Attached files
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 November 30, 2012
Or
[ ] 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: 001-34039
RED GIANT ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Nevada 98-0471928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 [ ]
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 [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).Yes [ ] No [X]
As of January 21, 2013 there were 434,922,000 shares of the Company's common
stock, $0.001 par value per share, issued and outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Quarterly Report") includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. 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
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.
2
Red Giant Entertainment, Inc.
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of November 30, 2012 (Unaudited) and
August 31, 2012 4
Statement of Operations for the Three Months Ended
November 30, 2012 2012 and 2011 (Unaudited) 5
Statements of Cash Flows for the Three Months Ended
November 30, 2012 and 2011 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Mine Safety Disclosures 14
Item 5. Other Information 14
Item 6. Exhibits 15
SIGNATURES 16
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RED GIANT ENTERTAINMENT INC.
(formerly known as Castmor Resources Ltd.)
Balance Sheets
November 30, August 31,
2012 2012
-------- --------
(unaudited)
ASSETS
Current Assets
Cash in Banks $ 2,441 $ 269
Inventory 27,294 10,928
Prepaid Expenses 45,040 20,000
-------- --------
Total Current Assets 74,775 31,197
Computer Equipment - net of depreciation 3,111 3,277
Intellectual Property - net of amortization 18,037 19,500
-------- --------
TOTAL ASSETS $ 95,923 $ 53,974
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts Payable & Accrued Expenses $ 23,582 $ 19,776
Federal Income Tax Payable 5,700 --
-------- --------
Total Liabilities 29,282 19,776
-------- --------
Commitments & Contingencies -- --
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock,$0.0001 par value; 100,000,000 shares
authorized; no shares issued -- --
Common Stock, $0.0001 par value; 900,000,000 shares
authorized; 434,922,000 shares issued and outstanding 43,492 43,492
Additional paid in capital -- --
Discount on Common Stock (1,947) (1,947)
Accumulated earning (deficit) 25,096 (7,347)
-------- --------
Total Stockholders' Equity 66,641 34,198
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 95,923 $ 53,974
======== ========
The accompanying notes are an integral part of these financial statements.
4
RED GIANT ENTERTAINMENT INC.
(formerly known as Castmor Resources, Ltd.)
Statements of Operations (unaudited)
Three months Three months
ended ended
November 30, November 30,
2012 2011
------------ ------------
Sales $ 105,937 $ 13,177
Cost of Sales 47,474 7,138
------------ ------------
Gross Profit 58,463 6,039
------------ ------------
Expenses
Advertising & marketing 771 628
Depreciation & amortization 1,629 1,463
General & administrative 2,431 848
Travel & entertainment 1,523 --
Professional fees 1,200 --
Payroll & related expenses 12,040 --
Meeting & conventions 726 --
------------ ------------
Total Expense 20,320 2,939
------------ ------------
Net Income before taxes 38,143 3,100
Income taxes (5,700) --
------------ ------------
Net Income $ 32,443 $ 3,100
============ ============
Net income per share,
basic and diluted $ -- $ --
============ ============
Weighted average number of
common shares outstanding 434,922,000 240,000,000
============ ============
The accompanying notes are an integral part of these financial statements.
5
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Statements of Cash Flow (Unaudited)
Three months Three months
ended ended
November 30, November 30,
2012 2011
-------- --------
OPERATING ACTIVITIES
Net Income $ 32,443 $ 3,100
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation & amortization 1,629 1,463
Inventory (16,366) (1,759)
Prepaid expenses (25,040) (2,500)
Accounts payable & accrued expenses 3,806 --
Federal income tax payable 5,700 --
-------- --------
Net Cash Used by Operating Activities 2,172 304
-------- --------
INVESTING ACTIVITIES
Computer equipment purchased -- --
-------- --------
Net Cash Used by Investing Activities -- --
-------- --------
FINANCING ACTIVITIES
Capital contributed -- --
-------- --------
Net Cash Provided by Financing Activities -- --
-------- --------
Net Cash Increase for Period 2,172 304
Cash at Beginning of Period 269 --
-------- --------
Cash at End of Period $ 2,441 $ 304
======== ========
Supplemental cash flow information:
Interest paid $ -- $ --
======== ========
Income taxes paid $ -- $ --
======== ========
Non-cash Investing and Financing Activities
Shareholder contribution of intellectual property $ -- $ --
======== ========
The accompanying notes are an integral part of these financial statements.
