additional fees if Typenex purchases shares on the open market in order to make delivery in satisfaction of a sale of our shares by Typenex.

Under the Typenex SPA, we are also required to periodically post the then-current number of issued and outstanding shares of our common stock on our webpage at otcmarkets.com if we fail to maintain a market capitalization of $10,000,000 or greater, or pay a late fee for each calendar day we fail to comply with such obligation.

We have granted piggyback registration rights for shares issuable under the Typenex Note and the Typenex Warrant.

12% SECURED CONVERTIBLE DEBENTURE TO WHC CAPITAL, LLC (“WHC”)

On August 1, 2013, we entered into a purchase agreement with WHC (the “Purchase Agreement” under which we concurrently issued a $166,000 12% secured convertible debenture (the “Debenture”) to WHC. The Debenture matures on August 1, 2014, and interest on the Debenture is payable in cash upon maturity. If we fail to repay the Debenture with interest upon maturity, the interest rate increases to 22%. The Debenture is secured by 35,000,000 shares of common stock pledged by Benny R. Powell, our Chief Executive Officer, President, Chief Financial Officer, and Secretary, and a member of the Board, from his individual holdings. Funding of this note was received subsequent to our fiscal year end.

In addition, the Debenture requires us to register 300% of the principal amount of the shares into which the Debenture may be converted. Therefore, we are preparing a registration statement to register 48,823,528 shares of our common stock. The registration will also include any shares that may be converted which comprise interest on the principal.

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If this registration is not declared effective by the Securities and Exchange Commission (the “SEC”) by December 9, 2013, the principal amount of the Debenture will be increased to 140% ($232,400) and that certain number of shares subject to conversion upon that larger amount are also being registered pursuant to the Debenture.

As adjusted following the issuance of the JSJ Note (as defined below) at WHC’s request, all or any portion of the amounts due under the Debenture may be converted at any time at the option of WHC into shares of our common stock at a conversion price equal to the lower of 55% of the average of the three lowest trading prices in (i) the ten trading days prior to the date of conversion; or (ii) the ten trading days prior to the execution of the JSJ Note. This conversion price is subject to adjustment for issuances of securities at a lower issuance price.

Unless WHC gives us 61calendar days written notice to the contrary, however, WHC may not convert the Debenture in an amount which would cause WHC to own more than 9.99% of our outstanding common stock. In addition, if we fail to issue stock to WHC within three business days of receipt of a notice of conversion, we must pay a penalty equal to 15% of the dollar amount of the conversion notice per business day.

The Debenture was issued to WHC pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933. WHC represented to us that it is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

UNSECURED CONVERTIBLE NOTE TO JSJ INVESTMENTS, INC. (“JSJ”)

On August 5, 2013, we issued a $27,500 convertible note (the “JSJ Note”) to JSJ. The JSJ Note is due and payable in six months from issuance at a premium of 125% of the principal amount. If we fail to repay the JSJ Note upon maturity, a default interest rate of 10% shall also apply from such date.

The JSJ Note is convertible into shares of our common stock at a conversion price equal to the lower of 55% of the average of the three lowest trading prices in (i) the ten trading days prior to the date of conversion; or (ii) the ten trading days prior to the execution of the JSJ Note.

The Debenture was issued to JSJ pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. We believe that JSJ is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

 

UNSECURED 9% CONVERTIBLE NOTE TO LG CAPITAL FUNDING, LLC (“LG”)

On October 2, 2013, we issued a $55,000 convertible note (the “LG Note”) to LG with an original issue discount of 10% covering $5,000 in LG’s due diligence and legal fees in connection with the LG Note. The LG Note is due and payable on October 2, 2015, with interest payable in shares of our common stock. If we fail to repay the LG Note upon maturity, a default interest rate of 24% shall also apply from such date, or at the highest rate permitted by law.

We may redeem the LG Note with a payment of 150% of the outstanding principal amount, and are required to redeem the LG Note upon certain sales events as set forth in the LG Note.

 

The LG Note is convertible after the running of the applicable Rule 144 holding period without restrictive legend into shares of our common stock at a conversion price equal to 60% of the lowest trading price of our common stock as reported on the OTCQB for any of the ten trading days prior to and including the date upon which notice of conversion is received.

The LG Note was issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. We believe that LG is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

 

SERVICE AGREEMENT WITH INTEGRITY MEDIA, INC. (“IMI”)

 

On April 11, 2013, we entered into a Service Agreement (the “Initial Agreement”) with IMI under which IMI provided investor relations services to us in exchange for (i) 3,000,000 shares of our common stock, which we issued on June 28, 2013; (ii) $34,500 in shares of our common stock based on the

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five-day moving average of bid prices of our common stock preceding and including July 10, 2013, which we had not issued as of December 5, 2013; and (iii) $3,500 in cash per month for the contractual months of July, August and September 2013.

Per the terms of the Initial Agreement, we renegotiated our arrangement with IMI and entered into a new Service Agreement with IMI on October 11, 2013 (the “Service Agreement”). Under the Service Agreement, the terms of which are substantially the same as the Initial Agreement other than the requirement to renegotiate terms during the term of the Agreement, IMI continues to provide investor relations services to us in exchange for (i) $34,500 in shares of our common stock based on the five-day moving average of bid prices of our common stock preceding October 11, 2013, which we had not issued as of December 5, 2013; (ii) $34,500 in shares of our common stock based on the five-day moving average of bid prices of our common stock preceding and including January 11, 2014; and (iii) $1,750 in cash per month.

Shares issued or issuable under the Initial Agreement or the Service Agreement were or will be issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. We believe that is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

TRANSACTIONS WITH ASHER ENTERPRISES, INC. (“ASHER”)

On September 30, 2013 and November 11, 2013, we entered into Securities Purchase Agreements (the “Asher SPAs”) and 8% Convertible Promissory Notes (the “Asher Notes”) with Asher in the principal amounts of $37,500 and $53,000, respectively. The two transactions are substantially the same, and the documents relating to the November 11, 2013 investment are filed herewith.

The Asher Notes are due approximately one year from their respective issuances. If we fail to pay the principal or interest when due, an amount equal to the outstanding principal amount due plus unpaid interest and other fees and amounts due is due and payable by us (the “Default Sum”), and a default interest rate of 22% shall apply. Other events of default (other than failure to issue shares upon conversion, as discussed below), require the payment of 150% of the Default Sum, payable in cash or in shares. We may prepay the Asher Notes following issuance at rates starting at 120% of all amounts owed under such Asher Note for the first 30 calendar days after issuance, and increasing by 5% for each subsequent 30 calendar day period; provided, however, that we may not prepay either Asher Note after 180 calendar days after its respective issuance.

The Asher Notes are convertible at a conversion price equal to 58% of the average of the three lowest closing bid prices during the ten days prior to conversion; provided, however, that the conversion price time frame remains constant at the public announcement of certain major events until such time as the announced events are consummated or terminated.

This conversion price is subject to adjustment for issuances of securities at a lower issuance price. In addition, if we fail to issue stock to Asher within three business days of receipt of a notice of conversion, we must pay a $2,000 per day penalty, which will be added to the principal of the applicable Asher Note. In addition, the Asher Notes will be accelerated and we will be required to pay an amount equal to two times the Default Sum to repay the Asher Notes. Unless Asher gives us 61calendar days written notice to the contrary, however, Asher may not convert the Asher Notes in an amount which would cause Asher to own more than 9.99% of our outstanding common stock.

We have granted Asher a right of first refusal to participate in future offerings conducted within six months of the date of issuance of the Asher Notes.

The Asher Notes were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 and regulations promulgated thereunder. Asher has represented to us that it is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have no compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, including any underlying options or warrants.

STOCK REPURCHASE PLAN

On June 25, 2013, we announced that we had authorized a stock repurchase program permitting us to repurchase shares of our common stock over the next six to 12 months. The shares are to be repurchased from time to time in open market transactions or in privately negotiated transactions in our discretion.

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To date, we have made the following repurchases:

 

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
June 2013 615,900 $0.0141 615,900
July 2013 1,170,000 $0.0192 1,785,900
August 2013 -0- -0- 1,785,900
September 2013 -0- -0- 1,785,900
October 2013 -0- -0- 1,785,900
November 2013 -0- -0- 1,785,900
December 2013 (through December 2) -0- -0- 1,785,900

The shares repurchased as listed above have not yet been returned to authorized but unissued status, but upon doing so, will result in us having outstanding 455,802,373 shares of common stock.

ITEM 6 . SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Annual Report.

PRINCIPLES OF CONSOLIDATION

We operate under the name of Red Giant Entertainment, Inc. and our wholly owned subsidiaries RGE and ComicGenesis. The companies have been incorporated for the intentions of developing brand names. The wholly owned companies are inactive. Any activities of these subsidiaries or holdings have been included in our consolidated financial statements, with elimination of any intercompany accounts and transactions.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with the Board, we have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies require management’s most difficult, subjective judgments.

GOING CONCERN

The financial statements included in our filings have been prepared in conformity with generally accepted accounting principles that contemplate our continuance as a going concern. Management may use borrowings and security sales to mitigate the effects of its cash position; however, no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue existence.

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USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We review our estimates on an ongoing basis. The estimates were based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates. We believe the judgments and estimates required in our accounting policies to be critical in the preparation of our financial statements.

REVENUE RECOGNITION

Our revenue is recognized from three primary sources: Advertising Revenue, Publishing Sales and Creative Services. Revenue was processed through our Paypal Account and Project Wonderful accounts where applicable.

Advertising Revenue comes from the following sources and is stated at net after commissions:

· Keenspot: Revenue is recognized from Keenspot’s arrangements with advertisers at an agreed upon cost per thousand verified impressions (CPM) to our Keenspot sites whereby advertisers pay based on the number of times the target audience is exposed to the advertisement. This revenue is recognized on a net basis in the monthly period in which the impressions occur (i.e., advertisers pay us within 90 calendar days of receiving Keenspot’s invoices). The particular CPM rate varies based upon bids by advertisers and other customary factors. In exchange for advertising, hosting, IT, and sales management, Keenspot takes 50% commission of ad revenue for their services.

· Project Wonderful: Revenue is paid immediately and based upon bids by advertisers for a set amount of time at the prevailing highest winning rate. Project Wonderful takes a 25% commission of ad revenue for their services.

Publishing Revenue comes from the following sources:

· Kickstarter Campaigns: These are presales for books and revenue is recognized only once the books arrive and are shipped to the buyers.

· Direct Sales: Through our online store, we sell directly to clients and the transactions process through our Paypal account. All orders are shipped immediately and revenue is recognized immediately.

Creative Services are artwork, writing, advertising, and other creative endeavors we handle for outside clients. Revenue is recognized upon completion of the services and payment has been tendered.

Shipping and Handling for purchases are paid directly by the consumer through Paypal. The Company has not established an allowance for doubtful accounts, as all transactions are handled through Paypal directly by the consumer.

 

 

COST OF GOODS SOLD

Cost of goods sold includes the cost of creating services or artwork, advertising and books.

EARNINGS (LOSS) PER SHARE

We follow financial accounting standards, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share.

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There were approximately 28,985,500 common stock equivalents outstanding, attributable to the convertible debt agreements as of August 31, 2013.

INCOME TAXES

We have adopted ASC 740, Income Taxes, which requires us to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in our financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

ADVERTISING

Advertising costs are expensed as incurred. We expensed advertising costs of $2,735 and $962, respectively, for the periods ending August 31, 2013 and August 31, 2012.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, we consider all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. As of August 31, 2013 and August 31, 2012, we had $14,937 and $269, respectively in cash equivalents.

RESULTS OF OPERATIONS

YEARS ENDED AUGUST 31, 2013 AND 2013

REVENUES. Our revenues increased to $497,486 for the fiscal year ended August 31, 2013 as compared to revenues of $97,486 for the fiscal year ended August 31, 2012.

COST OF SALES. Our cost of sales increased to $275,690 for the fiscal year ended August 31, 2013, as compared to $69,651 for the fiscal year ended August 31, 2012.

OPERATING EXPENSES. Operating expenses increased to $639,890 for the fiscal year ended August 31, 2013, as compared to $44,304 for the fiscal year ended August 31, 2012. This change occurred due to proportionally higher General & Administrative and Selling & Marketing expenses, while our Depreciation & Amortization expenses and Professional Fees increased proportionally less.

NET LOSS. We had a net loss of $1,741,752 for the fiscal year ended August 31, 2013 compared to a net loss of $16,469 for the fiscal year ended August 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES

At August 31, 2013, we had cash of $14,937 compared to $269 at August 31, 2012. The bulk of our other assets consist of prepaid expenses. We are currently generating revenues from operations sufficient to meet our operating expenses. However, our management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about our ability to continue as a going concern. We are currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities, as well as a strategic or other transaction, to obtain additional funding to continue the development of, and successfully commercialize, our products. There can be no assurance that we will be successful in these. Should we be unable to obtain adequate financing or generate sufficient revenue in the future, our business, results of operations, liquidity and financial condition would be materially and adversely harmed, and we will be unable to continue as a going concern.

