UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 17, 2016
Red Giant Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Nevada 000-53310 98-0471928
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
614 E. Hwy 50, Suite 235, Clermont, FL 34711
(Address of principal executive offices) (Zip Code)
(877) 904-7334
(Issuer's telephone/facsimile numbers, including area code)
Not Applicable
(former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See: General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17CFR240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17CFR240.13e-4(c))
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On November 17, 2016, our Board of Directors acting in their capacity as a
majority of shareholders, executed a written consent authorizing the merger of
the Registrant, a Nevada corporation ("REDG-NV"), with its wholly-owned Florida
subsidiary, Red Giant Entertainment, Inc. ("REDG-FL"). REDG-FL will be the
surviving corporation after the merger. There are two purposes of the merger:
(1) effect a re-domicile of the Registrant from Nevada to Florida, and (2) cause
a reverse-split of the Registrant's class of common stock.
The constituent corporations executed the Agreement and Plan of Merger and made
it effective on March 6, 2017 in Nevada and Florida for corporate law purposes.
A copy of the Agreement and Plan of Merger along with the bylaws and amended
articles of incorporation for REDG-FL are attached hereto as Exhibit 2.1.
However, on March 9, 2017 the Financial Regulatory Authority ("FINRA") notified
the Registrant that it has not completed its second level review of the
transaction. Until FINRA notifies the Registrant that it has completed its
review and approved the corporate actions, the Registrant understands that the
reverse-split and re-domicile transaction will not be recognized for securities
market price quoting or stock transfer or stock issuance purposes.
PARENT-SUBSIDIARY MERGER
We undertook this merger primarily to reduce the several thousands of dollars it
costs us now to be domiciled and effect corporate actions in Nevada, which is
significant in light of our lack of cash to pay expenses; whereas in Florida,
REDG-FL pays only $150.00 in annual filing fees and $35.00 for corporate
actions. We expect this merger to be deemed a tax-free reorganization under the
Internal Revenue Code.
Our pre-merger operations are not expected to be affected by the merger:
* Our officers and directors will remain the same following the merger;
* We anticipate that FINRA will not change our stock symbol as a result
of the merger;
* Our Florida amended articles of incorporation are similar in many
respects to our amended and restated certificate of Nevada
incorporation, and preferred share designations will be nearly
identical except that the Florida articles provide for a greater
amount of authorized shares; and
* REDG-FL's bylaws are similar to REDG-NV's bylaws with the primary
material difference being that REDG-FL's bylaws contain emergency
powers for operation of the Corporation after a disaster.
However, Common Stockholders of REDG-NV will receive one (1) REDG-FL for every
1,000 shares of REDG-NV they possess as of the Effective Date of the merger.
EXCHANGE RATIO OF SHARES
In anticipation of the merger, REDG-FL's articles of incorporation were amended
to mirror REDG-NV's Amended Certificate of Incorporation in most respects,
except that REDG-FL's amended articles have higher authorized share limits for
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Common Stock than REDG-NV, e.g., nineteen billion eight hundred million
authorized common shares versus REDG-NV's twelve billion authorized common
shares. The Plan of Merger provides for an exchange ratio of 1,000 for 1 of
REDG-NV common shares for each share of REDG-FL, while the exchange ratio of
REDG-NV preferred shares is one for one. The effect of the exchange ratio for
common shares will be a reverse-split for holders of REDG-NV common shares.
BACKGROUND AND PURPOSES OF THE REVERSE-SPLIT
The REDG-NV/REDG-FL merger is effectively a reorganization and restructuring to
counter the dilutive effects of more than a dozen convertible debt financings
since 2013 and the consequences of debt instrument penalty provisions triggered
by REDG's inability to file timely reports to the SEC. Since April 2015 we have
twice-doubled our authorized common shares to avoid debt instrument penalty
provisions triggered by the inability to issue shares as payment for debt.
During this time we left unchanged our authorized amount of preferred shares.
