Notes to the Consolidated Financial Statements (Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Red Giant Entertainment LLC (the “LLC”) was formed in the State of Florida, U.S.A., on January 1, 2011. On May 9, 2012, the LLC incorporated and changed its name to Red Giant Entertainment, Inc. (“RGE”) All income and expenses in these financial statements have been recharacterized for reporting purposes to be all inclusive for the corporate entity. The LLC was originally a publishing company, but has expanded its operations to include mass media and graphic novel artwork development.
On June 11, 2012, Castmor Resources Ltd., a Nevada corporation entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with RGE, and Benny Powell, who had owned 100% of the issued and outstanding shares in RGE. Pursuant to the terms and conditions of the Share Exchange Agreement, RGE exchanged 100% of the outstanding shares in RGE for forty million (40,000,000; 240,000,000 post split) newly-issued restricted shares of the Company’s common stock. Due to the recapitalization and reverse merger with Castmor Resources Ltd., 32,487,000 shares (194,922,000 post split) were issued in Castmore Resources Ltd., which changed its name to Red Giant Entertainment, Inc. (the “Company”). The Company subsequently approved a 6 to 1 forward stock split of all shares of record in June, 2012. The Company’s fiscal year end is August 31.
The exchange resulted in RGE becoming a wholly-owned subsidiary of the Company. As a result of the Share Exchange Agreement, the Company’s principal business became the business of RGE. All share information has been restated for both the reverse merger and the forward stock split for all periods presented.
On March 4, 2013, the Company acquired ComicGenesis, LLC (“ComicGenesis”), a Nevada limited liability company that operates a user-generated comic site that hosts over 10,000 independent webcomics.
RESTATEMENT
In the course of monitoring the business, management identified errors with respect to the completeness and disclosure of our debt accounting and the completeness of all related party transactions for the year ending August 31, 2013. Specifically, certain convertible debt agreements with related parties were not appropriately captured in the August 31, 2013 financial statements. Such notes were reimbursements to related parties for expense payments they made on behalf of the company. It is further noted, that the embedded conversion options of these notes qualified for derivative accounting and thus were bifurcated and recorded as a derivative liability. In addition, we noted a share transaction of a major shareholder executed for the benefit of the company (issuing his own shares to acquire a website for the company) had not accounted for the intangible property received in the exchange.
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
The following summary is presented in comparison to the originally reported financial statements, as of August 31, 2013:
|
|
Originally
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,937
|
|
|
|
|
|
|
|
|
14,937
|
|
Inventory
|
|
|
52,107
|
|
|
|
|
|
|
|
|
52,107
|
|
Prepaid and other
|
|
|
82,000
|
|
|
|
|
|
|
|
|
82,000
|
|
Property & equipment
|
|
|
10,548
|
|
|
|
|
|
|
|
|
10,548
|
|
Intangible assets
|
|
|
13,650
|
|
|
(1
|
)
|
|
45,000
|
|
|
51,150
|
|
|
|
|
|
|
|
(1
|
)
|
|
(7,500
|
)
|
|
|
|
Total Assets
|
|
$
|
173,242
|
|
|
|
|
|
|
|
|
210,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
|
|
$
|
81,332
|
|
|
(4
|
)
|
|
6,668
|
|
|
88,000
|
|
Due to related parties
|
|
|
39,187
|
|
|
|
|
|
|
|
|
39,187
|
|
Convertible notes payable
|
|
|
100,710
|
|
|
(2
|
)
|
|
338,000
|
|
|
105,711
|
|
|
|
|
|
|
|
(3
|
)
|
|
(338,000
|
)
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
5,001
|
|
|
|
|
Derivative liability, notes
|
|
|
271,321
|
|
|
|
|
|
338,000
|
|
|
1,339,599
|
|
|
|
|
|
|
|
(3
|
)
|
|
730,278
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
Derivative liability, warrants
|
|
|
—
|
|
|
(7
|
)
|
|
355,800
|
|
|
355,800
|
|
Total Liabilities
|
|
|
492,550
|
|
|
|
|
|
|
|
|
1,928,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
43,492
|
|
|
|
|
|
|
|
|
43,492
|
|
Additional paid in capital
|
|
|
(1,947
|
)
|
|
(1
|
)
|
|
45,000
|
|
|
43,053
|
|
Treasury stock
|
|
|
(55,000
|
)
|
|
|
|
|
|
|
|
(55,000
|
)
|
Accumulated deficit
|
|
|
(305,853
|
)
|
|
|
|
|
(1,443,247
|
)
|