The disclosures contained in “Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters, And Issuer Purchases Of Equity Securities-- Recent Sales of Unregistered Securities” above are incorporated herein by reference.

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We believe that events may have occurred or may exist that (i) may require adjustments to the conversion price and other terms of our convertible debt; (ii) may subject us to penalties and fees under such convertible debt; and (iii) may require us to issue additional securities to convertible debt holders. Nevertheless, we have not received any notice of default or notice of acceleration of any of our convertible debt.

On June 25, 2013, we announced that we had authorized a stock repurchase program permitting us to repurchase shares of our common stock over the next six to 12 months. The shares are to be repurchased from time to time in open market transactions or in privately negotiated transactions in our discretion. We purchased 615,900 shares in June 2013 for an average price of $0.0141 and 1,170,000 shares in July 2013 for an average price of $0.0192. We have not purchased any shares under this program from August 2013 though the date of this report. The shares repurchased as listed above have not yet been returned to authorized but unissued status, but upon doing so, will result in us having outstanding 455,772,373 shares of common stock.

Our net cash used by operating activities was $451,808 for the fiscal year ended August 31, 2013 as compared to $7,364 for the fiscal year ended August 31, 2012.

Cash used in investing activities increased from $3,332 for the fiscal year ended August 31, 2012 to $8,211 for the fiscal year ended August 31, 2013.

Cash provided by financing activities for the fiscal years ended August 31, 2013 and 2012 was $474,687 and $10,869, respectively, largely due to proceeds from notes payable of $490,500 in the fiscal year ended August 31, 2013, as compared with no notes payable proceeds in the fiscal year ended August 31, 2012.

OFF BALANCE SHEET ARRANGEMENTS

We have no off balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (the “Update”). The Update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses and distribution rights. The new standard is effective for fiscal years beginning after September 15, 2012. As of August 31, 2013, none of the our intangible assets are amortized as indefinite-lived intangible assets. Therefore, the adoption of this amendment is not expected to have a material impact on our financial position or results of operations.

ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

 

 

 

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ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements Page

 

Index to Consolidated Financial Statements Page
Reports of Independent Registered Public Accounting Firms 18
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders’ Deficit 22
Consolidated Statements of Cash Flows 23
Notes to the Consolidated Financial Statements 24

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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MESSINEO & CO., CPAS LLC
2471 N MCMULLEN BOOTH RD, STE. 302
CLEARWATER, FL 33759-1362
T: (727) 421-6268
F: (727) 674-0511

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders:
Red Giant Entertainment, Inc.
Clermont, Florida

We have audited the consolidated balance sheet of Red Giant Entertainment, Inc., as of August 31, 2013 the related consolidated statement of operations, consolidated changes in stockholders’ deficit, and consolidated cash flows for the year ended August 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Red Giant Entertainment, Inc. as of August 31, 2012, and for the eight month period ending August 31, 2013, were audited by other auditors whose report dated January 2, 3013, expressed an unqualified opinion on those statements, except that the report contained an explanatory paragraph stating that there was substantial doubt about the Company’s ability to continue as a going concern.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements were free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the consolidated financial position of Red Giant Entertainment, Inc. as of August 31, 2013 and the results of its operations, changes in its stockholders’ deficit and its cash flows for the year ended August 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in note 1 to the consolidated financial statements, the consolidated financial statements have been restated.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses resulting in accumulated deficit and may be unable to raise further funds through equity or other traditional financing. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Messineo & Co., CPAs, LLC
-------------------------------------
Messineo & Co., CPAs, LLC
Clearwater, Florida
December 2, 2013 except as to the restatement

discussed in note 1 to the consolidated financial

statements which is as of February 5, 2014

 

Table of Contents 18  
 

[LETTERHEAD OF MARTINELLIMICK PLLC]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders Red Giant Entertainment, Inc.

We have audited the accompanying balance sheet of Red Giant Entertainment, Inc. as of August 31, 2012, and the related statements of operations, stockholders’ equity, and cash flows for the period then ended. Red Giant Entertainment, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Red Giant Entertainment, Inc. as of August 31, 2012, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s accumulated deficit and net loss raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding the resolution of this issue are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ MartinelliMick PLLC
--------------------------------
MartinelliMick PLLC
Spokane, Washington
January 2, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents 19  
 

  Red Giant Entertainment, Inc.
(formerly known as Castmor Resources, Inc.)

Consolidated Balance Sheets

    August 31,   August 31,
    2013   2012
    (RESTATED)    
ASSETS                
Current Assets                
Cash and cash equivalents   $ 14,937     $ 269  
Inventory     52,107       10,928  
Prepaid and other current assets     82,000       20,000  
Total Current Assets     149,044       31,197  
                 
Property and equipment, net of accumulated                
depreciation of $996 and $56, respectively     10,548       3,277  
                 
Intellectual property, net of accumulated                
amortization of $23,100 and $9,750, respectively     51,150       19,500  
                 
TOTAL ASSETS   $ 210,742     $ 53,974  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities                
Accounts payable and accrued expenses   $ 88,000     $ 19,776  
Due to related parties     39,187       —    
Convertible notes payable     81,397       —    
Derivative liability     1,339,599       —    
Derivative liability, warrants     355,800          
Total Current Liabilities     1,903,983       19,777  
                 
Convertible notes payable, long-term portion     24,314       —    
                 
TOTAL LIABILITIES     1,928,297       19,776  
                 
Commitments and Contingencies     —         —    
                 
Stockholders’ (Deficit) Equity                
Preferred stock: 100,000,000 authorized; $0.0001 par value; 0 shares issued and outstanding     —         —    
Common stock: 900,000,000 authorized; $0.0001 par value; 434,922,000 and 434,922,000 shares issued and outstanding     43,492       43,492  
Additional paid in capital (Discount on common stock)     43,053       (1,947 )
Treasury stock, at cost, 1,785,900 shares     (55,000 )     —    
Accumulated deficit     (1,749,100 )     (7,348 )
Total Stockholders’ (Deficit) Equity     (1,717,555 )     34,197  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 210,742     $ 53,974  

See auditor’s report and notes to the audited financial statements

 

Table of Contents 20  
 

Red Giant Entertainment, Inc.
(formerly known as Castmor Resources, Inc.)

Consolidated Statements of Operations

 

    For the year ending August 31, 2013   For the eight month period ending August 31, 2012
    (RESTATED)    
         
Revenues   $ 497,486     $ 97,486  
Cost of sales     275,690       69,651  
Gross Profit     221,796       27,835  
                 
Operating Expenses                
Selling and marketing     159,388       6,175  
General and administrative     261,699       5,376  
Compensation     52,781       7,302  
Professional     151,732       21,495  
Depreciation and amortization     14,290       3,956  
   Total Operating Expenses     639,890       44,304  
                 
Net loss from operations     (418,094 )     (16,469 )
                 
Other income (expense)                
Interest expense     (479,559 )     —    
Change in derivative     (844,099 )     —    
Income taxes     —         —    
Net loss   $ (1,741,752 )   $ (16,469 )
                 
Basic and dilutive loss per share   $ (0.00 )   $ (0.00 )
                 
Weighted average number of shares outstanding shares outstanding     434,922,000       283,256,653  

 

See auditor’s report and notes to the audited financial statements

 

 

 

Table of Contents 21  
 

Red Giant Entertainment, Inc.
(formerly known as Castmor Resources, Inc.)

Consolidated Statement of Stockholders’ Deficit

 

    Preferred Stock   Common Stock  

Additional Paid in

 

Discount on

Common

  Treasury Shares  

Accumulated

 
    Shares   Amount   Shares   Amount   Capital   Stock   Shares   Amount     Deficit        Total  
                                         
Balance, December 31, 2011     —       $ —         240,000,000     $ 24,000     $ 6,676     $ —         —       $ —       $ 9,121     $ 39,797  
                                                                                 
Recapitalization from reverse merger     —                 194,922,000       19,492       (17,545 )     (1,947 )                             —    
                                                                                 
Contributed capital     —                 —                 10,869       —                                 10,869  
                                                                                 
Net loss (for the eight month period ending August 31, 2012                                                                     (16,469 )     (16,469 )
                                                                                 
Balance, August 31, 2012     —         —         434,922,000       43,492       —         (1,947 )     —         —         (7,348 )     34,197  
                                                                                 
Stock buy-back program     —         —         —         —         —         —         1,785,900       (55,000 )             (55,000 )
                                                                              —    
Acquisition of ComicGenesis     —         —         —         —         45,000       —         —         —         —         45,000  
                                                                                 
Reclassification     —         —         —         —         (1,947 )     1,947       —         —         —         —    
                                                                                 
Net loss     —         —         —         —         —         —         —         —         (1,741,752 )     (1,741,752 )
                                                                                 
Balance, August 31, 2013     —       $ —         434,922,000     $ 43,492     $ 43,053     $ —         1,785,900     $ (55,000 )   $ (1,749,100 )   $ (1,717,555 )
                                                                                 
See auditor’s report and notes to the audited financial statements

 

 

 

Red Giant Entertainment, Inc.
(formerly known as Castmor Resources, Inc.)

Consolidated Statements of Cash Flows  

    For the year ending   For the eight month period
    August 31, 2013   August 31, 2012
  (RESTATED)  
 CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (1,741,752 )   $ (16,469 )
Adjustment to reconcile Net Income to net cash provided by operations:                
   Depreciation and amortization     14,290       3,956  
   Warrant expense     355,800       —    
   Amortization of deferred financing costs     105,711       —    
   Change in derivative     844,099       —    
Changes in operating assets and liabilities:                
(Increase) decrease in operating assets:                
   Inventory     (41,179 )     5,373  
   Prepaid expenses and other assets     (62,000 )     (20,000 )
Increase (decrease) in operating liabilities:     —         —    
   Accounts payable and accrued expenses     68,223       19,776  
Total adjustments     1,289,944       9,105  
Net Cash (Used in) Operating Activities     (451,808 )     (7,364 )
                 
 CASH FLOWS FROM INVESTING ACTIVITIES:                
    Acquisition of property and equipment     (8,211 )     (3,333 )
    Acquisition of intangible property     —         —    
 Net Cash (Used in) Investing Activities     (8,211 )     (3,333 )
                 
 CASH FLOWS FROM FINANCING ACTIVITIES:                
    Shareholder loans, net     39,187       —    
    Proceeds from Loan(s)     490,500       —    
    Purchase of treasury stock, at cost     (55,000 )     —    
    Contributed capital     —         10,869  
 Net Cash Provided by Financing Activities     474,687       10,869  
                 
 Net increase in cash and cash equivalents     14,668       172  
 Cash and cash equivalents, beginning of period     269       97  
 Cash and cash equivalents, end of period     14,937     $ 269  
                 
 Supplemental cash flow information                
 Cash paid for interest   $ —       $ —    
 Cash paid for taxes   $ —       $ —    
                 
 Non-cash transactions                
 Acquisition of CGEN in exchange for shares held by shareholder   $ 45,000     $ —    
                 
See auditor’s report and notes to the audited financial statements

 

 

Red Giant Entertainment, Inc.
(formerly known as Castmor Resources, Inc.)

 

Notes to the Consolidated Financial Statements August 31, 2013 and 2012

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Red Giant Entertainment LLC, (hereinafter “the Company”) was formed in the State of Florida, U.S.A., on January 1, 2011. The Company’s fiscal year end is December 31. On May 9, 2012, the Company incorporated and changed its name to Red Giant Entertainment, Inc. (“RGE”) All income and expenses in these financial statements have been recharacterized for reporting purposes to be all inclusive for the corporate entity. The Company was originally a publishing company, but has expanded its operations to include mass media and graphic novel artwork development.

On June 11, 2012, Castmor Resources Ltd., a Nevada corporation entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Red Giant Entertainment Inc., and Benny R. Powell, who had owned 100% of the issued and outstanding shares in RGE. Pursuant to the terms and conditions of the Share Exchange Agreement, RGE exchanged 100% of the outstanding shares in RGE for forty million (40,000,000; 240,000,000 post split) newly-issued restricted shares of the Company’s common stock. Due to the recapitalization and reverse merger with Castmor Resources Ltd, 32,487,000 shares (194,922,000 post split) were issued in the entity. The Company subsequently approved a 6 to 1 forward stock split of all shares of record in June, 2012.

The exchange resulted in RGE becoming a wholly-owned subsidiary of the Company. As a result of the Share Exchange Agreement, the Company will now conduct all current operations through Red Giant Entertainment, and our principal business became the business of RGE. The Company’s fiscal year end adopted August 31. All share information has been restated for both the reverse merger and the forward stock split for all periods presented.

