UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: February 28, 2011
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 333-108690
RED ROCK PICTURES HOLDINGS INC. (Exact name of registrant as specified in its charter)
| Nevada | | 98-0441032 |
| (State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | | |
| | | |
6019 Olivas Park Drive, Suite C Ventura, California | | 93003 |
| (Address of principal executive offices) | | (Zip Code) |
(323) 790-1813
(Registrant’s telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | 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 o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of March 31, 2011: 4,198,163 shares of common stock.
RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
THREE AND SIX MONTHS ENDED FEBRUARY 28, 2011 AND 2010
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TABLE OF CONTENTS
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| | | Page |
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| PART I - FINANCIAL INFORMATION |
| | | |
| Item 1. | Consolidated Financial Statements | |
| | Consolidated Balance Sheets | 4 |
| | Consolidated Statements of Loss and Comprehensive Loss | 5 |
| | Consolidated Statements of Cash Flows | 6 |
| | Notes to Consolidated Financial Statements | 7 |
| Item 2. | Management’s Discussion & Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 |
| Item 4. | Controls and Procedures | 14 |
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| PART II -- OTHER INFORMATION |
| | | |
| Item 1. | Legal Proceedings | 15 |
| Item 1A. | Risk Factors | 15 |
| Item 2. | Unregistered Sales of Equity securities and Use of Proceeds | 15 |
| Item 3. | Defaults Upon Senior Securities | 15 |
| Item 4. | [Removed & Reserved] | 15 |
| Item 5 | Other Information | 15 |
| Item 6. | Exhibits | 15 |
CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, earnings, projected plans, performance, demand trends, future expense levels, trends in average headcount and gross margins, and the level of expected capital expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Red Rock Pictures Holdings Inc. management and are subject to certain risks, uncertainties and assumptions. Any statements contained herein (including without limitation statements to the effect that the Company or management "estimates," "expects," "anticipates," "plans," "believes," "projects," "continues," "may," "will," "could," or "would" or statements concerning "potential" or "opportunity" or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements. The actual results of Red Rock Pictures Holdings Inc. may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors including those discussed in "Risk Factors" under Item 1A, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," within. Because of these and other factors that may affect Red Rock Pictures Holdings Inc.’s operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that Red Rock Pictures Holdings, Inc. files from time to time with the Securities and Exchange Commission ("SEC"), including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
HOW TO OBTAIN SEC FILINGS
All reports filed by Red Rock Pictures Holdings, Inc. filed with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC's public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. Red Rock Pictures Holdings also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request.
RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 28, 2011 AND AUGUST 31, 2010
| | | February 28, 2011 | | | August 31, 2010 | |
| | | (Unaudited) | | | | |
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Capitalized production costs | | | | | | | | |
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LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
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Advances from stockholder | | | | | | | | |
Deferred licensing revenue | | | | | | | | |
Senior secured convertible notes, including accrued interest of $27,700 and $19,700 at February 28, 2011 and August 31, 2010, respectively | | | | | | | | |
Total Current Liabilities | | | | | | | | |
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Going Concern, Commitments and Contingency | | | | | | | | |
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Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued or outstanding | | | | | | | | |
Common stock, $0.001 par value; 120,000,000 shares authorized, 1,198,163 shares issued and outstanding at both February 28, 2011 and August 31, 2010, respectively | | | | | | | | |
Additional paid-in-capital | | | | | | | | |
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Total Stockholders' Deficit | | | | | | | | |
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Total Liabilities and Stockholders' Deficit | | | | | | | | |
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The accompanying notes are an integral part of these consolidated financial statements.
RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2011 AND 2010
| | | Three Months Ended February 28, 2011 (Unaudited) | | | Three Months Ended February 28, 2010 (Unaudited) | | | Six Months Ended February 28, 2011 (Unaudited) | | | Six Months Ended February 28, 2010 (Unaudited) | |
| REVENUE | | | | | | | | | | | | |
| Production revenue | | $ | - | | | $ | 2,688 | | | $ | - | | | $ | 2,688 | |
| TOTAL REVENUE | | | - | | | | 2,688 | | | | - | | | | 2,688 | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | |
| Stock based compensation | | | 42,750 | | | | 220,000 | | | | 98,500 | | | | 430,000 | |
| Professional fees | | | 28,394 | | | | 19,254 | | | | 56,188 | | | | 19,254 | |
| Salaries and wages | | | 49,244 | | | | 18,284 | | | | 65,947 | | | | 18,284 | |
| Office and general | | | 17,933 | | | | 10,816 | | | | 24,385 | | | | 12,586 | |
| TOTAL COSTS AND EXPENSES | | | 138,321 | | | | 268,354 | | | | 245,020 | | | | 480,124 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (138,321 | ) | | | (265,666 | ) | | | (245,020 | ) | | | (477,436 | ) |
Interest expense | | | 4,000 | | | | 36,500 | | | | 8,000 | | | | 73,000 | |
| | | | | | | | | | | | | | | | | |
| NET LOSS AND COMPREHENSIVE LOSS | | $ | (142,321 | ) | | $ | (302,166 | ) | | $ | (253,020 | ) | | $ | (550,436 | ) |
| | | | | | | | | | | | | | | | | |
| LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | | $ | (0.12 | ) | | $ | (0.28 | ) | | $ | (0.21 | ) | | $ | (0.52 | ) |
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| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | | | 1,198,163 | | | | 1,068,163 | | | | 1,198,163 | | | | 1,068,163 | |
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The accompanying notes are an integral part of these consolidated financial statements.
RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2011 AND 2010
| | | Six Months Ended February 28, 2011 | | | Six Months Ended February 28, 2010 | |
| | | (Unaudited) | | | (Unaudited) | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | | | |
Stock-based compensation expense | | | | | | | | |
Interest accrued on senior secured convertible notes | | | | | | | | |
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Changes in operating assets and liabilities: | | | | | | | | |
Capitalized production costs | | | | | | | | |
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Accounts payable and accrued liabilities | | | | | | | | |
NET CASH USED IN OPERATING ACTIVITIES | | | | | | | | |
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NET CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
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CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
Proceeds from convertible note | | | | | | | | |
Proceeds from common shares to be issued | | | | | | | | |
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NET CASH PROVIDED BY FINANCING ACTIVITIES | | | | | | | | |
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NET (DECREASE) INCREASE IN CASH | | | | | | | | |
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CASH, BEGINNING OF PERIOD | | | | | | | | |
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The accompanying notes are an integral part of these consolidated financial statements.
RED ROCK PICTURES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2011 AND 2010
(UNAUDITED)
Note 1 – Nature of Business and Basis of Presentation
Nature of Business
Red Rock Pictures, Inc. was incorporated on August 18, 2006 under the laws of the State of Nevada and was acquired by Red Rock Pictures Holdings Inc. on August 31, 2006. The Company engages in the business of developing, financing, producing and licensing feature-length motion pictures and direct response infomercials.
On August 20, 2010, the Company entered into a letter of intent with Crisnic Fund, S.A., a Costa Rican investment company (“Crisnic”) whereby Crisnic agreed to provide funding to the Company of $300,000. In exchange for the $300,000 which was received from Crisnic, the Company issued 13,000,000 (pre 1-for-100 reverse split) restricted shares of common stock in August 2010 and agreed to complete a 1 for 100 reverse stock split which became effective on February 15, 2011. Subsequent to the reverse stock split, the Company issued to Crisnic an additional 3,000,000 shares of the Company’s common stock. Also subsequent to the reverse stock split, the Company will sell up to $1,500,000 in common stock and file a Form S-1 Registration Statement with the U.S. Securities and Exchange Commission to register the shares. The number of shares and the purchase price of the shares in the primary offering shall be determined subsequent to a planned reverse split. Lastly, and as a condition of funding, it was agreed that Reno Rolle will convert all outstanding past due salary into 5,000,000 newly issued shares of common stock.
The Company agreed to use the funds received from Crisnic to fund a proposed direct response marketing campaign and will share all adjusted gross receipts from the Campaign with Crisnic.
On February 14, 2011, the Board of Directors authorized by written consent to effect a 1-for-100 reverse split of the Company’s issued and outstanding common shares. The reverse stock took effect at the open of business on February 15, 2011. As a result of the reverse stock split, the outstanding shares of common stock issued and outstanding were reduced to 1,198,163 shares. Except where the context indicates otherwise, all share figures in the consolidated financial statements give effect to the stock split.
Basis of Presentation
The accompanying consolidated financial statements of the Company include the accounts of Red Rock Pictures Holdings, Inc. and its wholly owned subsidiaries, Red Rock Pictures Inc. and Studio Store Direct Inc. The Company has the full and exclusive control of the management and operation of the business of each subsidiary and participates in 100% of the revenues and losses of its subsidiaries. Inter-company balances and transactions have been eliminated in consolidation.
