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 May 31, 2013
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 [X] No [ ]
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 July 9, 2013, there were 434,922,000 shares of the Company's common stock,
$0.001 par value per share, issued and outstanding.
Red Giant Entertainment, Inc.
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheet as of May 31, 2013 (Unaudited) 3
Statement of Operations for the Three Months Ended May 31, 2013
and May 31, 2012 and for the Nine months Ended May 31, 2013 and
May 31, 2013 (Unaudited) 4
Statements of Cash Flows for the Nine months Ended May 31, 2013
and May 31, 2012 (Unaudited) 5
Statement of Shareholders' Equity as of May 31, 2013 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 1A. Risk Factors 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits 18
SIGNATURES 19
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RED GIANT ENTERTAINMENT INC.
(formerly known as Castmor Resources Ltd.)
Balance Sheets
May 31, 2013 August 31, 2012
------------ ---------------
(unaudited) (audited)
ASSETS
Current Assets
Cash in Banks $ 1,359 $ 269
Inventory 50,020 10,928
Prepaid Expenses 50,069 20,000
--------- ---------
Total Current Assets 101,448 31,197
Computer Equipment - net of depreciation 2,777 3,277
Intellectual Property - net of amortization 15,112 19,500
--------- ---------
TOTAL ASSETS $ 119,337 $ 53,974
========= =========
LIABILITIES & STOCKHOLDER'S EQUITY
Accounts Payable & Accrued Expenses $ 20,409 $ 19,776
Accounts Payable
Note Payable - Related Party -- --
--------- ---------
Total Current Liabilities -- --
--------- ---------
Total Liabilities -- --
Commitments & Contingencies -- --
--------- ---------
STOCKHOLDER'S 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 & 240,000,000 shares issued and outstanding, respectively 43,492 43,492
Additional paid in capital -- --
Discount on Common Stock (1,947) (1,947)
Accumulated earning (deficit) 57,383 (7,347)
--------- ---------
Total Stockholder's Equity 98,928 34,198
--------- ---------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 119,337 $ 53,974
========= =========
The accompanying notes are an integral part of these financial statements.
3
RED GIANT ENTERTAINMENT INC.
(formerly known as Castmor Resources, Ltd.)
Statements of Operations
(unaudited)
For the three months ended For the nine months ended
May 31, May 31,
----------------------------- -----------------------------
2013 2012 2013 2012
------------ ------------ ------------ ------------
Sales $ 130,125 $ 37,489 $ 295,653 $ 58,820
Cost of Sales 25,865 16,406 106,773 28,029
------------ ------------ ------------ ------------
Gross Profit 104,260 21,083 188,880 30,791
OPERATING EXPENSES
Advertising & marketing -- 38 771 666
Depreciation & amortization 1,630 1,463 4,888 4,389
General & administrative 15,639 1,639 19,037 3,848
Travel & entertainment 3,315 -- 5,608 68
Professional fees 19,490 1,250 44,190 1,250
Payroll & related expenses 30,354 -- 48,929 --
Meeting & conventions -- -- 726 --
------------ ------------ ------------ ------------
Total Expense 70,428 4,390 124,149 10,221
------------ ------------ ------------ ------------
Net Income before taxes 33,832 16,693 64,731 20,570
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Income $ 33,832 $ 16,693 $ 64,731 $ 20,570
============ ============ ============ ============
Net income per share, basic and diluted $ (0.00) $ 0.00 $ (0.00) $ 0.00
============ ============ ============ ============
Weighted average number of common
shares outstanding 434,922,000 240,000,000 434,922,000 240,000,000
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
RED GIANT ENTERTAINMENT
(formerly known as Castmor Resources, Ltd.)
Statements of Cash Flow (Unaudited)
For the nine months ended
May 31,
---------------------------
2013 2012
-------- --------
OPERATING ACTIVITIES
Net Income $ 64,730 $ 20,570
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation & amortization 4,888 4,389
Inventory (39,092) 8,065
Prepaid expenses (30,069) (32,319)
Accounts payable and accrued expenses 633 --
-------- --------
Net Cash Used by Operating Activities 1,090 705
-------- --------
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 1,090 705
Cash at Beginning of Period 269 --
-------- --------
Cash at End of Period $ 1,359 $ 705
======== ========
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.