RESTATEMENT

In the course of monitoring the business, management identified errors with respect to the completeness and disclosure of our debt accounting and the completeness of all related party transactions. Specifically, certain convertible debt agreements with related parties were not appropriately captured in the August 31, 2013 financial statements. Such notes were reimbursements to related parties for expense payments they made on behalf of the company. It is further noted, that the embedded conversion options of these notes qualified for derivative accounting and thus were bifurcated and recorded as a derivative liability. In addition, we noted a share transaction of a major shareholder executed for the benefit of the company (issuing his own shares to acquire a website for the company) had not accounted for the intangible property received in the exchange.

 

 

 

 

 

 

 

The following summary is presented in comparison to the originally reported financial statements, as of August 31, 2013:

    Originally            
    Reported       Adjustment   Restated
 Cash   $ 14,937                     $ 14,937  
 Inventory     52,107                       52,107  
 Prepaid and other     82,000                       82,000  
 Property & equipment     10,548                       10,548  
 Intangible assets     13,650             (1)
(1)
     

45,000

(7,500)

      51,150  
 Total Assets   $ 173,242                     $ 210,742  
                                 
 Accounts payable and accrued   $ 81,332       (4)     6,668     $ 88,000  
 Due to related parties     39,187                       39,187  
 Convertible notes payable     100,710      

(2)

(3)

(5)

     

338,000

(338,000)

5,001

      105,711  
 Derivative liability, notes     271,321      

 

(3)

(6)

      338,000
 730,278
      1,339,599  
 Derivative liability, warrants     —         (7)     355,800       355,800  
 Total Liabilities     492,550                       1,928,297  
                                 
 Common stock     43,492                       43,492  
 Additional paid in capital     (1,947 )     (1)     45,000       43,053  
 Treasury stock     (55,000 )                     (55,000 )
 Accumulated deficit     (305,853 )             (1,443,247 )     (1,749,100 )
 Total Stockholders’ Equity     (319,308 )                     (1,717,555 )
                                 
 Liabilities and Equity   $ 173,242                     $ 210,742  
                                 
                                 
 Revenues   $ 497,486                     $ 497,486  
 Cost of sales     148,215       (2)     127,475       275,690  
      349,271                       221,796  
                                 
 Selling, general and administrative     421,865      

(1)

(2)

      7,500
        210,525
      639,890  
                                 
 Interest expense     112,090      

(4)

(5)

(7)

     

6,668

5,001
355,800

      479,559  
 Change in derivatives     113,821       (6)     730,278       844,099  
 Income taxes     —                         —    
 Net loss   $ (298,505 )                   $ (1,741,752 )

 

 

(1) Acquisition of a website for the transfer of common stock by shareholder, at the fair value of $45,000; related amortization of website acquired, in the amount of $7,500.
(2) Proceeds in exchange of convertible notes issued to reimburse related parties for operating expenses paid on the Company’s behalf.
(3) Record debt discounts and deferred financing costs, related to the convertible notes payable.
(4) Accrue interest payable and interest expense, related to convertible notes
(5) Amortization of debt discount on convertible notes
(6) Derivative liability related to the embedded conversion option of new convertible notes marked to fair value
(7) Issuance of warrants as financing cost

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates that have been made using careful judgment. The financial statements have, in management’s opinion been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

PRINCIPLES OF CONSOLIDATION

The Company operates under the name of Red Giant Entertainment, Inc. and its wholly owned subsidiaries RGE and ComicGenesis. The companies have been incorporated for the intentions of developing brand names. The wholly owned companies are inactive. Any activities of these subsidiaries or holdings have been included in the consolidated financial statements, with elimination of any intercompany accounts and transactions.

ACCOUNTING METHOD

The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

RECLASSIFICATION

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. The Company reviews its estimates on an ongoing basis. The estimates were based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from these estimates. The Company believes the judgments and estimates required in its accounting policies to be critical in the preparation of the Company’s financial statements.

FAIR VALUE MEASUREMENTS

Topic 820 in the Accounting Standards Codification (ASC 820) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

 
· Level 1 inputs -- Unadjusted quoted process in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
· Level 2 inputs -- Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
· Level 3 inputs -- Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The Company currently does not have any assets that are measured at fair value on a recurring or non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at August 31, 2013, nor gains or losses reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the period ended August 31, 2013.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. As of August 31, 2013, the company has $14,937 of cash equivalents.

ACCOUNTS RECEIVABLE AND CREDIT

The Company currently does not issue credit on services or product provided, therefore there are no accounts receivable. No allowance for doubtful accounts is considered necessary to be established for amounts that may not be recoverable, since there has been no credit issued.

ASSET RETIREMENT OBLIGATIONS

The Company has adopted ASC 410, Asset Retirement and Environmental Obligations, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived assets. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. As at August 31, 2013, the Company does not have any asset retirement obligations.

LONG-LIVED ASSETS IMPAIRMENT

Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360, Property, Plant and Equipment. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.

 

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at historical cost and capitalized. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. The Company currently has equipment being depreciated for estimated lives of three to five years.

REVENUE RECOGNITION

Revenue for the Company is recognized from three primary sources: Advertising Revenue, Publishing Sales and Creative Services. Revenue was processed through our Paypal Account and Project Wonderful accounts where applicable.

 

 

Advertising Revenue comes from the following sources and is stated at net after commissions:

· Keenspot: Revenue is earned on a net 90 basis and is based upon traffic to Red Giant property Web sites. It is calculated on a Cost Per Thousand (CPM) of verified impressions and varies based upon bids by advertisers and other customary factors. In exchange for advertising, hosting, IT, and sales management, Keenspot takes 50% commission of ad revenue for their services.
· Project Wonderful: Revenue is paid immediately and based upon bids by advertisers for a set amount of time at the prevailing highest winning rate. Project Wonderful takes a 25% commission of ad revenue for their services.

Publishing Revenue comes from the following sources:

· Kickstarter Campaigns: These are presales for books and revenue is recognized only once the books arrive and are shipped to the buyers.
· Direct Sales: Through our online store, we sell directly to clients and the transactions process through our credit processing service (Paypal) account. All orders are shipped immediately and revenue is recognized immediately.

Creative Services are artwork, writing, advertising, and other creative endeavors we handle for outside clients. Revenue is recognized upon completion of the services and payment has been tendered.

Shipping and Handling for purchases are paid directly by the consumer through a credit processing service.

COST OF GOODS SOLD

Cost of goods sold includes the cost of creating services or artwork, advertising and books.

ADVERTISING

Advertising costs are expensed as incurred. The Company expensed advertising costs of $3,506 and $962 for the periods ending August 31, 2013 and 2012, respectively.

SHARE-BASED COMPENSATION

In accordance with FASB ASC No. 718, Compensation - Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 718. FASB ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or

(b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505. During the periods ending August 31, 2013 and 2012, there were no stock-based shares issued.

 

INCOME TAXES

The Company has adopted ASC 740, Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

EARNINGS (LOSS) PER SHARE

The Company follows financial accounting standards, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. There were approximately 28,985,500 common stock equivalents outstanding, attributable to the convertible debt agreements as of August 31, 2013.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (the “Update”). The Update simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses and distribution rights. The new standard is effective for fiscal years beginning after September 15, 2012. As of May 31, 2013, none of the Company’s intangible assets are amortized as indefinite-lived intangible assets. Therefore, the adoption of this amendment is not expected to have a material impact on the Company’s financial position or results of operations.

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported consolidated financial position or consolidated operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

NOTE 3 - MANAGEMENT STATEMENT REGARDING GOING CONCERN

The Company is currently generating revenues from operations sufficient to meet its operating expenses. However, management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about the Company’s ability to continue as a going concern. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities, as well as a strategic or other transaction, to obtain additional funding to continue the development of, and successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts and this raises substantial doubt about the Company’s future. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.

The Company believes that its ability to execute its business plan, and therefore continue as a going concern, is dependent upon its ability to do the following:

 

· Obtain adequate sources of funding to fund long-term business operations;
· Enter into a licensing or other relationship that allows the Company to commercialize its products;
· Manage or control working capital requirements; and
· Develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.
 

 

There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.

NOTE 4 - INVENTORY

As of August 31, 2013, inventory consisted of physical copies of published books, as well as artwork that’s used for digitally distributed works for advertising revenue and future publications. The inventory is valued at a standard cost to produce.

Prepaid expenses include advanced funds for the production of our print. As of August 31, 2013 and 2012, these advanced payments were $82,000 and $20,000, respectively, which were made to a related party.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consists of:

 

    August 31,
    2013   2012
Computers and equipment   $ 3,333     $ 3,333  
Trade booth and equipment     8,211       —    
Total property and equipment   $ 11,544     $ 3,333  
Less accumulated depreciation     996       56  
Property and equipment, net   $ 10,548     $ 3,277  

Depreciation for the periods ended August 31, 2013 and 2012 was $640 and $56, respectively.

NOTE 6 - INTELLECTUAL PROPERTY

The Company’s intellectual property consists of graphic novel artwork and was contributed by a shareholder to the Company and valued at $29,250, which was determined based on the historical costs for artists and printing. The intangible is being amortized over its estimated life of five years.

 

    August 31,
    2013   2012
    (Restated)    
Intellectual property   $ 29,250     $ 29,250  
Website development     45,000       —    
      74,250       29,250  
Less accumulated amortization     23,100       9,750  
Intellectual property, net   $ 51,150     $ 19,500  

 

 

 

Amortization cost for the periods ended August 31, 2013 and 2012 was $13,350 and $3,900, respectively. The Company expects to amortize the remaining $51,150 over the remaining life of approximately three to five years as follows: 

 

  2013     $ 20,850  
  2014       20,850  
  2015       9,450  
  thereafter       —    
        $ 51,150  

NOTE 7 - CONVERTIBLE NOTES PAYABLE

The Company entered into lending arrangements with two entities, each with convertible features. The Company evaluated the terms of the convertible notes, with face values totaling $599,000, in accordance with ASC Topic No. 815 - 40, DERIVATIVES AND HEDGING - CONTRACTS IN ENTITY’S OWN STOCK and that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bi-furcated the conversion feature and accounted for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a debt discount on the notes in the amount of $490,500 on the origination date. The debt discount was recorded as reduction (contra-liability) to the Convertible Notes Payable. The debt discount is being amortized over the life of the notes. Additionally, the notes called for an immediate withholding of $108,500 for service charges, which has been treated as an original issue discount or deferred financing costs, a contra-liability charge, which is to be amortized as finance cost over the life of the loan. Expense, in the amount of $105,711 was recognized for the period ended August 31, 2013.

A derivative liability, in the amount of $1,339,599 has been recorded, as of August 31, 2013, related to the above notes. The derivative value was calculated using the Black-Scholes method. Assumptions used in the derivative valuation were as follows:

 

Weighted Average:        
   Dividend rate     0.0 %
   Risk-free interest rate     0.08 %
   Expected lives (years)     1.05  
   Expected price volatility     288.2 %
   Forfeiture Rate     0.0 %

 

 

 

 

The convertible notes outstanding as of August 31 are summarized below:

 

    2013   2012
Convertible promissory note, dated April 15, 2013, original face value of: $130,000, maturing April 15, 2014, 9.9% interest. Conversion price shall be equal to 60% (40% discount) of the lowest trading price of any day during the 10 consecutive trading days prior to the date on which Holder elects to convert all or part of the note.   $ 130,000     $ —    
Convertible promissory note, dated May 24, 2013, original face value of: $50,000, maturing May 21, 2015, 6.0% interest. Master agreement for total funding of $350,000, of which $50,000 has been received to date, with an additional four future funding installments of $75,000 at a date to be determined.  Conversion price shall be equal to 70% (30% discount) of the lowest trading price of any day during the 10 consecutive trading days prior to the date on which Holder elects to convert all or part of the note.   $ 50,000     $ —    
Convertible promissory note, dated June 13, 2013, original face value of: $33,000, maturing June 13, 2014, 12.0% interest. Master agreement for total funding of $335,000, of which $55,000 has been received to date.  Original issue discount, in the amount of $35,000 has been charged at origination per agreement. Conversion price shall be equal to 60% (40% discount) of the lowest trading price of any day during the 25 consecutive trading days prior to the date on which Holder elects to convert all or part of the note.   $ 90,000     $ —    
Convertible promissory note, dated June 21, 2013, original face value of: $33,000, maturing March 21, 2015, 8.0% interest. Master agreement for total funding of $557,500, of which $100,000 has been received to date, with an additional four future funding installments of $100,000 at a date to be determined. Additionally, an original issue discount, in the amount of $57,500 has been charged at origination. Conversion price shall be equal to 105% of the average daily closing bid prices for 15 trading days.   $ 157,500     $ —    
Convertible promissory note, dated August 1, 2013, original face value of: $166,000, maturing August 1, 2014, 12% interest. Conversion Price” shall be equal to sixty percent (60%) of the lowest trading price of any day during the 10 consecutive trading days prior to the date of conversion.   $ 166,000     $ —    
Convertible promissory note, dated August 5, 2013, original face value of: $27,500, maturing February 5, 2014, 10% interest. Conversion price shall be equal to 55% (45% discount) of the average of the three lowest trades on the previous 10 trading days prior to the date of conversion, with a maximum conversion price equal to the that price that would be obtained if the conversion were to be made on the date that the note was executed.   $ 27,500       —    
Total debt   $ 621,000     $ —    
Less: unexpired debt discounts and deferred finance costs     515,289       —    
Total   $ 105,711     $ —    

 

 

Unexpired debt discounts and deferred finance costs, in the amount of $493,289, will be recognized as interest expense in for year ending August 31, 2014. If converted as of August 31, 2013, there would be approximately 138,962,500 additional shares to be issued.

