SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
June 6, 2012
Date of Report (Date of Earliest Event Reported)
RED GIANT ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Nevada 001-34039 98-0471928
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
614 E. Hwy. 50, Suite 235 Clermont, Florida 34711
(Address of principal executive offices)
866.926.6427
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See: General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17CFR240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17CFR240.13e-4(c))
EXPLANATORY NOTE
References throughout this Amended Current Report on Form 8-K to "we,"
"our," "us," "the Company," "the Registrant," "Red Giant," and similar terms
refer to Red Giant Entertainment, Inc., formerly Castmor Resources Ltd (and
sometimes "Castmor," Castmor has changed its name to Red Giant), unless
otherwise expressly stated or the context otherwise requires. This Current
Report contains summaries of the material terms of the agreements executed in
connection with the transactions described herein. The summaries of these
agreements are subject to, and qualified in their entirety by, reference to
those agreements.
On June 11, 2012, we filed a Current Report on Form 8-K to report that we
completed the transactions contemplated by a Share Exchange Agreement of June
11, 2011, by and among then Castmor and Benny Powell, the sole shareholder of
Red Giant Entertainment Inc., a Florida corporation ("RGE"). We acquired all of
the issued and outstanding shares of RGE in exchange for the issuance in the
aggregate of 40,000,000 shares of our common stock. As a result of the Share
Exchange Agreement, RGE became a wholly-owned subsidiary of then Castmor.
On November 6, 2012, we filed an Amendment Number 1 to the Current Report
on Form 8-K. The Staff did not reviewed Amendment Number 1 to the Current Report
on Form 8-K/A filed in response to its comments of July 13, 2012 and indicated
that the amendment may still be defective in (i) that certain requested
financial statements were not included, (ii) that we did not file a letter
indicating the changes that were made, and (iii) that the filed copy was not
marked by our EDGAR filer to reflected the changes from the original to
facilitate the Staff's review of the Form 8-K/A. This Amendment Number 2 is
intended to respond to the comments. In addition, we may be required to file
additional reports to include certain disclosures on an additional Form 8-K.
The financial statements supplied for this Amendment Number 2 to the
Current Report on Form 8-K/A are for the fiscal year ended August 31, 2011 and
for the fiscal year ended August 31, 2012. We believe that the comments to the
financial statements of August 31, 2011 referred to in the July 13, 2012 comment
letter from the Staff have been considered and that the financial statements
include all adjustments, in the opinion of management, and have been made in
order to make the financial statements not misleading. The financial statements
do not reflect events that may have occurred subsequent to the original date of
filing and do not modify or update any filings made with the Securities and
Exchange Commission after January 3, 2013.
Status as a Shell
At the time of closing the Share Exchange Agreement, we were in the
development stage and had nominal operations and limited assets, which makes us
a "shell company" as defined in Rule 12b-2 of the Securities Exchange Act of
1934, as amended ("Exchange Act"). We were not a "blank check company" as
defined by Rule 419 of the Securities Act of 1933, as amended ("Securities
Act").
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Amendment to Form 8-K
These Amendments to the Current Report on Form 8-K filed on June 11, 2012
is to provide disclosures that are required when an issuer, like us, (i) reports
a reverse merger and similar transactions and ceases to be a shell company and
(ii) to address comments from the staff of the Securities and Exchange
Commission.
These Amendment to the Current Report on Form 8-K filed on June 11, 2012
speaks as of the filing date of said Current Report and does not reflect events
that may have occurred subsequent to the filing of that report, unless
specifically referring to a later date.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Amended Current Report on Form 8-K contains forward-looking
statements. All statements other than statements of historical fact are
"forward-looking statements." Any statements that are not statements of
historical fact (including but not limited to statements containing the words
"will," "believes," "plans," "anticipates," "expects," "look forward",
"estimates" and similar expressions) should be considered to be forward-looking
statements and the safe harbor provisions of said Act do not apply to an issuer
that issues penny stock. Actual results may differ materially from those
indicated by such forward-looking statements as a result of various important
factors including, among others, competition, market demand, technological
change, strategic relationships, recent acquisitions, international operations
and general economic conditions. We do not assume any obligation to update any
forward-looking statements.
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
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 (sometimes "Powell"), who owned 100% of the
issued and outstanding shares in RGE. Pursuant to the terms and conditions of
the Share Exchange Agreement, then Castmor issued forty million (40,000,000)
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 Powell.
The exchange resulted in RGE becoming a wholly-owned subsidiary of Castmor.
As a result of the Share Exchange Agreement (and the name change), we will now
conduct all current operations through RGE and we conduct our business under the
name of Red Giant Entertainment, Inc.
RGE is an intellectual property (IP) development company for the comic book
industry and other related multiple media platforms that are delivered in
printed material or distributed over the internet.
RGE believes that the digital distribution of content provides an
opportunity to reach a wider and more diverse audience for original stories and
for the creation of modern myths provides the audience an interactive
entertainment experience and also serves as a platform for advertising and
merchandise.
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See Item 5.01 - Changes in Control of Registrant.
ITEM 2.01 - COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On June 11, 2012, Castmor Resources Ltd., a Nevada corporation completed a
transaction contemplated by a Share Exchange Agreement with RGE and Powell who
owned, prior to the closing, 100% of the issued and outstanding shares in RGE.
Pursuant to the terms and conditions of the Share Exchange Agreement, Red Giant
issued forty million (40,000,000) 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 Powell.
The information required by Item 2.01(f), not otherwise contained herein,
is disclosed in Item 5.06 below. The acquisition was accounted for as a
recapitalization effected by the issuance of restricted common stock pursuant to
a Share Exchange Agreement.
See Item 1.01 - Entry Into a Material Definitive Agreement, Item 3.02 -
Unregistered Sales of Equity Securities, and Item 5.01 - Changes in Control of
Registrant, which are incorporated herein by reference.
ITEM 2.02 - RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CORPORATE HISTORY
Castmor Resources Ltd. was incorporated in the State of Nevada on June 27,
2005. We had been in the exploration stage since formation and had not realized
any revenues from operations. We were primarily engaged in the acquisition and
exploration of mining properties. Upon location of a commercially minable
reserve, we expected to actively prepare the site for extraction and enter a
development stage. In 2005, we acquired mineral interests in two non-contiguous
properties located along southeastern coastal Labrador, approximately 13
kilometers northeast of the community of Charlottetown, Labrador, Canada. In
2009, our interests in these mineral properties were forfeited. On September 20,
2010, we reacquired these interests in the mineral properties. Thereafter, on
October 4, 2011, our interests in the mineral properties were again forfeited.
