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

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period February 28, 2014
 
Or
 
o 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: 000-53310

 
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, FL 34711
(Address, including zip code, of principal executive offices)

Registrants’ telephone number, including area code: (866) 926-6427
 
N/A
(Former name, former address and former fiscal year, if changed since last year)

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 o
 
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 o

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
o
Accelerated filer
o
Non-accelerated filer
o
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 o No x
 
As of April 18, 2014, there were 1,525,694,394 shares of our common stock, $0.0001 par value per share, issued and outstanding.


 
 

 

Red Giant Entertainment, Inc.
 
TABLE OF CONTENTS

     
Page
 
PART I
FINANCIAL INFORMATION
       
Item 1.
Financial Statements
    3  
 
Consolidated Balance Sheets as of February 28, 2014 (Unaudited) and August 31, 2013 (Audited)
   
3
 
 
Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2014 and 2013 (Unaudited)
   
4
 
 
Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2014 and 2013 (Unaudited)
   
5
 
 
Notes to Financial Statements (Unaudited)
   
6
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
16
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   
18
 
Item 4.
Controls and Procedures
   
18
 
           
PART II
OTHER INFORMATION
       
Item 1.
Legal Proceedings
   
20
 
Item 1A.
Risk Factors
   
20
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
20
 
Item 3.
Defaults Upon Senior Securities
   
25
 
Item 4.
Mine Safety Disclosures
   
25
 
Item 5.
Other Information.
   
25
 
Item 6.
Exhibits
   
27
 
           
SIGNATURES
   
28
 
 

 
 
2

 

PART I FINANCIAL INFORMATION
 
Item 1. Financial Statements

Red Giant Entertainment, Inc.
Consolidated Balance Sheets


   
February 28,
   
August 31,
 
   
2014
   
2013
 
   
(unaudited)
   
(audited)
 
ASSETS
           
             
Current Assets
           
Cash and cash equivalents
  $ 14,510     $ 14,937  
Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively
               
Inventory
    48,309       52,107  
Prepaid and other current assets
    103,603       82,000  
     Total Current Assets
    167,675       149,044  
                 
Property and equipment, net of accumulated depreciation of $2,192 and $996, respectively
    10,616       10,548  
                 
Intangible assets, net of accumulated amortization of $33,526 and $23,100, respectively
    40,724       51,150  
                 
     TOTAL ASSETS
  $ 219,015     $ 210,742  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current Liabilities
               
Accounts payable and accrued expenses
  $ 60,601     $ 88,000  
Due to related parties
    41,851       39,187  
Convertible notes payable
    86,819       81,397  
Derivative liability, notes
    1,736,557       1,339,599  
Derivative liability, warrants
    355,800       355,800  
     Total Current Liabilities
    2,281,628       1,903,983  
                 
Convertible note payable
    39,945       24,314  
                 
     TOTAL LIABILITIES
    2,321,573       1,928,297  
                 
Stockholders’ Deficit
               
Preferred stock: 100,000,000 authorized; $0.0001 par value
               
0 shares issued and outstanding
    -       -  
Common stock: 3,000,000,000 authorized; $0.0001 par value
               
701,882,505 and 434,922,000 shares issued and outstanding
    70,188       43,492  
Additional paid in capital
    1,074,598       43,053  
Treasury stock, at cost; 1,785,900 shares
    (55,000 )     (55,000 )
Accumulated deficit
    (3,192,344 )     (1,749,100 )
     Total Stockholders’ Deficit
    (2,102,558 )     (1,717,555 )
                 
     TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 219,015     $ 210,742  



 
See notes to unaudited financial statements

 
 
3

 

Red Giant Entertainment, Inc.
Consolidated Statements of Operations
(unaudited)


   
For the Three Months Ended
   
For the Six Months Ended
 
   
February 28,
   
February 28,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenues
  $ 7,245     $ 59,591     $ 10,624     $ 165,528  
Cost of sales
    6,708       33,434       9,087       80,908  
Gross Profit
    537       26,157       1,537       84,620  
                                 
Operating Expenses
                               
Selling and marketing
    19,008       770       71,849       3,790  
Compensation
    17,720       6,535       31,962       18,575  
Professional
    36,794       24,000       55,764       25,200  
General and administration
    63,563       967       109,332       3,398  
Depreciation and amortization
    5,832       1,629       11,622       3,258  
     Total operating expenses
    142,917       33,901       280,529       54,221  
                                 
Net loss from operations
    (142,380 )     (7,744 )     (278,992 )     30,399  
                                 
Other income (expense)
                               
Interest expense
    (83,405 )     -       (174,053 )     -  
Change in derivative
    (323,573 )     -       (396,958 )     -  
Gain (loss) on settlement of debt
    (525,041 )     -       (593,241 )     -  
Income taxes
    -       5,700       -       -  
                                 
Net loss
  $ (1,074,399 )   $ (2,044 )   $ (1,443,244 )   $ 30,399  
                                 
                                 
Basic and dilutive loss per share
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
                                 
Weighted average number of shares outstanding
    537,884,219       434,922,000       487,862,214       434,922,000  



 
See notes to unaudited financial statements

 
 
4

 

Red Giant Entertainment, Inc.
Consolidated Statements of Cash Flows


   
Six Months Ended
 
   
February 28,
 
   
2014
   
2013
 
   
(unaudited)
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ (1,443,244 )   $ 30,399  
Adjustment to reconcile Net Income to net cash provided by operations:
               
Depreciation and amortization
    11,622       3,258  
Amortization of deferred financing costs
    174,053       -  
Change in derivatives
    396,958       -  
(Gain) Loss on settlement of debt
    593,241       -  
Changes in operating assets and liabilities:
               
(Increase) decrease in operating assets:
               
Accounts receivable
    (1,253 )     -  
Inventory
    3,798       (22,519 )
Prepaid expenses and other assets
    (21,603 )     (9,237 )
Increase (decrease) in operating liabilities:
               
Accounts payable and accrued expenses
    (3,399 )     13,342  
Total adjustments
    1,153,417       (15,156 )
     Net Cash (Used in) Provided By Operating Activities
    (289,827 )     15,243  
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of property and equipment
    (1,264 )     -  
     Net Cash (Used in) Investing Activities
    (1,264 )     -  
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Shareholder loans, net
    2,664       -  
Proceeds from Loan(s)
    288,000       -  
     Net Cash Provided by Financing Activities
    290,664       -  
                 
Net increase (decrease) in cash and cash equivalents
    (427 )     15,243  
Cash and cash equivalents, beginning of period
    14,937       269  
Cash and cash equivalents, end of period
  $ 14,510     $ 15,512  
                 
Supplemental cash flow information:
               
Cash paid for interest
  $ -     $ -  
Cash paid for taxes
  $ -     $ -  
                 
Non-cash transactions:
               
Expenses paid from proceeds of debt
  $ 24,000     $ -  
Debt converted to equity
  $ 465,000     $ -  



 
See notes to unaudited financial statements


 
5

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Red Giant Entertainment LLC (the “LLC”) was formed in the State of Florida, U.S.A., on January 1, 2011.  On May 9, 2012, the LLC 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 LLC 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 RGE, and Benny 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 Castmore Resources Ltd., which changed its name to Red Giant Entertainment, Inc.  (the “Company”).  The Company subsequently approved a 6 to 1 forward stock split of all shares of record in June, 2012.  The Company’s fiscal year end is August 31.

The exchange resulted in RGE becoming a wholly-owned subsidiary of the Company.  As a result of the Share Exchange Agreement, the Company’s principal business became the business of RGE.  All share information has been restated for both the reverse merger and the forward stock split for all periods presented.

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

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 for the year ending August 31, 2013. 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.

 
 
6

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
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 )   45,000     51,150  
            (1 )   (7,500 )      
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 )   338,000     105,711  
            (3 )   (338,000 )      
            (5 )   5,001        
Derivative liability, notes
    271,321           338,000     1,339,599  
            (3 )   730,278        
            (6 )            
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 )   7,500     639,890  
            (2 )   210,525        
                           
Interest expense
    112,090     (4 )   6,668     479,559  
            (5 )   5,001        
            (7 )   355,800        
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
 
 
 
7

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require 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 reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

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

Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading.  The results of operations for such interim periods are not necessarily indicative of operations for a full year.

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 income or losses.

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.

 
 
8

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
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.

Inventory
As of February 28, 2014, inventory consisted of physical copies of published books, as well as artwork that is used for digitally distributed works for advertising revenue and future publications.  The inventory is valued at the cost to produce, on a first-in-first-out (FIFO) basis.

Long-lived Assets

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.  Depreciation for the three and six months ended February 28, 2014 and 2013 was $619, $166, $1,196 and $332, respectively.

Intangible Property
Intellectual property, including patents and other intangible assets have been capitalized and recorded at their fair value historical cost.  The Company’s intellectual property consists of graphic novel artwork and was contributed by a stockholder 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 life of five years.  The Company acquired website and other intangible assets in the acquisition of a subsidiary, valued at the fair market value of stock exchanged by a shareholder, valued in the amount of $45,000.  Amortization is calculated on a straight line basis over the estimated useful life of three years.  Amortization for the three and six months ended February 28, 2014 and 2013was $5,213, $1,463, $10,426 and $2,926, respectively

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.  Based upon its most recent analysis, the Company believes that no impairment of property existed at February 28, 2014 and August 31, 2013.

Recent Accounting Pronouncements
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 financial position or 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.
 
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.

 
 
9

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

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

o  
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.
o  
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:

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

Advertising
Advertising costs are expensed as incurred.  The Company expensed advertising costs of $24,052, $0, $49,066 and $771 for the three and six month periods ending February 28, 2014 and 2013, respectively.

Stock Based Compensation
The Company issues restricted stock to consultants for various services.  Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.  The Company recognized consulting expenses and a corresponding increase to additional paid-in-capital related to stock issued for services.  Stock compensation for the periods presented were issued for past services provided, accordingly, all shares issued are fully vested, and there is no unrecognized compensation associated with these transactions.  For agreements requiring future services, the consulting expense is to be recognized ratably over the requisite service period.  The Company has not incurred any stock based compensation expense for the three and six month periods ending February 28, 2014 and 2013.

Income Taxes
The Company was a limited liability company until May 9, 2012.  As an LLC, no income tax provision was made at the Company level and all taxable income and deductions were passed directly to the equity owner.  The Company will be evaluating the tax ramifications of the change in entity status and the organizational changes to determine future tax issues.

 
 
10

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
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 stockholders 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 1,274,000,000 common stock equivalents outstanding at February 28, 2014, related to the convertible debt arrangements.

NOTE 3 - MANAGEMENT STATEMENT REGARDING GOING CONCERN

The Company is currently generating revenues from operations sufficient to meet its 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 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 - CONVERTIBLE NOTES PAYABLE

The Company entered into lending arrangements with several lending institutions, each with convertible features.  The Company evaluated the terms of the convertible notes, with outstanding face values totaling $729,630, 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
 
 
 
11

 
 
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
 
 
in the amount of $729,630 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 term of the notes.  Additionally, the notes called for an immediate withholding of $200,277 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.  Interest expense, in the amount of $83,405 and $174,053, was recognized for the three and six month period ended February 28, 2014.

A derivative liability, in the amount of $1,736,557 has been recorded, as of February 28, 2014, related to the above notes.  The Company recognized a change in the derivative liability, resulting in a loss in the amount of $323,573 and $396,958 for the three and six month periods ending February 28, 2014.  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
    0.13 %
Expected lives (years)
    0.759  
Expected price volatility
    488.6 %
Forfeiture Rate
    0.0 %

Summary of Convertible Notes Payable:

Original value
  $ 729,630  
Deferred finance cost
    (116,501 )
Unexpired debt discount
    (486,365 )
      126,764  
Less current portion of debt
    86,819  
Non-current
  $ 39,945  
 
NOTE 5 – 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 February 28, 2014, the Company expected no net deferred tax assets calculated at an expected rate of 37.6%.  The Company has applied a 100% valuation allowance on the deferred tax assets attributable to the Net Operating Losses incurred.

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 February 28, 2014, the tax return for 2011 through 2013 have 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.
 
 
 
12

 
 
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
NOTE 6 – CAPITAL STOCK
 
The Company has 100,000,000 shares of preferred stock authorized and none have been issued.

The Company has 3,000,000,000 shares of common stock authorized, as amended January 29, 2014.  All shares of common stock are non-assessable and non-cumulative, with no preemptive rights.

During the eight months ended, August 31, 2012, $10,869 of contributed capital was added to additional paid in capital.  For the 3 months ended February 28, 2014, no additional capital was contributed.

In June, 2012, Castmor Resources Ltd., entered into Share Exchange Agreement (the “Share Exchange Agreement”) with Red Giant Entertainment Inc., (“RGE”), and Benny 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.

The Company’s majority shareholder issued 500,000 common shares held personally for the acquisition of its subsidiary, CosmicGenesis, valued at a fair market value of $45,000, considered to be the fair value of the website created and acquired.  The fair value of the common shares were recognized as a contribution to capital.