6
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Notes to the Interim Financial Statements
November 30, 2012
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Red Giant Entertainment LLC, (hereinafter "the Company") was formed in the State
of Florida, U.S.A., on January 1, 2011. The Company's fiscal year end is
December 31. On May 9, 2012, the Company incorporated and changed its name to
Red Giant Entertainment, Inc. ("RGE") All income and expenses in these financial
statements have been recharacterized for reporting purposes to be all inclusive
for the corporate entity. The Company was originally a publishing company, but
has expanded its operations to include mass media and graphic novel artwork
development.
On June 6, 2012, Castmor Resources Ltd., a Nevada corporation entered into and
completed a transaction contemplated by a Share Exchange Agreement (the "Share
Exchange Agreement") with Red Giant Entertainment Inc., a Florida corporation
("RGE") and Benny Powell, who owned 100% of the issued and outstanding shares in
RGE. Pursuant to the terms and conditions of the Share Exchange Agreement,
Castmor issued forty million (240,000,000 post split) newly-issued restricted
shares of the Company's common stock, par value $0.001 per share in exchange for
all of the issued and outstanding shares of stock in RGE owned by Mr. Powell.
The exchange resulted in RGE becoming a wholly-owned subsidiary of the Company.
As a result of the Share Exchange Agreement, the Company will now conduct all
current operations through Red Giant Entertainment, and our principal business
became the business of RGE. All share information has been restated for both the
reverse merger and the forward stock split for all periods presented.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
the generally accepted accounting principles in the United States of America.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates that have been made using careful judgment. In the
opinion of management, all adjustments consisting of normal recurring
adjustments, necessary for the fair presentation of the financial position and
the results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements, which would substantially duplicate the disclosure
required in the annual statements have been omitted.
Accounting Method
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America and have been consistently applied in the preparation
of the financial statements.
Advertising
Advertising costs are expensed as incurred. The Company expensed advertising
costs of $771 and $628 for the periods ending November 30, 2012 and 2011,
respectively.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments and short-term debt instruments with original maturities of
three months or less to be cash equivalents. As of November 30, 2012 and August
31, 2012, the Company has $2,441 and $269 of cash equivalents, respectively.
Cost of Goods Sold
Cost of goods sold includes the cost of creating services or artwork,
advertising and books.
7
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Notes to the Interim Financial Statements
November 30, 2012
Earnings Per Share
The Company follows financial accounting standards, which provides for
calculation of "basic" and "diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net income available to
common shareholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity similar to fully diluted earnings
per share. There were no common stock equivalents outstanding at November 30,
2012 or 2011.
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.
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.
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 months ended
November 30, 2012 and 2011 was $166 and zero, respectively.
Revenue Recognition
Revenue for the Company is recognized from three primary sources: Advertising
Revenue, Publishing Sales and Creative Services. Revenue was processed through
our Paypal Account and Project Wonderful accounts where applicable.
Advertising Revenue comes from the following sources and is stated at net after
commissions:
* Keenspot: Revenue is earned on a net 90 basis and is based upon
traffic to Red Giant property Web sites. It is calculated on a Cost
Per Thousand (CPM) of verified impressions and varies based upon bids
by advertisers and other customary factors. In exchange for
advertising, hosting, IT, and sales management, Keenspot takes 50%
commission of ad revenue for their services.
* Project Wonderful: Revenue is paid immediately and based upon bids by
advertisers for a set amount of time at the prevailing highest winning
rate. Project Wonderful takes a 25% commission of ad revenue for their
services.
Publishing Revenue comes from the following sources:
* Kickstarter Campaigns: These are presales for books and revenue is
recognized only once the books arrive and are shipped to the buyers.