Since we had minimal operations, we were considered a "shell company" as
that term is defined under Rule 405 of the Securities Exchange Act of 1934, as
amended (sometimes "1934 Act"). Although it was our initial intention to be a
mineral exploration company, due to the lack of revenues and adequate financing,
we abandoned our business plan and began seeking out potential acquisitions,
joint ventures and/or strategic relationships.
On June 6, 2012 we entered into and completed the Share Exchange Agreement
with Powell to acquire RGE. Pursuant to the terms and conditions of the Share
Exchange Agreement, (i) RGE exchanged 100% of the issued and outstanding shares
in RGE for forty million (40,000,000) newly-issued restricted shares of the
Company's common stock and, resulting in the acquisition of RGE by the Company.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
Effective as of June 6, 2012, pursuant to the terms of the Share Exchange
Agreement described in Items 1.01, 2.01 and 5.01, we issued 40,000,000 shares of
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our common stock to Powell, the sole shareholder of RGE, in exchange for all of
the issued and outstanding capital stock of RGE.
The shares of common stock issued under the Share Exchange Agreement were
not registered under the Securities Act and bear restrictive legends that
reflect this status. The securities were issued in a private placement in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act. We did not engage in any general solicitation or advertisement
for the issuance of these securities.
In connection with this issuance, Powell represented that the securities
that he was acquiring cannot be resold except pursuant to an effective
registration under the Securities Act or in reliance on an exemption from the
registration requirements of the Securities Act, and that the certificates
representing such securities bear a restrictive legend to that effect and he
intends to acquire the securities for investment only and not with a view to the
resale thereof.
ITEM 4.01 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We have had no disagreements with our accountants on accounting and
financial disclosures.
ITEM 5.01 CHANGE IN CONTROL OF REGISTRANT
On April 16, 2012, we received the resignation of John Allen as the
Company's President, Secretary, and Treasurer. Concurrently on April 16, 2012,
our Board of Directors elected Powell to fill a vacancy on the Board of
Directors and he was also appointed President, Secretary and Treasurer.
Thereafter, John Allen resigned leaving Powell as the sole director of Red
Giant.
We know of no arrangements which may result in a change in control of
Red Giant. No officer, director, promoter, or affiliate of Red Giant has, or
proposes to have, any direct or indirect material interest in any asset proposed
to be acquired by us through security holdings, contracts, options, or
otherwise.
The information required by Item 5.01(a)(8), not otherwise contained
herein, is disclosed in Item 5.06 below.
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; APPOINTMENT OF CERTAIN
OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
GENERALLY
On April 16, 2012, we received the resignation of John Allen as the
Company's President, Secretary, and Treasurer. Concurrently on April 16, 2012,
our Board of Directors elected Powell to fill a vacancy on the Board of
Directors and he was also appointed President, Secretary and Treasurer.
Thereafter, John Allen resigned leaving Powell as the sole director of Red
Giant.
Our sole officer and director may be deemed a parent and promoter of Red
Giant as those terms is defined by the Securities Act.
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Our by-laws provide that all directors hold office until the next annual
stockholders' meeting or until their death, resignation, retirement, removal,
disqualification, or until their successors have been elected and qualified. Our
officers serve at the will of the Board of Directors.
There are no agreements or understandings for any officer or director of
the Company to resign at the request of another person and none of the officers
or directors is acting on behalf of or will act at the direction of any other
person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Powell is the only director, executive officer and control person.
The following table presents information about the beneficial ownership of
our common stock on June 6, 2012, held by our founder, director and executive
officer and by those persons known to beneficially own more than 5% of our
capital stock. The percentage of beneficial ownership for the following table is
based on 72,487,000 shares of common stock outstanding as of June 6, 2012.
Name and Address of Amount of Shares Percent
Title of Class Beneficial Owner of Shares (1) Position Held by Owner of Class
-------------- ------------------------------ -------- ------------- --------
Common, $0.001 Benny Powell Director/Pres./CEO 40,000,000 55%
par value
All Executive Officers,
Directors as a Group 40,000,000 55%
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and does not necessarily indicate beneficial
ownership for any other purpose. Under these rules, beneficial ownership
includes those shares of common stock over which the stockholder has sole or
shared voting or investment power.
Powell, our sole director and executive officer, currently receives no
compensation for his services as a director. We contemplate Powell being paid a
monthly salary as our executive officer of $5,000 per month.
We have not adopted any retirement, pension, profit sharing, stock option
or insurance programs or other similar programs for the benefit of our current
director and officer or for any future director and officer or future employees.
Powell has sole investment power and sole voting power over the shares of
common stock that he owns.
The sole remaining director may fill vacancies on the Board of Directors.
The members of our board of directors serve for one year terms and are elected
at the next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the board of directors.
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ITEM 5.06 - CHANGE IN SHELL COMPANY STATUS
We are providing below the additional information to that reported above
that would have been be included in a Form 10 as if were to file a Form 10.
Please note that the information provided below relates to the current
operations acquired thorough the closing of the Share Exchange Agreement
referred to in Item 1.01 and Item 2.01 above.
OVERVIEW
Red Giant Entertainment is an intellectual property development company
that intends to develop content for itself and for use on the internet and on
various multiple media platforms. As of June 6, 2012, the RGE's intellectual
properties consisted of internally developed graphic novel artwork and these
properties were contributed by Powell to RGE and valued at $29,250, which was
determined based on a per page cost for artists and printing.
We belief that the digital distribution of content provides an opportunity
to reach a wider and more diverse audience for original stories and for the
creation of modern myths provides the audience an interactive entertainment
experience and also serves as a platform for advertising and merchandise.
The RGE's properties, comic book style, are intended to be developed for
both the comic book marked and also used in other media such as movies, video
games, television, novels, toys, apparel, telephone wireless applications. The
Company intends to engage in either the direct production of its properties or
enter into licensing agreement with others. The product is intended to be
available for others to purchase advertising on terms and conditions to be
determined by the licensee of the product. RGE intends to retain a royalty for
both the product and for the included advertising content. Merchandise revenue
related to the product will also be available to RGE on terms and conditions to
be negotiated between the license and RGE or retained by RGE.
We have not established a timeline to reflect the anticipated plan of
operations and we have not established any anticipated operational milestones.
