Borislav Tonev

Red Giant Entertainment Inc (OTCMKTS:REDG) Back Where it Started

by Borislav Tonev December 1, 2014

A couple of weeks ago, Red Giant Entertainment Inc (OTCMKTS:REDG, REDG message board)'s stock wasn't in a particularly good shape. The ticker was stuck in the $0.0013 to $0.0016 range and the dismal volumes weren't doing much to help it move in the right direction. All in all, nobody seemed to care about REDG. But was this all that surprising?

Truth be told, REDG didn't look like the most appealing investment opportunity out there. After all, some people still remember the sour taste they were left with when they fell for the $500 thousand Victory Mark pump and saw more than 90% of their investments go up in smoke in a matter of less than a month.

The history of paid promotions has certainly left its mark on the company credibility and on November 7, REDG took another hit on that front when the SEC issued a Cease and Desist order against the company because of a violation of some regulations.

To top it all off, the business isn't exactly flourishing. In fact, the company's state at the end of May was pretty terrible. Here's a snapshot of the figures as found in the latest 10-Q:

  • cash: $45 thousand
  • current assets: $132 thousand
  • current liabilities: $2.5 million
  • quarterly revenues: $6,457
  • quarterly net loss: $5 million

So, REDG didn't really have much going for it and the lack of interest was hardly surprising. At the beginning of last week, however, we saw some serious movement around the stock.

On November 24, REDG recorded a dollar volume of almost $480 thousand and gained a total of 43%. The ticker closed that session at $0.0023 per share and remained pretty much flat during the next one although trading was once again pretty active.

The reason for the sudden spike is not too easy to define, but willingly or not, the company tried to keep the fire going by announcing that Benny Powell, REDG's CEO, will host a live shareholder video report after the closing bell on December 4.

Unfortunately, this didn't help much. REDG lost around 17% during the pre-Thanksgiving session and on Friday, it wiped out another 10%. It's currently sitting at $0.0017 per share which is pretty close to where it was before last week's sudden and inexplicable jump.

So, REDG proved to us that it's not the best performing stock in Pennyland. But that's where the same question pops up for the second time: “Was this all that surprising?”.

If you take a closer look at the latest report, you'll see that the company has been burdened with quite a lot of toxic debt and the resulting dilution is clearly putting enormous pressure on the stock. During the three months ended May 31, for example, REDG issued a total of 1,202,602,616 shares of common stock in order to satisfy $666,180 worth of convertible notes which means that the average conversion price stands at just $0.0005 per share. The Subsequent Events section tells us that between June 4 and July 11, a further $148,574 worth of debt was turned into 190,919,396 shares of common stock.

There were plenty of toxic notes still outstanding on May 31 and several 8-K forms from the last few months show that some more have been issued. The dilution is unlikely to stop anytime soon and only time can tell us if REDG is capable of withstanding the pressure. So far, however, it has done nothing to show us that this is indeed the case.

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