* Direct Sales: Through our online store, we sell directly to clients
and the transactions process through our 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.
8
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Notes to the Interim Financial Statements
November 30, 2012
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.
The Company's Revenue and costs are as follows:
November 30, November 30,
2012 2011
-------- --------
Revenues:
Creative services & advertising $ 9,389 $ 9,415
Book sales 96,548 3,762
-------- --------
Total Revenues $105,937 $ 13,177
======== ========
Cost of revenues:
Creative services & advertising $ 5,339 $ 4,499
Book sales 42,135 2,639
-------- --------
$ 47,474 $ 7,138
======== ========
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses for the reporting period. The
Company reviews its estimates on an ongoing basis. The estimates were based on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances. Actual results could differ from these
estimates. The Company believes the judgments and estimates required in its
accounting policies to be critical in the preparation of the Company's financial
statements.
NOTE 3 - MANAGEMENT STATEMENT REGARDING GOING CONCERN
The Company is currently generating revenues from operations sufficient to meet
its operating expenses. However, as the Company completed the first year of
operation in 2011, 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
9
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Notes to the Interim Financial Statements
November 30, 2012
* develop new and enhance existing relationships with product
distributors and other points of distribution for the Company's
products.
There can be no assurance that the Company will be successful in achieving its
short- or long-term plans as set forth above, or that such plans, if
consummated, will enable the Company to obtain profitable operations or continue
in the long-term as a going concern.
NOTE 4 - INVENTORY
As of November 30, 2012, inventory consisted of physical copies of published
books, as well as artwork that's used for digitally distributed works for
advertising revenue and future publications. The inventory is valued at the cost
to produce.
NOTE 5 - INTELLECTUAL PROPERTY
The Company's intellectual property consists of graphic novel artwork and was
contributed by a shareholder to the Company and valued at $29,250, which was
determined based on the historical costs for artists and printing. The
intangible is being amortized over its identified life of five years.
Amortization cost for the three months ended November 30, 2012 and 2011 was
$1,463. The Company expects to amortize the remaining $18,037 over the remaining
life of approximately three years at $5,850 per year.
NOTE 6 - 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 November 30, 2012, the Company expected no net deferred tax assets calculated
at an expected rate of 34%. An estimated tax liability of $5,700, based upon an
estimated tax rate of 15%, was recorded in the period. For the tax year ended
December 31, 2011, the predecessor entity to Red Giant Entertainment, Inc. was a
limited liability company, and as such, all tax benefits and obligations passed
through the entity to its members. No provisions have been made at November 30,
2011, nor does management believe that any tax modifications would have a
material effect on the financials.
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 November 30, 2012, the tax returns for
2011 have not been 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.
10
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Ltd.)
Notes to the Interim Financial Statements
November 30, 2012
NOTE 7 - CAPITAL STOCK
The Company has 100,000,000 shares of preferred stock authorized and none have
been issued.
The Company has 900,000,000 shares of common stock authorized, of which
434,922,000 shares are issued and outstanding. All shares of common stock are
non-assessable and non-cumulative, with no preemptive rights.
During the eight months ended, August 31, 2012, $10,869 of contributed capital
was added to additional paid in capital. For the three months ended November 30,
2012, no additional capital was contributed and no shares of new stock were
issued.
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.
NOTE 8 - 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.
Mr. Powell also provides rent and other services to the Company at nominal cost.
NOTE 9 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through January 19, 2013. There was
no event of which management was aware that occurred after the balance sheet
date that would require any adjustment to, or disclosure in, the accompanying
consolidated financial statements.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes in our critical accounting policies
from those reported in the fiscal Annual Report on Form 10-K filed with the SEC.
For more information on our critical accounting policies, see Part II, Item 7 of
our fiscal 2011 Annual Report on Form 10-K. The following section provides
certain information with respect to our critical accounting estimates as of the
close of our most recent quarterly period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
30, 2011
REVENUES. During the three months ended November 30, 2012 revenues were
$105,937, an increase of $92,760 or 704% from $13,177 for the three months ended
November 30, 2011. The increase in revenues was a result of improvement in the
overall market for our products, the continuing development of our products and
penetration into our market.