Our website is www.redgiantentertainment.com. The contents of this website
are not made a part of this filing and should be considered to be a website
under development.
CREATIVE AND PRODUCTION PROCESS
Red Giant intends to retain freelance artists and writers who generally are
paid on a per-page basis. They will be able to be eligible to receive incentives
or royalties based on the number of copies sold (net of returns) of the comics
books in which their work appears. The Company has not entered into agreements
with any artists and writers.
The creative process begins with the development of a story line by Powell.
From the established story line, Powell or the writer develops a character's
actions and motivations into a plot. After a writer has developed the plot, a
pencil artist translates it into an action-filled pictorial sequence of events.
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The penciled story is returned to the writer who adds dialogue, indicating
where the balloons and captions should be placed. The completed dialogue and
artwork are forwarded to a letterer who letters the dialogue and captions in the
balloons. Next, an inker enhances the pencil artist's work in order to make the
drawing appear three dimensional.
The artwork is then sent to a coloring artist. Typically using only four
colors in varying shades, the coloring artist uses overlays to create over 100
different tones. This artwork is subcontracted to a color separator who produces
separations and sends the finished material to the printer. Unaffiliated
entities will produce color separations and will print all of the RGE's comic
books.
PRODUCTS AND SERVICES
We intend to initially engage in three areas of distribution. Our goal and
objective is to engage initially in licensing, and thereafter, in direct
production to the mass market retail book reader, to those who collect books and
to those who read using the internet as a source of product. We further believe
that our properties can be adapted for video games and application
entertainment.
MASS MARKET BOOK DISTRIBUTION
The "Mass Market Book" line will consist of four main titles with a fifth
quarterly title that will fill out the calendar to insure a full 52 week
schedule. Each book's format will be 64 pages in total, plus 4-page cover.
Currently, we are developing a product consisting of a 32 pages issue for
content, 2-4 pages for editorial and up to 30 pages interior and 3 "premium"
cover pages (inside front, inside back and back cover) to advertising. The
"Center Spread" will also be a premium spot and will always be reserved for
advertisements.
COLLECTED BOOK DISTRIBUTION
The "Collected" line will consist of four to five issues bundled together
with extra material to create what is called a "graphic novel." These will be
sold through regular comic book and book store markets as well as direct to
consumers through an online store. We do not have any internet or an online
presence.
ELECTRONIC BOOK DISTRIBUTION
We believe that electronic book distribution market is in its infancy and
we intend to attempt to enter into this market. We have a strategic partnership
with Keenspot.com to host the internet web versions of various projects as well
as handle the digital application and mobile media distribution channels as
well. Keenspot.com currently has comic properties which includes a network of
more than four dozen Keenspot - exclusive - web comic sites, in addition to the
user-generated comics site ComicGenesis.com, which hosts over 10,000 independent
web comics. Keenspot sites have over 2 million unique visitors monthly. They
also produces animated shorts under the Keentoons label which are distributed
internationally by ThunderSquid to mobile phone carriers worldwide including
Verizon V-CAST (U.S.) and O2 (U.K.).
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PRODUCTION
We intend to have three stages of production. First is the creative phase
of our comics into electronic, printable files. Second is the printing phase
where these electronic files are turned into paper periodicals. Third, there is
a digital phase that converts the files into electronic media suitable for
dissemination as applications or Web content. Other than the creative phase, we
intend to enter into contracts with unrelated third parties for each of the
stages of production.
COMPETITION
The comic book and the related intellectual development industries are
highly competitive with little or no barriers to entry. The Company competes
with publishers and creative individuals.
Most of the Company's competitors are part of integrated entertainment
companies and all have greater resources than the Company. The Company also
faces competition from other entertainment media, such as movies and video
games, but believes that it benefits from the low price of comic books, sports
and entertainment trading cards and children's activity sticker collections in
relation to such other products.
The market for digital distribution of content and products and related
Internet services and products is intensely competitive. Since there are no
substantial barriers to entry, we expect competition in these markets to
intensify. We believe that the principal competitive factors in these markets
are name recognition, performance, ease of use and functionality. Our existing
competitors, as well as a number of potential new competitors, may have longer
operating histories in the digital distribution market, greater name
recognition, larger customer bases and databases and significantly greater
financial, technical and marketing resources. Such competitors may be able to
undertake more extensive marketing campaigns and make more attractive offers to
potential employees. Further, there can be no assurance that our competitors
will not develop services and products that are equal or superior to our or that
achieve greater market acceptance than our offerings in the area of name
recognition, performance, ease of use and functionality. There can be no
assurance that we will be able to compete successfully against our current or
future competitors or that competition will not have a material adverse effect
on our business, results of operations and financial condition.
PATENT, TRADEMARK, LICENSE & FRANCHISE RESTRICTIONS AND CONTRACTUAL OBLIGATIONS
& CONCESSIONS
There are inherent risk factors and circumstances associated with the
development of intellectual properties and we plan to obtain protection on with
applicable patents and trademarks. We intend to protect our intellectual
properties from license infringements or violations. RGE has not entered into
any licenses or franchise agreements or other contracts that have given, or
could give rise to obligations or concessions.
Our success depends in part upon our protection of our intellectual
properties. We will principally rely upon copyright and contract law to protect
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our proprietary properties. There can be no assurance that the steps taken will
be adequate to prevent misappropriation of our intellectual properties.
EMPLOYEES
Red Giant's only employee at the present time is Powell and we are
dependent on him. We rely on his entrepreneurial skills and experience to
implement our business plan. Powell is responsible for all planning, developing
and operational duties, and will continue to do so throughout the early stages
of our growth.
We have no intention of hiring further employees until the business has
been successfully launched and we have sufficient, reliable revenue flowing into
RGE from either sales or licensing operations. We do not expect to hire any
other employees until the March of 2013. We do not have an employment agreement
with Powell.
FACILITIES
We are operating from rented office space located at 614 East Highway 50,
Suite 235 Clermont, Florida 34711 at the rate of $300 per month. We will
continue to use this space for our executive offices for the foreseeable future.
We anticipate entering into a month to month rental agreement for added space in
January 2013 or earlier if we obtain a positive cash flow from operations.