NOTE 8 - PROVISION FOR INCOME TAXES

Income taxes are provided based upon the liability method. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their

 

financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by accounting standards to allow recognition of such an asset.

At August 31, 2013 and 2012, the Company expected no net deferred tax assets to be recognized, resulting from net operating losses. Deferred tax assets were offset by a corresponding allowance of 100%.

For the tax year ended December 31, 2011, the predecessor entity to Red Giant Entertainment, Inc. was a limited liability company, and as such, all tax benefits and obligations passed through the entity to its members. No provisions have been made at December 31, 2011, nor does management believe that any tax modifications would have a material effect on the financials. The Company has accrued approximately $1,300 in penalties associated with delinquent filings.

Although Management believes that its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our tax provisions. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict.

ACCOUNTING FOR INCOME TAX UNCERTAINTIES AND RELATED MATTERS

The Company may be assessed penalties and interest related to the underpayment of income taxes. Such assessments would be treated as a provision of income tax expense on the financial statements. At August 31, 2013, the tax return for 2011 and 2012 has not being filed. No income tax expense has been realized as a result of operations and no income tax penalties and interest have been accrued related to uncertain tax positions. The Company has not filed a tax return for the new entity. These filings will be subject to a three year statute of limitations. No adjustments have been made to reduce the estimated income tax benefit at fiscal year end. Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.

 

NOTE 9 - CAPITAL STOCK

The Company has 100,000,000 shares of preferred stock authorized and none have been issued.

The Company has 900,000,000 shares of common stock authorized, of which 434,922,000 shares are issued and outstanding. All shares of common stock are non-assessable and non-cumulative, with no preemptive rights. During the year, the company purchased back 1,785,900 shares of its common stock. As of the date of filing, these shares have not been cancelled and remain outstanding in the name of Red Giant Entertainment, Inc. It is anticipated that these shares will be cancelled in the following quarter.

During the eight months ended, August 31, 2012, $10,869 of contributed capital was added to additional paid in capital.

In June, 2012, Castmor Resources Ltd., entered into Share Exchange Agreement (the “Share Exchange Agreement”) with Red Giant Entertainment Inc., (“RGE”), and Benny R. Powell, who had owned 100% of the issued and outstanding shares in RGE. Pursuant to the terms and conditions of the Share Exchange Agreement, RGE exchanged 100% of the outstanding shares in RGE for forty million (240,000,000 post split) newly-issued restricted shares of the Company’s common stock. Due to the recapitalization and reverse merger of Castmor Resources Ltd, an additional 32,487,000 (194,922,000 post split) shares were issued. The Company approved a 6 to 1 stock split of all shares issued in June of 2012. All share information has been restated for both the reverse merger and the forward stock split for all periods presented.

During the year ending August 31, 2013 the Company entered into a stock buy-back plan, whereby 1,785,900 shares were repurchased for $55,000 cost. The shares remain in the name of the Corporation until such time as they are cancelled.

The Company issued warrants to purchase approximately 37,166,700 shares of common stock, at a strike price of $.015 per share, in association with a financing arrangement. Warrants may be exercised in a cashless option. The company valued these warrants using the Black-Scholes method, resulting in an interest expense of $355,800 and a corresponding derivative liability.

 

NOTE 10 - RELATED PARTIES

Benny R. Powell was an officer and director of both parties to the merger. See Note 1. Mr. Powell continues as the Company’s officer and director post-merger. Mr. Powell also provides rent and other services to the Company through his other ventures.

The Company purchases print materials through a wholly owned entity, Active Media Publishing, Inc, (“AMPI”) of Mr. Powell. AMPI has certain arrangements with overseas printing companies, whereby the printing is facilitated to the Company. Agreement with AMPI states processing is at near cost prices on a non-exclusive basis. During the year ended August 31, 2013, the Company purchased print media in the amount of $165,540. Additionally, proceeds from convertible debt, in the amount of $338,000, was directly received by AMPI and fully disbursed to discharge liabilities incurred by the Company.

Keenspot has been paid or accrued commissions in the amount of approximately $6,785 for the year ending August 31, 2013.

During the year ending August 31, 2013, the President and Chief Executive Officer has advanced assets in the amount of $39,187, which includes transfer of 3 million shares of common stock, personally held, to an unrelated vendor for securing services. Those services were valued at $36,000, per the agreement and the fair value of the stock at the date of the exchange. As of August 31, 2013 and 2012, the Company was indebted to the President and Chief Executive, in the amount of $39,187 and $0, respectively.

The Company does not have employment contracts with its controlling shareholder who is President and Chief Executive Officer of the Company, although it has independent contractor agreements with its other officers.

 

We also from time to time have retained Glass House Graphics, a sole proprietorship owned by David Campiti, our Chief Operating Officer and a member of the Board, to provide creative services for us. We paid an aggregate of $2,035 to Glass House Graphics in the fiscal year ended August 31, 2013.

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.

NOTE 11 - BUSINESS SEGMENTS

The Company generates revenues from three service offerings: Advertising, Book publishing and Creative. The Company’s management measures its performance by revenue lines and does not allocate its selling, general and administrative expenses to each revenue offering. A summary of the lines of revenue are as follows:

    August 31,
    2013   2012
Revenues:                
    Advertising   $ 6,842     $ 5,538  
    Book publishing     253,146       82,684  
    Creative     237,498       9,264  
      497,486       97,486  
                 
Cost of Sales:                
    Advertising     5,843       4,757  
    Book publishing     195,651       51,936  
    Creative     74,196       12,958  
      275,690       69,651  

 

 

    August 31,
    2013   2012
Gross Margin:                
    Advertising     999       781  
    Book publishing     57,495       30,748  
    Creative     163,302       (3,694 )
    $ 221,796     $ 27,835  

NOTE 12 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company’s management is aware of a certain pending or threatened assertion and believe that the matter is without legal merit and if defense is successful would not have a material effect on the Company’s financial position or results of operations.

Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts.

NOTE 13 - SUBSEQUENT EVENTS

Subsequent to August 31, 2013, the Company issued 22,636,273 shares of its common stock, at a fair market value of $142,210 in exchange of debt totaling $60,000. The Company will recognize a reduction in the derivative liability of $82,210.

In period from September through November 2013 the Company issued three (3) convertible promissory notes with an aggregate face value of $145,500, interest of 8-12% interest, maturing in six months to one year.

Subsequent to August 31, 2013, the Company received a loan from Benny Powell, an officer and director of the Company, in the amount of $4,000, $886,37 of which has been repaid as of December 5, 2013.

Management has evaluated subsequent events through November 27, 2013. There was no event of which management was aware that occurred after the balance sheet date that would require any adjustment to, or disclosure in, the accompanying consolidated financial statements, except as mentioned above.

 

 

 

 

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Benny R. Powell, our Chief Executive Officer, President, Chief Financial Officer, and Secretary, and a member of the Board, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this Annual Report Based upon such evaluation, Mr. Powell concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including Mr. Powell, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed our internal control over financial reporting as of August 31, 2013, the end of our fiscal-year. Management based its assessment on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on our assessment, management has concluded that our internal control over financial reporting was not effective as of the end of the fiscal-year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Board.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are disclosed below:

· We do not have an audit committee or any other governing body to oversee management.
· Documentation of proper accounting procedures is not present and fundamental elements of an effective control environment were not present as of August 31, 2013, including formalized monitoring procedures.
· While we now have five officers, there is still no segregation of duties with respect to internal controls, no management oversight, and no additional persons reviewing control documentation, and no control documentation is being produced at this time.

 

Table of Contents 36  
 

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

Our management does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Because we are a smaller reporting company, the rules and regulations of the SEC do not require that we include a report of our independent registered public accounting firm regarding our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

On October 25, 2013, we entered into an Independent Contractor Agreement with each of our officers other than Benny R. Powell. Under such Independent Contractor Agreements, we have agreed to pay each of Ms. Schoof and Messrs. Campiti, Crosby and Robbins $18,000 per year in monthly increments of $1,500. The Independent Contractor Agreements have an initial term of one year and renews automatically for subsequent one year terms unless terminated. The Independent Contractor Agreements provide that our officers may perform services for other companies.

The disclosures set forth above under “Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters, And Issuer Purchases Of Equity Securities-- Recent Sales of Unregistered Securities” regarding our transactions with GEL, JSJ, Typenex, LG and Asher are incorporated herein by this reference.

Table of Contents 37  
 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors are as follows:

  Name Age Position
Benny R. Powell 39 Chief Executive Officer, President, Chief Financial Officer, Secretary, Director
David Campiti 55 Chief Operations Officer, Director
Chris Crosby 36 Chief Technology Officer, Director
Isen Robbins 45 Chief Intellectual Property Officer, Director
Aimee Schoof 42 Chief Business Development Officer, Director

 

The mailing address for all our officers and directors is 614 E. Hwy 50, Suite 235, Clermont, Florida 34711.

 

DUTIES, RESPONSIBILITIES AND EXPERIENCE

BENNY R. POWELL, CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY, AND DIRECTOR. Mr. Powell has served as our Chief Executive Officer, President, Chief Financial Officer, and Secretary, and as a member of the Board, since June 11, 2012. Mr. Powell was the founder of RGE (acquired by us in June 2012) and served as its Chief Executive Officer from formation in January 2011. He also founded and has served as Chief Executive Officer of Active Media Publishing, LLC (“Active Media”) from May 2003 to present. From November 2002 to June 2007, Mr. Powell also served as CEO for Total Solutions Marketing, LLC, a full service marketing company. From January 1995 to February 1999, Mr. Powell worked as a writer at Marvel Comics Group. Mr. Powell is a co-owner of several of properties, including without limitation Duel Identity™, Katrina™, Wayward Sons™, and Wayward Sons: Legends™.

DAVID CAMPITI, CHIEF OPERATIONS OFFICER AND DIRECTOR. Mr. Campiti has served as our Chief Operations Officer and a member of the Board since March 5, 2013. He has also served as CEO and Global Talent Supervisor for Glass House Graphics, a sole proprietorship professional services firm dba Studio Sakka Graphics & Animation, Art & Comics Store, and The Academy of Comic Book Arts that provides development and organizational services as well as illustrators, writers, painters and designers, since 1993. Mr. Campiti oversees two Glass House Graphics offices in Brazil; one in Manila, Philippines; one in New Delhi, India; two locations in Indonesia, and one in Europe--coordinating creative services from a roster of more than 120 talents worldwide to produce animation, art, and digital graphics for scores of clients.

Mr. Campiti has over 30 years of experience in the comic book industry, including writing for DC Comics, and helped launch Amazing Comics, Wonder Color Comics, Pied Piper Press, Eternity Comics, New Sirius Productions (both Sirius Comics and Prelude Graphics), and other companies. Mr. Campiti is a co-owner of several properties featured on our website, including without limitation Banzai Girl™, Exposure™, Jade Warriors™, Pandora’s Blog™, The Shadow Children™, and Journey to Magika™, which he also produced as an animated film. Journey to Magika previewed at Tribeca Film Festival and is due for release in 2014 (Trailer: http://nikothemovie.com/trailer.html).

Table of Contents 38  
 

CHRIS CROSBY, CHIEF TECHNOLOGY OFFICER AND DIRECTOR. Mr. Crosby has served as our Chief Technology Officer and a member of the Board since March 1, 2013. He has also co-founded Keenspot, our strategic partner, in March 2000 and Blatant Comics, an independent comic book publisher, in July 1997. Mr. Crosby has served as CEO of Keenspot and as Vice President and Editor-in-Chief of Blatant Comics since such companies’ respective founding dates. Mr. Crosby has over 20 years experience in the comic book industry, and in 1994 he became one of the first creators to step into the new world of online comics. In 1999, he launched one of the first daily online-exclusive comic strips, Superosity™. Mr. Crosby is the creator or co-creator of several properties featured on our website and owned by Keenspot and its affiliates, including without limitation Crow Scare™, The First Daughter™, Godmode™, Last Blood™, Sore Thumbs™, and Wicked Powered™.