The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10-Q and Article 8 of SEC Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended August 31, 2010. Operating results for the three and six months ended February 28, 2011 are not necessarily indicative of the results that may be expected for future quarters or the year ending August 31, 2011.
Note 2 – Going Concern
The Company's consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced losses from operations since inception, does not have significant sources of revenue and has working capital deficiencies that raise substantial doubt as to its ability to continue as a going concern. The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the successful execution of the Company’s current primary business activity, namely, the retail roll-out of the book currently entitled “ANTI-AGING CURES LIFE CHANGING SECRETS TO REVERSE THE EFFECTS OF AGING” by Dr. James William Forsythe M.D., H.M.D as supported by the direct response television commercial that the Company has produced.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 3 – New Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued amendments that modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.
In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. For the company, this guidance is effective for all new or materially modified arrangements entered into on or after July 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. The company is currently assessing its implementation of this new guidance, but does not expect a material impact on the consolidated financial statements.
Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
Note 4 – Capitalized Production Costs
All capitalized production costs relate to projects in development. The Company expects 100% of the balance of capitalized production costs will be amortized or expensed within the next year. The table below displays the activity during the six months ended February 28, 2011:
| | | Fiscal Year 2011 | |
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Opening balance, August 31, 2010 | | | | |
Production costs incurred and capitalized | | | | |
Expense related to delivered projects and reclassified to cost of sales | | | | |
Closing unamortized balance, February 28, 2011 | | | | |
Note 5 – Equipment
The table below displays our equipment balance as of February 28, 2011 and August 31, 2010, respectively.
| | | February 28, 2011 | | | August 31, 2010 | |
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Less accumulated depreciation | | | | | | | | |
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Depreciation expense was $1,770, $3,539, $1,770 and $3,539 for the three and six months ended February 28, 2011 and 2010, respectively.
Note 6 – Senior Secured Convertible Debenture
On December 28, 2008, the Company entered into a twelve month $100,000 senior secured convertible debenture agreement with Emerald Asset Advisors, LLC (“Note Holder”). The one year term loan bears interest at 10% per annum and interest accrues and is payable in cash upon maturity provided that the elected conversion to common shares does not occur. At any time or times on or after December 28, 2008, the Note Holder shall be entitled to convert any portion of the outstanding and unpaid amount into fully paid and nonassessable shares of Common Stock at a conversion price of $6 per common share.
The Company is currently in default as the Company was unable, due to its financial wherewithal, to repay the balance owed at the maturity date. As an event of default, the interest rate is increased to twenty percent (20.0%) until the date of such cure. The Company is currently in negotiation with the Note Holder.
During the year ended August 31, 2010, the Note Holder advanced the Company an additional $100,000 in the form of a short term loan. The terms of the loan are in discussion and dependent on our current efforts to successfully obtain additional financing. Proceeds from this loan was used to complete the fiscal year 2009 Annual Report on Form 10-K, which included auditor, legal, printing, and other professional fees. The remaining funds were used to fund our operations.
Note 7 – Commitments and Contingency
We are involved in routine litigation incidental to the conduct of our business. There are currently no pending litigation proceedings to which we are a party or to which any of our property is subject.
Note 8 – Common Stock
Our Chief Executive Officer’s employment agreement stipulates that Mr. Rollé can receive common shares in lieu of cash compensation. The Company recorded $40,000, $93,000, $60,000 and $120,000 for the three and six months ended February 28, 2011 and 2010, respectively. The balance is included in common shares issuable which are a component of additional paid-in-capital in our Consolidated Balance Sheet and expensed in Stock based compensation on our Consolidated Statement of Loss.
On February 14, 2011, the Board of Directors authorized by written consent to effect a 1-for-100 reverse split of the Company’s issued and outstanding common shares. The reverse stock took effect at the open of business on February 15, 2011. As a result of the reverse stock split, the outstanding shares of common stock issued and outstanding were reduced to 1,198,163 shares. Except where the context indicates otherwise, all share figures in the consolidated financial statements give effect to the stock split.