COMMON STOCK (AND PREFERRED STOCK)
Our Articles of Incorporation authorize the issuance of 900,000,000 shares
of common stock with $.0001 par value (and 100,000,000 shares of preferred
stock, without par value). No shares of preferred stock have been issued. Each
record holder of common stock is entitled to one vote for each share held in all
matters properly submitted to the shareholders for their vote. Cumulative voting
for the election of directors is not permitted.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except for acts or omissions which involve intentional misconduct, fraud
or known violation of law or for the payment of dividends in violation of Nevada
Revised Statutes, there shall be no personal liability of a director or officer
to the Company, or its stockholders for damages for breach of fiduciary duty as
a director or officer. The Company may indemnify any person for expenses
incurred, including attorney's fees, in connection with their good faith acts if
they reasonably believe such acts are in and not opposed to the best interests
of the Company and for acts for which the person had no reason to believe his or
her conduct was unlawful. The Company may indemnify the officers and directors
for expenses incurred in defending a civil or criminal action, suit or
proceeding as they are incurred in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount of such expenses if it is ultimately
determined by a court of competent jurisdiction in which the action or suit is
brought determined that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
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Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to officers, directors or persons controlling the Company pursuant
to the foregoing, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
We have been informed that the Commission will not issue "no action"
letters relating to the resale of securities, i.e., a person who has acquired
shares of stock in a 4(2) transaction, or either, under the Securities Act and
who offers and sells the restricted securities without complying with Rule 144
is to be put on notice by the Securities and Exchange Commission that in view of
the broad remedial purposes of the Securities Act and the public policy which
strongly supports registration under said act, that those individuals will have
a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
the brokers of other person who participate in the transaction do so at their
own risk. We have also been informed that any indemnification for liabilities
arising from such a transaction may also be against public policy as expressed
in the Securities Act and is therefore unenforceable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our financial statements and the notes thereto appearing in Item 9.01.
GENERALLY
Since inception, we have generated $ 25,723 in net sales and have incurred
net income of $9,122 for the period from January 1, 2011 (inception) through
December 31, 2011. For the five months ended May 31, 2012 we earned $15,351 in
net sales and $10,156 of net income, compared to $9,207 in net sales and $4,141
of net income in May 31, 2011.
For the five month periods ended May 31, 2012 and 2011, we incurred $5,195
and $5,066 in operating expenses, respectively. The slight increase is
attributable to offsetting increases and decreases in professional fees,
advertising, and communications.
Our cash in the bank at May 31, 2012 was $97. Net cash provided by
financing activities during the five months ended May 31, 2012 and 2011 was
$10,869 and $1,426, retrospectively from the conversion of the LLC member
ownership to common stock.
Net cash used in operating activities during the five months ended May 31,
2012 and 2011 was $10,261 and $1,426, retrospectively. The increase was due to
increases in operational activities. For the five months ended May 31, 2012 and,
2011, we reported net income of $10,156 and $4,141, respectively. Our material
financial obligations for the future will include our public reporting expenses,
transfer agent fees, bank fees, and other recurring fees, combined with any
additional operating expense related to our new business.
In its report on our December 31, 2011 audited financial statements, our
auditors expressed an opinion that there is substantial doubt about our ability
to continue as a going concern. Our financial statements do not include any
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adjustments that may result from the outcome of this uncertainty. We are a newly
formed entity and have had revenues of only $91,972 since inception. Our
continuation as a going concern is dependent upon including our ability to raise
additional capital and to generate positive cash flows.
During the next twelve months we plan to seek financing opportunities to
commence a growth plan that will include the execution of our business plan as
the possibility of selling additional equity in the form of common stock.
LIQUIDITY AND CAPITAL RESOURCE
As of May 31, 2012, we had cash or cash equivalents of $97 which is the
only amount available to us for current expenses until such time as we are able
to secure additional investment capital. Our recent rate of use of cash in our
operations over the last nine months has been approximately $0 per month. Unless
we incur further debt or raise additional equity capital we do not have
sufficient capital to carry on operations past September 30, 2012. Our long term
capital requirements and the adequacy of our available funds will depend on many
factors, including the eventual reporting company costs, and operating expenses,
among others. If we are unable to raise additional capital, generate sufficient
revenue, receive loans from the officers on an as needed basis, or enter into a
merger or acquisition transaction, we may have to curtail or cease our
operations.
Net cash provided by financing activities for the period from inception,
through June 15, 2012, was $0.
Liquidity is a measure of a company's ability to meet potential cash
requirements. We have historically met our capital requirements through the
issuance of stock and by borrowings. In the future, we anticipate we may be able
to provide the necessary liquidity we need by the revenues generated from the
sales of one or more of our mineral properties or entering into a Joint Venture
with an unrelated third party. If we do not generate sufficient sales revenues
we will continue to finance our operations through equity and/or debt
financings.
SATISFACTION OF FUTURE OBLIGATIONS
A critical component of our operating plan impacting our continued
existence is the ability to obtain additional capital through additional equity
and/or debt financing. We do not anticipate enough positive internal operating
cash flow until such time as we can generate substantial revenues, which may
take the several months or years to fully realize. In the event we cannot obtain
the necessary capital to pursue our strategic plan, we may have to cease or
significantly curtail our operations. This would materially impact our ability
to continue operations.
Since inception, we have financed cash flow requirements through issuance
of common stock for cash and services. As we expand operational activities, we
may experience net negative cash flows from operations, pending receipt of sales
or development fees, and will be required to obtain additional financing to fund
operations through common stock offerings and debt borrowings to the extent
necessary to provide working capital.
Over the next twelve months we will seek additional capital in the future
to fund growth and expansion through additional equity or debt financing or
credit facilities. No assurance can be made that such financing would be
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available, and if available it may take either the form of debt or equity. In
either case, the financing could have a negative impact on our financial
condition and our stockholders.
We anticipate incurring operating losses over the next six months or more.
Our lack of operating history makes predictions of future operating results
difficult to ascertain. Risks include, but are not limited to, an evolving and
unpredictable business model and the management of growth. To address these
risks we must, among other things, implement and successfully execute our
business and marketing strategy, respond to competitive developments, an
attract, retain and motivate qualified personnel.
There can be no assurance that we will be successful in addressing such
risks, and the failure to do so can have a material adverse effect on our
business prospects, financial condition and results of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared under
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could materially differ from those
estimates. All significant accounting policies have been disclosed in Note2 to
the financial statements for the years ended December 31, 2011. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires our management to make assumptions,
estimates, and judgments that affect the amounts reported, including the notes
thereto, and related disclosures of commitments and contingencies, if any.
We have identified certain accounting policies that are significant to the
preparation of our financial statements. These accounting policies are important
for an understanding of our financial condition and results of operations.