5
RED GIANT ENTERTAINMENT INC
(formerly known as Castmor Resources, Ltd.)
Statement of Shareholder's Equity (unaudited)
Preferred Stock Common Stock Additional Discount on Accumulated Total
------------------ ------------------------ Paid in Common Earning Shareholder
Sh Amt Sh Amt Capital Stock (Deficit) Equity
------- ------- ----------- -------- -------- -------- -------- --------
Beg. bal, January 1, 2011 -- $ -- 240,000,000 $ 24,000 $ 6,676 $ -- $ -- $ 30,676
Net income 9,122 9,122
------- ------- ----------- -------- -------- -------- -------- --------
Balance December 31, 2011 -- -- 240,000,000 24,000 6,676 -- 9,122 39,798
Contributed capital -- -- -- -- 10,869 -- -- 10,869
Recapitalization from
reverse merger -- -- 194,922,000 19,492 (17,545) (1,947) -- --
Net loss, for period (16,469) (16,469)
------- ------- ----------- -------- -------- -------- -------- --------
Balance August 31, 2012 -- -- 434,922,000 43,492 -- (1,947) (7,347) 34,198
Net income 64,731 64,731
------- ------- ----------- -------- -------- -------- -------- --------
Balance May 31, 2013 -- $ -- 434,922,000 $ 43,492 $ -- $ (1,947) $ 57,384 $ 98,929
======= ======= =========== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
6
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Red Giant Entertainment LLC, (hereinafter "the Company") was formed in the State
of Florida, U.S.A., on January 1, 2011. The Company's fiscal year end is
December 31. On May 9, 2012, the Company incorporated and changed its name to
Red Giant Entertainment, Inc. ("RGE"). All income and expenses in these
financial statements have been recharacterized for reporting purposes to be all
inclusive for the corporate entity. The Company was originally a publishing
company, but has expanded its operations to include mass media and graphic novel
artwork development.
On June 11, 2012, Castmor Resources Ltd., a Nevada corporation entered into a
Share Exchange Agreement (the "Share Exchange Agreement") with 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 40,000,000 (40,000,000; 240,000,000 post
split) newly-issued restricted shares of the Company's common stock. Due to the
recapitalization and reverse merger with Castmor Resources Ltd, 32,487,000
shares (194,922,000 post split) were issued in the entity. The Company
subsequently approved a 6 to 1 forward stock split of all shares of record in
June, 2012.
The exchange resulted in RGE becoming a wholly-owned subsidiary of the Company.
As a result of the Share Exchange Agreement, the Company will now conduct all
current operations through RGE, 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. The
financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
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 $0 for the periods ending May 31, 2013.
ASSET RETIREMENT OBLIGATIONS
The Company has adopted ASC 410, ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS,
which requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred. ASC 410 requires
the Company to record a liability for the present value of the estimated site
restoration costs with corresponding increase to the carrying amount of the
related long-lived assets. The liability will be accreted and the asset will be
depreciated over the life of the related assets. Adjustments for changes
resulting from the passage of time and changes to either the timing or amount of
the original present value estimate underlying the obligation will be made. As
at May 31, 2013 and 2012, the Company does not have any asset retirement
obligations.
7
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments and short-term debt instruments with original maturities of
three months or less to be cash equivalents. As of May 31, 2013, the Company has
$1,359 of cash equivalents.
COST OF GOODS SOLD
Cost of goods sold includes the cost of creating services or artwork,
advertising and books.
EARNINGS (LOSS) PER SHARE
The Company follows financial accounting standards, which provides for
calculation of "basic" and "diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net income available to
common shareholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity similar to fully diluted earnings
per share. There were 434,922 common stock equivalents outstanding at May 31,
2013.