Reversing the common shares by 1,000 : 1 does not result in a restoration of the
parity between the issued common and preferred shares to their respective levels
before the April 2015 increase in authorized common shares. Instead, the
reverse-split serves to reduce the dilutive bloat of the common share class,
while the increase in authorized common shares we believe will allow us greater
flexibility if we need to engage in dilutive financings in the near future. In
addition, the Plan of Merger, with our resulting state of incorporation being
Florida, will save us thousands of dollars in corporate governance-related
filing fees. Thus, if we need to increase our authorized preferred shares, for
instance, we can do so in Florida with a $35.00 filing fee. In Nevada this
action would cost us at least $6,725.00, based upon the quantity of our
authorized shares.
EFFECTIVE DATE OF MERGER AND REVERSE-SPLIT
We anticipated FINRA's approval would be given following our application to it
ten days before the twentieth day following our dissemination of our Notice to
Shareholders, and we based the timing of our filings of the Agreement and Plan
of Merger with the respective Secretary of State's offices in Nevada and Florida
to coincide with the anticipated approval. The approval has not happened to
date, and we are now advised that the market's effective date will be whenever
FINRA approves our corporate action.
EFFECTS OF THE REVERSE-SPLIT
The reverse-split of our issued and outstanding 8,663,950,695 shares of Common
Stock (as of the record date of November 17, 2016) will reduce the number of
issued and outstanding shares to 8,664,050 shares, without changing the
43,500,000 issued and outstanding shares of preferred stock. After the Effective
Date of the reverse-split, each common stockholder would own a reduced number of
shares of our Common Stock, based upon the ratio of One Thousand for One
(1,000:1).
PROPORTIONATE AND DISPROPORTIONATE EFFECTS ON VOTING RIGHTS. With the exception
of the number of shares of Common Stock outstanding, the proportionate voting
rights and other rights and preferences of shares of our Common Stock prior and
subsequent to the reverse-split would remain the same within the class of Common
stock. We do not anticipate that our financial statements, the percentage of our
common stock owned by management, the number of our stockholders, or any aspect
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of our current business would materially change as a result of the reverse-split
- other than we anticipate that we may have easier access to outside funding.
However, the relative voting weight of our preferred stock, which is held mostly
by our officers and directors, would increase materially against the voting
weight of the common stock, resulting in the preferred having more than four
billion votes while the common has more than eight million votes.
EFFECT ON SECURITIES REGISTRATION. Our Common Stock is currently registered
under Section 12(g) of the Exchange Act and, as a result, we are subject to
periodic reporting and other requirements. The proposed reverse stock split
would not affect the registration of our Common Stock under the Exchange Act.
FRACTIONAL SHARES. There will be no payment of cash in lieu of any fractional
shares. Furthermore, the number of stockholders will remain unchanged because
those stockholders who would otherwise receive only a fractional share will
receive a number of shares rounded up to the next 100 shares.
EFFECT ON STREET NAME OR BENEFICIAL HOLDERS. Upon a reverse stock split, we
intend to treat shareholders holding the Company's Common Stock in "street
name", through a bank, broker or other nominee, in the same manner as registered
shareholders whose shares are registered in their names. Banks, brokers or other
nominees will be instructed to effect the reverse stock split for their
beneficial holders holding the Company's Common Stock in "street name." However,
these banks, brokers or other nominees may have different procedures than
registered shareholders for processing the reverse stock split. If you hold your
shares with a bank, broker or other nominee and if you have any questions in
this regard, we encourage you to contact your nominee.
EFFECT ON PAPER STOCK CERTIFICATES. Some of our shareholders hold some or all of
their shares in paper certificate form. If any of your shares are held in
certificate form, you will not be required to exchange your certificate for a
new one evidencing the post-reverse stock split shares. Shareholders who wish to
exchange their pre-reverse stock split certificates may do so by contacting the
Company's transfer agent, Pacific Stock Transfer, 6725 Via Austi Pkwy, Suite
300, Las Vegas, NV 89119, Telephone: (702) 361-3033; to complete such exchange
at their own expense.
SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND ARE NOT REQUIRED TO
SUBMIT ANY CERTIFICATE(S) TO THE COMPANY OR ITS TRANSFER AGENT.
EFFECT ON PAR VALUE OF COMMON STOCK. The reverse-split will not change the par
value of our Common Stock. While the aggregate par value of our outstanding
Common Stock will be reduced as a result of the reverse-split, our additional
paid-in capital will be increased by a corresponding amount. Therefore, the
reverse-split will not affect our total stockholders' equity. All share and per
share information will be retroactively adjusted to reflect the reverse-split
for all periods presented in our future financial reports and regulatory
filings.