Critical accounting policies are those that are most important to the portrayal
of our financial condition and results of operations and require management's
difficult, subjective, or complex judgment, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. Certain accounting estimates are particularly
sensitive because of their significance to financial statements and because of
the possibility that future events affecting the estimate may differ
significantly from management's current judgments. We believe the following
critical accounting policies involve the most significant estimates and
judgments used in the preparation of our financial statements:
Our critical accounting policies are summarized below:
GOING CONCERN
The financial statements included in our filings have been prepared in
conformity with generally accepted accounting principles that contemplate the
continuance of our Company as a going concern. Management may use borrowings and
13
security sales to mitigate the effects of its cash position; however, no
assurance can be given that debt or equity financing, if and when required, will
be available. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets and classification
of liabilities that might be necessary should we be unable to continue
existence.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 during the reporting period. Actual results could differ from those
estimates.
INTANGIBLE ASSETS
The Company's intellectual property consists of graphic novel artwork and
was contributed by a shareholder to the Company. The intangible is being
amortized over its life of five years.
REVENUE RECOGNITION
The Company follows the guidance of paragraph 605-10-S99-1 of the FAS
Accounting Standards Codification for Revenue Recognition. The Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS
We are a smaller reporting company as defined by Rule 12b-2 of the 1934 Act
and are not required to provide the information under this item.
INCOME TAXES
The Company recognizes a liability or asset for deferred tax consequences
of all temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements that will result in taxable
or deductible amounts in future years when the reported amounts of the assets
and liabilities are recovered or settled. Deferred tax items mainly relate to
net operating loss carry forwards and accrued expenses. These deferred tax
assets or liabilities are measured using the enacted tax rates that will be in
effect when the differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reviewed
periodically for recoverability, and valuation allowances are provided when it
is more likely than not that some or all of the deferred tax assets may not be
realized.
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EARNINGS (LOSS) PER SHARE
The Company computes net loss per share and requires presentation of both
basic and diluted earnings per share, EPS, on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the year. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method. In computing
diluted EPS, the average stock price for the period is used in determining the
number of shares assumed to be purchased from the exercise of stock options or
warrants. Diluted EPS excludes all dilutive potential shares if their effect is
anti-dilutive. Because the Company does not have any potentially dilutive
securities only basic loss per share is presented in the accompanying financial
statements
RECENTLY ANNOUNCED PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
In June 2011, the FASB issued authoritative guidance requiring entities to
present net income and other comprehensive income (OCI) in one continuous
statement or two separate, but consecutive, statements of net income and
comprehensive income. The option to present items of OCI in the statement of
changes in equity has been eliminated. The new requirements are effective for
annual reporting periods beginning after December 15, 2011 and for interim
reporting periods within those years. We do not expect the adoption to have a
material impact on our financial statements.
In May 2011, the FASB issued further additional authoritative guidance
related to fair value measurements and disclosures. The new guidance results in
a consistent definition of fair value and common requirements for measurement of
and disclosure about fair value between accounting principles generally accepted
in the United States (U.S. GAAP) and International Financial Reporting Standards
(IFRS). The guidance is effective for fiscal years and interim periods within
those years beginning after December 15, 2011. We are currently assessing the
impact of the guidance.
In April 2010, the FASB issued ASU No. 2011-17, "Revenue Recognition -
Milestone Method (Topic 605)." This ASU provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research and development transactions. This
update was effective in the second quarter of 2011. Adoption of this update is
not anticipated to have a material impact on the Company's results of operation
or financial position.
In January 2010, the FASB issued ASU No. 2011-06, "Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements." This ASU requires additional disclosures about significant
unobservable inputs and transfers within Level 1 and 2 measurements. Adoption of
this update did not have any impact on the Company's results of operation or
financial position.
15
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
RISK FACTORS
The securities described herein involve a high degree of risk. Interested
persons should carefully consider, among others, the risk factors described
below. As used in the Risk Factors, the term the "Company" when used in this
"Risk Factors" section may refer to Red Giant or RGE on a combined asset basis,
based on the context of the language presented. If any of the following risks
actually occurs, our business, financial condition or results of operations
could suffer. In that case, the trading price of our common stock could decline,
and you may lose all or part of your investment. You should carefully consider
the various risks involved in investing in our shares, which include, among
others, the following factors:
1. We will be a reorganized Company and still be deemed to be a so-called
start-up company.
Red Giant is reorganizing to engage in a new and different business. If
successful, of which there is no assurance, the newly reorganized business, will
still be deemed to be a start-up company that has generated a limited amount of
revenue its inception. We expect to incur significant operating losses for the
foreseeable future, and there can be no assurance that we will be able to
validate and market products in the future that will generate revenues or that
any revenues generated will be sufficient for us to become profitable or
thereafter maintain profitability.
2. As a start-up or development stage company, our business and prospects are
difficult to evaluate because we have a very limited operating history and our
business model is evolving, an investment in us is considered a high risk
investment whereby you could lose your entire investment.
We have just commenced operations and, therefore, we are considered a
"start-up" or "development stage" company. We have had limited income from the
sale of intellectual properties. We will incur significant expenses in order to
implement our business plan. As an investor, you should be aware of the
difficulties, delays and expenses normally encountered by an enterprise in its
development stage, many of which are beyond our control, including unanticipated
developmental expenses, and advertising and marketing expenses. We cannot assure
you that our proposed business plan will materialize or prove successful, or
that we will ever be able to operate profitably. If we cannot operate
profitably, you could lose your entire investment.
We have not established a timeline to reflect the anticipated plan of
operations and we have not established an anticipated operational milestone.
Accordingly, we face the challenge of successfully implementing our business
plan without an established timeline that reflects operational milestones. There
is nothing at this time on which to base an assumption that our business will
prove successful, and there is no assurance that we will be able to operate
16
profitably if or when operations commence. You may lose your entire investment
do to our lack of experience.
Our plan of operation is our best estimate and analysis of the potential
market, opportunities and difficulties that we face. There can be no assurances
that the underlying assumptions accurately reflect our opportunities and
potential for success. Competition for the marketing of intellectual property
rights is intense, and with other economic forces, this makes forecasting of
revenues and costs difficult and unpredictable. If our estimates and analysis is
incorrect, you could lose your entire investment.
3. Our working capital will be limited. We will need additional capital to fund
our operations and finance future growth, and we may not be able to obtain it on
terms acceptable to us or at all. This will impede our growth and operating
results.