In accordance with the letter of intent entered into with Crisnic, the Company issued 13,000,000 (pre 1-for-100 reverse split) restricted shares of common stock for $300,000 in August 2010. The Company received the first tranche of $100,000 from Crisnic in August 2010, and the remaining $200,000 was received during the six months ended February 28, 2011. In addition, the Company received an additional $49,983 from Crisnic to continue the development of a direct response marketing campaign currently in development. This additional financing has been included in common shares to be issued on our consolidated Balance Sheet. The Company agreed to use the funds received from Crisnic to fund a proposed direct response marketing campaign and will share all adjusted gross receipts from the Campaign with Crisnic.
Note 9 – Stock Options and Equity Incentive Plan
On February 14, 2007 the Company filed a Form S-8 Registration Statement for Securities to be offered to Employees in Employee Benefit Plans. Under the terms of this filing the Company registered 9,000,000 shares of common stock with a par value of $.001 per share. The purpose of the plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company by offering them an opportunity to participate in the Company ’ s future performance through awards of options and restricted stock.
Under the Plan, incentive stock options may be granted to employees, directors, and officers of the Company and non-qualified stock options may be granted to consultants, employees, directors, and officers of the Company. Options granted under the option plan are for periods not to exceed ten years, and must be issued at prices not less than 100% of the fair market value of the stock on the date of grant. Options granted to shareholders who own greater than 10% of the outstanding stock are for periods not to exceed five years and must be issued at prices not less than 110% of the fair market value of the stock on the date of grant.
Summary of stock option activity is as follows:
| | | Number of shares | | | Weighted average exercise price | | | Weighted average remaining contractual term (in years) | |
Outstanding at August 31, 2010 | | | | | | | | | | | | |
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Outstanding at February 28, 2011 | | | | | | | | | | | | |
Vested and expected to vest at February 28, 2011 | | | | | | | | | | | | |
Exercisable at February 28, 2011 | | | | | | | | | | | | |
During the three and six months ended February 28, 2011 and 2010, the Company recognized total compensation expense related to stock options of $2,750, $5,500, $150,000 and $300,000, respectively, and is disclosed separately in the accompanying consolidated statements of income or loss and comprehensive income or loss. Stock options granted in 2007 had fully vested and were expensed by the end of the August 31, 2010 fiscal year.
Note 10 – Supplemental Cash Flow Information
During the six months ended February 28, 2011 and 2010, there was no interest or taxes paid by the Company.
Note 11 – Income Taxes
As at February 28, 2011 and August 31, 2010, there were no differences between financial reporting and tax bases of assets and liabilities. The Company will have tax losses available to be applied against future years' income as result of the losses incurred. However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carryforward will not be realized through the reduction of future income tax payments. Accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
Note 12 – Subsequent Events
On March 30, 2011, the Company issued 3,000,000 shares of common stock to Crisnic pursuant to the letter of intent entered into on August 20, 2010.
ITEM 2. MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this quarterly filing, including, without limitation, statements containing the words “believes”, “anticipates”, “expects” and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following discussion and analysis should be read in conjunction with our Financial Statements and notes appearing elsewhere in this report.
Plan of Operation
Overview
We are engaged in the finance, production, distribution and marketing of filmed entertainment products, including theatrical motion pictures, television programs, home video products, and digitally delivered entertainment and media. We were founded in 2006 to leverage the experience and expertise of its management team and exploit emerging opportunities in traditional and digital media and entertainment. Our primary business model centers around the control of entertainment properties that we may develop, acquire, produce and/or finance. We will also be involved in the funding of motion pictures and other entertainment and media properties, both for our own library and development activities as well as in partnership with outside producers.
Current Update on Operations
Starting in fiscal year 2010 we modified our strategic plan to focus on the development and distribution of direct response marketing campaign also commonly known as infomercials. Our ability to implement our revised strategy is highly dependent on our ability to successfully raise additional capital.
On August 20, 2010, the Company entered into a letter of intent with Crisnic Fund, S.A., a Costa Rican investment company (“Crisnic”) whereby Crisnic agreed to provide funding to the Company of $300,000. In exchange for the $300,000 which was received from Crisnic, the Company issued 13,000,000 (pre 1-for-100 reverse split) restricted shares of common stock in August 2010 and agreed to complete a 1 for 100 reverse stock split which became effective on February 15, 2011. Subsequent to the reverse stock split, the Company issued to Crisnic an additional 3,000,000 shares of the Company’s common stock. Also subsequent to the reverse stock split, the Company will sell up to $1,500,000 in common stock and file a Form S-1 Registration Statement with the U.S. Securities and Exchange Commission to register the shares. The number of shares and the purchase price of the shares in the primary offering shall be determined subsequent to a planned reverse split. Lastly, and as a condition of funding, it was agreed that Reno Rolle will convert all outstanding past due salary into 5,000,000 newly issued shares of common stock.