|
(1,749,100
|
)
|
Total Stockholders’ Equity
|
|
|
(319,308
|
)
|
|
|
|
|
|
|
|
(1,717,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
$
|
173,242
|
|
|
|
|
|
|
|
|
210,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
497,486
|
|
|
|
|
|
|
|
|
497,486
|
|
Cost of sales
|
|
|
148,215
|
|
|
(2
|
)
|
|
127,475
|
|
|
275,690
|
|
|
|
|
349,271
|
|
|
|
|
|
|
|
|
221,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
421,865
|
|
|
(1
|
)
|
|
7,500
|
|
|
639,890
|
|
|
|
|
|
|
|
(2
|
)
|
|
210,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
112,090
|
|
|
(4
|
)
|
|
6,668
|
|
|
479,559
|
|
|
|
|
|
|
|
(5
|
)
|
|
5,001
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
355,800
|
|
|
|
|
Change in derivatives
|
|
|
113,821
|
|
|
(6
|
)
|
|
730,278
|
|
|
844,099
|
|
Income taxes
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Net loss
|
|
$
|
(298,505
|
)
|
|
|
|
|
|
|
|
(1,741,752
|
)
|
(1)
|
Acquisition of a website for the transfer of common stock by shareholder, at the fair value of $45,000; related amortization of website acquired, in the amount of $7,500.
|
(2)
|
Proceeds in exchange of convertible notes issued to reimburse related parties for operating expenses paid on the Company’s behalf.
|
(3)
|
Record debt discounts and deferred financing costs, related to the convertible notes payable.
|
(4)
|
Accrue interest payable and interest expense, related to convertible notes
|
(5)
|
Amortization of debt discount on convertible notes
|
(6)
|
Derivative liability related to the embedded conversion option of new convertible notes marked to fair value
|
(7)
|
Issuance of warrants as financing cost
|
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The Company operates under the name of Red Giant Entertainment, Inc. and its wholly owned subsidiaries RGE and ComicGenesis. The companies were incorporated for the intentions of developing brand names. Any activities of these subsidiaries or holdings have been included in the consolidated financial statements, with elimination of any intercompany accounts and transactions.
Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income or losses.
Fair Value Measurements
Topic 820 in the Accounting Standards Codification (ASC 820) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:
·
|
Level 1 inputs — Unadjusted quoted process in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
|
·
|
Level 2 inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
|
·
|
Level 3 inputs — Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
|
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
Inventory
As of February 28, 2014, inventory consisted of physical copies of published books, as well as artwork that is used for digitally distributed works for advertising revenue and future publications. The inventory is valued at the cost to produce, on a first-in-first-out (FIFO) basis.
Long-lived Assets
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost and capitalized. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. The Company currently has equipment being depreciated for estimated lives of three to five years. Depreciation for the three and six months ended February 28, 2014 and 2013 was $619, $166, $1,196 and $332, respectively.
Intangible Property
Intellectual property, including patents and other intangible assets have been capitalized and recorded at their fair value historical cost. The Company’s intellectual property consists of graphic novel artwork and was contributed by a stockholder to the Company and valued at $29,250, which was determined based on the historical costs for artists and printing. The intangible is being amortized over its life of five years. The Company acquired website and other intangible assets in the acquisition of a subsidiary, valued at the fair market value of stock exchanged by a shareholder, valued in the amount of $45,000. Amortization is calculated on a straight line basis over the estimated useful life of three years. Amortization for the three and six months ended February 28, 2014 and 2013was $5,213, $1,463, $10,426 and $2,926, respectively
Long-lived Assets Impairment
Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360, Property, Plant and Equipment. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis. Based upon its most recent analysis, the Company believes that no impairment of property existed at February 28, 2014 and August 31, 2013.