Any new shares issued following the Effective Date of the reverse-split will be
fully paid and non-assessable shares.
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EFFECTS ON THE MARKET FOR COMMON STOCK. We notified our shareholders that on
February 1, 2017, the date immediately preceding the filing of our preliminary
Information Statement on Schedule 14C, the closing price of our shares subject
to quotation on the OTC Market was $0.0001 and the total market value was
approximately $866,395 based on 8,663,950,695 shares of Common Stock
outstanding.
The Board of Directors believes that a reverse-split should, at least initially,
increase the price of our shares of Common Stock to approximately $0.10 per
share. While the reverse-split will not increase to total market value of our
Common Stock, the Board of Directors believes that the increase in our share
price, which increase may not necessarily be sustained, should make our shares
more attractive to potential investors, encourage investor interest and trading
in, and possibly the marketability of, our Common Stock.
In addition, because brokers' commissions on lower-priced stocks generally
represent a higher percentage of the stock price than commissions on
higher-priced stocks, the current per share price of our Common Stock can result
in individual stockholders paying transaction costs (commissions, markups or
markdowns) that constitute a higher percentage of their total share value than
would be the case if the share price of our Common Stock were higher. This
difference in transaction costs may also further limit the willingness of
institutional investors to purchase shares of our Common Stock.
The reduction in the number of outstanding shares could adversely affect the
trading market for our Common Stock by reducing the relative level of liquidity
of the shares of Common Stock. Further, there can be no assurance that the
reverse-split will result in a proportionate increase or, for that matter, any
increase, in the price of the shares of Common Stock subject to quotation on the
OTC Market.
Trading in our shares also may be adversely affected by a variety of policies
and practices of brokerage firms that discourage individual brokers within those
firms from dealing in low-priced stocks. These policies and practices pertain to
the payment of brokers' commissions and to time-consuming procedures that make
the handling of low-priced stocks unattractive to brokers from an economic
standpoint. Similarly, many brokerage firms are reluctant to recommend
low-priced stocks to their customers, and the analysts at many brokerage firms
do not provide coverage for such stocks. The Board also believes that the
decrease in the number of shares of Common Stock outstanding as a consequence of
the reverse-split, and the anticipated increase in the price of the Common
Stock, could generate interest in the Common Stock and possibly promote greater
liquidity for the Corporation's stockholders. However, our aggregate market
capitalization could be reduced to the extent that any increase in the market
price of the Common Stock resulting from the reverse-split is proportionately
less than the decrease in the number of shares of Common Stock outstanding. We
ultimately cannot predict whether, and to what extent, the reverse-split would
achieve the desired results. The price per share of our Common Stock is a
function of various factors, including the profitability of our business
operations.
Accordingly, there can be no assurance that the market price of our Common Stock
after the reverse-split would increase in an amount proportionate to the
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decrease in the number of issued and outstanding shares, or would increase at
all, that any increase can be sustained for a prolonged period of time or that
the reverse-split would enhance the liquidity of, or investor interest in, our
Common Stock.
AUTHORIZED BUT UNISSUED SHARES; POTENTIAL DILUTION AND ANTI-TAKEOVER EFFECTS.
Upon the anticipated Effective Date of the reverse-split, the Company will have
8,664,050 shares issued and outstanding and will have 19,800,000,000 shares of
authorized Common Stock. These additional shares would be available for issuance
from time to time for business purposes as reasonably determined by the Board of
Directors. In connection with capital-raising transactions and acquisitions of
technologies, or assets, consistent with our current business objectives.
The significant increase in the proportion of unissued authorized shares to
issued shares after the reverse-split could, under certain circumstances, have
an anti-takeover effect (for example, by permitting issuances that would dilute
the stock ownership of a person seeking to effect a change in the composition of
our Board of Directors or contemplating a tender offer or other transaction for
the combination of our company with another company), we are not proposing the
reverse-split in response to any effort of which we are aware to accumulate any
of our shares of our Common Stock or to otherwise seek to obtain control of the
Company. Our Board of Directors does not currently contemplate recommending the
adoption of any other proposals that could be construed to affect the ability of
anyone to take over or change the control of the Company.