ISEN ROBBINS, CHIEF INTELLECTUAL PROPERTY OFFICER AND DIRECTOR. Mr. Robbins has served as our Chief Intellectual Property Officer and a member of the Board since March 5, 2013. Mr. Robbins also co-founded Intrinsic in 1998 and has served as a Co-CEO of Intrinsic since that time. He has produced more than 30 feature films, including seven that premiered at the Sundance Film Festival, four at the Tribeca Film Festival, three at SXSW, and one at each of the Toronto, Venice, New Directors/ New Films, and Berlin Film Festivals. Intrinsic’s films have been distributed worldwide and have won many awards and been honored with numerous accolades, including winning the Sundance Special Grand Jury prize, and being nominated for two Gotham and four Independent Spirit awards.

Mr. Robbins has received a producer credit on the following films: Blue Caprice (Isaiah Washington, Tim Blake Nelson, Joey Lauren Adams), Run (William Moseley, Kelsey Chow, Adrian Pasdar, Eric Roberts), Alphabet Killer (Eliza Dushku, Cary Elwes, Timothy Hutton), XX/XY (Mark Ruffalo, Kathlean Robertson), Skeptic (Zoe Saldana, Tom Arnold, Timothy Daly), Anything but Love (Andrew McCarthy, Eartha Kitt), Hebrew Hammer (Judy Greer, Adam Goldberg, Andy Dick, Mario Van Peebles), Brother to Brother (Anthony Mackie, Daniel Sunjata, Aunjanue Ellis) and M.I.A (Danny Glover, Ron Perlman, Linda Hamilton and David Strathairn).

AIMEE SCHOOF, CHIEF BUSINESS DEVELOPMENT OFFICER AND DIRECTOR. Ms. Schoof has served as our Chief Business Development Officer and a member of the Board since March 5, 2013. Ms. Schoof also co-founded Intrinsic in 1998 and has served as a Co-CEO of Intrinsic since that time. She has produced more than 30 feature films, including seven that premiered at the Sundance Film Festival, four at the Tribeca Film Festival, three at SXSW, and one at each of the Toronto, Venice, New Directors/ New Films, and Berlin Film Festivals. Intrinsic’s films have been distributed worldwide and have won many awards and been honored with numerous accolades, including winning the Sundance Special Grand Jury prize, and being nominated for two Gotham and four Independent Spirit awards.

Ms. Schoof has received a producer credit on the following films: Blue Caprice (Isiaiah Washington, Tim Blake Nelson, Joey Lauren Adams), Run (William Moseley, Kelsey Chow, Adrian Pasdar, Eric Roberts) Alphabet Killer (Eliza Dushku, Cary Elwes, Timothy Huton), XX/XY (Mark Ruffalo, Kathlean Robertson), Skeptic (Zoe Saldana, Tom Arnold, Timothy Daly), Anything but Love (Andrew McCarthy, Eartha Kitt), Hebrew Hammer (Judy Greer, Adam Goldberg, Andy Dick, Mario Van Peebles), Brother to Brother (Anthony Mackie, Daniel Sunjata, Aunjanue Ellis) and M.I.A (Danny Glover, Ron Perlman, Linda Hamilton and David Strathairn).

 

Ms. Schoof founded a nonprofit called AmaYoga in 2010 which creates yoga programs in homeless shelters and transitional housing around Los Angeles, California. Aimee has also mentored film students through The Film and Radio Recording Connection Mentoring program since 2009.

TERM OF OFFICE

Our by-laws provide that all directors hold office until the next annual stockholder’s meeting or until their death, resignation, retirement, removal, disqualification, or until their successors have been elected and qualified. Our officers serve at the will of the Board.

There are no agreements or understandings for any of our officers or directors to resign at the request of another person and none of the officers or directors is acting on behalf of or will act at the direction of any other person.

Members of the Board serve for one year terms and are elected at the next annual meeting of stockholders, or until their successors have been elected.

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MEETINGS OF THE BOARD AND INFORMATION REGARDING COMMITTEES

There currently are no committees of the Board. We believe the functions of any audit, compensation or nominating and corporate governance committees can be adequately performed by the Board.

Prior to March 1, 2013, Benny R. Powell was our only director. The Board held ten meetings by teleconference from March through August 2013. All directors attended 100% of such meetings of the Board of Directors.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

During the past five years, none of our officers or directors has been a party to or executive officer of an entity that has filed any bankruptcy petitions. During the past five years, none of our officers or directors have been convicted or been a named subject of any pending criminal proceedings. During the past five years, none of our officers or directors has been held to have violated any State or Federal Securities laws or any Federal commodities law or otherwise have been subject to any order, judgment or decree not subsequently reversed, suspended or vacated permanently enjoining such officer or director from the activities enumerated in Regulation S-K Item 4.01(f)(3).

CODE OF ETHICS

We have adopted a Code of Ethics for Senior Financial Officers to promote ethical conduct by our senior financial officers. Our sole senior financial officer is Benny R. Powell, our Chief Executive Officer and Chief Financial Officer. We expect our senior financial officer to act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; to provide full, accurate, timely and understandable disclosure in reports and documents filed with the SEC as well as other public communications; to comply with all applicable laws, rules and regulations; and to promote adherence to our Code of Ethics. We will provide a copy of this document to any person, without charge, upon receipt of a request addressed to us at Red Giant Entertainment, Inc., 614 E. Hwy 50, Suite 235, Clermont, Florida 34711.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires that our officers and directors and persons who own more than 10% of our common stock, file reports of ownership and changes in ownership with the SEC. Based solely on our review of the SEC’s EDGAR database, copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended August 31, 2013, the following delinquencies have occurred:

 

 

Name and Affiliation

 

No. of Late Reports

No. of Transactions

Not Filed on

Timely Basis

Known Failures to File
Benny R. Powell, Chief Executive Officer, President, Chief Financial Officer, Secretary, Director 4 27 None
David Campiti, Chief Operations Officer, Director 1 0 None
Chris Crosby, Chief Technology Officer, Director 3 1 None
Isen Robbins, Chief Intellectual Property Officer, Director 1 0 None
Aimee Schoof, Chief Business Development Officer, Director 1 0 None

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ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE AND DIRECTOR COMPENSATION

GENERAL COMPENSATION DISCUSSION

All decisions regarding compensation for our executive officers and executive compensation programs are reviewed, discussed, and approved by the Board. All compensation decisions are determined following a detailed review and assessment of external competitive data, the individual’s contributions to our success, any significant changes in role or responsibility, and internal equity of pay relationships.

SUMMARY COMPENSATION TABLE

Set forth below is a summary of compensation for our officers for all services rendered in all capacities to us. There have been no annuity, pension or retirement benefits ever paid to our officers, directors or employees.

With the exception of reimbursement of expenses incurred by our principal executive officer during the scope of his employment or service as a director, and unless expressly stated otherwise in a footnote below, our executive officers did not receive any other compensation.

Name and Principal Position Year Salary ($)

Stock

Awards ($)

All Other

Compensation($)

Total ($)
Benny R. Powell, Chief Executive Officer, President, Chief Financial Officer, Secretary, Director

2013

2012

$48,781

-0-

-0-

-0-

-0- 1

-0-

$48,781

-0-

David Campiti, Chief Operations Officer, Director 2 2013 -0- 3 -0- 4 -0- 1 -0- 4
Chris Crosby, Chief Technology Officer, Director 5 2013 -0- 3 -0- 6 -0- -0- 6
Isen Robbins, Chief Intellectual Property Officer, Director 2 2013 -0- 3 -0- 4 -0- -0- 4
Aimee Schoof, Chief Business Development Officer, Director 2 2013 -0- 3 -0- 4 -0- -0- 4

 

 

1 We have also transacted business with sole proprietorships run by or entities controlled by our officers as set forth under “Item 13. Certain Relationship and Related Transactions, and Director Independence.”
2 Appointed as an officer and director on March 5, 2013.
3 We have entered into independent contractor agreements with each of Ms. Schoof and Messrs. Campiti, Crosby and Robbins, each dated October 25, 2013, under which each such officer will be entitled to $18,000 per year in salary for services provided.
4 Each of Mr. Campiti, Mr. Isen and Ms. Schoof received 43,300,000 shares of our common stock directly from Mr. Powell for services to be rendered as a director.
5 Appointed as an officer and director on March 1, 2013.
6 Mr. Crosby received 34,140,000 shares of our common stock directly from Mr. Powell for services to be rendered as a director.

 

 

 

 

 

 

 

 

 

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INDEPENDENT CONTRACTOR AGREEMENTS

As set forth above under “Item 9B. Other Information,” we have entered into independent contractor agreements with David Campiti, Chris Crosby, Isen Robbins and Aimee Schoof on October 25, 2013. We have no written agreement with Benny R. Powell, but we have paid $48,781 in salary compensation to Mr. Powell for services provided in the fiscal year ended August 31, 2013. We contemplate paying Benny R. Powell a monthly salary of $5,000 per month in the future.

We reserve the right to engage our officers and directors, or their affiliates, to perform services to us and compensate them for such services, other than as required to be performed under any employment or independent contractor agreement with them, or as generally required of persons in their offices, at rates no greater than we expect to pay an unrelated third party with comparable experience and quality.

Furthermore, none of our officers or directors is required to spend all of their time and resources on us and each are involved in other companies. See “Executive Officers and Directors” in this Item.

OTHER COMPENSATION

As of the date of this Annual Report, we do not have any annuity, pension, health, stock options, profit sharing retirement, or other similar benefit plans; however, we may adopt such plans in the future. As of the date of this Annual Report, there are no personal benefits available to our officers and directors.

GRANTS OF PLAN BASED AWARDS

There were no grants of plan based awards made in the fiscal year ended August 31, 2013.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

We do not currently have any arrangements or contracts pursuant to which our officers and directors are compensated for any services, including any additional amounts payable for committee participation or special assignments.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to our equity securities owned of record or beneficially by (i) each of our named executive officers and directors; (ii) each person who owns beneficially more than 5% of each class of our outstanding equity securities; and (iii) all directors and officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock are deemed to be outstanding and to be beneficially owned by the person listed below for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person, if that person has the right to acquire beneficial ownership of such shares within 60 days of the date of this Annual Report.

Unless otherwise indicated below, the address of each beneficial owner is c/o Red Giant Entertainment, Inc., 614 Hwy. 50, Suite 235, Clermont, Florida 34711. Unless otherwise indicated below, we believe that each of the persons listed in the table (subject to applicable community property laws) has the sole power to vote and to dispose of the shares listed opposite the shareholder’s name. All calculations are based on 457,558,273 shares of common stock outstanding as of November 29, 2013.

 

 

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Name of Beneficial Owner Number of Shares of Common Stock Percent of Class
Benny R. Powell, Chief Executive Officer, President, Chief Financial Officer, Secretary, Director 146,801,600 1 32.08%
David Campiti, Chief Operations Officer, Director 43,300,000 9.46%
Chris Crosby, Chief Technology Officer, Director 34,640,000 7.57%
Isen Robbins, Chief Intellectual Property Officer, Director 43,300,000 9.46%
Aimee Schoof, Chief Business Development Officer, Director 43,300,000 9.46%
All executive officers (including named executive officers) and directors as a group (five persons) 311,340,600 68.04%

Iconic Holdings, LLC

7200 Wisconsin Ave., Suite 260

Bethesda, Maryland 20814

49,952,943 2 9.99%

WHC Capital, LLC

303 Merrick Road, Suite 504

Lynbrook, NY 11563

50,783,325 3 9.99%

Asher Enterprises, Inc.

1 Linden Place, Suite 207

Great Neck, NY 11021

32,507,183 4 6.63%

Typenex Co-Investment, LLC

Attn: John M. Fife

303 East Wacker Drive, Suite 1200

Chicago, Illinois 60601

37,166,700 5 7.51%

 

 

1 Includes 35,000,000 shares pledged as security to WHC to secure the Debenture. While Mr. Powell shares investment power over such shares, he retains voting rights in such shares unless we default on the 12% Secured Convertible Debenture.
2 Includes 42,473,195 shares of common stock issuable upon conversion at Iconic’s option of $125,000 in principal under the Iconic Note. The Iconic Note is convertible into common stock at 60% of the lowest trading price during the ten consecutive trading days prior to the date of conversion, subject to a maximum beneficial ownership of 9.99% (the calculation in this Annual Report is based on a purchase price equal to $0.0029 per share (60% of $.0048, the lowest price for the ten trading days prior to December 3, 2013) and represents the maximum beneficial ownership of 9.99%). The calculation presented herein does not include (i) interest convertible at the rate set forth above; or (ii) shares we may sell to Iconic under the Iconic SPA with Iconic upon meeting certain conditions.
3 Consists of shares of common stock issuable upon conversion at WHC’s option of up to $166,000 in principal and any interest under the Debenture convertible into common stock at 60% of the lowest trading price during the ten consecutive trading days prior to the date of conversion, subject to a maximum beneficial ownership of 9.99% (the calculation in this Annual Report is based on a purchase price equal to $0.0029 per share (60% of $.0048, the lowest price for the ten trading days prior to December 3, 2013) and represents the maximum beneficial ownership of 9.99%). The calculation presented herein does not include interest convertible at the rate set forth above.
4 Consists of shares of common stock issuable upon conversion at Asher’s option of up to $90,500 in principal and any interest under the Debenture convertible into common stock at 58% of the lowest trading price during the ten consecutive trading days prior to the date of conversion, subject to a maximum beneficial ownership of 9.99% (the calculation in this Annual Report is based on a purchase price equal to $0.0028 per share (58% of $.0048, the lowest price for the ten trading days prior to December 3, 2013) and represents the maximum beneficial ownership of 9.99%). The calculation presented herein does not include interest convertible at the rate set forth above.
5 Consists of shares of common stock issuable upon exercise of the Typenex Warrants at an exercise price of $0.15. This calculation does not include shares issuable upon conversion at Typenex’s option of up to $157,000 in principal and any interest under the Typenex Note at a conversion price equal to the average of the closing bid price of our common stock for the fifteen days immediately prior to December 21, 2013 Shares issuable under the Typenex Warrant and the Typenex Note are subject to a maximum beneficial ownership of 9.99%.