FAIR VALUE MEASUREMENTS
Topic 820 in the Accounting Standards Codification (ASC 820) defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. ASC
820 applies whenever other standards require (or permit) assets or liabilities
to be measured at fair value but does not expand the use of fair value in any
new circumstances. In this standard, the FASB clarifies the principle that fair
value should be based on the assumptions market participants would use when
pricing the asset or liability. In support of this principle, ASC 820
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The fair value hierarchy is as follows:
* Level 1 inputs -- Unadjusted quoted process in active markets for
identical assets or liabilities that the entity has the ability to
access at the measurement date.
* Level 2 inputs -- Inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets and
liabilities in active markets, and inputs other than quoted prices
that are observable for the asset or liability, such as interest rates
and yield curves that are observable at commonly quoted intervals.
* Level 3 inputs -- Unobservable inputs for determining the fair values
of assets or liabilities that reflect an entity's own assumptions
about the assumptions that market participants would use in pricing
the assets or liabilities.
The Company currently does not have any assets that are measured at fair value
on a recurring or non-recurring basis, consequently, the Company did not have
any fair value adjustments for assets and liabilities measured at fair value at
November 30, 2012, nor gains or losses reported in the statement of operations
that are attributable to the change in unrealized gains or losses relating to
those assets and liabilities still held at the reporting date for the period
ended November 30, 2012.
INCOME TAXES
The Company was a limited liability company ("LLC") 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
8
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
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.
LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets of the Company are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of assets may not be
recoverable, pursuant to guidance established in ASC 360, PROPERTY, PLANT AND
EQUIPMENT. Management considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations (undiscounted
and without interest charges). If impairment is deemed to exist, the assets will
be written down to fair value. Fair value is generally determined using a
discounted cash flow analysis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost and capitalized.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset. The Company currently has equipment being depreciated for
estimated lives of three to five years. Depreciation for the three months ended
May 31, 2013 was $166.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2012, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2012-02, "INTANGIBLES--GOODWILL AND
OTHER (TOPIC 350): TESTING INDEFINITE-LIVED INTANGIBLE ASSETS FOR IMPAIRMENT"
(the "Update"). The Update simplifies the guidance for testing the decline in
the realizable value (impairment) of indefinite-lived intangible assets other
than goodwill. Examples of intangible assets subject to the guidance include
indefinite-lived trademarks, licenses and distribution rights. The new standard
is effective for fiscal years beginning after September 15, 2012. As of May 31,
2013, none of the Company's intangible assets are amortized as indefinite-lived
intangible assets. Therefore, the adoption of this amendment is not expected to
have a material impact on the Company's financial position or results of
operations.
In September 2011, the FASB issued ASU No. 2011-08, "Intangibles--Goodwill and
Other (Topic 350): TESTING GOODWILL FOR IMPAIRMENT." This amendment permits, but
does not require, an entity to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount as a basis for determining whether it is necessary
to perform the two-step goodwill impairment test. The amendment is required to
be adopted by the Company beginning October 1, 2012, although early adoption is
permitted. The Company will consider assessing qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount as a basis for determining whether it is necessary
to perform the two-step goodwill impairment test in future periods. The adoption
of this amendment is not expected to have a material impact on the Company's
financial position or results of operations.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic
820): AMENDMENTS TO ACHIEVE COMMON FAIR VALUE MEASUREMENTS AND DISCLOSURE
REQUIREMENTS IN U.S. GAAP AND INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS). Among other things, the guidance expands the disclosure requirements
around fair value measurements categorized in Level 3 of the fair value
hierarchy and requires disclosure of the level in the fair value hierarchy of
items that are not measured at fair value in the statement of financial position
but whose fair value must be disclosed. It also clarifies and expands upon
existing requirements for measurement of the fair value of financial assets and
liabilities as well as instruments classified in shareholders' equity. The
guidance is effective for interim and annual periods beginning after December
15, 2011. We are currently evaluating the impact this update will have on our
financial statements.
9
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
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.
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.
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.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring
entries necessary for a fair statement of the periods presented for: (a) the
financial position; (b) the result of operations; and (c) cash flows, have been
made in order to make the financial statements presented not misleading. The
results of operations for such interim periods are not necessarily indicative of
operations for a full year.
