Exhibit 10.3
INTERIM FINANCIAL STATEMENTS
Red Giant Entertainment, Inc.
Balance Sheet
For the periods ended
May 31, December 31,
2012 2011
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS
Cash in Banks $ 705 $ 97
Inventory 6,837 16,301
Prepaid Expenses 32,319 --
-------- --------
TOTAL CURRENT ASSETS 39,861 16,398
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INTANGIBLEASSETS
Intellectual Property 29,250 29,250
Less Accumulated Amortization (8,288) (5,850)
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TOTAL INTANGIBLEASSETS 20,962 23,400
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TOTAL ASSETS $ 60,823 $ 39,798
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LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES $ -- $ --
Common Stock, no par value, 5,000,000 shares
authorized,issued and outstanding 60,000 39,798
Retained Earnings 823 --
-------- --------
TOTAL STOCKHOLDER'S EQUITY 60,823 39,798
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 60,823 $ 39,798
======== ========
The accompanying notes are an integral part of these financial statements.
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Red Giant Entertainment, Inc.
Statement of Operations
(unaudited)
Five months ended Five months ended
May 31, 2012 May 31, 2011
---------- ----------
Sales
Advertising $ 1,242
Publishing 29,930
Creative Services 7,514
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Total Sales 38,686 13,429
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Cost of Sales
Advertising 1,326
Publishing 16,117
Creative Services 5,892
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Total Cost of Sales 23,335 4,222
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Gross Profit 15,351 9,207
Expenses
Bank service charges 366 239
Advertising & marketing 456 109
Amortization expense 2,438 2,438
Communication 40 571
Utilities 375 375
Professional Fees 1,280 --
Other operating expense 240 1,334
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Total Expense 5,195 5,066
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Net Income before taxes 10,156 4,141
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Income taxes -- --
--------- ---------
Net Income $ 10,156 $ 4,141
========= =========
Net income per share,
basic and diluted $ 0.002 $ 0.001
========= =========
Weighted average number of common
shares outstanding 5,000,000 5,000,000
========= =========
The accompanying notes are an integral part of these financial statements.
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Red Giant Entertainment, Inc.
Statement of Cash Flow
(unaudited)
Five months ended Five months ended
May 31, 2012 May 31, 2011
---------- ----------
OPERATING ACTIVITIES
Net Income $ 10,156 $ 4,141
Adjustments to reconcile Net Income to net cash
provided by operating activities:
Amortization 2,438 2,438
Inventory 9,464 (8,005)
Prepaid Expenses (32,319) --
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (10,261) (1,426)
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INVESTING ACTIVITIES
NET CASH USED BY INVESTING ACTIVITIES -- --
-------- --------
FINANCING ACTIVITIES
Capital contributed 10,869 1,426
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NET CASH PROVIDED BY FINANCING ACTIVITIES 10,869 1,426
-------- --------
Net Cash Increase for Period 608 --
Cash at Beginning of Period 97 --
-------- --------
CASH AT END OF PERIOD $ 705 $ --
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ --
======== ========
Income taxes paid $ -- $ --
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NON-CASH
Shareholder contribution of intellectual property $ -- $ 29,250
======== ========
The accompanying notes are an integral part of these financial statements.
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Red Giant Entertainment, Inc.
Notes to the Interim Financial Statements
May 31, 2012
ORGANIZATION AND DESCRIPTION OF BUSINESS
Red Giant Entertainment LLC (hereinafter "the Company"), was incorporated 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. 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.
NOTE 1 - 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
unaudited interim financial information presented herein reflects all
adjustments that are, in the opinion of management, necessary in order to make
the financial statements not misleading. 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 reported in US Dollars.
ADVERTISING
Advertising costs are expensed as incurred. The Company expensed advertising
costs of $456 and $109 as of May 31, 2012 and 2011, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments and short-term debt instruments with original maturities of
three months or less to be cash equivalents. As at May 31, 2012 and December 31,
2011, there were $705 and $97 of cash equivalents, respectively.
COST OF GOODS SOLD
Cost of goods sold includes the cost of creating services or artwork,
advertising and books.
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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
May 31, 2012 and December 31, 2011, 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 periods ended May 31, 2012 and 2011.
INCOME TAXES
The Company was a limited liability company until May 9, 2012. As an LLC, no
income tax provision was made at the Company level and all taxable income and
deductions were passed directly to the equity owner. The Company will be
evaluating the tax ramifications of the change in entity status and pending
merger during the next several months.
RECENT ACCOUNTING 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
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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. 2010-17, "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. 2010-06, "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.
REVENUE RECOGNITION
Revenue for the Company is recognized from three primary sources: Advertising
Revenue, Publishing Sales and Creative Services. Revenue in 2011 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 recognized from Keenspot's arrangements with
advertisers at an agreed upon cost per thousand verified impressions
(CPM) to our Keenspot sites whereby advertisers pay based on the
number of times the target audience is exposed to the advertisement.
This revenue is recognized on a net basis in the monthly period in
which the impressions occur (i.e., advertisers pay us within 90
calendar days of receiving Keenspot's invoices). The particular CPM
rate 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.
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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 payment for
services.
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.
NOTE 2 - 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. 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:
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* 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 3 - STOCKHOLDER'S EQUITY
The Company is wholly owned. The stockholder's equity at May 31, 2012 was as
follows:
LLC:
Beginning balance, January 1, 2011 $ --
Contributions for shares 30,676
Allocation of income 9,122
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Ending balance, December 31, 2011 39,798
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Contributions 10,869
Allocation of income 10,156
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Ending balance, May 8, 2012 $60,823
=======
On May 9, 2012, the Member Equity in the LLC was fully converted into common
shares of the corporation, which included $9,333 in income allocated to the LLC.
The additional $823 was accumulated earnings for the corporate entity. As of May
31, 2012, the sole member became the sole shareholder of the Company and was
issued all of the 5,000,000 authorized shares.
NOTE 4 - INVENTORY
As of May 31, 2012, inventory consisted of physical copies of published books,
as well as artwork is 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 the Member to the Company and valued at $29,250, which was
determined based on a per page cost for artists and printing. The intangible is
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being amortized over its life of five years. Amortization cost for the year
periods ended May 31, 2012 and 2011 $2,438 and $2,438, respectively. The Company
expects to amortize the remaining $20,962 over the remaining life of
approximately four years at $5,850 per year.
NOTE 6 - SUBSEQUENT EVENTS
On June 11, 2012, Castmor Resources Ltd., a Nevada corporation entered into a
certain Share Exchange Agreement (the "Share Exchange Agreement") with Red Giant
Entertainment, Inc., a Florida corporation, ("RGE"), and Benny Powell, who
presently owns 100% of the issued and outstanding shares in RGE. Pursuant to the
terms and conditions of the Share Exchange Agreement, RGE shall exchange 100% of
the outstanding shares in RGE in exchange for forty million (40,000,000)
newly-issued restricted shares of the Company's common stock, par value $0.001
per share.
The exchange will result in RGE becoming a wholly-owned subsidiary of the
Company. As a result of the Share Exchange Agreement, the Company will now
conduct all current operations through Red Giant Entertainment, and our
principal business became the business of RGE.
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