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We have not entered into any material transactions with any director, executive officer, promoter, security holder who is a beneficial owner of 5% or more of our common stock, or any immediate family member of such persons other than as set forth below. In the future, we intend to enter into agreements with our officers and directors and their affiliates to obtain co-ownership or other rights to properties that our officers and their affiliates have allowed us to showcase on our website and will disclose any material agreements at the time we enter into any such agreements as required under the Exchange Act.

PRINTING AGREEMENT WITH ACTIVE MEDIA

On March 13, 2013, we entered into a Printing Agreement with Active Media, an entity controlled by our Chief Executive Officer, President, Chief Financial Officer, Secretary, and a member of the Board, Benny R. Powell. This Printing Agreement reduces to writing the oral understanding between us and Active Media under which Active Media agreed to provide printing services to us at near cost prices on a non-exclusive basis. We paid an aggregate of $115,665.28 to Active Media in the fiscal year ended August 31, 2013.

EXCLUSIVE WEB PUBLISHING CONTRACT WITH KEENSPOT

We have published properties online through websites hosted by Keenspot under an Exclusive Web Publishing Contract dated June 30, 2010 between Benny R. Powell and Keenspot, a general partnership co-founded by Chris Crosby, our Chief Technology Officer and a member of the Board, co-founded, in which Mr. Crosby serves as Chief Executive Officer. Under this Agreement, Keenspot sells advertising on websites featuring our properties at an agreed upon cost per thousand verified impressions (CPM) to our Keenspot sites whereby advertisers pay based on the number of times the target audience is exposed to the advertisement. The particular CPM rate varies based upon bids by advertisers and other customary factors. In exchange for providing advertising, hosting, IT, and sales management services, Keenspot receives a 50% commission on advertising revenue. In the fiscal years ended August 31, 2013 and 2012, Keenspot received $6,785 and $9,975, respectively from this agreement.

STOCK EXCHANGE AGREEMENT WITH COMICGENESIS

In March 2013, we entered into a Stock Exchange Agreement with ComicGenesis, a limited liability company owned at that time by Chris Crosby, our Chief Technology Officer and member of the Board, under which we acquired 5,000,000 shares of ComicGenesis from Mr. Crosby in exchange for 500,000 shares of our common stock from shares held by our President, Benny R. Powell. ComicGenesis was not valued, as it was essentially an inactive entity.

 

Shares exchanged for ComicGenesis were valued at a fair market value of $45,000, the fair market value at the date of exchange. The shares exchanged were contributed by Mr. Powell and the related indebteness was forgiven to the Company as a contribution of capital. The related investment in ComicGenesis is eliminated in consolidation.

OTHER ARRANGEMENTS WITH OFFICERS

During the year ending August 31, 2013, Benny R. Powell, our President and Chief Executive Officer, has advanced assets in the amount of $39,187 to us, which includes transfer of 3 million shares of common stock, personally held, to an unrelated vendor for securing services. Those services were valued at $36,000, per the agreement and the fair value of the stock at the date of the exchange. As of August 31, 2013 and 2012, we were indebted to Mr. Powell in the amount of $39,187 and $0, respectively.

Our officers provide office and storage space to us at no charge through their other ventures.

We also from time to time have retained Glass House Graphics, a sole proprietorship owned by David Campiti, our Chief Operating Officer and a member of the Board, to provide creative services for us. We paid an aggregate of $2,035 to Glass House Graphics in the fiscal year ended August 31, 2013.

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On September 12, 2013, the Company received a loan from Benny Powell, an officer and director of the Company, in the amount of $4,000, $886,37 of which has been repaid as of December 5, 2013.

DIRECTOR INDEPENDENCE

We apply the definition of “independent director” provided under the Listing Rules of The NASDAQ Stock Market LLC (“NASDAQ”). Under NASDAQ rules, the Board has considered all relevant facts and circumstances regarding our directors and has affirmatively determined that none of the directors serving on the Board are independent of us under NASDAQ rules, as each director also serves as an officer of us.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under our Articles of Incorporation and bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his or her position, if he or she acted in good faith and in a manner he or she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he or she is to be indemnified, we must indemnify him or her against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

MartinelliMick, PLLC (“MMPLLC”), our independent registered public accounting firm prior to DKM, notified us on April 3, 2013 that MMPLLC had resigned. MMPLLC audited our financial statements for the fiscal year ended August 31, 2012 and reviewed our Quarterly Report on Form 10-Q for the quarter ended November 30, 2012.

On April 5, 2013, we appointed Drake Klein Messineo, CPAs, PA (“DKM”) as our independent registered public accounting firm. DKM has not issued any reports on our financial statements, but reviewed our Quarterly Report on Form 10-Q for the quarter ended February 28, 2013. On May 10, 2013, we notified DKM that DKM was dismissed as our independent registered public accounting firm. DKM has not issued any reports on our financial statements.

On May 10, 2013, we engaged Messineo & Co., CPAs, LLC (“M&Co”) as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ended August 31, 2013, and to perform procedures related to the financial statements included in our quarterly reports on Form 10-Q, beginning with the quarter ended May 31, 2013.

 

 

AUDIT FEES

M&Co. was paid aggregate fees of approximately $12,000 for the year ended August 31, 2013, DKM was paid aggregate fees of approximately $2,000 for the year ended August 31, 2013, and MMPLLC was paid aggregate fees of approximately $24,000 and $18,400, respectively, for the years ended August 31, 2012 and 2013, for professional services rendered for the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on Form 10-Q during such fiscal years.

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AUDIT RELATED FEES

Neither of our independent registered public accounting firms was paid additional fees for the years ended August 31, 2013 and August 31, 2012 for assurance and related services reasonably related to the performance of the audit or review of our financial statements.

TAX FEES

Neither of our independent registered public accounting firms was paid additional fees for the years ended August 31, 2013 and August 31, 2012 for professional services rendered for tax compliance, tax advice, and tax planning during this fiscal year period.

ALL OTHER FEES

Neither of our independent registered public accounting firms was paid any other fees for professional services during the years ended August 31, 2013 and August 31, 2012.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial Statements.

Our consolidated financial statements are included in Part II, Item 8 of this report:

 

  Page
Reports of Independent Registered Public Accounting Firms 18
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders’ Deficit 22
Consolidated Statements of Cash Flows 23
Notes to the Consolidated Financial Statements 24
2. Financial Statement Schedules.

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

3. Exhibits.

A list of the exhibits filed or furnished with this report on Form 10-K (or incorporated by reference to exhibits previously filed or furnished by us) is provided in the Exhibit Index beginning on page 39 of this Annual Report. Those exhibits incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. Otherwise, the exhibits are filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RED GIANT ENTERTAINMENT, INC.

 

 

   
Dated: February 20, 2014 By: /s/ Benny R. Powell
    Benny R. Powell
CEO, President, CFO, Secretary, Director
(Principal Executive, Financial and
Accounting Officer)

 

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

   
Dated: February 20, 2014 By: /s/ Benny R. Powell
    Benny R. Powell
CEO, President, CFO, Secretary, Director
(Principal Executive, Financial and Accounting Officer)

 

   
Dated: February 20, 2014 By: /s/ David Campiti
    David Campiti
Chief Operations Officer, Director

 

   
Dated: February 20, 2014 By: /s/ Chris Crosby
    Chris Crosby
Chief Technology Officer, Director

 

   
Dated: February 20, 2014 By: /s/ Isen Robbins
    Isen Robbins
Chief Intellectual Property Officer, Director

 

   
Dated: February 20, 2014 By: /s/ Aimee Schoof
    Aimee Schoof
Chief Busines Development Officer, Director

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EXHIBIT INDEX

 

Exhibit Description
2.1 Share Exchange Agreement among the Registrant, Red Giant Entertainment, Inc., and Benny Powell dated June 6, 2012, which is incorporated herein by reference to Exhibit 10.1 to our Amendment Number 1 to Current Report on Form 8-K filed with the SEC November 6, 2012.
2.2 Stock Exchange Agreement between the Registrant and Chris Crosby dated March 4, 2013, which is incorporated herein by reference to Exhibit 2.2 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
3.1 Amended and Restated Articles of Incorporation of the Registrant filed with the Nevada Secretary of State on August 23, 2010, which are incorporated herein by reference to Exhibit 3.1 to our Annual Report on Form 10-K filed with the SEC on November 29, 2010.
3.2 Certificate of Amendment to Articles of Incorporation of the Registrant filed with the Nevada Secretary of State on June 26, 2012, which is incorporated herein by reference to Exhibit 3.3 to our Annual Report on Form 10-K filed with the SEC on January 3, 2013.
3.3 Amended and Restated Bylaws of the Registrant, which are incorporated herein by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed with the SEC on November 29, 2010.
4.1 Securities Purchase Agreement dated April 15, 2013 between the Registrant and Iconic Holdings, LLC, which is incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on September 20, 2013.
4.2 Registration Rights Agreement dated April 15, 2013 between the Registrant and Iconic Holdings, LLC, which is incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on September 20, 2013.
4.3 9.9% Secured Convertible Promissory Note dated April 15, 2013 between the Registrant and Iconic Holdings, LLC, which is incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on September 20, 2013.
4.4 Purchase Agreement dated August 1, 2013 between the Registrant and WHC Capital, LLC, which is incorporated herein by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.5 Pledge and Security Agreement dated August 1, 2013 between the Registrant and WHC Capital, LLC, which is incorporated herein by reference to Exhibit 4.5 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.6 12% Secured Convertible Debenture dated August 1, 2013 between the Registrant and WHC Capital, LLC, which is incorporated herein by reference to Exhibit 4.6 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.7 Convertible Note dated August 5, 2013 between the Registrant and JSJ Investments, Inc., which is incorporated herein by reference to Exhibit 4.7 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.8 9% Convertible Redeemable Note dated October 2, 2013 between the Registrant and LG Capital Funding, LLC, which is incorporated herein by reference to Exhibit 4.8 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.9 Convertible Promissory Note dated November 11, 2013 between the Registrant and Asher Enterprises, Inc., which is incorporated herein by reference to Exhibit 4.9 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
4.10 Securities Purchase Agreement dated November 11, 2013 between the Registrant and Asher Enterprises, Inc., which is incorporated herein by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
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4.11 * Initial 6% Convertible Redeemable Note between the Registrant and GEL Properties, LLC.
4.12 * Form of Back-End 6% Convertible Redeemable Note between the Registrant and GEL Properties, LLC .
4.13 * Promissory Note between the Registrant and JMJ Financial .
4.14 Securities Purchase Agreement between the Registrant and Typenex Co-Investment, LLC dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
4.15 Secured Convertible Promissory Note between the Registrant and Typenex Co-Investment, LLC dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
4.16 Warrant to Purchase Shares of Common Stock between the Registrant and Typenex Co-Investment, LLC dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
4.17 Security Agreement between the Registrant and Typenex Co-Investment, LLC dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.9 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
10.1 Exclusive Web Publishing Contract between Benny Powell and Keenspot Entertainment dated June 30, 2010 , which is incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed with the SEC on October 13, 2013 .
10.2 Printing Agreement between the Registrant and Active Media Publishing, LLC dated March 13, 2013, which is incorporated herein by reference to Exhibit 10.2 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
10.3 Independent Contractor Agreement between the Registrant and Isen Robbins, which is incorporated herein by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.
10.4 Independent Contractor Agreement between the Registrant and Chris Crosby, which is incorporated herein by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013..
10.5 Independent Contractor Agreement between the Registrant and David Campiti, which is incorporated herein by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013..
10.6 Independent Contractor Agreement between the Registrant and Aimee Schoof, which is incorporated herein by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013..
10.7 * Form of $75,000 Secured Promissory Notes between GEL Properties, LLC and the Registrant
10.8 Secured Buyer Note #1 between Typenex Co-Investment, LLC and the Registrant dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
10.9 Secured Buyer Note #2 between Typenex Co-Investment, LLC and the Registrant dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
10.10 Secured Buyer Note #3 between Typenex Co-Investment, LLC and the Registrant dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
10.11 Secured Buyer Note #4 between Typenex Co-Investment, LLC and the Registrant dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
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10.12 Membership Interest Pledge Agreement between the Registrant and Typenex Co-Investment, LLC dated June 21, 2013, which is incorporated herein by reference to Exhibit 99.8 to our Current Report on Form 8-K filed with the SEC on January 27, 2014.
10.13 *

Service Agreement between the Registrant and Integrity Media, Inc. dated October 11, 2013.