Our ability to commence and continue operations and operate as a going
concern may depend on our ability to borrow funds from Powell and unrelated
third parties, and the receipt of proceeds from the sale or marketing of our
intellectual properties. As of this date, we have generated limited income and
there can be no assurance that any substantial income will be forthcoming in the
future. Our inability to fund our operations will impede our growth and
operating results and may also result in a loss of your investment.
4. Failure to secure additional financing may result in termination of Red
Giant's operations and eliminate any value in Red Giant's stock.
We may require additional financing in order to establish profitable
operations. Such financing, if required, may not be forthcoming. Even if
additional financing is available, it may not be available on terms we find
favorable. Failure to secure the needed additional financing will have a very
serious, if not fatal, effect on our ability to survive.
5. Red Giant's and RGE's business model is unproven. Thus it is difficult for an
investor to determine the likelihood of success or risk to his investment.
Due to our limited operating history, the revenue and income potential of
our business is unproven. If we cannot successfully implement our business
strategies of creating and marketing of intellectual properties, we may not be
able to generate sufficient revenues to operate profitably. Consequently our
shareholders may lose a substantial portion of or their entire investment.
6. Red Giant's auditor has expressed doubts as to our ability to continue as a
going concern.
In the opinion of our auditor, since we had not generated revenue from
operations prior to the acquisition of RGE, it raises substantial doubt about
Red Giant ability to continue as a going concern. With our limited income after
the acquisition of RGE, we have no reason to believe that our auditor will
change his view. Our current limited revenue creates doubt about our ability to
continue as a going concern.
7. The loss of Powell or our inability to attract and retain qualified personnel
could significantly disrupt or harm our business and our operating results would
suffer.
17
We are wholly dependent, at present, on the personal efforts and abilities
of Powell, our sole officer and director. The loss of services of Powell will
disrupt if not stop our operations. In addition, our success will depend on our
ability to attract and retain highly motivated, well-qualified employees. Our
inability to recruit and retain such individuals may delay the planned expansion
of our limited operations and or result in high employee turnover, which could
have a material adverse effect on our business or results of operations once
commenced. Accordingly, without suitable replacements and employees to operate
RGE, our operations will suffer.
8. Powell will own approximately 55% of our shares after the offering that
permits him to exert influence over us or to prevent a change of control.
Powell, our sole director and officer, will beneficially own approximately
55% of our outstanding shares of common stock, if all of the shares are sold in
this offering. As a result of this stock ownership, Powell will continue to
influence the vote on all matters submitted to a vote of our shareholders,
including the election of directors, amendments to the certificate of
incorporation and the by-laws, and the approval of significant corporate
transactions. This consolidation of voting power could also delay, deter or
prevent a change of our control that might be otherwise beneficial to
shareholders.
9. We have never declared or paid a cash dividend on our shares nor will we in
the foreseeable future.
You will not receive dividend income from an investment in the shares and
as a result, the purchase of the shares should only be made by an investor who
does not expect a dividend return on the investment.
We currently intend to retain future earnings, if any, to finance the
operation and expansion of our business. Accordingly, investors who anticipate
the need for immediate income from their investments by way of cash dividends
should refrain from purchasing any of our securities. As we do not intend to
declare dividends in the future, you may never see a return on your investment
and you indeed may lose your entire investment.
10. Our common stock is considered a penny stock, which is subject to
restrictions on marketability, so you may not be able to sell your shares.
Our common stock is subject to the penny stock rules adopted by the
Securities and Exchange Commission that require brokers to provide extensive
disclosure to their customers prior to executing trades in penny stocks. These
disclosure requirements may cause a reduction in the trading activity of our
common stock, which in all likelihood would make it difficult for our
shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system). Penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
18
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The broker-dealer must also make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security that becomes subject to
the penny stock rules. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our securities, which could severely limit their market price and liquidity of
our securities. These requirements may restrict the ability of broker-dealers to
sell our common stock and may affect your ability to resell our common stock.
11. Powell has no experience related to public company management. As a result,
we may be unable to manage our public reporting requirements.
Our operations depend entirely on the efforts of our sole officer and
director. While he has expertise with which we will rely upon to grow and manage
our business operations, he has no experience related to public company
management, nor as a principal accounting officer. Because of this, we may be
unable to develop and manage our public reporting requirements. There is no
assurance that we will overcome any such obstacle.
12. We will incur professional fees in connection with being a reporting company
under the Securities Exchange Act of 1934, as amended.
Our Company is subject to the reporting requirements of the 1934 Act and as
such, we are required to file 10-Ks, 10-Qs and 8-Ks and other reports with the
Securities and Exchange Commission. We will incur professional fees (i.e.,
attorney, auditors and filing agents) in connection with the preparation and
filing of such reports and we currently anticipate such costs to range from
$12,000 to $18,000 per year. If we are unable to file such reports, we will be
delinquent in our filings which could adversely affect the marketability of the
Shares.
13. The failure to comply with the internal control evaluation and certification
requirements of Section 404 of Sarbanes-Oxley Act could harm our operations and
our ability to comply with our periodic reporting obligations.
As a reporting company under the 1934 Act, we are required to comply with
the internal control evaluation and certification requirements of Section 404 of
the Sarbanes-Oxley Act of 2002. We are in the process of determining whether our
existing internal controls over financial reporting systems are compliant with
Section 404. This process may divert internal resources and will take a
significant amount of time, effort and expense to complete. If it is determined
that we are not in compliance with Section 404, we may be required to implement
new internal control procedures and reevaluate our financial reporting. We may
experience higher than anticipated operating expenses as well as outside auditor
fees during the implementation of these changes and thereafter. Further, we may
need to hire additional qualified personnel in order for us to be compliant with
Section 404. If we are unable to implement these changes effectively or
efficiently, it could harm our operations, financial reporting or financial
results and could result in our being unable to obtain an unqualified report on
internal controls from our independent auditors, which could adversely affect
our ability to comply with our periodic reporting obligations under the 1934
Act.
19
14. Because we were a "shell company," investors in our company will not be able
to rely on Rule 144 to sell their shares of stock until at least one year after
we cease to be a shell company.
Red Giant was a shell company prior to filing the periodic report on Form
8-K as to this transaction and therefore certain of its shareholders may not
currently utilize Rule 144 to sell their shares. Rule 144 is not available for
sales of shares of companies that are or have been "shell companies" except
under certain conditions. We completed this acquisition and we believe that we
removed our status as a shell company by filing this report on Form 8-K.