Recent Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Revenue Recognition
Revenue for the Company is recognized from three primary sources: Advertising Revenue, Publishing Sales and Creative Services. Revenue was processed through our Paypal Account and Project Wonderful accounts where applicable.
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
Advertising Revenue comes from the following sources and is stated at net after commissions:
o
|
Keenspot: Revenue is earned on a net 90 basis and is based upon traffic to Red Giant property Web sites. It is calculated on a Cost Per Thousand (CPM) of verified impressions and varies based upon bids by advertisers and other customary factors. In exchange for advertising, hosting, IT, and sales management, Keenspot takes 50% commission of ad revenue for their services.
|
o
|
Project Wonderful: Revenue is paid immediately and based upon bids by advertisers for a set amount of time at the prevailing highest winning rate. Project Wonderful takes a 25% commission of ad revenue for their services.
|
Publishing Revenue comes from the following sources:
o
|
Kickstarter Campaigns: These are presales for books and revenue is recognized only once the books arrive and are shipped to the buyers.
|
o
|
Direct Sales: Through our online store, we sell directly to clients and the transactions process through our Paypal account. All orders are shipped immediately and revenue is recognized immediately.
|
Creative Services are artwork, writing, advertising, and other creative endeavors we handle for outside clients. Revenue is recognized upon completion of the services and payment has been tendered.
Shipping and Handling for purchases are paid directly by the consumer through Paypal. The Company has not established an allowance for doubtful accounts, as all transactions are handled through Paypal directly by the consumer.
Cost of Goods Sold
Cost of goods sold includes the cost of creating services or artwork, advertising and books.
Advertising
Advertising costs are expensed as incurred. The Company expensed advertising costs of $24,052, $0, $49,066 and $771 for the three and six month periods ending February 28, 2014 and 2013, respectively.
Stock Based Compensation
The Company issues restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete. The Company recognized consulting expenses and a corresponding increase to additional paid-in-capital related to stock issued for services. Stock compensation for the periods presented were issued for past services provided, accordingly, all shares issued are fully vested, and there is no unrecognized compensation associated with these transactions. For agreements requiring future services, the consulting expense is to be recognized ratably over the requisite service period. The Company has not incurred any stock based compensation expense for the three and six month periods ending February 28, 2014 and 2013.
Income Taxes
The Company was a limited liability company until May 9, 2012. As an LLC, no income tax provision was made at the Company level and all taxable income and deductions were passed directly to the equity owner. The Company will be evaluating the tax ramifications of the change in entity status and the organizational changes to determine future tax issues.
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
The Company has adopted ASC 740,
Income Taxes
, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Earnings (Loss) Per Share
The Company follows financial accounting standards, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. There were approximately 1,274,000,000 common stock equivalents outstanding at February 28, 2014, related to the convertible debt arrangements.
NOTE 3 - MANAGEMENT STATEMENT REGARDING GOING CONCERN
The Company is currently generating revenues from operations sufficient to meet its operating expenses. However, our management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about the Company’s ability to continue as a going concern. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities, as well as a strategic or other transaction, to obtain additional funding to continue the development of, and successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts and this raises substantial doubt about the Company’s future. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.
The Company believes that its ability to execute its business plan, and therefore continue as a going concern, is dependent upon its ability to do the following:
·
|
obtain adequate sources of funding to fund long-term business operations;
|
·
|
enter into a licensing or other relationship that allows the Company to commercialize its products;
|
·
|
manage or control working capital requirements; and
|
·
|
develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.
|
There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.