14 Code of Ethics for Senior Financial Officers, which is incorporated herein by reference to Exhibit 14.1 to our Annual Report on Form 10-K filed with the SEC on November 29, 2010.

21 *

List of Subsidiaries .
31.1 * Chief Executive Officer Section 302 Certification .
31.2 * Chief Financial Officer Section 302 Certification .
32 § Chief Executive Officer and Chief Financial Officer Section 906 Certification .
101 * The following materials from our Annual Report on Form 10-K for the fiscal year ended August 31, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes.

* Filed herewith.
Confidential Treatment has been requested with respect to certain provisions of this agreement. Omitted portions have been filed separately with the SEC.
Management contract or compensatory plan or arrangement.
§ Furnished herewith

 

 

 

Table of Contents 50  

 

Exhibit 4.11

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT)

 

 

US $50,000.00

 

RED GIANT ENTERTAINMENT, INC.

6% CONVERTIBLE REDEEMABLE NOTE

DUE MAY 24, 2015

 

 

FOR VALUE RECEIVED, Red Giant Entertainment, Inc. (the “Company”) promises to pay to the order of GEL Properties, LLC and its authorized successors and permitted assigns (" Holder "), the aggregate principal face amount of Fifty Thousand dollars exactly (U.S. $50,000.00) on May 21, 2015 (" Maturity Date ") and to pay interest on the principal amount outstanding hereunder at the rate of 6% per annum commencing on May 24, 2013 (the “Funding Date”). The Company acknowledges that it has received the sum of Fifty Thousand Dollars less Two Thousand Five Hundred Dollars in Legal Fees and Five Thousand Dollars in third party due diligence fees, all of which were paid by the Holder, for a total of $42,500.00. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 16192 Coastal Highway, Lewes, DE, 19958, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.

 

This Note is subject to the following additional provisions:

 

1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

1
 

 

2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (" Act ") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (" Notice of Conversion ") in the form annexed hereto as Exhibit A . The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

 

4. (a) The Holder of this Note is entitled, at its option, at any time after the requisite rule 144 holding period, and after full cash payment for the shares convertible hereunder, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the " Common Stock ") without restrictive legend of any nature, at a conversion price (" Conversion Price ") for each share of Common Stock equal to 70% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (" Exchange "), for any of the five trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to included the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. .

 

(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 6% per annum. Interest shall be paid by the Company in Common Stock ("Interest Shares"). The Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.

2
 

 

(c) At any time the Company shall have the option to redeem this Note and pay to the Holder 150% of the unpaid principal amount of this Note, in full. The Company shall give the Holder 5 days written notice and the Holder during such 5 days shall have the option to convert this Note or any part thereof into shares of Common Stock at the Conversion Price set forth in paragraph 4(a) of this Note.

 

(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

 

(e) In case of any Sale Event in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

 

5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

7. The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

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8. If one or more of the following described "Events of Default" shall occur:

 

(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

 

(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note shall be false or misleading in any respect; or

 

(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note; or

 

(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or

 

(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or

 

(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of ten thousand dollars ($10,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

(h) Bankruptcy, reorganization, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted voluntarily by or involuntarily against the Company; or

 

(i) The Company shall have its Common Stock delisted from an exchange (including the OTCBB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days;

 

(j) If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board; or

4
 

 

(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion.

 

Then, or at any time thereafter, unless cured, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall be accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of 8(j) the penalty shall be $250 per day the shares are not issued beginning on the 4 th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10 th day.

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including without limitation engaging an attorney, then the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

9. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

 

10. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

11. The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144- 3(a)(9) opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.

 

12. The Company will issue irrevocable transfer agent instructions reserving 21,500,000 shares of Common Stock for conversion under this Note. The reserve shall be replenished as needed to allow for conversions of this Note. Upon full conversion of this Note, the reserve representing this Note shall be cancelled. From this reserve, the Holder may send a Conversion Notice to the Company, and the Company will duly pass to its transfer agent, a conversion for a tranche of shares to be converted (Tranche Conversion”) This/these Tranche Conver

5
 

sion(s) may be actually transferred by the transfer agent to the Holder, or via DWAC to the Holder’s designated Broker-Dealer(s) to be held in street name FBO the Holder, yet unconverted on the books and records of the Company in a Creditor in Possession Escrow. (“CPE”) When the CPE is active, by having shares therein, the Holder must submit daily transaction journals, on days that there were a sale, in the Company’s securities (“Runs”) to the Company to calculate the price of conversion (“Basis”) of any conversion and the amount and date thereunder.

 

13. The Company will give the Holder direct notice of any corporate actions including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law. The Company will email such notices to Goldy@pisc.us.

 

14. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.

 

 

Dated: 5/24/13

 

 

 

 

RED GIANT ENTERTAINMENT, INC.

 

By: /s/ Benny R. Powell

 

Title: CEO                   

 

 

 

 

 

 

 

 

 

 

 

6
 

EXHIBIT A

 

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Red Giant Entertainment, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.

 

Date of Conversion:                                                                                                            

Applicable Conversion Price:                                                                                               

Signature:                                                                                                                            

[Print Name of Holder and Title of Signer]

Address:                                                                                                                             

______________________________________________________________________

 

SSN or EIN:                                                 

Shares are to be registered in the following name:                                                                 

 

Name:                                                                                                                                

Address:                                                                                                                             

Tel:                                                              

Fax:                                                             

SSN or EIN:                                               

 

Shares are to be sent or delivered to the following account:

 

Account Name:                                                                                                                

Address:                                                                                                                          

 

 

 

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Exhibit 4.12

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT)

 

 

US $75,000.00

RED GIANT ENTERTAINMENT, INC.

6% CONVERTIBLE REDEEMABLE SECURED NOTE

DUE MAY 24, 2015

BACK END NOTE [_] OF 4

 

FOR VALUE RECEIVED, Red Giant Entertainment, Inc. (the “Company”) promises to pay to the order of GEL Properties, LLC and its authorized successors and permitted assigns (" Holder "), the aggregate principal face amount of Seventy Five Thousand dollars exactly (U.S. $75,000.00) on May 24, 2015 (" Maturity Date ") and to pay interest on the principal amount outstanding hereunder at the rate of 6% per annum commencing on May 24, 2013 (the “Funding Date”) In repaying this amount, the Company acknowledges that it has received a total of $75,000 from the Holder, less $3,750 in legal fees and $7,500 in third party due diligence fees, all of which were paid by the Holder, for a total of $63,750.00. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 16192 Coastal Highway, Lewes, DE, 19958, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.

 

This Note is subject to the following additional provisions:

 

1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

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2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (" Act ") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (" Notice of Conversion ") in the form annexed hereto as Exhibit A . The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

 

4. (a) The Holder of this Note is entitled, at its option, at any time after the requisite rule 144 holding period, and after full cash payment for the shares convertible hereunder, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the " Common Stock ") without restrictive legend of any nature, at a conversion price (" Conversion Price ") for each share of Common Stock equal to 70% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau Pink Sheets on which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (" Exchange "), for any of the five trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to included the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.

 

(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 6% per annum. Interest shall be paid by the Company in Common Stock ("Interest Shares"). The Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.

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(c) At any time the Company shall have the option to redeem this Note and pay to the Holder 150% of the unpaid principal amount of this Note, in full. The Company shall give the Holder 5 days written notice and the Holder during such 5 days shall have the option to convert this Note or any part thereof into shares of Common Stock at the Conversion Price set forth in paragraph 4(a) of this Note.

 

(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

 

(e) In case of any Sale Event in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

 

5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

7. The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

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8. If one or more of the following described "Events of Default" shall occur:

 

(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

 

(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note shall be false or misleading in any respect; or

 

(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note; or

 

(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or

 

(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or

 

(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of ten thousand dollars ($10,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

(h) Bankruptcy, reorganization, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted voluntarily by or involuntarily against the Company; or

 

(i) The Company shall have its Common Stock delisted from an exchange (including the OTCBB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 5 consecutive days;

 

(j) If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board; or

4
 

 

(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or

 

(l) The Company shall cease to be “current” in its filings with the Securities and Exchange Commission; or

 

(m) The Company shall fail to replenish the transfer agent reserve set forth in Section 12; or

 

(n) The Company’s Common Stock has a closing bid price of less than $0.007 per share for at least 5 consecutive trading days; or

 

(o) The dollar trading volume of the Company’s Common Stock is less than twenty five thousand dollars ($25,000.00) in any 5 consecutive trading days.

 

Then, or at any time thereafter, unless cured (except for 8(l) 8(m) and 8(n)) which are incurable defaults), and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall be accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. Further, if the Note becomes due and payable, the Holder may use the outstanding principal and interest due under the Note to offset any payment obligations it may have to the Company. In the event of a breach of 8(j) the penalty shall be $250 per day the shares are not issued beginning on the 4 th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10 th day.

 

Specifically with respect to an Event of Default occurring as a result of a breach of item 8(k), the Holder has the right (but not the obligation) to advance fees to the Company’s auditors and attorneys necessary to allow the Company to become “current” in its filings with the Securities and Exchange Commission. Such advances shall be advanced against other amounts due by the Company (e.g. other $20k notes etc), except that the discount shall be doubled.

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including without limitation engaging an attorney, then the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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9. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

 

10. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

11. The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144- 3(a)(9) opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.

 

12. As a condition of funding the Note, the Company will issue irrevocable transfer agent instructions reserving 21,500,000 shares of Common Stock for conversion under this Note. The reserve shall be replenished as needed to allow for conversions of this Note. Upon full conversion of this Note, the reserve representing this Note shall be cancelled. From this reserve, the Holder may send a Conversion Notice to the Company, and the Company will duly pass to its transfer agent, a conversion for a tranche of shares to be converted (Tranche Conversion”) This/these Tranche Conversion(s) may be actually transferred by the transfer agent to the Holder, or via DWAC to the Holder’s designated Broker-Dealer(s) to be held in street name FBO the Holder, yet unconverted on the books and records of the Company in a Creditor in Possession Escrow. (“CPE”) When the CPE is active, by having shares therein, the Holder must submit daily transaction journals, on days that there were a sale, in the Company’s securities (“Runs”) to the Company to calculate the price of conversion (“Basis”) of any conversion and the amount and date thereunder.

 

13. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

 

14. The terms of the cash payments to the Company by the Holder for the issuance of this Note, and the guarantee and collateralization of those payment obligations is set forth in a $75,000 Secured Promissory Note issued to the Company by the Holder on even date herewith.

 

15. The Company will give the Holder direct notice of any corporate actions including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law. The Company will email such notices to Goldy@pisc.us.

6
 

 

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.

 

 

Dated: 5/24/13

 

 

RED GIANT ENTERTAINMENT, INC.

 

By: /s/ Benny R. Powell

 

Title: CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7
 

 

 

EXHIBIT A

 

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Red Giant Entertainment, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.

 

Date of Conversion:                                                                                                            

Applicable Conversion Price:                                                                                               

Signature:                                                                                                                            

[Print Name of Holder and Title of Signer]

Address:                                                                                                                             

______________________________________________________________________

 

SSN or EIN:                                                 

Shares are to be registered in the following name:                                                                 

 

Name:                                                                                                                                

Address:                                                                                                                             

Tel:                                                              

Fax:                                                             

SSN or EIN:                                               

 

Shares are to be sent or delivered to the following account:

 

Account Name:                                                                                                                

Address:                                                                                                                          

 

 

 

8
 

 

 

  Exhibit 4.13

 

REDG    
$335,000 PROMISSORY NOTE Interest free if paid in full within 3 months

FOR VALUE RECEIVED, Red Giant Entertainment, Inc., a Nevada corporation (the "Borrower") with at least 434,922,000 common shares issued and outstanding, promises to pay to JMJ Financial or its Assignees (the "Lender") the Principal Sum along with the Interest Rate and any other fees according to the terms herein. This Note will become effective only upon execution by both parties and delivery of the first payment of Consideration by the Lender (the "Effective Date").