The Company has utilized the proceeds from the Crisnic Investment to produce and exploit the direct response television commercial (“Infomercial”) and retail roll-out of the book currently entitled “ANTI-AGING CURES LIFE CHANGING SECRETS TO REVERSE THE EFFECTS OF AGING” by Dr. James William Forsythe M.D., H.M.D (the “Book”). The Company has finished production of the Infomercial and is in the process of testing the Infomercial in key markets through the United States. If said tests prove to be successful, the Company will commence a nationwide rollout of the Infomercial. The Company expects to release the Book to “brick and mortar” retail outlets in the fourth quarter of 2011.
On February 14, 2011, the Board of Directors authorized by written consent to effect a 1-for-100 reverse split of the Company’s issued and outstanding common shares. The reverse stock took effect at the open of business on February 15, 2011. As a result of the reverse stock split, the outstanding shares of common stock issued and outstanding were reduced to 1,198,163 shares. Except where the context indicates otherwise, all share figures in this 10-Q report give effect to the stock split.
Results of Operations
Comparison of the Three Months Ended February 28, 2011 and 2010
Revenue
The Company had no revenues and $2,688 in revenues for the three months ended February 28, 2010 and 2009, respectively.
Costs and Expenses
Cost and expenses was $138,321 compared to $268,354 for the three months ended February 28, 2011 and 2010, respectively. Stock options granted in 2007 had fully vested and were expensed by the end of the August 31, 2010 fiscal year. Therefore the main reason for the decrease in costs and expenses was from the decrease in stock based compensation expense of $190,000. The remaining difference was due to normal fluctuations in operating expenses based on business operations.
Interest Expense
Interest expense was $4,000 compared to $36,500 for the three months ended February 28, 2011 and 2010, respectively. The reduction in interest expense was due to the reduction in debt outstanding. On August 13, 2010, the Company entered into an agreement with National Lampoon, Inc. (“NL”) in which NL agreed to assume the Company’s outstanding balance owed to Williams-Laikin of $1,941,928 and in exchange, the Company agreed to forgive National Lampoon, Inc. for its balance owed the Company of $1,024,468.
Comparison of the Six Months Ended February 28, 2011 and 2010
Revenue
The Company had no revenues and $2,688 in revenues for the six months ended February 28, 2011 and 2010, respectively.
Costs and Expenses
Cost and expenses was $245,020 compared to $480,123 for the six months ended February 28, 2011 and 2010, respectively. Stock options granted in 2007 had fully vested and were expensed by the end of the August 31, 2010 fiscal year. Therefore the main reason for the decrease in costs and expenses was from the decrease in stock based compensation expense of $334,250. The remaining difference was due to normal fluctuations in operating expenses based on business operations.
Interest Expense
Interest expense was $8,000 compared to $73,000 for the six months ended February 28, 2011 and 2010, respectively. The reduction in interest expense was due to the reduction in debt outstanding. On August 13, 2010, the Company entered into an agreement with National Lampoon, Inc. (“NL”) in which NL agreed to assume the Company’s outstanding balance owed to Williams-Laikin of $1,941,928 and in exchange, the Company agreed to forgive National Lampoon, Inc. for its balance owed the Company of $1,024,468.
Liquidity and Capital Resources
As of February 28, 2011 we had $24,608 in cash and a working capital deficiency of $311,534. A substantial amount of cash will be required in order to continue operations over the next twelve months. Based upon our current cash and working capital deficiency, we will not be able to meet our current operating expenses and will require additional capital.
The Company has experienced losses from operations since inception, does not have significant sources of revenue and has working capital deficiencies that raise substantial doubt as to its ability to continue as a going concern. The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the successful execution of the Company’s current primary business activity, namely, the retail roll-out of the book currently entitled “ANTI-AGING CURES LIFE CHANGING SECRETS TO REVERSE THE EFFECTS OF AGING” by Dr. James William Forsythe M.D., H.M.D as supported by the direct response television commercial. The Company has completed production of the Infomercial and is in the process of testing the Infomercial in key markets through the United States. If said tests prove to be successful, the Company will commence a nationwide rollout of the Infomercial. The Company expects to release the Book to “brick and mortar” retail outlets in the fourth quarter of 2011.