Shareholders are able to utilize Rule 144 one year after the filing of this Form
8-K, assuming it files the documents it is required to file as a reporting
company. Investors in the Company whose shares have been registered in an
effective and current registration statement will be able to sell their shares
pursuant to said registration statement. They will not be able to rely on Rule
144 to sell their shares during the one year period after the filing of this
Form 8-K changing our shell status if the registration statement's effectiveness
is not maintained on a temporary or permanent basis.
On February 15, 2008, the Securities and Exchange Commission adopted final
rules amending Rule 144 (and Rule 145) for shell companies. The amendments
currently in full force and effect provide that the current revised holding
periods applicable to affiliates and non-affiliates (our sole officer and
director) is not now available for securities currently issued by either a
reporting or non-reporting shell company, unless certain conditions are met. It
may also affect further sales of securities by us that are not registered under
the Securities Act. An investor will be able to resell securities issued by a
shell company subject to Rule 144 conditions if the reporting or non-reporting
issuer (i) had ceased to be a shell, (ii) is subject to the 1934 Act reporting
obligations, (iii) has filed all required 1934 Act reports during the preceding
twelve months, and (iv) at least 90 days has elapsed from the time the issuer
has filed the "Form 10 Information" reflecting the fact that it had ceased to be
a shell company before any securities were sold Rule 144. .
On June 29, 2005, the Securities and Exchange Commission adopted final
rules amending the Form S-8 and the Form 8-K for shell companies. These
amendments expand the definition of a shell company to be broader than a company
with no or nominal operations/assets or assets consisting of cash and cash
equivalents, the amendments prohibit the use of a Form S-8 (a form used by a
corporation to register securities issued to an employee, director, officer,
consultant or advisor, under certain circumstances), and revise the Form 8-K to
require a shell company to include current Form 10 information, including
audited financial statements, in the filing on Form 8-K that the shell company
files to report the acquisition of a business opportunity.
The rules are designed to assure that investors in shell companies that
subsequently acquire further operations or assets have access on a timely basis
to the same kind of information as is available to investors in public companies
with continuing operations.
20
15. Future sales of restricted shares could decrease the price a willing buyer
would pay for shares of our common stock, could cause our price to decline and
could impair our ability to raise capital.
Future sales of common stock by existing shareholders or a new issuance by
Red Giant under exemptions from registration or through a subsequent registered
offering could materially adversely affect the market price of our common stock
and could materially impair our future ability to raise capital through an
offering of equity securities. We are unable to predict the effect, if any, that
market sales of these shares, or the availability of these shares for future
sale, will have on the prevailing market price of our common stock at any given
time.
16. You may not be able to resell any shares you purchased in this offering.
There is a limited trading market for our common stock at present and
there has been no trading market to date. There is no assurance that the trading
market will continue. This means that it may be hard or impossible for you to
find a willing buyer for your shares should you decide to sell them in the
future.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except for acts or omissions which involve intentional misconduct, fraud
or known violation of law or for the payment of dividends in violation of Nevada
Revised Statutes, there shall be no personal liability of a director or officer
to the Company, or its stockholders for damages for breach of fiduciary duty as
a director or officer. The Company may indemnify any person for expenses
incurred, including attorney's fees, in connection with their good faith acts if
they reasonably believe such acts are in and not opposed to the best interests
of the Company and for acts for which the person had no reason to believe his or
her conduct was unlawful. The Company may indemnify the officers and directors
for expenses incurred in defending a civil or criminal action, suit or
proceeding as they are incurred in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount of such expenses if it is ultimately
determined by a court of competent jurisdiction in which the action or suit is
brought determined that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to officers, directors or persons controlling the Company pursuant
to the foregoing, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
We have been informed that the Commission will not issue "no action"
letters relating to the resale of securities, i.e., a person who has acquired
shares of stock in a 4(2) transaction, or either, under the Securities Act and
who offers and sells the restricted securities without complying with Rule 144
is to be put on notice by the Securities and Exchange Commission that in view of
the broad remedial purposes of the Securities Act and the public policy which
strongly supports registration under said act, that those individuals will have
a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
21
the brokers of other person who participate in the transaction do so at their
own risk. We have also been informed that any indemnification for liabilities
arising from such a transaction may also be against public policy as expressed
in the Securities Act and is therefore unenforceable.
ELECTION OF DIRECTORS AND APPOINTMENT OF OFFICERS
Powell, our sole director, can fill any vacancy on our Board of Directors.
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers are appointed
to serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been selected and
qualified.
Our sole director, Powell has not been the subject of any order, judgment
or decree of any Court of competent jurisdiction, or any regulatory agency
permanently or temporarily enjoining, barring suspending or otherwise limiting
him from acting as an investment advisor, underwriter, broker or dealer in the
securities industry, or as an affiliated person, director or employee of an
investment company, bank, savings and loan association, or insurance company or
from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any securities.
Powell is not the subject of any pending legal proceedings.
AUDIT COMMITTEE
We have not established an audit committee. In addition, we do not have any
other compensation or executive or similar committees. We will not, in all
likelihood, establish an audit committee until such time as the Company
generates a positive cash flow of which there can be no assurance. We recognize
that an audit committee, when established, will play a critical role in our
financial reporting system by overseeing and monitoring management's and the
independent auditors' participation in the financial reporting process. At such
time as we establish an audit committee, its additional disclosures with our
auditors and management may promote investor confidence in the integrity of the
financial reporting process.
Until such time as an audit committee has been established, our sole
director now, and in the future, our full board of directors will undertake
those tasks normally associated with an audit committee to include, but not by
way of limitation, the (i) review and discussion of the audited financial
statements with management, and (ii) discussions with the independent auditors
the matters required to be discussed by the Statement On Auditing Standards No.
61 and No. 90, as may be modified or supplemented.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE-FISCAL YEARS ENDED DECEMBER 31, 2011.
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid the named persons for all services
rendered in all capacities during the noted periods. The named person was the
22
sole executive officer as of December 31, 2011. No executive officer received
total annual salary and bonus compensation in excess of $100,000.
Name and Principal
Position as of All Other
12-31-2011 Year Salary($) Bonus($) Compensation($) Total($)
---------- ---- --------- -------- --------------- --------
John Allen 2011 -- -- -- --
EMPLOYMENT AGREEMENTS
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from Red Giant, with respect to any director
or executive officer of Red Giant which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of employment with Red Giant, any change in control of Red Giant, or
a change in the person's responsibilities following a change in control of Red
Giant.
