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REDG Cultists Ignore the Bottom Line

Here's why refusing to acknowledge the company's loud and clear message will prove to be the undoing of Red Giant Entertainment's cult following

December 8, 2014: Since former con artists and penny stock pumpers, Victory Mark, first brought Red Giant Entertainment (REDG) to the attention of the sheeple that play these type of garbage stocks, it has had a sort of cult following among those who wish to believe that there is a viable business here.

To date, the believers could not be more wrong. REDG had 434,922,000 shares outstanding when Victory Mark first began hyping these shares in February 2013. As of July 2014, there were 2,171,534,973 shares out there and we know from more recent Form 8-K filings that number has been well surpassed. Since the initial and immediate spike in the share price generated by Victory Mark's promotion, shares have dropped 99%.

REDG Chart

To this day, REDG continues to trade impressive volume with occasional wild swings in share price as press releases, promotions and social media hype accompany each need to create a market for yet more stock dumped by insiders/financiers.

Whether the Kool-aid drinkers are "Big Bang Theory" type nerds who find investing in comics to be a lifelong dream fulfilled, or just the usual run-of-the-mill gullible, they have provided great opportunities for insiders to cash in on hundreds of millions of shares obtained for next to nothing. Among retail buyers, a few opportunistic flippers, relying on the cultists' enthusiasm every time the company belches out a meaningless news release, have been able to pocket a few bucks, but nothing like the millions realized by insiders/financiers.

Benny Powell
One thing is clear: the cultists are not paying attention to the books or what is happening to their ever diluted shareholdings.

It could be that REDG CEO, Benny Powell is among those that refuse to read the writing on the wall. Those that know him have said that he could have been cast straight out of the popular CBS comedy and is a pawn of the financiers who dangle mere pittances of much needed cash in exchange for boatloads of stock.

The facts are undeniable.  REDG continues to issue stock at an ever increasing rate in order to get the precious cash it needs to survive. Yet almost two years since the pumping and dumping started and which continues to devastate the share price, REDG has yet to show more than token income. Giving your product away rarely results in a cash bonanza.

Yes, recent comic book giveaways such as those announced in this September 30th press release, and this one from July 18, do suggest that these publications are "ad supported", but the revenues these ads might produce in a giveaway of comics with unheard of characters--we're not exactly talking about "Superman" here--seem minuscule at best. Who is going to look at these ads or even take an interest in free stuff. The old adage, "it's worth what you paid for it" seems appropriate here. And since it can be assumed that most of those that read these giveaways are going to be pre-adolescents or a juvenile adult population, what exactly can the supporting advertisements hawk and to what success? We certainly wouldn't expect any Maserati ads.

Our skepticism is bore out in another such REDG giveaway of comic books. This February 6 press release announced the giveaway of 400,000 comic books and yet the Form 10-Q filing of financials for the quarter ending February 28, showed quarterly revenues of only $7,245. The subsequent filing for the quarter ending May 31, 2014 revealed revenues of only $6,457 for that quarter. With such pitiful revenues, naturally the net losses for those two quarters were staggering--over $6 million combined. For a company with only a few pennies in the bank, those kind of losses can only be overcome through the issuance of more stock.  Gobs of it.

REDG has filed for an extension of the Form-10K financials for the fiscal year ended August 31st, but we see no reason for anything other than continued bad news. Expect a report of significant losses resulting in more massive dilution of the stock. We would not be surprised to hear that the number of shares outstanding has neared the 3 billion shares authorized.

The bottom line is that REDG is in dire financial straits. Even if we assume that the $2.6 million in liabilities last reported in the May 31st financials have stood pat, it would take another billion shares to resolve that debt, if one allows for a very generous share price of $.003. But of course that is pie-in-the-sky thinking. A more likely debt-to-shares conversion price is somewhere around $.0005, as was the case in the August 2014 conversions reported in this Form 8-K filing. To convert at that discounted price, REDG might need to maintain a share price around $.001, which seems unlikely if you consider the relentless dumping of stock that is ongoing. Even if conversions at $.0005/share continue, another 6 billion shares would be required to eliminate the debt, assuming that is on the agenda.

Whatever shares are created in consideration of debt will be quickly hammered into the market at whatever price can be obtained. We'd be shocked if the number of shares outstanding in REDG didn't at least double in 2015--after an increase in the authorized number of shares-- from whatever number is reported in the coming year end statement, and likely without the benefit of clearing the Liabilities line item. And if our prognostication is anywhere near on target, a reverse split eliminating most, if not all of the retail shareholders' holdings, is the likely outcome.

The unavoidable conclusion is that those choosing to ignore the bottom line will be left holding the bag as they see the value of their shares disappear. On the other hand, if they choose to be believe in Christmas miracles, they can expect coal in their stocking.