During the three month period ending November 30, 2013, the Company issued 22,636,273 shares of its common stock in satisfaction of convertible obligations in the amount of $60,000.  During the three month period ending February 28, 2014, the Company issued 244,324,232 shares of its common stock in satisfaction of convertible obligations, in the amount of $405,000.

The Company recognized a loss in the amount of $525,041 and $593,241 for the three and six month periods ending February 28, 2014, respectively, resulting from the excess in the fair market value of the stock issued in the above transactions to retire convertible debt.
 
NOTE 7 – RELATED PARTIES
 
Benny Powell was an officer and director of both parties to the merger.  See Note 1.  Mr. Powell continues as the Company’s sole officer and director post-merger.

The Company purchases print materials through Active Media Publishing, Inc. (“AMPI”), an entity wholly owned by 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 six month periods ending February 28, 2014, the Company purchased print media in the amount of $47,115.

 
 
13

 
 
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
Keenspot has been paid or accrued commissions in the amount of approximately $1,409 during the six month period ending February 28, 2014.

The Company 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.  The Company paid an aggregate of $12,575 to Glass House Graphics during the six month period ended February 28, 2014.

The Company does not own or lease property or lease office space.  The officers of the Company provide office and storage space to the Company at no charge through their other ventures.

The Company does not have employment contracts with its key employees, including the controlling stockholder who is an officer of the Company, although it has independent contractor agreements with its other officers.

As of December 2013, the Company has retained Chris Crosby, one of the Company’s officers and directors, to also serve as web editor for the Company’s webcomics.  Mr. Crosby will be compensated $1,500 per month for his web editing services, which the Company believes to be substantially less than the compensation the Company would pay for an independent third party to provide such services.

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 8 – 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, for the six months ending February 28, 2014:
 
Revenues
     
     Advertising
    2,321  
     Book publishing
    8,303  
     Creative
    0  
          TOTAL:
    10,624  
         
Cost of Sales
       
     Advertising
    2,379  
     Book publishing
    6,708  
     Creative
    0  
          TOTAL:
    9,087  
         
Gross Margin
       
     Advertising
    (58 )
     Book publishing
    1,595  
     Creative
    0  
          TOTAL:
    1,537  
 
 
 
14

 

Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)

 
NOTE 9 – COMMITMENTS AND CONTINGENCIES
 
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.  Additionally, regarding this concern, the Company does not have employment agreements with its key officers and directors.

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 unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Company’s financial position or results of operations.
 
NOTE 10 – SUBSEQUENT EVENTS
 
Convertible debt holders converted debt in exchange for 809,270,319 shares of common stock.
 
In the period subsequent to February 28, 2014, the Company issued 14,541,570 common shares to consultants, under agreement, in satisfaction of amounts payable.
 
The Company has issued convertible notes in exchange for proceeds, in the amount of $53,000, less fees charged.

Management has evaluated subsequent events through the date these financial statements were available to issue, the date of filing with the Securities and Exchange Commission.  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.

 
 
15

 
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements.”  All statements, other than statements of historical facts, included in this Quarterly Report which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements.  The word “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts” and similar expressions are also intended to identify forward-looking statements.  Consequently, all of the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business operations.  We assume no obligation to update publicly, except as required by law, any such forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in our critical accounting policies from those reported in our Amended Annual Report on Form 10-K/A for our fiscal year ended August 31, 2013, filed with the SEC on February 20, 2014 (our “Annual Report”).  For more information on our critical accounting policies, see Part II, Item 7 of our Annual Report.  

RESULTS OF OPERATIONS

Six Months Ended February 28, 2014 Compared to the Six Months Ended February 29, 2013

The three months ended February 28, 2014 were spent in continuation of (i) transitioning our Collected Book line to be distributed through Diamond Comics Distributors, Inc. (“DCD”) for book store sales and specialty book sales; and (ii) our buildup for our transition and launch of our Giant-Size line, which will be provided at no charge with revenues earned through selling advertising in such Giant-Size line (collectively, the “Changes”).

As is normal for our industry, we experienced a delay in book sales due to moving over to DCD.  Response to these titles, however, has generally been positive and  sales are expected to grow with the launch of our Giant-Size Line, which is expected to occur later this year.

As part of our build up to the launch our Giant-Size line, we intend to participate in this year’s Free Comic Book Day (“FCBD”), May 3, 2014, where participating comic books shops give away comic books to anyone who comes into their stores, subject to limits set by the particular comic book shops.  To prepare for FCBD, we needed to (i) create approximately 400,000 FCBD versions in aggregate of our four Giant-Size titles; (ii) inspect and negotiate with vendors in China for the production of our FCBD books; and (iii) further augment our distribution chain to handle the influx of approximately one million books into the marketplace as a whole each week once we launch our Giant-Size line.  

The Changes required us to incur significantly greater operating expenses and significantly lower revenues for the three months ended February 28, 2014 as compared to the three months ended February 28, 2013.  Numerous business trips were made to speak directly with the decision makers of vendors, comic shop retailers and DCD. 

As we also incurred significantly greater operating expenses and significantly lower revenues for our previous quarter ended November 30, 2013 due to (i) negotiating a Supply Agreement with DCD; and (ii) beginning the Changes discussed above, we had significantly greater operating expenses and significantly lower revenues for the six months ended February 28, 2014 as compared to the six months ended February 28, 2013.

Nevertheless, our management believes that the Changes will eventually lead to greater profitably and more stability for our business and our prospects in the future, particularly if we are able to successfully launch or Giant-Size line of titles.
 
 
 
16

 
 
Among the most important step was the January 2014 hiring of Kris Longo in the role of Advertising Sales Director.  Mr. Longo has over 15 years in consumer advertising sales with a strong list of past advertisers and specific expertise in the comic book industry, and we expect to rely on his experience to sell advertising for our Giant-Size line.

Our management believes that all processes relating to the Changes are proceeding on schedule at current time.

Revenues. During the six months ended February 28, 2014 revenues were $10,624, a decrease of $154,904 from $165,528 for the six months ended February 28, 2013.

Cost of Sales . During the six months ended February 28, 2014, we incurred cost of sales of $9,087 compared to $80,908 incurred during the six months ended February 28, 2013 (a decrease of $71,821).  

Gross Profit . Gross profit decreased from $84,620 during the six months ended February 28, 2013 to $1,537 during the six months ended February 28, 2014.

Operating Expenses . During the six months ended February 28, 2014, we incurred operating expenses of $280,529 compared to $54,221 incurred during the six months ended February 28, 2013, an increase of $ 226,308 .  This increase occurred primarily due to greater general and administrative costs and greater selling and marketing costs.

Net Loss. Our net loss for the six months ended February 28, 2014 was $1,443,244 compared to a net profit of $30,399 during the six months ended February 28, 2013.  Result of the current quarter decrease was primarily due to the recognition of financing expenses attributable to the convertible notes payable and derivative liabilities. 

Liquidity and Capital Resource . As of February 28, 2014 we had cash or cash equivalents of $14,510,   which is the only amount available to us for current expenses until such time as we are able to secure additional investment capital.

If we are unable to successfully implement the Changes or generate sufficient revenues through our operations after the Changes, we may need to pursue 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 choose to pursue them.  Should we be unable to generate sufficient revenue in the future or obtain adequate financing if needed, 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 “Part II Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” are incorporated herein by reference.

We believe that events may have occurred or may exist, including without limitation our current lack of DWAC eligibility, 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. A total of 1,785,900 shares were repurchased in June and July 2013.  We have not purchased any shares under this program since July 2013 and terminated the stock repurchase program in the quarterly period ended November 30, 2014. 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 1,527,480,294 shares of common stock.
 
 
 
17

 
 
Cash Flows from Operating Activities . For the six months ended February 28, 2014, we had net cash used by operating activities of $289,827 as compared to net cash provided by operating activities of $15,243 in the six months ended February 29, 2013.

Cash Flows from Investing Activities . For the six months ended February 28, 2014, we had   net cash used in investing activities of $1,264 as compared to $0 net cash used in investing activities in the six months ended February 29, 2013.

Cash Flows from Financing Activities . For the six months ended February 28, 2014, we had net cash provided by financing activities of $290,664   as compared to $0 net cash provided by financing activities in the six months ended February 29, 2013.

Three Months Ended February 28, 2014 Compared to the Three Months Ended February 29, 2013

Revenues . During the three months ended February 28, 2014 revenues were $7,245, a decrease of $52,346 from $59,591 for the three months ended February 29, 2013.

Cost of Sales . During three months ended February 28, 2014, we incurred Cost of Sales of $6,708 compared to $33,434 incurred during the three months ended February 29, 2013 (a decrease of $26,726).  

Gross Profit . Gross Profit decreased by $25,620   from $26,157 during the three months ended February 29, 2013 to $537 during the three months February 28, 2014.

Operating Expenses . During the three months ended February 28, 2014, we incurred operating expenses of $142,917 compared to $33,901 incurred during the three months ended February 28, 2014, an increase of $109,016.  This increase occurred primarily due to greater general and administrative costs.

Net Loss . Our net loss for the three months ended February 28, 2014 was a net loss of $1,074,399   before taxes compared to a net loss of $7,744 before taxes during the three months ended February 29, 2013.  

Item 3. 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 information under this item.
 
Item 4. Controls and Procedures.
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our Chief Executive Officer/ Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of February 28, 2014.  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosures.

 
 
18

 

Based on the evaluation, our Chief Executive Officer/Chief Financial Officer concluded disclosure controls and procedures were not effective as of February 28, 2014.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, 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. Our internal control over financial reporting includes those policies and procedures that:
 
·  
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
·  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
 
Our management assessed the effectiveness of our internal control over financial reporting as of February 28, 2014.  In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  While this assessment is not formally documented, management concluded that, as of February 28, 2014, our internal control over financial reporting is not effective based on those criteria.
 
Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
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 February 28, 2014, including formalized monitoring procedures.
·  
While we 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.

NO CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of the end of the period covered by this Quarterly Report, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

 
 
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PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

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.  We have responded to discovery propounded by the Plaintiff and are awaiting Plaintiff’s response to our discovery request.

We are not currently a party to, nor are any of our property currently the subject of, any other material legal proceeding.  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.

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.

The disclosures in “Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds” below regarding the settlements with AGS Capital Group, LLC (“AGS”) and with IBC Funds, LLC (“IBC”) are incorporated herein by this reference.

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 required under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Other than as disclosed below and on our Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2014, we have not made any sales of unregistered equity securities during the quarterly period ended February 28, 2014.

Transaction with Asher Enterprises, Inc. (“Asher”)

On January 7, 2014, we entered into a 8% Convertible Promissory Note (the “Asher Note”) and  Securities Purchase Agreement (the “Asher SPA”) with Asher in the principal amounts of $32,500.  These agreements were substantially in the form of our previous agreements with Asher filed as Exhibits 4.9 and 4.10 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013, and the following description of the Asher SPA and Asher Note are qualified in their entirety by reference to the full text of such exhibits.

The Asher Note is due approximately one year from its issuance.  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 Note 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 the Asher Note after 180 calendar days after its issuance.

 
 
20

 

The Asher Note is 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 Asher Note. In addition, the Asher Note will be accelerated and we will be required to pay an amount equal to two times the Default Sum to repay the Asher Note.  Unless Asher gives us 61 calendar days written notice to the contrary, however, Asher may not convert the Asher Note 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 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. 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.

Further Consideration Received under Notes Issued to GEL Properties, LLC (“GEL”)

On January 24, 2014, we agreed with GEL to reduce the second of four $75,000 Secured Promissory Note issued by GEL to us (each, a “GEL Payment Note”) as consideration the second of four $75,000 6% Convertible Redeemable Secured Notes (each, a “Back End Note”) issued by us to GEL in the form filed as Exhibit 4.12 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013, to $35,000 and extend the maturity date of the amended GEL Payment Note to April 24, 2014, and received the remaining $40,000 GEL Payment Note in March 2014 to complete the originally contemplated $75,000 tranche.

The GEL Payment Notes are 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.  If we do not meet the current information requirement under Rule 144 of the Securities Act of 1933, however, GEL may offset the amounts owing under the GEL Payment Note from the amount owed by us to GEL.

Pursuant to the above, the second of four Back End Notes was funded.  This note and the note issued by us to GEL on March 20, 2013 as disclosed under “Part II Item 5. Other Information” are in substantially the form as the Form of Back-End Notes filed as Exhibit 4.12 with the SEC on February 20, 2014, and the following description of this notes and the March 20, 2013 note are qualified in their entirety by reference to the full text of such exhibits.

The Back End Notes are due and payable on May 24, 2015, with interest payable in shares of our common stock. If we fail to repay the Back End 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.

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

The Back End 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.

 
 
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The Back End 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.