OUTSTANDING EQUITY AWARDS
None of our executive officers received any equity awards, including,
options, restricted stock or other equity incentives during the fiscal year
ended December 31, 2011 and as of the date hereof.
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 2010 or 2011, there were no
arrangements between us and Powell that resulted in our making payments to our
director for any services provided to us by him.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
By the definition of Rule 405 of the Securities Act Powell is a promoter of
Red Giant in that he is a "person who, acting alone or in conjunction with one
or more other persons, directly or indirectly takes initiative in founding and
organizing the business or enterprise of an issuer." Powell has not, nor will
he, receive anything of value or other consideration as a promoter of Red Giant.
No person who may, in the future, be considered a promoter of this
offering, will receive or expect to receive assets, services or other
considerations from us. No assets will be, nor are expected to be, acquired from
any promoter on behalf of our company. We have not entered into any agreements
that require disclosure to our shareholders.
SECTION 16(a) COMPLIANCE
Section 16(a) of the 1934 Act requires directors and executive officers,
and persons who own more than ten percent of our common stock, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes of ownership of our common stock. Officers, directors and greater than
ten percent stockholders are required by Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a) forms they file. We
have no knowledge that, as of the date of this filing, other than Powell, who
23
owns more than ten percent of our common stock, of any person who has failed to
file an initial Form 3, Form 4 current report, or an annual Form 5 in a timely
manner.
INDEPENDENT DIRECTOR
We have no currently "independent director" as that term is defined in Rule
4200(a)(15) of the Marketplace Rules of the National Association of Securities
Dealers. We are not presently required to have independent directors.
TRANSFER AGENT
Holladay Stock Transfer currently serves as the independent transfer agent
and registrar for our outstanding securities. The transfer agent's telephone
number is (480) 481-3940.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was listed on the OTC Bulletin Board of the
National Association of Securities Dealers ("NASD") on March 4, 2008 under the
symbol "CASL."
There is a very limited sporadic trading market for our common stock at
present and there has been no established trading market to date. There is no
assurance that a trading market will ever develop or, if such a market does
develop, that it will continue.
The Securities and Exchange Commission adopted Rule 15g 9, which
established the definition of a "penny stock," for purposes relevant to the
company, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience and objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
24
made about the risks of investing in penny stock in both public offering and in
secondary trading, and about commissions payable to both the broker dealer and
the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
As a result being a penny stock, the market liquidity for our common stock
may be adversely affected since the regulations on penny stocks could limit the
ability of broker-dealers to sell our common stock and thus your ability to sell
our common stock in the secondary market.
The rules governing penny stock require the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $250,000,
$300,000 together with a spouse). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Such information
must be provided to the customer orally or in writing prior to effecting the
transaction and in writing before or with the customer confirmation. Monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks. The
additional burdens imposed on broker-dealers by such requirements may discourage
them from effecting transactions in the securities underlying the shares, which
could severely limit the liquidity of the securities underlying the shares and
the ability of purchasers in this offering to sell the securities underlying the
shares in the secondary market.
For the initial listing in the Nasdaq SmallCap market, a company must have
net tangible assets of $4 million or market capitalization of $50 million or a
net income (in the latest fiscal year or two of the last fiscal years) of
$750,000, a public float of 1,000,000 shares with a market value of $5 million.
The minimum bid price must be $4.00 and there must be 3 market makers. In
addition, there must be 300 shareholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market
capitalization of $50 million.
For continued listing in the Nasdaq SmallCap market, a company must have
net tangible assets of $2 million or market capitalization of $35 million or a
net income (in the latest fiscal year or two of the last fiscal years) of
$500,000, a public float of 500,000 shares with a market value of $1 million.
The minimum bid price must be $1.00 and there must be 2 market makers. In
addition, there must be 300 shareholders holding 100 shares or more.
SHAREHOLDERS OF RECORD
The number of record holders of the Company's common stock as of the date
of this current report is approximately 45.
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DIVIDENDS
Holders of outstanding shares of common stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of Red Giant, holders are entitled to receive,
ratably, the net assets of Red Giant available to shareholders after
distribution is made to the preferred shareholders, if any, who are given
preferred rights upon liquidation. Holders of outstanding shares of common stock
have no preemptive, conversion or redemptive rights. To the extent that
additional shares of Red Giant's common stock are issued, the relative interest
of then existing shareholders may be diluted. The payment of dividends is
subject to the discretion of our Board of Directors and will depend, among other
things, upon our earnings, our capital requirements, our financial condition,
and other relevant factors. We have not paid or declared any dividends upon our
common stock since our inception and, by reason of our present financial status
and our contemplated financial requirements; we do not anticipate paying any
dividends upon our common stock in the foreseeable future.
STOCK OPTION PLAN
There is currently no Stock Option Plan in place.
CODE OF ETHICS.
We have adopted a Code of Ethics.
REPORTS TO SECURITY HOLDERS
We will make available to our shareholders an annual report, including
audited financials on Form 10-K. We are not currently a reporting company with
the Securities and Exchange Commission, but upon effectiveness of this
registration statement, we will be required to file reports with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
The public may read and copy any materials filed with the Securities and
Exchange Commission at its Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information about the operation of
the Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at
http://www.sec.gov.
ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
See Exhibits 10.2, 10.3 and 10.4
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(d) Exhibits
Exhibit
Number Description
------ -----------
10.1 Share Exchange Agreement with RGE and Powell entered into on June 6,
2012 (incorporated herein by reference to Amendment Number 1 for the
Form 8-K, filed November 6, 2012).
10.2 Audited Financial Statements of Red Giant for the year ended December
31, 2012 (incorporated herein by reference to the Form 8-K, Exhibit
10.2 filed on June 18, 2012).
10.3 Interim Financial Statements of Red Giant for the five months ended May
31, 2012 (incorporated herein by reference to the Form 8- K, Exhibit
10.3 filed on June 18, 2012).
10.4. Audited Financial Statements of Red Giant for the year ended August 31,
2012 (incorporated herein by reference to the Form 10-K/A (Amendment
Number 1), Exhibit 101, filed on January 22, 2013.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
RED GIANT ENTERTAINMENT, INC.
Date: April 11, 2012 By /s/ Benny Powell
----------------------------------
Benny Powell
President
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