10
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
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
* 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 May 31, 2013, inventory consisted of physical copies of published books,
as well as artwork that's used for digitally distributed works for advertising
revenue and future publications. The inventory is valued at 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 life of five years. Amortization cost for
the three months ended May 31, 2013 was $1,463. The Company expects to amortize
the remaining $15,112 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 May 31, 2013, the Company expected no net deferred tax assets calculated at
an expected rate of 15%.
11
RED GIANT ENTERTAINMENT, INC.
(formerly known as Castmor Resources, Inc.)
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2013
For the tax year ended December 31, 2011, the predecessor entity to RGE was a
limited liability company, and as such, all tax benefits and obligations passed
through the entity to its members. No provisions have been made at December 31,
2011, nor does management believe that any tax modifications would have a
material effect on the financials.
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 May 31, 2013, the tax return for 2011
and 2012 has not being filed. No income tax expense has been realized as a
result of operations and no income tax penalties and interest have been accrued
related to uncertain tax positions. The Company has not filed a tax return for
the new entity. These filings will be subject to a three year statute of
limitations. No adjustments have been made to reduce the estimated income tax
benefit at fiscal year end. Any valuations relating to these income tax
provisions will comply with U.S. generally accepted accounting principles.
NOTE 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 February 28,
2013, no additional capital was contributed.
In June, 2012, Castmor Resources Ltd., entered into Share Exchange Agreement
(the "Share Exchange Agreement") with RGE and Benny Powell, who had owned 100%
of the issued and outstanding shares in RGE. Pursuant to the terms and
conditions of the Share Exchange Agreement, RGE exchanged 100% of the
outstanding shares in RGE for 40,000,000 (240,000,000 post split) newly-issued
restricted shares of the Company's common stock. Due to the recapitalization and
reverse merger 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 through his
other ventures.
NOTE 9 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through July 8, 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.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This Quarterly Report on Form 10-Q (this "Quarterly Report") includes
"forward-looking statements." All statements, other than statements of
historical facts, included in this Quarterly Report which address activities,
events or developments which we expect, believe or anticipate will or may occur
in the future are forward-looking statements. The word "believes," "intends,"
"expects," "anticipates," "projects," "estimates," "predicts" and similar
expressions are also intended to identify forward-looking statements.
Consequently, all of the forward-looking statements made in this Quarterly
Report are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have the expected
consequences or effects on our business operations. We assume no obligation to
update publicly, except as required by law, any such forward-looking statements,
whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in our critical accounting policies from
those reported in our Annual Report on Form 10-K for our fiscal year ended
August 31, 2011, filed with the SEC on November 29, 2011. For more information
on our critical accounting policies, see Part II, Item 7 of our fiscal 2011
Annual Report on Form 10-K.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2013 COMPARED TO THE NINE MONTHS ENDED MAY 31, 2012
REVENUES. During the nine months ended May 31, 2013, revenues were $295,653, an
increase of $236,833 or 403% from $58,820 for the nine months ended May 31,
2012. 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 the nine months ended May 31, 2013, we incurred cost of
sales of $106,773 compared to $28,029 incurred during the nine months ended May
31, 2012, an increase of $78,744 or 36%. 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 $30,791 during the nine months ended
May 31, 2012 to $188,880 during the nine months ended May 31, 2013. The increase
of $158,089 or 513% was largely due to higher revenues and the continued
development of the market for our products.
GENERAL/ADMINISTRATIVE. During the nine months ended May 31, 2013, we incurred
general and administrative expenses of $124,149 compared to $10,221 incurred
during the nine months ended May 31, 2012 (an increase of $113,928 or 1,115%).
General and administrative expenses include corporate overhead, financial, and
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administrative services, marketing and professional costs. The increase was
primarily due to increased expenses for professional fees and payroll.
INCOME. Our net income for the nine months ended May 31, 2013 was a net profit
of $64,731 compared to a net profit of $20,570 during the nine months ended May
31, 2012, an increase of $44,161 or 215%. The increase in net income is
primarily attributable to the increase of sales of our products.
LIQUIDITY AND CAPITAL RESOURCES. As of May 31, 2013, we had cash or cash
equivalents of $1,359, 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 of $50,020,
prepaid expenses of $50,069, computer equipment (net of depreciation) of $2,777,
and intellectual property (net of amortization) of $15,112.