Settlement Agreement with AGS

On January 30, 2014, we entered into a Settlement Agreement and Release (the “AGS Settlement”) with AGS to settle an action brought by AGS against us in the Circuit Court of the Second Judicial Circuit, Leon County, Florida (the “Court”) for our failure to pay certain invoices (the “Invoices”) purchased by AGS from certain creditors of ours, including (i) $17,901.30 owed by us to Active Media Publishing, LLC, an entity controlled by Benny R. Powell, an officer and director of us; and (ii) $56,352 owed by us to Glass House Graphics, a sole proprietorship owned by David Campiti an officer and director of us.  Following a fairness hearing pursuant to Section 3(a)(10) of the Securities Act of 1933, the Court approved and we concurrently issued to AGS a 12% Convertible Promissory Note in principal amount of $149,129.50 (the “December AGS Note”) as payment in full of the Invoices.

The principal balance along with any unpaid interest and other costs, fees or charges under the December AGS Note is due and payable on December 30, 2014.

If we fail to repay the December AGS Note when due, or if other events of default thereunder apply, 150% of sum of the outstanding principal along with any unpaid interest and other costs, fees or charges under the December AGS Note immediately prior to such default shall become immediately due and payable, and the December AGS Note will accrue interest at the maximum amount of interest available under state law during the default on a note.  In addition, if we fail to issue stock to AGS 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) 100% of the product of (A) the number of shares to which AGS 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 balance due under the December AGS Note will also increase if that our shares are not DWAC eligible at the time of conversion.

The December AGS Note is convertible into shares of our common stock at a price equal to 40% of the average daily closing bid prices for the 30 trading days immediately prior to the conversion date.  Provided, however, that an additional 10% discount shall apply if we are late with any of our filings with the SEC, and another 20% discount shall apply if we are late with another filing after curing the first late filing.  This conversion price of the December AGS Note is subject to adjustment for issuance of securities for a consideration per share lower than the above conversion price.  Unless AGS gives us 61calendar days written notice to the contrary, however, AGS may not convert the December AGS Note in an amount which would cause AGS to own more than 4.99% of our outstanding common stock.  In no case may AGS convert the December AGS Note in an amount which would cause AGS to own more than 9.99% of our outstanding common stock.

Under the December AGS Note, we are also prohibited from issuing any securities whose purchase, conversion or exercise price is determined using any floating discount or other post-issuance adjustable discount to the market price of our common stock.

We may redeem the December AGS Note with a payment of 150% of the outstanding principal amount and any unpaid interest thereon upon 20 trading days’ notice if certain conditions related to our performance under the December AGS Note and our ability to issue shares without restrictive legend are met.

We have granted demand registration rights for shares issuable under the December AGS Note.


 
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On January 8, 2014, we issued an 18% Convertible Promissory Note in principal amount of $19,000 (the “January AGS Note”; together with the December AGS Note, the “AGS Notes”) to AGS.  Other than the initial interest rate and as set forth below, the January AGS Note is substantially the same in terms to the December AGS Note.  The January AGS Note matures on January 8, 2015 and is initially convertible into shares of our common stock at a price equal to 60% of the average daily closing bid prices for the 50 trading days immediately prior to the conversion date.  We are prohibited from threatening or entering into litigation with AGS under the January AGS Note, and have released AGS from any past, current or future claims we have or may have against AGS.

See descriptions of the AGS Notes above.  The December AGS Note was issued to AGS pursuant to the exemption from registration set forth in Section 3(a)(10) of the Securities Act.  The January AGS Note was issued to AGS pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.  We believe that AGS is an accredited investor and had adequate information about us as well as the opportunity to ask questions and receive responses from our management.

Settlement Agreement with IBC

On February 5, 2014, we entered into a Settlement Agreement and Release (the “IBC Settlement”) with IBC to settle an action brought by IBC against us in the Circuit Court of the Twelfth Judicial Circuit, Saratosa County, Florida (the “Court”) for our failure to pay certain invoices (the “Invoices”) purchased by IBC from certain creditors of ours, none of whom were related parties of us or our affiliates.  Following a fairness hearing pursuant to Section 3(a)(10) of the Securities Act of 1933, the Court approved and we issued to IBC 7,500,000 shares of common stock as payment in full of the Invoices and agreed to issue to IBC in one or more tranches as necessary that certain number of shares equal to the $102,000 owed under the Invoices divided by the IBC Repayment Price (as defined below) (the “Repayment Obligation”).  IBC and we agreed that IBC does not intend to own more than 9.99% of our outstanding common stock at any time (the “Limitation”).

The IBC Repayment Price shall be 55% of the lowest sale price average daily closing bid prices for the 20 trading days immediately prior to a share request; provided, however, that the valuation period shall be extended where (i) the issuance requested must be made in tranches to comply with the Limitation; or  (ii) a subsequent share request is made.  Further provided, that in the event that at any time during the valuation period the market price is below 90% of the market price on the day before the first tranche hereunder, we are required to issue to IBC such additional shares as necessary to effect the purposes of the IBC Settlement (each, an “Additional Issuance”).  At the end of the Valuation Period, if the sum of the issuances made are greater than the Repayment Obligation, IBC shall promptly deliver any remaining shares to us or our transfer agent for cancellation.

In addition, if we fail to issue stock to IBC within three trading days of a share request, we must pay a penalty equal to the greater of (i) $1,000 per day until the delinquency is cured.

Under the IBC Settlement, we are also prohibited from entering into a transaction under Section 3(a)(10) of the Act or similar transaction with any party other than IBC for the later of (i) 180 days from the date of the IBC Settlement; or (ii) IBC’s final sale of all shares of stock issued under the IBC Settlement.

The IBC Note was issued to IBC pursuant to the exemption from registration set forth in Section 3(a)(10) of the Securities Act.

The foregoing description of the IBC Settlement is qualified in its entirety by reference to the full text of the IBC Settlement as filed as Exhibit 4.4 hereto.

Additional Funds Received under Promissory Note with JMJ Financial (“JMJ”)

As of February 2014, we received an additional $25,000 installment under our promissory note with JMJ dated June 13, 2013 which was filed as Exhibit 4.3 to our Annual Report on Form 10-K filed on February 20, 2014 (the “JMJ Note”), under which JMJ may lend to us an aggregate amount of $335,000 with a $35,000 original issue discount.  The following description of the JMJ Note is qualified in its entirety to the full text of the JMJ Note as filed as Exhibit 4.3 to our Annual Report on Form 10-K filed on February 20, 2014.
 
 
 
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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.

Conversions of Debt

From December 2013 through January 2014, Iconic Holdings, LLC converted a portion of the principal and interest owed to it under Secured Convertible Notes substantially in the form filed as Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on September 20, 2013 into an aggregate of 44,949,897 shares of our common stock.

From December 2013 through February 2014, GEL converted a portion of the principal and interest owed to it under a $50,000 6% Convertible Redeemable Note filed as Exhibit 4.11 to our Annual Report on Form 10-K filed with the SEC on February 20, 2014 into an aggregate of 33,649,197 shares of our common stock.

From January through February 2014, JMJ Financial converted a portion of the principal and interest owed to it under a promissory note filed as Exhibit 4.13 to our Annual Report on Form 10-K filed with the SEC on February 20, 2014 into an aggregate of 11,500,000 shares of our common stock.

From January through February 2014, Typenex Co-Investment, LLC converted a portion of the principal and interest owed to it under a Secured Convertible Promissory Note filed as Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on January 27, 2014 into an aggregate of 25,890,776 shares of our common stock.

 
 
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In February 2014, WHC Capital, LLC converted a portion of the principal and interest owed to it under a 12% Secured Convertible Debenture filed Exhibit 4.6 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013 into an aggregate of 27,300,000 shares of our common stock.

In February 2014, IBC converted $26,125 in Repayment Obligations owed to it under the IBC Settlement filed as Exhibit 4.4 hereto into an aggregate of 22,500,000 shares of our common stock.

In February 2014, AGS converted a portion of the principal and interest owed to it under the AGS Notes filed as Exhibits 4.2 and 4.3 hereto into an aggregate of 54,992,695 shares of our common stock.

In February 2014, JSJ Investments, Inc. converted $28,875 in principal and interest owed to it under a $27,500 convertible note filed as Exhibit 4.7 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013 into an aggregate of 16,041,667 shares of our common stock.

All conversions were performed pursuant to the terms of the underlying convertible debt.

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.  This stock repurchase program has been terminated in the quarterly period ended November 30, 2013.

1,785,900 shares repurchased under the stock repurchase program prior to the quarterly period ended February 28, 2014 have not yet been returned to authorized but unissued status, but upon doing so, will result in us having outstanding 1,523,908,494 shares of common stock.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Amendment to Certificate of Incorporation

On January 29, 2014, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State increasing the authorized number of shares of our common stock from 900,000,000 to 3,000,000,000, as approved by our stockholders and Board of Directors as disclosed in our Definitive Information Statement on Schedule 14(c) on January 6, 2013.

8% Convertible, Redeemable Note to LG Capital Funding, LLC (“LG”)

On March 5, 2014, we issued a $53,000 8% convertible, redeemable note (the “LG Note”) to LG with an original issue discount covering $3,000 in LG’s legal fees in connection with the LG Note.  The LG Note is due and payable on March 5, 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 during the first 180 days of the LG Note, and are required to redeem the LG Note upon certain sales events as set forth in the LG Note.

 
 
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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 55% of the lowest closing bid 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.

The disclosure above is qualified in its entirety by reference to the full text of the LG Note as filed as Exhibit 4.5 hereto.

Further Amounts Received under Note to GEL

On April 2, 2014, we received funding of the third of four $75,000 Back End Notes in the form filed as Exhibit 4.12 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013.  The disclosures regarding the Back End Notes contained in “Part II Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” are incorporated herein by reference.

Conversions of Debt

In March 2014, AGS converted a portion of the principal and interest owed to it under the AGS Notes filed as Exhibits 4.2 and 4.3 hereto into an aggregate of 124,401,880 shares of our common stock.
 
In March 2014, IBC converted $76,235.00 in Repayment Obligations owed to it under the IBC Settlement filed as Exhibit 4.4 hereto into an aggregate of 140,077,922 shares of our common stock.

In March 2014, Typenex Co-Investment, LLC converted $69,661 in principal and interest owed to it under a Secured Convertible Promissory Note filed as Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on January 27, 2014 into an aggregate of 81,002,267 shares of our common stock.

In March and April 2014 prior to the date of this Quarterly Report, JMJ Financial converted $47,161.67 in principal and interest owed to it under a promissory note filed as Exhibit 4.13 to our Annual Report on Form 10-K filed with the SEC on February 20, 2014 into an aggregate of 116,747,628 shares of our common stock.

In March and April 2014 prior to the date of this Quarterly Report, GEL converted a portion of the principal and interest owed to it under a $50,000 6% Convertible Redeemable Note filed as Exhibit 4.11 to our Annual Report on Form 10-K filed with the SEC on February 20, 2014 into an aggregate of 89,946,818 shares of our common stock.

In March and April 2014 prior to the date of this Quarterly Report, WHC Capital, LLC converted a portion of the principal and interest owed to it under a 12% Secured Convertible Debenture filed Exhibit 4.6 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013 into an aggregate of 162,772,845 shares of our common stock.

In April 2014 prior to the date of this Quarterly Report, Asher converted $46,000   in principal and interest owed to it under convertible promissory notes in substantially the form  filed as Exhibit 4.9 to our Annual Report on Form 10-K filed with the SEC on December 5, 2013 into an aggregate of 51,685,393 shares of our common stock.

All conversions were performed pursuant to the terms of the underlying convertible debt.

 
 
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Issuances to Integrity Media, Inc. (“IMI”)

In April 2014 prior to the date of this Quarterly Report, we issued an aggregate of 14,541,570 shares to IMI as required by our Service Agreement, as amended, with IMI as disclosed in our Annual Report on Form 10-K filed February 20, 2014.

Related Party Transactions

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.  In the quarterly period ended February 28, 2014, we advanced purchased print media in the amount $43,365 from Active Media.

We offer our titles through our Keenspot sites at no charge and share revenuse rom advertising with Keenspot, a general partnership co-founded by Chris Crosby, our Chief Technology Officer and a member of the Board.  In the quarterly period ended February 28, 2014, Keenspot was paid or accrued commissions in the amount of $492.

Item 6. Exhibits.

Exhibit No.
 
Description
     
3.1
 
Certificate of Amendment to Articles of Incorporation of the Registrant filed with the Nevada Secretary of State on January 29, 2014.
     
4.1
 
Settlement Agreement and Release between AGS Capital Group, LLC and the Registrant dated December 30, 2013.
     
4.2
 
12% Convertible Promissory Note Dated December 30, 2013 between the Registrant and AGS Capital Group, LLC.
     
4.3
 
18% Convertible Promissory Note Dated January 8, 2014 between the Registrant and AGS Capital Group, LLC.
     
4.4
 
Settlement Agreement and Release with IBC Funds, LLC dated February 5, 2014.
     
4.5
 
8% Convertible, Redeemable Note between the Registrant and LG Capital Funding, LLC dated as March 5, 2014
     
31.1
 
Certification by Principal Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification by Principal Financial and Accounting Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32 (1)
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
     
101
 
The following materials from our Quarterly Report on Form 10-Q for the quarter ended February 28, 2014 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.
 
 
(1) Furnished herewith.

 
 
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SIGNATURES

In accordance with 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.
 