FEDERAL INCOME TAX CONSEQUENCES
PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF THE REVERSE
STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND
THE LAWS OF ANY OTHER TAXING JURISDICTION.
TAX CONSEQUENCES TO U.S. HOLDERS OF COMMON STOCK. We believe that the reverse
stock split will qualify as a "reorganization" under Section 368(a)(1)(E) of the
Internal Revenue Code. Accordingly, provided that the fair market value of the
post-reverse stock split shares is equal to the fair market value of the
pre-reverse stock split shares surrendered in the reverse stock split:
* A U.S. Holder will not recognize any gain or loss as a result of the
reverse stock split (except to the extent of cash received in lieu of
a fractional share).
* A U.S. Holder's aggregate tax basis in his, her or its post-reverse
stock split shares will be equal to the aggregate tax basis in the
pre-reverse stock split shares exchanged therefor, reduced by the
amount of the adjusted basis of any pre-reverse stock split shares
exchanged for such post-reverse stock split shares that is allocated
to any fractional share for which cash is received.
* A U.S. Holder's holding period for the post-reverse stock split shares
will include the period during which such stockholder held the
pre-reverse stock split shares surrendered in the reverse stock split.
TAX CONSEQUENCES TO THE CORPORATION. We do not expect to recognize any taxable
gain or loss as a result of the reverse stock split.
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BOARD OF DIRECTORS' CONSIDERATIONS
The Board of Directors did not obtain a report, opinion, or appraisal from an
appraiser or financial advisor with respect to the reverse-split and no
representative or advisor was retained on behalf of the unaffiliated
stockholders to review or negotiate the transaction. The Board of Directors
concluded that the additional expense of these independent appraisal procedures
was unreasonable in relation to the Company's available cash resources and
concluded that the Board of Directors could adequately establish the fairness of
the reverse-split without the engagement of third parties.
Also, the Board of Directors arbitrarily determined the exchange ratio with a
view towards reducing the amount of shares outstanding by a divisor that would
increase the Corporation's quoted share price above a penny from its current
price of $0.0001 per share.
Notwithstanding the foregoing, our Board of Directors believes that the
potential positive effects of the reverse-split outweigh the potential
disadvantages. In making this determination, our Board of Directors has taken
into account various negative factors, including: (i) the negative perception of
reverse-splits held by some stock market participants; (ii) the adverse effect
on liquidity that might be caused by a reduced number of shares outstanding; and
(iii) the costs associated with implementing the reverse-split. The effect of
the reverse-split upon the market price of our Common Stock cannot be predicted
with any certainty, and the history of similar stock splits for companies in
similar circumstances to ours is varied. It is also possible that the
reverse-split may not increase the per share price of our Common stock in
proportion to the reduction in the number of shares of our Common Stock
outstanding or result in a permanent increase in the per share price, which
depends on many factors.
After considering the foregoing factors, our Board determined that merging
REDG-NV with REDG-FL and reducing the proportionate number of issued and
outstanding Common shares is in our best interests and that of our stockholders,
as without the reverse-split, we may continue to experience difficulties in
obtaining additional affordable capital for our current business.
DISTRIBUTION AND COSTS
The Company will pay the cost of preparing, printing and distributing this
Information Statement. Only one Information Statement will be delivered to
multiple shareholders sharing an address, unless contrary instructions are
received from one or more of such shareholders. Upon receipt of a written
request at the address noted above, the Company will deliver a single copy of
this Information Statement and future shareholder communication documents to any
shareholders sharing an address to which multiple copies are now delivered.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Neither the adoption by the Board of Directors, nor the approval by the
shareholders, of the reverse-split provides shareholders any right to dissent
and obtain appraisal of or payment for such shareholder's shares under Section
78 of the Revised Nevada Statutes, the Articles of Incorporation or the Bylaws.
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SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.03 - MATERIAL MODIFICATION TO RIGHTS OF SECURITIES HOLDERS
1. See the description of the reverse-split and re-domicile transaction in Item
1.01 above.
SECTION 9 - EXHIBITS
ITEM 9.01 - EXHIBITS
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Red Giant Entertainment, Inc.
Dated: March 10, 2017 /s/ Benny R. Powell
-------------------------------------------
By: Benny R. Powell
Its: Chief Executive Officer, President,
Chief Financial Officer, and Secretary
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