NOTE 4 - CONVERTIBLE NOTES PAYABLE
The Company entered into lending arrangements with several lending institutions, each with convertible features. The Company evaluated the terms of the convertible notes, with outstanding face values totaling $729,630, in accordance with ASC Topic No. 815 - 40,
Derivatives and Hedging – Contracts in Entity’s Own Stock
and that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bi-furcated the conversion feature and accounted for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a debt discount on the notes
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
in the amount of $729,630 on the origination date. The debt discount was recorded as reduction (contra-liability) to the Convertible Notes Payable. The debt discount is being amortized over the term of the notes. Additionally, the notes called for an immediate withholding of $200,277 for service charges, which has been treated as an original issue discount or deferred financing costs, a contra-liability charge, which is to be amortized as finance cost over the life of the loan. Interest expense, in the amount of $83,405 and $174,053, was recognized for the three and six month period ended February 28, 2014.
A derivative liability, in the amount of $1,736,557 has been recorded, as of February 28, 2014, related to the above notes. The Company recognized a change in the derivative liability, resulting in a loss in the amount of $323,573 and $396,958 for the three and six month periods ending February 28, 2014. The derivative value was calculated using the Black-Scholes method. Assumptions used in the derivative valuation were as follows:
Weighted Average:
|
|
|
|
Dividend rate
|
|
|
0.0
|
%
|
Risk-free interest rate
|
|
|
0.13
|
%
|
Expected lives (years)
|
|
|
0.759
|
|
Expected price volatility
|
|
|
488.6
|
%
|
Forfeiture Rate
|
|
|
0.0
|
%
|
Summary of Convertible Notes Payable:
Original value
|
|
$
|
729,630
|
|
Deferred finance cost
|
|
|
(116,501
|
)
|
Unexpired debt discount
|
|
|
(486,365
|
)
|
|
|
|
126,764
|
|
Less current portion of debt
|
|
|
86,819
|
|
Non-current
|
|
$
|
39,945
|
|
NOTE 5 – PROVISION FOR INCOME TAXES
Income taxes are provided based upon the liability method. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by accounting standards to allow recognition of such an asset.
At February 28, 2014, the Company expected no net deferred tax assets calculated at an expected rate of 37.6%. The Company has applied a 100% valuation allowance on the deferred tax assets attributable to the Net Operating Losses incurred.
Although Management believes that its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our tax provisions. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict.
Accounting for Income Tax Uncertainties and Related Matters
The Company may be assessed penalties and interest related to the underpayment of income taxes. Such assessments would be treated as a provision of income tax expense on the financial statements. At February 28, 2014, the tax return for 2011 through 2013 have not being filed. No income tax expense has been realized as a result of operations and no income tax penalties and interest have been accrued related to uncertain tax positions. The Company has not filed a tax return for the new entity. These filings will be subject to a three year statute of limitations. No adjustments have been made to reduce the estimated income tax benefit at fiscal year-end. Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 6 – CAPITAL STOCK
The Company has 100,000,000 shares of preferred stock authorized and none have been issued.
The Company has 3,000,000,000 shares of common stock authorized, as amended January 29, 2014. All shares of common stock are non-assessable and non-cumulative, with no preemptive rights.
During the eight months ended, August 31, 2012, $10,869 of contributed capital was added to additional paid in capital. For the 3 months ended February 28, 2014, no additional capital was contributed.
In June, 2012, Castmor Resources Ltd., entered into Share Exchange Agreement (the “Share Exchange Agreement”) with Red Giant Entertainment Inc., (“RGE”), and Benny Powell, who had owned 100% of the issued and outstanding shares in RGE. Pursuant to the terms and conditions of the Share Exchange Agreement, RGE exchanged 100% of the outstanding shares in RGE for forty million (240,000,000 post split) newly-issued restricted shares of the Company’s common stock. Due to the recapitalization and reverse merger of Castmor Resources Ltd, an additional 32,487,000 (194,922,000 post split) shares were issued. The Company approved a 6 to 1 stock split of all shares issued in June of 2012. All share information has been restated for both the reverse merger and the forward stock split for all periods presented.
During the year ending August 31, 2013 the Company entered into a stock buy-back plan, whereby 1,785,900 shares were repurchased for $55,000 cost. The shares remain in the name of the Corporation until such time as they are cancelled.