       
       
Date: April 21, 2014
By: 
/s/ Benny Powell
 
   
Benny Powell
 
   
Chief Executive Officer & Principal Executive Officer,
Chief Financial Officer & Principal Financial Officer
 


 
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Exhibit 3.1
 
 
 

 
Exhibit 4.1
 
SETTLEMENT AGREEMENT AND RELEASE
 
THIS SETTLEMENT AGREEMENT AND RELEASE (this “Agreement”) is dated as of December 30, 2013 and is made by and between AGS Capital Group, LLC, a Nevada LLC, authorized to do business in Florida with offices in Florida and Red Giant Entertainment, Inc., a Nevada Corporation.
 
WHEREAS Red Giant Entertainment, Inc., Defendant, entered into agreements to receive goods and/or services pursuant to the “Invoices”. The Invoices are incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Patrick Murphy. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Diamond Comic Distributors and Advertising. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Oswald & Yap. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Glass House Graphics. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Integrity IR. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Reward Poonai, CPA. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Peter Messenio. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Brigade Marketing. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Marketwire. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Active Media Printing. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 25, 2013, AGS Capital Group, LLC, purchased certain invoices from Chestnut Hill Capital, LLC. The Claim Purchase Agreement is incorporated herein by reference.
 
WHEREAS on or about November 12,2013, AGS Capital Group, LLC, was owed $22,000 by Red Giant Entertainment, Inc.
 
WHEREAS on or about December 16,2103, AGS Capital Group, LLC, filed an action against Red Giant Entertainment, Inc. entitled Complaint, (the “Action”) in the Circuit Court of the Second Judicial Circuit, Leon County, Florida (the “Court”), whereby AGS Capital Group, LLC asserted claims against Red Giant Entertainment, Inc. alleging that Red Giant Entertainment, Inc. failed to pay AGS Capital Group, LLC according to the terms set forth in the Invoices (the “Claims”).
 

 
 

 

WHEREAS, Red Giant Entertainment, Inc., in its Answer, denied any and all wrongdoing and asserted affirmative defenses;
 
WHEREAS, Red Giant Entertainment, Ihc. denies that it is liable for the amount sought in the Action, but acknowledges that it does not have sufficient cash to satisfy the claims made in the Action or to defend the Action and Red Giant Entertainment, Inc., seeks to resolve this Action and agrees to pay $ on the Invoices (the “Compromised Amount”).
 
WHEREAS, Red Giant Entertainment, Inc. currently only has the means to satisfy payment of AGS Capital Group, LLC’s bona fide claims through the issuance of authorized shares to AGS Capital Group, LLC, pursuant to Section 3 (a)(l0) of the Securities Act of 1933, as amended (hereinafter the “Securities Act”);
 
WHEREAS, Red Giant Entertainment, Inc. and AGS Capital Group, LLC desire to resolve, settle, and compromise AGS Capital Group, LLC’s bona fide claims that it has asserted against Red Giant Entertainment, Inc., which arise out of or relate to the Invoices, in the amount of $149,129.50 due and owing;
 
With this background incorporated herein, the parties hereby agree to the following settlement:
 
TERMS OF SETTLEMENT

1.   CLAIMS. AGS Capital Group, LLC agrees to resolve its bona fide claim with Red Giant Entertainment, Inc. for the agreed upon sum of $149, 129.50

2.   SETTLEMENT SHARES. As soon as practicable following entry of an order by the Court in accordance with Paragraph 4 herein, Red Giant Entertainment, Inc. shall issue and deliver to AGS Capital Group, LLC shares of common stock (the “Common Stock”) in one or more tranches in accordance with the new convertible note between Red Giant Entertainment, Inc. and AGS Capital Group, labeled as Exhibit A to this Agreement (“Settlement Note”).

3.   PAYMENT IN FULL. Red Giant Entertainment, Inc. and AGS Capital Group, LLC agree that delivery of the Settlement Shares pursuant to the Settlement Note attached as Exhibit A shall satisfy Red Giant Entertainment, Inc.’s obligation in full regarding the Invoices.

4.   FAIRNESS HEARING. Upon execution hereof, Red Giant Entertainment, Inc. and AGS Capital Group, LLC agree, pursuant to 15 U.S.c. §77(a)(lO), to immediately submit the terms and conditions of this Agreement to the Court for a hearing on the fairness of such terms and conditions, for the issuance of an exemption from registration of the Settlement Shares issued from the Settlement Note and an Order approving the Agreement. Red Giant Entertainment, Inc. avers it is a “reporting issuer” that files reports with the Securities and Exchange Commission (the “SEC”) under Section 13 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”); Red Giant Entertainment, Inc. avers it is current in all its filing required under the Exchange Act; and AGS Capital Group, LLC avers it has access to, and has accessed all such filings. In connection with such a fairness hearing, Red Giant Entertainment, Inc., the issuer of the securities, and AGS Capital Group, LLC, the proposed  entity to whom the securities are to be issued, agree that the value of the Settlement Shares utilized to satisfy the Claims is fair and reasonable. This Agreement shall become binding upon the parties only upon entry of an order by the Court substantially in the form of annexed hereto as Exhibit “B” (the “Order”).

5.   NECESSARY ACTION. At all times after the execution of this Agreement and entry of the Order by the Court, each party hereto agrees to take or cause to be taken all such necessary action including, without limitation, the execution and delivery of such further instruments and documents, as may be reasonably requested by any party for such purposes or otherwise necessary to complete or perfect the transaction contemplated hereby.

 
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6.   CONFIDENTIALITY AGREEMENT. At all times prior to execution of this Agreement, the parties hereto agree to not disclose to any other person or entity any of the terms of said Agreement.

7.   RELEASES. Upon delivery of the Settlement Shares pursuant to the Settlement Note to AGS Capital Group, LLC and in consideration of the terms and conditions of this Agreement, and except for the obligations and representations arising or made hereunder or a breach hereof, the parties hereby release, acquit and forever discharge the other and each, every and all of their current and past officers, directors, shareholders, affiliated corporations, subsidiaries, agents, employees, representatives, attorneys, predecessors, successors and assigns (the “Released Parties”), of and from any and all claims, damages, causes of action, suits and costs, of whatever nature, character or description, whether known or unknown, anticipated or unanticipated, which the parties may now have or may hereafter have or claim to have against each other with respect to the Claims. Nothing herein shall be deemed to negate or affect AGS Capital Group, LLC’s right and title to any securities heretofore issued to it by Red Giant Entertainment, Inc.

8.   CONTINUING JURISDICTION: Simultaneously with the execution of this Agreement, the attorneys representing the parties hereto will execute a stipulation of dismissal, which shall be held by AGS Capital Group, LLC’s counsel and filed with the Court after delivery of the Settlement Shares in accordance with paragraph 2 herein. In order to enable the Court to grant specific enforcement and other equitable relief in connection with this Agreement, (a) the parties consent to the jurisdiction of the Court for purposes of enforcing this Agreement and (b) each party to this Agreement expressly waives any contention that there is an adequate remedy at law or any like doctrine that might otherwise preclude injunctive reliefto enforce this Agreement.

9.   CONTINUING OBLIGATION Both parties agree to use their best efforts to cooperate with the Court to cause the Order to be timely entered and agree that delays caused due to the Court calendars shall not constitute a valid reason to void this Agreement.

10.   INFORMATION. Red Giant Entertainment, Inc. and AGS Capital Group, LLC each represent that prior to the execution of this Agreement, they have had the advice of counsel, that they fully informed themselves of its terms, contents, conditions and effects, and that no promise or representation of any kind has been made to them except as expressly stated in this Agreement.

11.   OWNERSHIP AND AUTHORITY. Red Giant Entertainment, Inc. and AGS Capital Group, LLC represent and warrant that they have not sold, assigned transferred, conveyed or otherwise disposed of any or all of any claim, demand, right or cause of action, relating to any matter which is covered by this Agreement, and each is the sole owner of such claim, demand, right or cause of action, and each has the power and authority and has been duly authorized to enter into and perform this Agreement and that this Agreement is a binding obligation of each, enforceable in accordance with its terms.

12.   BINDING NATURE. This Agreement shall be binding on all parties executing this Agreement and their respective successors, assigns and heirs.
 
13.   AUTHORITY TO BIND. Each party to this Agreement represents and warrants that the execution, delivery and performance of this Agreement and the consummation of the transaction provided in this agreement have been duly authorized by all necessary action of the respective entity and that the person executing this Agreement on its behalf has the full capacity to bind that entity. Each party further represents and warrants that it has been represented by counsel of its choice with the negotiation and execution of this Agreement and that counsel has reviewed this Agreement.
 
14.   SIGNATURES. This Agreement may be signed in counterparts and the Agreement, together with its counterpart signature pages, shall be deemed valid and binding on each party when duly executed by all parties. Facsimile and electronically scanned signatures shall be deemed valid and binding for all purposes.
 

 
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15.   CHOICE OF LAW. ETC. Notwithstanding the place where this Agreement may be executed by either of the parties, or any other factor, all terms and provisions hereof shall be governed by and construed in accordance with the laws of the State of Florida, applicable to agreements made and to be fully performed in that State and without regard to principles of conflicts of law thereof. Any action brought to enforce, or otherwise arising out of this Agreement shall be brought only in the Circuit Court of the Second Judicial Circuit sitting in the State of Florida, County of Leon.
 
16.   LEGAL FEES. Each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys’ fees and expenses incurred by either Red Giant Entertainment, Inc. or AGS Capital Group, LLC in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be.
 
17.   ENTIRE AGREEMENT; AND INCONSISTENCY. This Agreement is the final agreement between Red Giant Entertainment, Inc. and AGS Capital Group, LLC with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. No provision of this Agreement may be amended other than by an instrument in writing signed by Red Giant Entertainment, Inc. and AGS Capital Group, LLC, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. In the event of any inconsistency between the terms of this Agreement and any other document executed in connection herewith, the terms of this Agreement shall control to the extent necessary to resolve such inconsistency.



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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first indicated above.

 

 

 


 
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Exhibit 4.2

THIS TWELVE PERCENT (12%) CONVERTIBLE PROMISSORY NOTE IS ISSUED PURSUANT TO THE SETTLEMENT AGREEMENT AND RELEASE SIGNED BETWEEN AGS CAPITAL GROUP, LLC AND RED GIANT ENTERTAINMENT, INC. ON DECEMBER 30, 2013. THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION.


RED GIANT ENTERTAINMENT, INC.
$147,379.50

TWELVE PERCENT (12%) CONVERTIBLE PROMISSORY NOTE DATED DECEMBER 30, 2013
 
FOR VALUE RECEIVED of  the signed Settlement Agreement and Release,  RED GIANT ENTERTAINMENT, INC., a Nevada corporation (hereinafter called “ Borrower ” or the “ Company ”), hereby promises to pay to AGS CAPITAL GROUP, LLC or its assigns or successors-in-interest (the “ Holder ”) or order, without demand, the aggregate principal amount of ONE HUNDRED FORTY-SEVEN THOUSAND THREE HUNDRED AND SEVENTY NINE DOLLARS AND FIFTY CENTS $147,379.50 (the “ Principal Amount ”), together with interest thereon from the Issue Date, payable on December 30, 2014   (the “ Maturity Date ”).  Interest shall accrue at a rate of twelve percent (12%) per annum. All Interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. “ Outstanding Balance ” means the Original Principal Amount, as reduced or increased, as the case may be, pursuant to the terms hereof for conversion, breach hereof or otherwise, plus any accrued but unpaid interest (including with limitation Default Interest), collection and enforcements costs, and any other fees or charges incurred under this Note.
 
ARTICLE I
CONVERSION PRIVILEGES
 
The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until Note is paid in full regardless of the occurrence of an Event of Default but subject to Article II.  The Holder shall be able to convert this Note starting from today’s date and ending until the full amount of the Note has been converted.  The Principal Amount of Note together with all unpaid interest accrued thereon and any other amounts payable hereunder, or such portion thereof, that has not previously been converted into common stock, of the Company (the “ Common Stock ”) in accordance with Article II hereof, if any, shall be payable in full on the Maturity Date.
 

ARTICLE II
CONVERSION RIGHTS
 
The Holder shall have the right to convert the Principal Amount together with all unpaid interest accrued thereon of this Note into shares of the Borrower’s Common Stock as set forth below.
 