Cash used in operating activities were $320,051 for the six months ended February 28, 2011 compared to 67,040 for the six months ended February 28, 2010. Production costs of $197,239 were incurred to produce the Infomercial discussed above during the six months ended February 28, 2011. Other uses of cash from operating activities were due to repayment of our accounts payable and accrued expenses and the funding of costs and expenses.
Cash received from financing activities of $249,983 was received from an investor as discussed below. On August 20, 2010, the Company entered into a letter of intent with Crisnic Fund, S.A., a Costa Rican investment company (“Crisnic”) whereby Crisnic agreed to provide funding to the Company of $300,000. In exchange for the $300,000 which was received from Crisnic, the Company issued 13,000,000 (pre 1-for-100 reverse split) restricted shares of common stock in August 2010 and agreed to complete a 1 for 100 reverse stock split which became effective on February 15, 2011. Subsequent to the reverse stock split, the Company issued to Crisnic an additional 3,000,000 shares of the Company’s common stock. Also subsequent to the reverse stock split, the Company will sell up to $1,500,000 in common stock and file a Form S-1 Registration Statement with the U.S. Securities and Exchange Commission to register the shares. The number of shares and the purchase price of the shares in the primary offering shall be determined subsequent to a planned reverse split. Lastly, and as a condition of funding, it was agreed that Reno Rolle will convert all outstanding past due salary into 5,000,000 newly issued shares of common stock
The Company received the first tranche of $100,000 from Crisnic in August 2010 and the remaining $200,000 during the six months ended February 28, 2011. In addition, the investor contributed an additional $49,983 during the three months ended February 28, 2011 to fund the continued development of a direct response marketing campaign. The Company agreed to use the funds received from Crisnic to fund a proposed direct response marketing campaign and will share all adjusted gross receipts from the Campaign with Crisnic.
The Company is currently in default on its Senior Secured Convertible Debenture discussed in Note 6 of the attached consolidated financial statements at February 28, 2011. As an event of default, the interest rate is increased to twenty percent (20.0%) until the date of such cure. The Company is currently in negotiation with the Note Holder.
Critical Accounting Policies
Red Rock’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 3 of our annual financial statements filed on Form 10-K and dated December 14, 2010. While all these significant accounting policies impact its financial condition and results of operations, Red Rock views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company is not subject to certain market risks, including changes in interest rates and currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit 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 our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. Because of inherent limitations, our disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met.
As of the end of the period covered by this report we conducted an evaluation, under the supervision of our sole chief executive officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ineffective as of February 28, 2011.
There was no change in our internal control over financial reporting during the period covered by this report that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our business. There are currently no material pending litigation proceedings to which we are a party or to which any of our property is subject.
ITEM 1A. RISK FACTORS.
There are no material changes to the risk factors disclosed in our annual report filed on Form 10-K dated December 14, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company issued 13,000,000 (pre 1-for-100 reverse split) restricted shares of common stock for $300,000 in August 2010 to Crisnic Fund, S.A., a Costa Rican investment company (“Crisnic”). The Company received the first tranche of $100,000 from Crisnic in August 2010, and the remaining $200,000 was received during the six months ended February 28, 2011. The Company agreed to use the funds received from Crisnic to fund a proposed direct response marketing campaign and will share all adjusted gross receipts from the Campaign with Crisnic.
On March 30, 2011, the Company issued 3,000,000 shares of common stock to Crisnic pursuant to the letter of intent entered into on August 20, 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is currently in default on its Senior Secured Convertible Debenture discussed in Note 6 of the attached consolidated financial statements at February 28, 2011. As an event of default, the interest rate is increased to twenty percent (20.0%) until the date of such cure. The Company is currently in negotiation with the Note Holder.
ITEM 4. [REMOVED & RESERVED]
ITEM 5. OTHER INFORMATION
None
| | | |
| Exhibit Number | | Description of Exhibit |
| | | |
| 31.1 | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
| | | |
| 32.1 | | 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 |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| | RED ROCK PICTURES HOLDINGS, INC. |
| | Registrant |
| | |
| Date: April 19, 2011 | By: /s/ Reno Rollé |
| | Reno Rollé |
| | President, Chief Executive Officer, Principal Financial Officer and Director |
| | |