CASH FLOWS FROM OPERATING ACTIVITIES. For the nine months ended May 31, 2013, we
had net cash used by operating activities of $1,090 as compared to net cash used
by operating activities of $705 in the nine months ended May 31, 2012.
CASH FLOWS FROM INVESTING ACTIVITIES. There was no net cash used by investing
activities for the nine months ended May 31, 2013 as was also the case in the
nine months ended May 31, 2012.
CASH FLOWS FROM FINANCING ACTIVITIES. For the nine months ended May 31, 2013, we
had no net cash provided by financing activities as was also the case in the
nine months ended May 31, 2012.
THREE MONTHS ENDED MAY 31, 2013 COMPARED TO THE THREE MONTHS ENDED MAY 31, 2012
REVENUES. During the three months ended May 31, 2013, revenues were $130,125, an
increase of $92,636 or 247% from $37,489 for the three months ended May 31,
2012. 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 the three months ended May 31, 2013, we incurred cost of
sales of $25,865 compared to $16,406 incurred during the three months ended May
31, 2012 (an increase of $9,459 or 58%). 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 $21,083 during the three months ended
May 31, 2012 to $104,260 during the three months ended May 31, 2013. The
increase of $83,177, or 395%, was largely due to higher revenues and the
continued development of the market for our products.
GENERAL/ADMINISTRATIVE. During fiscal three months ended May 31, 2013, we
incurred general and administrative expenses of $70,428 compared to $4,390
incurred during the three months ended May 31, 2012, an increase of $66,038 or
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1,504%. General and administrative expenses include corporate overhead,
financial, and administrative services, marketing and professional costs. The
increase was primarily due to increased expenses for professional fees and
payroll.
INCOME. Our net income for the three months ended May 31, 2013 was a net profit
of $33,832 before taxes compared to a net profit of $16,693 before taxes during
the three months ended May 31, 2012, an increase of $17,139 or 103%. The
increase in net income is primarily attributable to increased sales of our
products.
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 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 May 31, 2013. 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 May 31,
2013.
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;
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* 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 May 31, 2013. 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 May 31, 2013, 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.
* 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 May 31, 2013, 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.
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 May 31, 2013 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 13, 2013, George Sharp ("Plaintiff") filed a Complaint in San Diego
Superior Court, Central District, Case No. 37-2013-00048310-CU-MC-CTL, against
14 companies, including us (collectively, "Defendants"). We were served with the
Complaint on May 23, 2013. The Complaint alleges that the Plaintiff received
unsolicited promotional emails being sent by Defendant, Victory Mark Corp. Ltd.,
discussing the other 13 corporate Defendants, including us. The Plaintiff is
seeking liquidated damages in the amount of $1,000 for each email he received
for a total of $1,204,000 collectively for all Defendants. We have filed a
Demurrer to the Complaint asserting that we have not committed any misconduct
and requesting the Complaint against us be dismissed which will be heard on
October 11, 2013.
We are not currently a party to, nor are any of our property currently the
subject of, any other 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 provide the information required
under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
STOCK REPURCHASE PLAN
On June 25, 2013, we announced that we had authorized a stock repurchase program
permitting us to repurchase shares of our common stock over the next six to 12
months. The shares are to be repurchased from time to time in open market
transactions or privately negotiated transactions in our discretion.
To date, we have made the following repurchases:
Total Number of Average Price
Month Shares Purchased Per Share
----- ---------------- ---------
June 2013 615,900 $0.0141
July 2013 (through July 9) 977,200 $0.0172
TOTAL 1,593,100
The shares repurchased as listed above have not yet been returned to authorized
but unissued status, but upon doing so, will result in us having outstanding
433,328,900 shares of common stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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 Officer
pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 2013 formatted in
Extensible Business Reporting Language (XBRL): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed Consolidated
Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows and (iv) related notes.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RED GIANT ENTERTAINMENT, INC.
Date: July 15, 2013 By: /s/ Benny Powell
-------------------------------------
Benny Powell
Chief Executive Officer & Principal
Executive Officer, Chief Financial
Officer & Principal Financial Officer
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