 
 
 

 
 
2.1   Conversion into the Borrower’s Common Stock
 
(a)   Conversion Price .  The conversion price (the “ Conversion Price ”) shall be equal to the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The " Variable Conversion Price " shall mean forty percent (40%) multiplied by the Market Price (as defined herein); provided , however , that if, after the Issue Date, the Borrower issues a convertible promissory note to any Person other than the Holder or its Affiliates which contains a conversion price (the “ Third-Party Conversion Price ”) which the Borrower and the Holder agree in writing, after good faith negotiations, is less than the effective Variable Conversion Price (after giving effect to any shares of Common Stock issued, or issuable, to the Holder or its Affiliates in connection with this Note or any other agreement between the Borrower and the Holder), then the Variable Conversion Price shall be reduced to the Third-Party Conversion Price.  “ Market Price ” means the average closing bid price during the thirty day calculation period. In the event that a bid price does not exist for one of the twenty days used to calculate the Market Price, then instead of using zero, the lower of .0001 or half of the closing ask shall be utilized instead. “ Trading Day ” shall mean any day on which the Common Stock is traded on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time). The Conversion Price set forth herein shall be reduced an additional ten percent of the average closing bid price in the thirty Trading Days prior to the applicable Conversion Date for each Public Information Failure. If the Company is late in any of their filings with the SEC, such lateness shall constitute a Public Information Failure. For purposes of clarity, it is understood that if there shall be a Public Information Failure which is cured and then repeated once, the Conversion Price shall be reduced an additional twenty percent of the average closing bid price in the thirty Trading Days prior to the applicable Conversion Date. The Conversion Price may be adjusted pursuant to the other terms of this Note.
 
(b)   Conversion.   The Holder shall have the option, but shall not be required, to convert all or a portion of the Note into a number of fully paid and non-assessable shares of Common Stock (the “ Conversion Shares ”).  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding Principal Amount together with all unpaid interest accrued thereon of this Note to be converted by (y) the Conversion Price. The Company may deliver an objection to any Notice of Conversion within one Business Day of delivery of such Notice of Conversion. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company.
 
(c)   Mechanics of Conversion .  As a condition to effecting the conversion set forth in Section 2.1(b) above, the Holder shall properly complete and deliver to the Company a Notice of Conversion, a form of which is annexed hereto as Exhibit B .  The Notice of Conversion shall set forth the Principal Amount together with all unpaid interest accrued thereon of this Note to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  Upon timely delivery to the Borrower of the Notice of Conversion, certificates evidencing that number of shares of Common Stock for the portion of the Note converted in accordance herewith shall be transmitted by the Company’s transfer agent to the Holder by crediting the account of
 
 
 
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the Holder’s broker with The Depository Trust Company through its Deposit / Withdrawal at Custodian system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Conversion Shares to, or resale of the Conversion Shares by, the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Conversion by the date that is three (3) Trading Days after the Conversion Date (such third day being the “ Share Delivery Date ”). The Borrower will not issue fraction shares or scrip representing fractions of shares upon conversion, but the Borrower will round the number of the she shares up to the nearest whole share.
 
(d)   Obligation to Deliver Conversion Shares Absolute; Certain Remedies .
 
(i)   Obligation Absolute .  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares. The Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. All payments under this Note (whether made by the Borrower or any other person) to or for the account of the Holder hereunder shall be made free and clear of and without reduction by reason of any present and future income, stamp, registration and other taxes, levies, duties, costs and charges whatsoever imposed, assessed, levied or collected by the United States or any political subdivision or taxing authority thereof or therein, together with interest thereon and penalties with respect thereto, if any on or in respect of this Note (such taxes, levies, duties, costs and charges being herein collectively called “Taxes”).
 
Failure to Deliver Common Stock Prior to Delivery Date . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered as required by Section 2.1(c) by the Share Delivery Date  (a “ Conversion Default ”), the Borrower shall pay in cash to the Holder for each calendar day beyond the Delivery Date that the Borrower fails to deliver such Common Stock an amount equal to at the sole discretion of the Holder either (i) $2,000.00 and (ii) 100% of the product of (1) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (2) the Closing Trading Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Borrower could have issued such shares of Common Stock to the Holder without violating Section 2.1(c) (the “ Conversion Default Payment ”).  Such cash amount shall be paid to the Holder by the fifth day of the month following the month in which it has accrued (the “ Conversion Default Payment Due Date ”).  In the event such cash amount is not
 
 
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received by the Holder by the Conversion Default Payment Due Date, at the option of the Holder (without notice to the Borrower), the Conversion Default Payment shall be added to the Outstanding Balance of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note. If the Company does not request the issuance of the Conversion Shares underlying this Debenture from its transfer agent after receipt of a Notice of Conversion within TWO (2) Business days following the period allowed for any objection, the Company shall be responsible for any differential in the value of the converted shares underlying this Debenture between the value of the closing price on the date the shares should have been delivered and the date the shares are delivered. In addition, if the COMPANY fails to timely (within 72 hours, 3 business days), issue a treasury order to its transfer agent or otherwise cause to be delivered, the Conversion Shares per the instructions of the Holder, free and clear of all legends in legal free trading form, subject to all applicable securities laws, the Company shall allow Holder to add two (2) days to the look-back (the mechanism used to obtain the conversion price along with discount) for each day the Company fails to timely (within 72 hours, 3 business days)) deliver shares, on the next conversion.

(ii)   Rescission .  If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
 
(e)   Adjustment .  The number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(b), shall be subject to adjustment, from time to time, upon the happening of certain events while this conversion right remains outstanding, as follows:
 
(f)   Reservation of Shares .  The Borrower represents at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of this Note (based on the Conversion Price in effect from time to time) (the “ Reserved Amount ”). The Reserved Amount shall be increased from time to time as required to insure compliance with this provision. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue shares of the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of issuing the necessary shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default.
 
 
 
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2.2       Effect of Certain Events .

(a)  Fundamental Transaction Consent Right . The Borrower shall not enter into or be party to a Fundamental Transaction (as defined below), unless the Borrower obtains the prior written consent of the Holder to enter into such Fundamental Transaction. For purposes of this Note, “ Fundamental Transaction ” means that (i) (1) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not the Borrower or any of its subsidiaries is the surviving corporation) any other individual, corporation, limited liability company, partnership, association, trust or other entity or organization (collectively, “ Person ”), or (2) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of the Borrower’s Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Borrower. The provisions of this Section 2.2(a) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.  As a condition to pre-approving any Fundamental Transaction in writing, which approval may be withheld in the Holder’s sole discretion, Holder may require the resulting successor or acquiring entity (if not the Borrower) to assume by written instrument all of the obligations of the Borrower under this Note and all the other Transaction Documents with the same effect as if such successor or acquirer had been named as the Borrower hereto and thereto.
 
(b)  Adjustment Due to Fundamental Transactions . If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any Fundamental Transaction that is pre-approved in writing by the Holder pursuant to Section 2.2(a) above, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock,
 
 
 
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securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of this Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The above provisions shall similarly apply to successive Fundamental Transactions.

(c)  Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s stockholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “ Distribution ”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining stockholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution.

(d)  Adjustment Due to Dilutive Issuance . If, at any time when this Note is issued and outstanding, the Borrower issues or sells, or in accordance with this section hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “ Dilutive Issuance ”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“ Convertible Securities ”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “ Options ”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
 
 
 
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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible, and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (1) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (2) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e)  Purchase Rights . If, at any time when this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “ Purchase Rights ”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(f)  Adjustment Due to Non-DWAC Eligibility . If, at any time when this Note is issued and outstanding thereafter, the Holder delivers a Notice of Conversion and at such time all DWAC Eligible Conditions are not then satisfied, the Borrower shall deliver certificated Conversion Shares to the Holder pursuant to Section 2.1(c) and the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note or the other Transaction Documents. The “ Non-DWAC Eligible Adjustment Amount ” is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account.  In any such case, Holder will use reasonable efforts to timely deposit such certificates in its brokerage account after it receives them and cause such restrictive legends to be removed, and, without limiting any other provision hereof, Borrower agrees to fully cooperate with Holder in accomplishing the same. Any fees charged to Holder for the stock being Non-DWAC Eligible shall be paid by the Borrower.

(g)  Notice of Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price or the addition of the Non-DWAC Eligible Adjustment Amount to the Outstanding Balance as a result of the events described in this Note, the Borrower, the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note or the other Transaction Documents. The “ Non-DWAC Eligible Adjustment Amount ” is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account. at its expense, shall promptly
 
 
 
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compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of this Note.
 
2.3   Method of Conversion .  Note may be converted by the Holder, in whole or in part, as described in Section 2.1(a) hereof.  Upon partial conversion of Note, a new Note containing the same date and provisions of Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of Note and interest which shall not have been converted or paid.
 
2.4   Limitations on Conversion .  Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the Common Stock. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provision of this section, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of  common Stock upon conversion of this Note held by the Holder  and the Beneficial Ownership Limitation provision of this section shall continue to apply. To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the
 
 
 
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Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Trading Days confirm orally to the Holder and, if requested, in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note.
 
ARTICLE III
EVENT OF DEFAULT
 
The occurrence of any of the following events of default (“ Event of Default ”) shall be an event of default hereunder (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
 
3.1   Failure to Pay .  The Borrower fails to (i) pay the Principal Amount, interest, damages or other sum due under this Note or any other note when due or;
 
3.2   Breach of Covenant .  The Borrower breaches any material covenant of the Note in any material respect and such breach, if subject to cure, continues for a period of FIFTEEN (15) Trading Days after written notice to the Borrower from the Holder;
 
3.3   Breach of Representations and Warranties .  Any representation or warranty of the Borrower made, in this Note, said statement or certificate given in writing pursuant hereto or in connection therewith or any other report, financial statement or certificate shall be false or misleading in any material respect as of the date made and the Closing Date;
 
3.4   Receiver or Trustee .  The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed;
 
3.5   Judgments .  Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than ONE MILLION DOLLARS ($1,000,000.00) and shall remain unvacated, unbonded or unstayed for a period of THIRTY (30) days;
 
3.6   Bankruptcy .  Bankruptcy, reorganization, insolvency proceeding, liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against them are not dismissed within THIRTY (30) days of initiation. The Borrower suffers any appointment of any custodian or the like for it or any substantial art of its property that is not discharged or stayed within 30 days; the Borrower makes a general assignment of the benefit of creditors; the Borrower fails to pay or states that it is unable to pay, or is unable to pay its debts generally as they become due;
 
 
 
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3.7   Non-Payment .  A default by the Borrower under any one or more obligations in, unless the Borrower is contesting the validity of such obligation in good faith and has segregated cash funds equal to not less than one-half of the contested amount;
 
3.8   Public Information Failure .  A Public Information Failure occurs and continues for a period of FIFTEEN (15) Days;
 
3.9 Beginning 30 days after the Issue Date, the failure of any of the DWAC Eligible Conditions to be satisfied at any time thereafter during which the Borrower has obligations under this Note;
 
3.10  Reservation Default .  Failure by the Borrower to have reserved for issuance upon conversion of this Note the amount of Common stock as set forth in this Note;
 
3.11   Withdrawal from registration of the Issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), either voluntary or involuntary ;
 
3.12   Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due;
 
3.13   The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future;
 
3.14   The Borrower shall fail to maintain the listing and/or quotation, as applicable, of the Common Stock on the Principal Market;
 
3.15   The Borrower shall fail to comply with the reporting requirements of the 1934 Act; and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act;
 
3.16   Any cessation of operations by the Borrower or the Borrower admits it is otherwise generally unable to pay its debts and such debts become due;
 
3.17   The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or any other Transaction Documents;
 
3.18   The Borrower effectuates a reverse split of its Common Stock without twenty (20) calendar days prior written notice to the Holder;
 
3.19   In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower;
 
 
 
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3.20   The Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date or the company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversion of any Notes in accordance with the terms hereof or the Company shall fail to deliver documents requested by the Holder or the Holder’s brokerage firm which the Holder or the Holder’s brokerage firm deem necessary to allow Holder to sell the Company’s stock;
 
3.21   During the term of this Agreement, the Company enters into any Prohibited Transaction without the prior written consent of the Holder, which consent may be withheld at the sole discretion of the Holder. For the purposes of this Note, the term “Prohibited Transaction” shall refer to the issuance by the Company of any “future priced securities,” which shall mean the issuance of shares of Common Stock or securities of any type whatsoever that are, or may become, convertible or exchangeable into shares of Common Stock where the purchase, conversion or exchange price for such Common Stock is determined using any floating discount or other post-issuance adjustable discount to the market price of Common Stock, including, without limitation, pursuant to any equity line financing, stand-by equity distribution agreements, at the market transactions or convertible securities and loans, securities in a registered direct public offering or an unregistered private placement where the price per share of such securities is fixed concurrently with the execution of definitive documentation relating to the offering or placement, as applicable and securities issued in connection with a secured debt financing, shall not be a Prohibited Transaction;
 
3.22   The Borrower fails to provide information requested by the Holder in order to enable the holder to have their converted securities accepted and sold by their brokerage firm, or the Borrower attempts to prevent, block or frustrate in any manner, the Holder from converting this Note; and
 
3.23   The Borrower breaches a negative covenant in Article IV of this Note
 
Upon the occurrence of any Event of Default, (a) the Outstanding Balance shall immediately increase to 150% of the Outstanding Balance immediately prior to the occurrence of the Event of Default and (b) this Note shall then accrue interest at the Default Interest Rate which shall be the maximum amount of interest available under state law during a default on a note (collectively, the “ Default Effects ”). The Default Effects shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. Further, upon the occurrence and during the continuation of any Event of Default, the Holder may by written notice to the Borrower declare the entire Outstanding Balance immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding; provided , however , that upon the occurrence or existence of any Event of Default, immediately and without notice, all outstanding obligations payable by the Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Transaction Documents to the contrary (“ Automatic Acceleration ”).  The Holder shall retain all rights under this Note and the Transaction Documents, including the ability to convert the then Outstanding
 
 
 
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Balance of this Note at all times following the occurrence of an Automatic Acceleration until the entire then Outstanding Balance has been paid in full. If one or more of the “Events of Default” as described in the Agreement shall occur, the Borrower agrees to pay all costs and expenses, including reasonable attorney’s fees, which the Holder may incur in collecting any amount due under, or enforcing any terms of, this Note. The Borrower covenants that until all amounts due under this Note are paid in full, by conversion or otherwise, the Borrower shall notify Holder in writing within one day of any of the above Events of Default.