The Principal Sum is $335,000 (three hundred thirty five thousand) plus accrued and unpaid interest and any other fees. The Consideration is $300,000 (three hundred thousand) payable by wire (there exists a $35,000 original issue discount (the "OlD")). The Lender shall pay $33,000 of Consideration upon closing of this Note. The Lender may pay additional Consideration to the Borrower in such amounts and at such dates as Lender may choose in its sole discretion. THE PRINCIPAL SUM DUE TO LENDER SHALL BE PRORATED BASED ON THE CONSIDERATION ACTUALLY PAID BY LENDER (PLUS AN APPROXIMATE 10% ORIGINAL ISSUE DISCOUNT THAT IS PRORATED BASED ON THE CONSIDERATION ACTUALLY PAID BY THE LENDER AS WELL AS ANY OTHER INTEREST OR FEES) SUCH THAT THE BORROWER IS ONLY REQUIRED TO REPAY THE AMOUNT FUNDED AND THE BORROWER IS NOT REQUIRED TO REPAY ANY UNFUNDED PORTION OF THIS NOTE. The Maturity Date is one year from the Effective Date of each payment (the "Maturity Date") and is the date upon which the Principal Sum of this Note, as well as any unpaid interest and other fees, shall be due and payable. The Conversion Price is 60% of the lowest trade price in the 25 trading days previous to the conversion (In the case that conversion shares are not deliverable by DWAC an additional 10% discount will apply; and if the shares are ineligible for deposit into the DTC system and only eligible for Xclearing deposit an additional 5% discount shall apply; in the case of both an additional cumulative 15% discount shall apply). Unless otherwise agreed in writing by both parties, at no time will the Lender convert any amount of the Note into common stock that would result in the Lender owning more than 4.99% of the common stock outstanding.

1. ZERO Percent Interest for the First Three Months. The Borrower may repay this Note at any time on or before 90 days from the Effective Date, after which the Borrower may not make further payments on this Note prior to the Maturity Date without written approval from Lender. If the Borrower repays the Note on or before 90 days from the Effective Date, the Interest Rate shall be ZERO PERCENT (0%). If' Borrower does not repay the Note on or before 90 days from the Effective Date, a one-time Interest charge of 12% shall be applied to the Principal Sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by Borrower.

2. Conversion, The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the outstanding and unpaid Principal Sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Borrower as per this conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price, Conversions may be delivered to Borrower by method of Lender's choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions shall be cashless and not require further payment from the Lender. If no objection is delivered from Borrower to Lender regarding any variable or calculation of the conversion notice within 24 hours of delivery of the conversion notice, the Borrower shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto.. The Borrower shall deliver the shares from any conversion to L ender (in any name directed by Lender) within 3 (three) business days of conversion notice delivery.

3. Conversion Delays, If Borrower fails to deliver shares in accordance with the timeframe stated in Section 2, Lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Principal Sum with the rescinded conversion shares returned to the Borrower (under Lender's and Borrower's expectations that any returned conversion amounts will tack back to the original date of the Note). In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $2,000 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made; and such penalty will be added to the Principal Sum of the Note (under Lender's and Borrower's expectations that any penalty amounts will tack back to the original date of the Note)

4. Reservation of Shares At all times during which this Note is convertible, the Borrower will reserve from its authorized and unissued Common Stock to provide for the issuance of Common Stock upon the full conversion of this Note.. The Borrower will at all times reserve at least 50,000,000 shares of Common Stock for' conversion.

5. Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of this Note, but not less than $25,000, being immediately due and payable to the Lender at its election in the form of cash payment or addition to the balance of this Note.

6. Terms of Future Financings.. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Lender in this Note, then the Borrower shall notify the Lender of such additional or more favorable term and such term, at Lender's option, shall become a part of the transaction documents with the Lender. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.

 
 

7. Default. The following are events of default under this Note: (i) the Borrower shall fail to pay any principal under the Note when due and payable (or payable by conversion) thereunder; or (ii) the Borrower shall fail to pay any interest or any other amount under the Note when due and payable (or payable by conversion) thereunder; or (iii) a receiver, trustee or other similar official shall be appointed over the Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or (iv) the Borrower shall become insolvent or generally tails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; or' (v) the Borrower shall make a general assignment for the benefit of creditors; or (vi) the Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or (vii) an involuntary proceeding shall be commenced or filed against the Borrower; or (viii) the Borrower shall lose its status as "DTC Eligible" or the borrower's shareholders shall lose the ability to deposit (either electronically or by physical certificates, or otherwise) shares into the DTC System; or (ix) the Borrower shall become delinquent in its filing requirements as a fully-reporting issuer registered with the SEC.

8. Remedies. In the event of any default, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at the Lender's election, immediately due and payable in cash at the Mandatory Default Amount. The Mandatory Default Amount means the greater of (i) the outstanding principal amount of this Note, plus all accrued and unpaid interest, liquidated damages, fees and other amounts hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either demanded or paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding principal amount of this Note, plus 100% of accrued and unpaid interest, liquidated damages, fees and other amounts hereon. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may i mmediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and the Lender shall have all rights as a holder of the note until such time, if any, as the Lender receives full payment pursuant to this Section 8, No such rescission or annulment shall affect any subsequent event of default or impair any right consequent thereon, Nothing herein shall limit Lender's right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower's failure to timely deliver certificates representing shares of Common Stock upon conversion of the Note as required pursuant to the terms hereof.

9. No Shorting, Lender agrees that so long as this Note from Borrower• to Lender remains outstanding, Lender will not enter into or effect "short sales" of the Common Stock or hedging transaction which establishes a net short position with respect to the Common Stock of Borrower,. Borrower acknowledges and agrees that upon delivery of a conversion notice by Lender, Lender immediately owns the shares of Common Stock described in the conversion notice and any sale of those shares issuable under such conversion notice would not be considered short sales.

10. Assignability. The Borrower may not assign this Note. This Note will be binding upon the Borrower and its successors and will inure to the benefit of the Lender and its successors and assigns and may be assigned by the Lender to anyone of its choosing without Borrower's approval

11. Governing Law. This Note will be governed by, and construed and enforced in accordance with, the laws of the State of Florida, without regard to the conflict of laws principles thereof Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of Florida or in the federal courts located in Miami-Dade County, in the State of Florida, Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.

12. Delivery of Process by Lender to Borrower. In the event of any action or proceeding by Lender against Borrower, and only by Lender against Borrower, service of copies of summons and/or complaint and/or any other process which may be served in any such action or proceeding may be made by Lender via U.S. Mail, overnight delivery service such as FedEx or UPS, email, fax, or process server, or by mailing or otherwise delivering a copy of such process to the Borrower at its last known attorney as set forth in its most recent SEC filing

13. Attorney Fees, In the event any attorney is employed by either party to this Note with regard to any legal or equitable action, arbitration or other proceeding brought by such party for the enforcement of this Note or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Note, the prevailing party in such proceeding will be entitled to recover from the other party reasonable attorneys' fees and other costs and expenses incurred, in addition to any other relief to which the prevailing party may be entitled.

14. Opinion of Counsel In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by its counsel Lender also has the right to have any such opinion provided by Borrower's counsel.

15. Notices. Any notice required or permitted hereunder (including Conversion Notices) must be in writing and either personally served, sent by facsimile or email transmission, or sent by overnight courier. Notices will be deemed effectively delivered at the time of transmission if by facsimile or email, and if by overnight courier the business day after such notice is deposited with the courier service for delivery.

[Signature Page to Folloq

 
 

 

 

 

 

 

Borrower:   Lender:
     
/s/ Benny Powell   /s/ JMJ Financial
Benny Powell   JMJ Financial
Red Giant entertainment, Inc;.   Its Principal
Chief Executive Officer    
     
     
Date: 06/11/2013   Date: 06/13/2013

 

Exhibit 10.7

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. LENDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

GEL PROPERTIES, LLC

SECURED PROMISSORY NOTE

GEL BACK END SECURITY NOTE [_] OF 4

 

$75,000.00 Lewes, DE

May 24, 2013

 

1. Principal and Interest

 

FOR VALUE RECEIVED, GEL Properties, LLC, a Delaware Limited Liability Company (the “Company”) hereby absolutely and unconditionally promises to pay to Red Giant Entertainment, Inc. (the “Lender”), or order, the principal amount of Seventy Five thousand dollars ($75,000) no later than [_______] 24, 2014, unless the Lender does not meet the “current information requirements” required under Rule 144 of the Securities Act of 1933, as amended, in which case the Company may declare the offsetting note issued by the Lender on the same date herewith to be in Default (as defined in that note) and cross cancel its payment obligations under this Note as well as the Lenders payment obligations under the offsetting note. This Note shall bear simple interest at the rate of 6%.

 

2. Repayments and Prepayments; Security .

 

a. All principal under this Note shall be due and payable no later than [_______] 24, 2014, unless the Lender does not meet the “current information requirements” required under Rule 144 of the Securities Act of 1933, as amended, in which case the Company may declare the offsetting note issued by the Lender on the same date herewith to be in Default (as defined in that note) and cross cancel its payment obligations under this Note as well as the Lenders payment obligations under the offsetting note.

 

b. The Company may pay this Note at any time.

 

c. This Note shall be secured by a $75,000 cash value interest in a life insurance policy assigned to the Company by its member, Aryeh Goldstein. The Company may exchange this collateral for other collateral with an appraised value of at least $75,000.00. The Company may not effect any conversions under the Lender Note until it has made full cash payment for the portion of the Lender Note being converted.

 
 

 

3. Events of Default; Acceleration .

 

a. The principal amount of this Note is subject to prepayment in whole or in part upon the occurrence and during the continuance of any of the following events (each, an “Event of Default”): the initiation of any bankruptcy, insolvency, moratorium, receivership or reorganization by or against the Company, or a general assignment of assets by the Company for the benefit of creditors. Upon the occurrence of any Event of Default, the entire unpaid principal balance of this Note and all of the unpaid interest accrued thereon shall be immediately due and payable. The Company may offset amounts due to the Lender under this Note by similar amounts that may be due to the Company by the Lender resulting from a promissory note issued by the Lender to the Company on even date herewith.

 

b. No remedy herein conferred upon the Lender is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and in addition to every other remedy hereunder, now or hereafter existing at law or in equity or otherwise.

 

4. Notices .

 

a. All notices, reports and other communications required or permitted hereunder shall be in writing and may be delivered in person, by telecopy with written confirmation, overnight delivery service or U.S. mail, in which event it may be mailed by first-class, certified or registered, postage prepaid, addressed (i) if to a Lender, at such Lender’s address as the Lender shall have furnished the Company in writing and (ii) if to the Company at such address as the Company shall have furnished the Lender(s) in writing).

 

b. Each such notice, report or other communication shall for all purposes under this Note be treated as effective or having been given when delivered if delivered personally or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or, if sent by electronic communication with confirmation, upon the delivery of electronic communication.

 

5. Miscellaneous .

 

a. Neither this Note nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing.

 

b. No failure or delay by the Lender to exercise any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege. The provisions of this Note are severable and if any one provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, such invalidity or unenforceability shall affect only such provision in such jurisdiction. This Note expresses the entire understanding of the parties with respect to the transactions contemplated hereby. The Company and every endorser and guarantor of this Note regardless of the time, order or place of signing hereby waives presentment, demand, protest and notice of every kind, and assents to any extension or postponement of the time for payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable.

 

 
 

 

c. If Lender retains an attorney for collection of this Note, or if any suit or proceeding is brought for the recovery of all, or any part of, or for protection of the indebtedness respected by this Note, then the Company agrees to pay all costs and expenses of the suit or proceeding, or any appeal thereof, incurred by the Lender, including without limitation, reasonable attorneys’ fees.

 

d. This Note shall for all purposes be governed by, and construed in accordance with the laws of the State of New York (without reference to conflict of laws).

 

e. This Note shall be binding upon the Company’s successors and assigns, and shall inure to the benefit of the Lender’s successors and assigns.

 

IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer to take effect as of the date first hereinabove written.

 

 

GEL PROPERTIES, LLC

 

 

By:

 

Title: Member

 

 

 

Exhibit 21

List of Subsidiaries

The Registrant has two subsidiaries:

1. Red Giant Entertainment, Inc., a Florida corporation; and

2. ComicGenesis, LLC, a Nevada limited liability company.

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Benny R. Powell, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended August 31, 2013 of Red Giant Entertainment, Inc. (the “registrant”).

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. As the registrant’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 20, 2014   /s/ Benny R. Powell
    Benny R. Powell,
    CEO
    (Principal Executive and Financial Officer)
     

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Benny R. Powell, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended August 31, 2013 of Red Giant Entertainment, Inc. (the “registrant”).

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. As the registrant’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 20, 2014   /s/ Benny R. Powell
    Benny R. Powell,
    CEO
    (Principal Executive and Financial Officer)
     

Exhibit 32

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Red Giant Entertainment, Inc. (the “Company”) on Form 10-K for the period ending August 31, 2013 as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Benny R. Powell, CEO, President, and Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:

1. The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

 

Date: February 20, 2014   /s/ Benny R. Powell
    Benny R. Powell,
    CEO, President, Chief Financial Officer
    (Principal Executive and Financial Officer)