COST OF SALES. During three months ended November 30, 2012, we incurred
Cost of Sales of $47,474 compared to $7,138 incurred during the three months
ended November 30, 2011 (an increase of $40,336 or 565%). Cost of sales
increased due to increased product production to match increase in sales as well
as an increase in the number of titles in development and production necessary
for the creation of books to sell in forthcoming quarters.
GROSS PROFITS. Gross Profit increased from $6,039 during the three months
ended November 30, 2011 to $58,463 during the three months November 30, 2012.
The increase of $52,424, or 868% was largely due to higher revenues and the
continued development of the market for our products.
GENERAL/ADMINISTRATIVE. During fiscal three months ended November 30, 2012,
we incurred General and Administrative expenses of $20,320 compared to $2,939
incurred during the three months ended November 30, 2011 (an increase of $17,381
or 591%). General and administrative expenses include corporate overhead,
financial and administrative services, marketing and professional costs. The
increase was primarily due to the expenses for payroll.
INCOME. Our net income for the three months ended November 30, 2012 was a
net profit of $32,443 compared to a net profit of $3,100 during the three months
ended November 30 31, 2011 (an increase of $29,343 or 947%). The increase in net
income is primarily attributable to the increase of sales of our products.
LIQUIDITY AND CAPITAL RESOURCE. As of November 30, 2012 we had cash or cash
equivalents of $2,441, which is the only amount available to us for current
expenses until such time as we are able to secure additional investment capital.
The bulk of our other assets consist of inventory in the amount $27,294 and
Intellectual Property (net of amortization) of $18,037, together with prepaid
expenses of $45,040.
CASH FLOWS FROM OPERATING ACTIVITIES. For the three months ended November
30, 2012, we had net cash used by operating activities of $2,172 as compared to
net cash used by operating activities of $304 in the three months ended November
30, 2011.
CASH FLOWS FROM INVESTING ACTIVITIES. There was no net cash used by
investing activities for the three months ended November 30, 2012 as was also
the case in the three months ended November 30, 2011.
CASH FLOWS FROM FINANCING ACTIVITIES. For the three months ended November
30, 2012, we had no net cash provided by financing activities as was also the
case in the three months ended November 30, 2011.
12
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 the Company's management, who also serves as
the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the Company's 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 November 30, 2012. 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 the SEC rules and forms and
that such information is accumulated and communicated to management, including
the Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosures.
Based on the evaluation, our Chief Executive Officer/Chief Financial
Officer concluded disclosure controls and procedures were not effective as of
November 30, 2012.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's 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,
the Company's principal executive and principal financial officers, or persons
performing similar functions, and effected by the Company's 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. The Company's 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 the transactions and dispositions of the
assets of the Company;
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.
The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of November 30, 2012. 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 November 30, 2012, the Company's
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.
13
* The Company does 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 November 30, 2012, including formalized monitoring
procedures.
* We presently have only one officer and no employees. In as much as
there is no segregation of duties within the Company, there is no
management oversight, no one to review control documentation and no
control documentation is being produced at this time.
This Quarterly Report does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting, as management's report was not subject to attestation by our
registered public accounting firm pursuant the permanent exemption of the SEC
that require us to provide only management's report in this Quarterly Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Due to the change in control of the registrant in the prior fiscal year,
there have been changes in our internal control over financial reporting that
occurred during the quarter ended November 30, 2012 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting. We are currently evaluating those changes.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to, nor are any of our property currently the
subject of, any material legal proceeding. None of the Company's 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.
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 provided the information
required under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None
14
ITEM 6. EXHIBITS
Exhibit No. Description
----------- -----------
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 Oficer
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 by Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Principal Financial and Accounting Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
101 The following materials from the Company's Quarterly Report on
Form 10-Q for the three months ended November 30, 2012 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.
15
SIGNATURE
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: January 22, 2013
/s/ Benny Powell
------------------------------------
By: Benny Powell
Chief Executive Officer &
Principal Executive Officer
1