ARTICLE IV
NEGATIVE COVENANTS
 
4.1. Negative Covenants .  As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
 
(a)   other than Permitted Indebtedness (as defined below), enter into, create, incur, assume, guarantee or suffer to exist any secured indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
 
(b)   other than Permitted Liens (as defined below), enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
 
(c)   repay, repurchase or offer to repay, repurchase or otherwise acquire for cash more than a de minimis number of shares of its Common Stock other than repurchases of Common Stock of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 during the term of this Note; or
 
(d)   pay cash dividends or distributions on any equity securities of the Company.
 
(e)   amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;
 
(f)   repay, repurchase or offer  to repay, repurchase or otherwise acquire any indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;
 
(g)   enter into any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval;
 
(h)   enter into any agreement with respect to any of the foregoing.
 
4.2 .  For the purpose of this Note, the following definitions shall apply:
 
 
 
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(i)   Permitted Indebtedness ” means (i) the Indebtedness evidenced by the Note, (ii) unsecured Indebtedness incurred by the Company, which Indebtedness is not senior in rank to the Note and does not mature prior to six months from the issue date of such Indebtedness, (iii) Indebtedness secured by Permitted Liens, and (iv) extensions, refinancings and renewals of any items in clauses (i) through (iv) above, provided that the principal amount is not increased (other than with respect to the addition of existing or future interest due and payable thereunder to the principal thereunder) or the terms modified to impose materially more burdensome terms upon the Company or its Subsidiaries, as the case may be.
 
(j)    “ Permitted Lien ” means the individual and collective reference to the following: (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (ix) Liens incurred in connection with Permitted Indebtedness under clause (i) and, solely to the extent existing as of the Issue Date, clause (ii) of the definition thereof (including any extensions, refinancings and renewals of such Indebtedness that constitute Permitted Indebtedness).
 
ARTICLE V
REDEMPTION RIGHTS
 
5.1. Optional Redemption Right .  Subject to the provisions of this Article V, at any time (a) within ninety (90) days after the Effective Date, the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note for cash at a redemption price equal to 150% multiplied by all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note, on the 20 th Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such 20 Trading Day period, the “ Optional Redemption Period ” and such redemption, the “ Optional Redemption ”), The Optional Redemption Amount is payable in full on the
 
 
 
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Optional Redemption Date.  The Company may only effect an Optional Redemption if each of the Equity Conditions (as defined below) shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full.  If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company after the day on which any such Equity Condition has not been met in which case the Optional Redemption Notice shall be null and void, ab initio .  The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.  “ Equity Conditions ” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for such period) or (ii) all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption may be resold pursuant to Rule 144 during such period, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Conversion Shares issuable upon conversion of such portion of this Note being redeemed at such time, (f) there is no existing Event of Default and, to the actual knowledge of the Company, no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares issuable to the Holder upon conversion of such portion of this Note subject to an Optional Redemption would not violate the limitations set forth in Section 2.3 under this Note, (h) there has been no public announcement of a pending or proposed Fundamental Transaction that has not been consummated or abandoned, and (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information. Notwithstanding the foregoing, the Holder may elect to convert the outstanding principal amount of the Note subject to an Optional Redemption Notice pursuant to Article II at any time prior to actual payment in cash for any redemption under this Section 5 by the delivery of an irrevocable Notice of Conversion to the Company.
 
ARTICLE IV
UNSECURED NOTE
 
4.1   Unsecured Note .  Note is an unsecured obligation of the Borrower.
 
ARTICLE V
MISCELLANEOUS
 
5.1   Failure or Indulgence Not Waiver .  No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
 
 
 
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5.2. Notices .  All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall be in writing and either faxed, mailed, e-mailed or delivered to each party at the respective addresses of the parties. All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing on the Trading Day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; (d) when faxed, upon confirmation of receipt; (e) when e-mailed, upon e-mail being sent.
 
5.3   Amendment Provision .  No provision of this Note may be modified or amended without the prior written consent of the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
 
5.4   Assignability .  Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.  The Holder may assign or transfer this Note to any transferee.
 
5.5   Cost of Collection .  If default is made in the payment of Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
 
5.6   Governing Law .  Note shall only be governed by and construed in accordance with the laws of the State of Florida, including, but not limited to, Florida statutes of limitations.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the civil or state courts in Miami, Florida or in the federal courts located in Miami, Florida.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit only to the jurisdiction of such courts in Miami, Florida.  The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law.  Any such provision, which may prove invalid or unenforceable under any law, shall not affect the validity or unenforceability of any other provision of Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, or to enforce a judgment or other decision in favor of the Holder.   This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding or summary judgment or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of Note, whether or not such other document or agreement was delivered together herewith or was executed apart from Note.
 
 
 
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5.7   Shareholder Status .  The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of Note.  However, the Holder will have the rights of a shareholder of the Borrower with respect to the Shares of Common Stock to be received after delivery by the Holder of a Conversion Notice to the Borrower.
 
5.8   Non-Business Days .  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of Florida, such payment may be due or action shall be required on the next succeeding Trading Day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.
 
5.9   Unenforceability .  If any term in this Note is found by a court of competent jurisdiction to be unenforceable, then the entire Note shall be rescinded, the consideration proffered by the Holder for the remaining Debt acquired by the Holder not converted by the Holder in accordance with this Note shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.
 
5.10   Entire Understanding .  The Note between the Borrower and the Holder (including all Exhibits thereto) constitute the full and entire understanding and agreement between the Borrower and the Holder with respect to the subject hereof. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Borrower and the Holder. Any questions regarding interpretation of this Note shall be solely construed by the Holder in their sole discretion.
 
5.11   Registration Rights . The Issuer hereby grants the right to the Investor, at Investor’s expense, to require Issuer to register any and all issuances, past, present and future, directly connected to this specific Debt. If the Investor shall request the registration, the Issuer shall begin the registration process within 30 days and the Investor shall have the following rights.
 
5.12   Recoupment of Registration Fees . If the Investor shall invoke his rights under section 5.11 of this Agreement, the Issuer shall reimburse to the Investor all fees, costs, and disbursements, inclusive of attorney’s fees, paid for by Investor, in common stock under the same terms and conditions provided for herein.
 
5.13   Legal Opinion . The Issuer’s counsel has provided an opinion regarding the applicable exemption from registration under the Securities Act for the issuance of the Conversion Shares pursuant to the terms and conditions of this Agreement and the Note, which provides that upon conversion at any time following the date hereof, the shares received as a result of the conversion shall be issued unrestricted in accordance with the appropriate exemption.
 
5.14   Post-Closing Expenses . The Borrower will bear any and all miscellaneous expenses of the Borrower and Holder that may arise post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, fees charged for delivering, vetting and accepting physical certificates, any and all fees and costs charged by the Holder’s brokers in handling and transacting in the shares of the Company on behalf of the Holder. These fees may be either deducted from future payments or added to the outstanding principal balance of this Note at the sole discretion of the Holder. The failure to pay any and all Post-Closing Expenses will be deemed an Event of Default.
 
 
 
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5.15   Savings Clause .  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 provision of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.
 
5.16   Attorneys’ Fees and Cost of Collection . In the event of any action at law or in equity to enforce or interpret the terms of this Note or any of the other documents related to this financing, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses  paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses  giving rise to the fees and expenses.  Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
 
5.17   Fees and Charges . The parties acknowledge and agree that upon the Borrower’s failure to comply with the provisions of this Note, the Holder’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, the Holder’s increased risk, and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder, among other reasons. Accordingly, any fees, charges, and interest due under this Note are intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not a penalty, and shall not be deemed in any way to limit any other right or remedy Holder may have hereunder, at law or in equity.
 
5.18   Notice of Corporate Events . Except as otherwise provided herein, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s stockholders (and copies of proxy materials and other information sent to stockholders). In the event of any taking by the Borrower of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining stockholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) calendar days prior to the record date specified therein (or thirty (30) calendar days prior to the consummation of
 
 
 
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the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this section.
 
5.19   Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the charges assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
 


 
 
[SIGNATURES ON THE FOLLOWING PAGE]
 

 
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IN WITNESS WHEREOF , Borrower has caused Note to be signed in its name by an authorized officer as of the ___________________________ 2013.
 


Red Giant Entertainment, Inc.
 

By: /s/ Benny Powell                        
 Name: Benny Powell
 Title: CEO

 



 
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Exhibit B
 
NOTICE OF CONVERSION
 
(To be executed by the Registered Holder in order to convert the Note)
 
The undersigned hereby elects to convert $_________ of the principal amount and $_________ of the interest due on the Note issued by Red Giant Entertainment, Inc. on ___________________ 2013 into shares of common stock of Red Giant Entertainment, Inc. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.
 
Date of Conversion: ____________________________________________________________
 
Conversion Price: ______________________________________________________________
 
Shares to Be Delivered: _________________________________________________________
 
Notwithstanding anything to the contrary contained herein, this Conversion Notice shall constitute a representation by the Holder of the Note submitting this Conversion Notice that, after giving effect to the conversion provided for in this Conversion Notice, such Holder (together with its affiliates) will not have beneficial ownership (together with the beneficial ownership of such person's affiliates) of a number of shares Common Stock which exceeds the Maximum Percentage (as defined in the Note) of the total outstanding shares Common Stock of the Company as determined pursuant to the provisions of Section 2.3 of the Note.
 
Signature: ____________________________________________________________________
                 Allen Silberstein, CEO of AGS Capital Group, LLC
 

 
 
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Exhibit 4.3

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSATION.


RED GIANT ENTERTAINMENT, INC.
$19,000

EIGHTEEN PERCENT (18%) CONVERTIBLE PROMISSORY NOTE DATED JANUARY 8, 2014
 
FOR VALUE RECEIVED of  the signed Settlement Agreement and Release,  RED GIANT ENTERTAINMENT, INC., a Nevada corporation (hereinafter called “ Borrower ” or the “ Company ”), hereby promises to pay to AGS CAPITAL GROUP, LLC or its assigns or successors-in-interest (the “ Holder ”) or order, without demand, the aggregate principal amount of ONE HUNDRED FORTY-SEVEN THOUSAND THREE HUNDRED AND SEVENTY NINE DOLLARS AND FIFTY CENTS $147,379.50 (the “ Principal Amount ”), together with interest thereon from the Issue Date, payable on January 8, 2014   (the “ Maturity Date ”).  Interest shall accrue at a rate of eighteen percent (18%) per annum. All Interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. “ Outstanding Balance ” means the Original Principal Amount, as reduced or increased, as the case may be, pursuant to the terms hereof for conversion, breach hereof or otherwise, plus any accrued but unpaid interest (including with limitation Default Interest), collection and enforcements costs, and any other fees or charges incurred under this Note.

ARTICLE I
CONVERSION PRIVILEGES
 
The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until Note is paid in full regardless of the occurrence of an Event of Default but subject to Article II.  The Holder shall be able to convert this Note starting from today’s date and ending until the full amount of the Note has been converted.  The Principal Amount of Note together with all unpaid interest accrued thereon and any other amounts payable hereunder, or such portion thereof, that has not previously been converted into common stock, of the Company (the “ Common Stock ”) in accordance with Article II hereof, if any, shall be payable in full on the Maturity Date.
 
ARTICLE II
CONVERSION RIGHTS
 
The Holder shall have the right to convert the Principal Amount together with all unpaid interest accrued thereon of this Note into shares of the Borrower’s Common Stock as set forth below.
 
 
 
 

 
 
2.1   Conversion into the Borrower’s Common Stock .
 
(a)   Conversion Price .  The conversion price (the “ Conversion Price ”) shall be equal to the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The " Variable Conversion Price " shall mean sixty percent (60%) multiplied by the Market Price (as defined herein); provided , however , that if, after the Issue Date, the Borrower issues a convertible promissory note to any Person other than the Holder or its Affiliates which contains a conversion price (the “ Third-Party Conversion Price ”) which the Borrower and the Holder agree in writing, after good faith negotiations, is less than the effective Variable Conversion Price (after giving effect to any shares of Common Stock issued, or issuable, to the Holder or its Affiliates in connection with this Note or any other agreement between the Borrower and the Holder), then the Variable Conversion Price shall be reduced to the Third-Party Conversion Price.  “ Market Price ” means the lowest closing bid price in the fifty Trading Days prior to the applicable Conversation Date. In the event that a bid price does not exist for one of the twenty days used to calculate the Market Price, then instead of using zero, the lower of .0001 or half of the closing ask shall be utilized instead. “ Trading Day ” shall mean any day on which the Common Stock is traded on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time). The Conversion Price set forth herein shall be reduced an additional ten percent of the lowest closing bid price in the fifty Trading Days prior to the applicable Conversion Date for each Public Information Failure. If the Company is late in any of their filings with the SEC, such lateness shall constitute a Public Information Failure. For purposes of clarity, it is understood that if there shall be a Public Information Failure which is cured and then repeated once, the Conversion Price shall be reduced an additional twenty percent of the average closing bid price in the fifty Trading Days prior to the applicable Conversion Date. The Conversion Price may be adjusted pursuant to the other terms of this Note.
 
