Massive Shareholder Update Helps Red Giant Entertainment Inc (OTCMKTS:REDG) Jump Up

Early in the morning yesterday Red Giant Entertainment (OTCMKTS:REDG) released a new shareholder update. The nearly two hour long video didn’t go unnoticed by by the market and investors rushed towards the stock – by the end of the trading day more than 418 million shares had been exchanged. The buying pressure pushed the stock 33% up. Although on its own the outcome of the session is impressive it may be for the best to remember that REDG are sitting close to the very bottom of the chart and moving from $0.0003 to a close at $0.0004 is not that reassuring.

In the video REDG talked about their big plans for the future with the most recent major event being the launch of the GIANT-SIZE line scheduled for November 4. The problem is that the company has been saying similarly encouraging things for years now without showing any meaningful results. In fact REDG’s financial state is nothing short of atrocious. The latest financial report covers the quarter ending May 31 and it inspires little confidence:

• $11,679 cash
• $17,959 total current assets
• $4.5 million total liabilities
• $1,879 revenues
• $117 thousand loss from operations

For the nine month period since the start of REDG’s current fiscal year the incurred net loss stands at $1.2 million. It is obvious that the company is in a desperate need of new funds. And this leads us to the biggest red flag around the stock – the crushing dilution.

In the past REDG had to take on a significant amount of convertible debt and as a result the outstanding shares have been growing out of control. As we said in our previous article REDG’s O/S count ballooned from 434 million in early 2013 to just below 3 BILLION in early 2015. Recently, however, the conversions became even more intense as the two 8-K forms filed on July 30 and August 6 clearly show. According to them between June 22 and July 1 a total of 206 million shares saw the light of day while in just 10 days, between July 21 and July 31, the company issued another 395 million shares. In yesterday’s update the company stated that the dilution should be coming to an end soon but the damage has already been done.

The red flags around REDG remain extremely serious. And without any new catalysts for the next two months the stock could continue to trade at prices deep in the triple-zero range. The ticker should be approached with caution and only after extensive due diligence.