The Company issued warrants to purchase approximately 37,166,700 shares of common stock, at a strike price of $.015 per share, in association with a financing arrangement. Warrants may be exercised in a cashless option. The company valued these warrants using the Black-Scholes method, resulting in an interest expense of $355,800 and a corresponding derivative liability.
The Company’s majority shareholder issued 500,000 common shares held personally for the acquisition of its subsidiary, CosmicGenesis, valued at a fair market value of $45,000, considered to be the fair value of the website created and acquired. The fair value of the common shares were recognized as a contribution to capital.
During the three month period ending November 30, 2013, the Company issued 22,636,273 shares of its common stock in satisfaction of convertible obligations in the amount of $60,000. During the three month period ending February 28, 2014, the Company issued 244,324,232 shares of its common stock in satisfaction of convertible obligations, in the amount of $405,000.
The Company recognized a loss in the amount of $525,041 and $593,241 for the three and six month periods ending February 28, 2014, respectively, resulting from the excess in the fair market value of the stock issued in the above transactions to retire convertible debt.
NOTE 7 – RELATED PARTIES
Benny Powell was an officer and director of both parties to the merger. See Note 1. Mr. Powell continues as the Company’s sole officer and director post-merger.
The Company purchases print materials through Active Media Publishing, Inc. (“AMPI”), an entity wholly owned by Mr. Powell. AMPI has certain arrangements with overseas printing companies, whereby the printing is facilitated to the Company. Agreement with AMPI states processing is at near cost prices on a non-exclusive basis. During the six month periods ending February 28, 2014, the Company purchased print media in the amount of $47,115.
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
Keenspot has been paid or accrued commissions in the amount of approximately $1,409 during the six month period ending February 28, 2014.
The Company also from time to time have retained Glass House Graphics, a sole proprietorship owned by David Campiti, our Chief Operating Officer and a member of the Board, to provide creative services for us. The Company paid an aggregate of $12,575 to Glass House Graphics during the six month period ended February 28, 2014.
The Company does not own or lease property or lease office space. The officers of the Company provide office and storage space to the Company at no charge through their other ventures.
The Company does not have employment contracts with its key employees, including the controlling stockholder who is an officer of the Company, although it has independent contractor agreements with its other officers.
As of December 2013, the Company has retained Chris Crosby, one of the Company’s officers and directors, to also serve as web editor for the Company’s webcomics. Mr. Crosby will be compensated $1,500 per month for his web editing services, which the Company believes to be substantially less than the compensation the Company would pay for an independent third party to provide such services.
The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
NOTE 8 – BUSINESS SEGMENTS
The Company generates revenues from three service offerings: Advertising, Book publishing and Creative. The Company’s management measures its performance by revenue lines and does not allocate its selling, general and administrative expenses to each revenue offering. A summary of the lines of revenue are as follows, for the six months ending February 28, 2014:
Revenues
|
|
|
|
Advertising
|
|
|
2,321
|
|
Book publishing
|
|
|
8,303
|
|
Creative
|
|
|
0
|
|
TOTAL:
|
|
|
10,624
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
Advertising
|
|
|
2,379
|
|
Book publishing
|
|
|
6,708
|
|
Creative
|
|
|
0
|
|
TOTAL:
|
|
|
9,087
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
Advertising
|
|
|
(58
|
)
|
Book publishing
|
|
|
1,595
|
|
Creative
|
|
|
0
|
|
TOTAL:
|
|
|
1,537
|
|
Red Giant Entertainment, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts. Additionally, regarding this concern, the Company does not have employment agreements with its key officers and directors.
In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company’s management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 10 – SUBSEQUENT EVENTS
Convertible debt holders converted debt in exchange for 809,270,319 shares of common stock.
In the period subsequent to February 28, 2014, the Company issued 14,541,570 common shares to consultants, under agreement, in satisfaction of amounts payable.
The Company has issued convertible notes in exchange for proceeds, in the amount of $53,000, less fees charged.
Management has evaluated subsequent events through the date these financial statements were available to issue, the date of filing with the Securities and Exchange Commission. There was no event of which management was aware that occurred after the balance sheet date that would require any adjustment to, or disclosure in, the accompanying consolidated financial statements.