(b)   Conversion.   The Holder shall have the option, but shall not be required, to convert all or a portion of the Note into a number of fully paid and non-assessable shares of Common Stock (the “ Conversion Shares ”).  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding Principal Amount together with all unpaid interest accrued thereon of this Note to be converted by (y) the Conversion Price. The Company may deliver an objection to any Notice of Conversion within one Business Day of delivery of such Notice of Conversion. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company.
 
(c)   Mechanics of Conversion .  As a condition to effecting the conversion set forth in Section 2.1(b) above, the Holder shall properly complete and deliver to the Company a Notice of Conversion, a form of which is annexed hereto as Exhibit B .  The Notice of Conversion shall set forth the Principal Amount together with all unpaid interest accrued thereon of this Note to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is
 
 
 
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deemed delivered hereunder.  Upon timely delivery to the Borrower of the Notice of Conversion, certificates evidencing that number of shares of Common Stock for the portion of the Note converted in accordance herewith shall be transmitted by the Company’s transfer agent to the Holder by crediting the account of the Holder’s broker with The Depository Trust Company through its Deposit / Withdrawal at Custodian system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Conversion Shares to, or resale of the Conversion Shares by, the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Conversion by the date that is three (3) Trading Days after the Conversion Date (such third day being the “ Share Delivery Date ”). The Borrower will not issue fraction shares or scrip representing fractions of shares upon conversion, but the Borrower will round the number of the she shares up to the nearest whole share.
 
(d)   Obligation to Deliver Conversion Shares Absolute; Certain Remedies .
 
(i)   Obligation Absolute .  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares. The Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. All payments under this Note (whether made by the Borrower or any other person) to or for the account of the Holder hereunder shall be made free and clear of and without reduction by reason of any present and future income, stamp, registration and other taxes, levies, duties, costs and charges whatsoever imposed, assessed, levied or collected by the United States or any political subdivision or taxing authority thereof or therein, together with interest thereon and penalties with respect thereto, if any on or in respect of this Note (such taxes, levies, duties, costs and charges being herein collectively called “Taxes”).
 
Failure to Deliver Common Stock Prior to Delivery Date . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered as required by Section 2.1(c) by the Share Delivery Date  (a “ Conversion Default ”), the Borrower shall pay in cash to the Holder for each calendar day beyond the Delivery Date that the Borrower fails to deliver such Common Stock an amount equal to at the sole discretion of the Holder either (i) $2,000.00 and (ii) 100% of the product of (1) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (2) the Closing Trading Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Borrower could have issued such shares of Common Stock to the Holder without violating Section 2.1(c) (the “ Conversion Default Payment ”).  Such cash amount shall be paid to the Holder by the fifth day of the month following the month in which it has accrued (the “ Conversion Default Payment Due Date ”).  In the event such cash amount is not
 
 
 
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received by the Holder by the Conversion Default Payment Due Date, at the option of the Holder (without notice to the Borrower), the Conversion Default Payment shall be added to the Outstanding Balance of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note. If the Company does not request the issuance of the Conversion Shares underlying this Debenture from its transfer agent after receipt of a Notice of Conversion within TWO (2) Business days following the period allowed for any objection, the Company shall be responsible for any differential in the value of the converted shares underlying this Debenture between the value of the closing price on the date the shares should have been delivered and the date the shares are delivered. In addition, if the COMPANY fails to timely (within 72 hours, 3 business days), issue a treasury order to its transfer agent or otherwise cause to be delivered, the Conversion Shares per the instructions of the Holder, free and clear of all legends in legal free trading form, subject to all applicable securities laws, the Company shall allow Holder to add two (2) days to the look-back (the mechanism used to obtain the conversion price along with discount) for each day the Company fails to timely (within 72 hours, 3 business days)) deliver shares, on the next conversion.

(ii)   Rescission .  If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
 
(e)   Adjustment .  The number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(b), shall be subject to adjustment, from time to time, upon the happening of certain events while this conversion right remains outstanding, as follows:
 
(f)   Reservation of Shares .  The Borrower represents at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of this Note (based on the Conversion Price in effect from time to time) (the “ Reserved Amount ”). The Reserved Amount shall be increased from time to time as required to insure compliance with this provision. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue shares of the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of issuing the necessary shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default.
 
 
 
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2.2  Effect of Certain Events .

(a)  Fundamental Transaction Consent Right . The Borrower shall not enter into or be party to a Fundamental Transaction (as defined below), unless the Borrower obtains the prior written consent of the Holder to enter into such Fundamental Transaction. For purposes of this Note, “ Fundamental Transaction ” means that (i) (1) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not the Borrower or any of its subsidiaries is the surviving corporation) any other individual, corporation, limited liability company, partnership, association, trust or other entity or organization (collectively, “ Person ”), or (2) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of the Borrower’s Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Borrower. The provisions of this Section 2.2(a) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.  As a condition to pre-approving any Fundamental Transaction in writing, which approval may be withheld in the Holder’s sole discretion, Holder may require the resulting successor or acquiring entity (if not the Borrower) to assume by written instrument all of the obligations of the Borrower under this Note and all the other Transaction Documents with the same effect as if such successor or acquirer had been named as the Borrower hereto and thereto.
 
(b)  Adjustment Due to Fundamental Transactions . If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any Fundamental Transaction that is pre-approved in writing by the Holder pursuant to Section 2.2(a) above, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock,
 
 
 
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securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of this Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The above provisions shall similarly apply to successive Fundamental Transactions.

(c)  Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s stockholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “ Distribution ”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining stockholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution.

(d)  Adjustment Due to Dilutive Issuance . If, at any time when this Note is issued and outstanding, the Borrower issues or sells, or in accordance with this section hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “ Dilutive Issuance ”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“ Convertible Securities ”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “ Options ”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
 
 
 
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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible, and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (1) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (2) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e)  Purchase Rights . If, at any time when this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “ Purchase Rights ”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(f)  Adjustment Due to Non-DWAC Eligibility . If, at any time when this Note is issued and outstanding thereafter, the Holder delivers a Notice of Conversion and at such time all DWAC Eligible Conditions are not then satisfied, the Borrower shall deliver certificated Conversion Shares to the Holder pursuant to Section 2.1(c) and the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note or the other Transaction Documents. The “ Non-DWAC Eligible Adjustment Amount ” is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account.  In any such case, Holder will use reasonable efforts to timely deposit such certificates in its brokerage account after it receives them and cause such restrictive legends to be removed, and, without limiting any other provision hereof, Borrower agrees to fully cooperate with Holder in accomplishing the same. Any fees charged to Holder for the stock being Non-DWAC Eligible shall be paid by the Borrower.

(g)  Notice of Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price or the addition of the Non-DWAC Eligible Adjustment Amount to the Outstanding Balance as a result of the events described in this Note, the Borrower, the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note or the other Transaction Documents. The “ Non-DWAC Eligible Adjustment Amount ” is the amount equal to the number of applicable Conversion Shares multiplied by the
 
 
 
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excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account. at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of this Note.
 
2.3   Method of Conversion .  Note may be converted by the Holder, in whole or in part, as described in Section 2.1(a) hereof.  Upon partial conversion of Note, a new Note containing the same date and provisions of Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of Note and interest which shall not have been converted or paid.
 
2.4   Limitations on Conversion .  Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the Common Stock. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provision of this section, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of  common Stock upon conversion of this Note held by the Holder  and the Beneficial Ownership Limitation provision of this section shall continue to apply. To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein
 
 
 
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contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Trading Days confirm orally to the Holder and, if requested, in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note.
 
ARTICLE III
EVENT OF DEFAULT
 
The occurrence of any of the following events of default (“ Event of Default ”) shall be an event of default hereunder (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
 
3.1   Failure to Pay .  The Borrower fails to (i) pay the Principal Amount, interest, damages or other sum due under this Note or any other note when due or;
 
3.2   Breach of Covenant .  The Borrower breaches any material covenant of the Note in any material respect and such breach, if subject to cure, continues for a period of FIFTEEN (15) Trading Days after written notice to the Borrower from the Holder;
 
3.3   Breach of Representations and Warranties .  Any representation or warranty of the Borrower made, in this Note, said statement or certificate given in writing pursuant hereto or in connection therewith or any other report, financial statement or certificate shall be false or misleading in any material respect as of the date made and the Closing Date;
 
3.4   Receiver or Trustee .  The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed;
 
3.5   Judgments .  Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than ONE MILLION DOLLARS ($1,000,000.00) and shall remain unvacated, unbonded or unstayed for a period of THIRTY (30) days;
 
3.6   Bankruptcy .  Bankruptcy, reorganization, insolvency proceeding, liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against them are not dismissed within THIRTY (30) days of initiation. The Borrower suffers any appointment of any custodian or the like for it or any substantial art of its property that is not discharged or stayed within 30 days; the Borrower makes a general assignment of the benefit of creditors; the Borrower fails to pay or states that it is unable to pay, or is unable to pay its debts generally as they become due;
 
 
 
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3.7   Non-Payment .  A default by the Borrower under any one or more obligations in, unless the Borrower is contesting the validity of such obligation in good faith and has segregated cash funds equal to not less than one-half of the contested amount;
 
3.8   Public Information Failure .  A Public Information Failure occurs and continues for a period of FIFTEEN (15) Days;
 
3.9 Beginning 30 days after the Issue Date, the failure of any of the DWAC Eligible Conditions to be satisfied at any time thereafter during which the Borrower has obligations under this Note;
 
3.10  Reservation Default .  Failure by the Borrower to have reserved for issuance upon conversion of this Note the amount of Common stock as set forth in this Note;
 
3.11   Withdrawal from registration of the Issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), either voluntary or involuntary;
 
3.12   Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due;
 
3.13   The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future;
 
3.14   The Borrower shall fail to maintain the listing and/or quotation, as applicable, of the Common Stock on the Principal Market;
 
3.15   The Borrower shall fail to comply with the reporting requirements of the 1934 Act; and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act;
 
3.16   Any cessation of operations by the Borrower or the Borrower admits it is otherwise generally unable to pay its debts and such debts become due;
 
3.17   The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or any other Transaction Documents;
 
3.18   The Borrower effectuates a reverse split of its Common Stock without twenty (20) calendar days prior written notice to the Holder;
 
3.19   In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower;
 
 
 
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3.20   The Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date or the company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversion of any Notes in accordance with the terms hereof or the Company shall fail to deliver documents requested by the Holder or the Holder’s brokerage firm which the Holder or the Holder’s brokerage firm deem necessary to allow Holder to sell the Company’s stock;
 
3.21   During the term of this Agreement, the Company enters into any Prohibited Transaction without the prior written consent of the Holder, which consent may be withheld at the sole discretion of the Holder. For the purposes of this Note, the term “Prohibited Transaction” shall refer to the issuance by the Company of any “future priced securities,” which shall mean the issuance of shares of Common Stock or securities of any type whatsoever that are, or may become, convertible or exchangeable into shares of Common Stock where the purchase, conversion or exchange price for such Common Stock is determined using any floating discount or other post-issuance adjustable discount to the market price of Common Stock, including, without limitation, pursuant to any equity line financing, stand-by equity distribution agreements, at the market transactions or convertible securities and loans, securities in a registered direct public offering or an unregistered private placement where the price per share of such securities is fixed concurrently with the execution of definitive documentation relating to the offering or placement, as applicable and securities issued in connection with a secured debt financing, shall not be a Prohibited Transaction;
 
3.22   The Borrower fails to provide information requested by the Holder in order to enable the holder to have their converted securities accepted and sold by their brokerage firm, or the Borrower attempts to prevent, block or frustrate in any manner, the Holder from converting this Note; and
 
3.23   The Borrower breaches a negative covenant in Article IV of this Note or threatens litigation or enters into litigation against the Holder.
 
Upon the occurrence of any Event of Default, (a) the Outstanding Balance shall immediately increase to 150% of the Outstanding Balance immediately prior to the occurrence of the Event of Default and (b) this Note shall then accrue interest at the Default Interest Rate which shall be the maximum amount of interest available under state law during a default on a note (collectively, the “ Default Effects ”). The Default Effects shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. Further, upon the occurrence and during the continuation of any Event of Default, the Holder may by written notice to the Borrower declare the entire Outstanding Balance immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding; provided , however , that upon the occurrence or existence of any Event of Default, immediately and without notice, all outstanding obligations payable by the Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Transaction Documents to the contrary (“ Automatic Acceleration ”).  The Holder shall retain all rights under this Note and the Transaction Documents, including the ability to convert the then Outstanding
 
 
 
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Balance of this Note at all times following the occurrence of an Automatic Acceleration until the entire then Outstanding Balance has been paid in full. If one or more of the “Events of Default” as described in the Agreement shall occur, the Borrower agrees to pay all costs and expenses, including reasonable attorney’s fees, which the Holder may incur in collecting any amount due under, or enforcing any terms of, this Note. The Borrower covenants that until all amounts due under this Note are paid in full, by conversion or otherwise, the Borrower shall notify Holder in writing within one day of any of the above Events of Default.

ARTICLE IV
NEGATIVE COVENANTS
 
4.1. Negative Covenants .  As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
 
(a)   other than Permitted Indebtedness (as defined below), enter into, create, incur, assume, guarantee or suffer to exist any secured indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
 
(b)   other than Permitted Liens (as defined below), enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
 
(c)   repay, repurchase or offer to repay, repurchase or otherwise acquire for cash more than a de minimis number of shares of its Common Stock other than repurchases of Common Stock of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 during the term of this Note; or
 
(d)   pay cash dividends or distributions on any equity securities of the Company.
 
(e)   amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;
 
(f)   repay, repurchase or offer  to repay, repurchase or otherwise acquire any indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;
 
(g)   enter into any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval;
 
(h)   enter into any agreement with respect to any of the foregoing;
 
(i)   threaten litigation or enter into litigation against the Holder;
 
 
 
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(j)   The Borrower, on behalf of itself, predecessors, successors, agents, affiliates, subrogees, insurers, representatives, personal representatives, legal representatives, transferees, assigns and successors in interest of assigns, and any firm, trust, corporation, partnership, investment vehicle, fund or other entity managed or controlled by the company or in which the Company has or had a controlling interest (collectively, the “Borrower releasers”), in consideration of the releases, agreements and covenants contained in this Agreement, hereby remises, releases, acquits and forever discharges Holder or  any and all of their respective direct or indirect affiliates, parent companies, divisions, subsidiaries, agents, consultants, employees, legal counsel, officers, directors, managers, shareholders, stockholders, stakeholders, owners, predecessors, successors, assigns, subrogees, insurers, trustees, trusts, administrators, fiduciaries and representatives, if any (collectively, the “Holder Releasees”), of and from any and all federal, state, local, foreign and any other jurisdiction’s statutory or common law claims (including claims for contribution and indemnification), causes of action, complaints, actions, suits, defenses, debts, sums of money, accounts, covenants, controversies, agreements, promises, losses, damages, orders, judgments and demands of any nature whatsoever, in law or equity, known or unknown, or any kind, or from any other conduct, act, omission or failure to act, whether negligent, intentional, with or without malice, that the Borrower Releasors ever had, now have, may have, may claim to have, or may hereafter have or claim to have, against the Holder Releasees, from the beginning of time up to and including the end of time (the “Released Holder Claims”).
 
4.2. Definitions .  For the purpose of this Note, the following definitions shall apply:
 
(k)   Permitted Indebtedness ” means (i) the Indebtedness evidenced by the Note, (ii) unsecured Indebtedness incurred by the Company, which Indebtedness is not senior in rank to the Note and does not mature prior to six months from the issue date of such Indebtedness, (iii) Indebtedness secured by Permitted Liens, and (iv) extensions, refinancings and renewals of any items in clauses (i) through (iv) above, provided that the principal amount is not increased (other than with respect to the addition of existing or future interest due and payable thereunder to the principal thereunder) or the terms modified to impose materially more burdensome terms upon the Company or its Subsidiaries, as the case may be.
 
(l)    “ Permitted Lien ” means the individual and collective reference to the following: (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses
 
 
 
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granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (ix) Liens incurred in connection with Permitted Indebtedness under clause (i) and, solely to the extent existing as of the Issue Date, clause (ii) of the definition thereof (including any extensions, refinancings and renewals of such Indebtedness that constitute Permitted Indebtedness).
 
ARTICLE V
REDEMPTION RIGHTS
 
5.1. Optional Redemption Right  Subject to the provisions of this Article V, at any time (a) within ninety (90) days after the Effective Date, the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note for cash at a redemption price equal to 150% multiplied by all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note, on the 20 th Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such 20 Trading Day period, the “ Optional Redemption Period ” and such redemption, the “ Optional Redemption ”), The Optional Redemption Amount is payable in full on the Optional Redemption Date.  The Company may only effect an Optional Redemption if each of the Equity Conditions (as defined below) shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full.  If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company after the day on which any such Equity Condition has not been met in which case the Optional Redemption Notice shall be null and void, ab initio .  The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.  “ Equity Conditions ” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for such period) or (ii) all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption may be resold pursuant to Rule 144 during such period, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Conversion Shares issuable upon conversion of such portion of this Note being redeemed at such time, (f) there is no existing Event of Default and, to the
 
 
 
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actual knowledge of the Company, no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares issuable to the Holder upon conversion of such portion of this Note subject to an Optional Redemption would not violate the limitations set forth in Section 2.3 under this Note, (h) there has been no public announcement of a pending or proposed Fundamental Transaction that has not been consummated or abandoned, and (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information. Notwithstanding the foregoing, the Holder may elect to convert the outstanding principal amount of the Note subject to an Optional Redemption Notice pursuant to Article II at any time prior to actual payment in cash for any redemption under this Section 5 by the delivery of an irrevocable Notice of Conversion to the Company.
 
ARTICLE IV
UNSECURED NOTE
 
4.1   Unsecured Note .  Note is an unsecured obligation of the Borrower.
 
ARTICLE V
MISCELLANEOUS
 
5.1   Failure or Indulgence Not Waiver .  No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
 
5.2. Notices .  All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall be in writing and either faxed, mailed, e-mailed or delivered to each party at the respective addresses of the parties. All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing on the Trading Day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; (d) when faxed, upon confirmation of receipt; (e) when e-mailed, upon e-mail being sent.
 
5.3   Amendment Provision .  No provision of this Note may be modified or amended without the prior written consent of the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
 
5.4   Assignability .  Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.  The Holder may assign or transfer this Note to any transferee.
 
5.5   Cost of Collection .  If default is made in the payment of Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
 
5.6   Governing Law .  Note shall only be governed by and construed in accordance with the laws of the State of Delaware, including, but not limited to, Delaware statutes of limitations.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the civil or state courts in Delaware or in the federal courts located in Delaware.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit only to the jurisdiction of such courts in Delaware.  The prevailing party shall be entitled to recover from the other party its
 
 
 
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reasonable attorney’s fees and costs.  In the event that any provision of Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law.  Any such provision, which may prove invalid or unenforceable under any law, shall not affect the validity or unenforceability of any other provision of Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, or to enforce a judgment or other decision in favor of the Holder.   This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding or summary judgment or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of Note, whether or not such other document or agreement was delivered together herewith or was executed apart from Note.
 
5.7   Non-Business Days .  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of Delaware, such payment may be due or action shall be required on the next succeeding Trading Day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.
 
5.8   Unenforceability .  If any term in this Note is found by a court of competent jurisdiction to be unenforceable, then the entire Note shall be rescinded, the consideration proffered by the Holder for the remaining Debt acquired by the Holder not converted by the Holder in accordance with this Note shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.
 
5.9   Entire Understanding .  The Note between the Borrower and the Holder (including all Exhibits thereto) constitute the full and entire understanding and agreement between the Borrower and the Holder with respect to the subject hereof. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Borrower and the Holder. Any questions regarding interpretation of this Note shall be solely construed by the Holder in their sole discretion.
 
5.10   Registration Rights . The Issuer hereby grants the right to the Investor, at Investor’s expense, to require Issuer to register any and all issuances, past, present and future, directly connected to this specific Debt. If the Investor shall request the registration, the Issuer shall begin the registration process within 30 days and the Investor shall have the following rights.
 
5.11   Recoupment of Registration Fees . If the Investor shall invoke his rights under section 5.11 of this Agreement, the Issuer shall reimburse to the Investor all fees, costs, and disbursements, inclusive of attorney’s fees, paid for by Investor, in common stock under the same terms and conditions provided for herein.
 
 
 
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5.12   Legal Opinion . The Issuer’s counsel has provided an opinion regarding the applicable exemption from registration under the Securities Act for the issuance of the Conversion Shares pursuant to the terms and conditions of this Agreement and the Note, which provides that upon conversion at any time following the date hereof, the shares received as a result of the conversion shall be issued unrestricted in accordance with the appropriate exemption.
 
5.13   Post-Closing Expenses . The Borrower will bear any and all miscellaneous expenses of the Borrower and Holder that may arise post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, fees charged for delivering, vetting and accepting physical certificates, any and all fees and costs charged by the Holder’s brokers in handling and transacting in the shares of the Company on behalf of the Holder. These fees may be either deducted from future payments or added to the outstanding principal balance of this Note at the sole discretion of the Holder. The failure to pay any and all Post-Closing Expenses will be deemed an Event of Default.
 
5.14   Savings Clause .  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 provision of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.
 
5.15   Attorneys’ Fees and Cost of Collection . In the event of any action at law or in equity to enforce or interpret the terms of this Note or any of the other documents related to this financing, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses  paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses  giving rise to the fees and expenses.  Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.
 
5.16   Fees and Charges . The parties acknowledge and agree that upon the Borrower’s failure to comply with the provisions of this Note, the Holder’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, the Holder’s increased risk, and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder, among other reasons. Accordingly, any fees, charges, and interest due under this Note are intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not a penalty, and shall not be deemed in any way to limit any other right or remedy Holder may have hereunder, at law or in equity.
 
 
 
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5.17   Notice of Corporate Events . Except as otherwise provided herein, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s stockholders (and copies of proxy materials and other information sent to stockholders). In the event of any taking by the Borrower of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining stockholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) calendar days prior to the record date specified therein (or thirty (30) calendar days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this section.
 
5.18   Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the charges assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
 
5.19   Current Notes .  Company shall disclose all current notes that it has with third parties on Exhibit C.
 

 

 

 
[SIGNATURES ON THE FOLLOWING PAGE]
 

 
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IN WITNESS WHEREOF , Borrower has caused Note to be signed in its name by an authorized officer as of the ___________________________ 2014.
 


Red Giant Entertainment, Inc.
 

By:  /s/ Benny Powell                        
 Name: Benny Powell
 Title: CEO

 

NOTARY PUBLIC WITNESS:


______________________________________
 
 

 
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Exhibit B
 
NOTICE OF CONVERSION
 
(To be executed by the Registered Holder in order to convert the Note)
 
The undersigned hereby elects to convert $_________ of the principal amount and $_________ of the interest due on the Note issued by Red Giant Entertainment, Inc. on ___________________ 2013 into shares of common stock of Red Giant Entertainment, Inc. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.
Date of Conversion: _____________________________________________________________
 
Conversion Price: _______________________________________________________________
 
Shares to Be Delivered: _________________________________________________________
 
Notwithstanding anything to the contrary contained herein, this Conversion Notice shall constitute a representation by the Holder of the Note submitting this Conversion Notice that, after giving effect to the conversion provided for in this Conversion Notice, such Holder (together with its affiliates) will not have beneficial ownership (together with the beneficial ownership of such person's affiliates) of a number of shares Common Stock which exceeds the Maximum Percentage (as defined in the Note) of the total outstanding shares Common Stock of the Company as determined pursuant to the provisions of Section 2.3 of the Note.
 
Signature: _____________________________________________________________________
                 Allen Silberstein, CEO of AGS Capital Group, LLC
 

 
 
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Exhibit 4.4
 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
 
 

 
Exhibit 4.5

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 $53,000.00


RED GIANT ENTERTAINMENT, INC.
8% CONVERTIBLE REDEEMABLE NOTE
DUE MARCH 5, 2015
 
FOR VALUE RECEIVED, Red Giant Entertainment, Inc. (the “Company”) promises to pay to the order of LG CAPITAL FUNDING, LLC and its authorized successors and permitted assigns (" Holder "), the aggregate principal face amount of Fifty Three Thousand dollars exactly (U.S. $53,000.00) on March 5, 2015 (" Maturity Date ") and to pay interest on the principal amount outstanding hereunder at the rate of 9% per annum commencing on March 5, 2014.   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 1218 Union Street, Suite #2, Brooklyn, NY 11225   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.
 
 
 
 

 

 
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 price (" Conversion Price ") for each share of Common Stock equal to 55% 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 ten   prior   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 8% 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.

 
 
 

 

(c)           During the first 180 days this Note is in effect, the Company shall have the option to redeem this Note and pay to the Holder 140% 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.

 
 
 

 

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, or the Securities Purchase Agreement under which this note was issued 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)           defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; 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;

 
 
 

 

(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 not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder .

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(k) 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 180,000,000 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.

 
 
 

 

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.

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: March 5, 2014                                                       


 
RED GIANT ENTERTAINMENT, INC.
   
 
By: /s/ Benny R. Powell
   
 
Title: CEO
 

 
 
 

 

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: