Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 7, 2022, Genius Brands International, Inc. (“Genius”, the “Company” or “we”) completed the acquisition of Wow Unlimited Media Inc. (“Wow”). The following unaudited pro forma condensed combined financial information presents the combination of the historical consolidated financial statements of Genius and Wow and is intended to provide you with information about how the acquisition and related financings might have affected the Company’s historical financial statements.
The unaudited pro forma condensed combined balance sheet combines the Genius unaudited historical consolidated balance sheet as of March 31, 2022 and the WOW unaudited historical consolidated balance sheet as of March 31, 2022, giving effect to the acquisition as if it had been consummated on March 31, 2022.
The unaudited pro forma condensed combined statement of operations combines the Genius unaudited historical consolidated statement of operations for the year ended December 31, 2021 and the three months ended March 31, 2022 and the WOW unaudited historical consolidated statement of operations for the year ended December 31, 2021 and the three months ended March 31, 2022, giving effect to the acquisition as if it had been consummated on January 1, 2021.
We refer to the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations as the pro forma financial statements.
The pro forma financial statements should be read in conjunction with the accompanying notes to the pro forma financial statements. In addition, the pro forma financial statements were based on and should be read in conjunction with the historical consolidated financial statements and accompanying notes of Genius and Wow for the applicable periods:
| · | Separate unaudited historical financial statements and the related notes of Genius as of and for the fiscal quarter ended March 31, 2022 included in Genius’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, as well as separate audited historical financial statements and the related notes of Genius as of and for the fiscal year ended December 31, 2021 included in Genius’s Annual Report on Form 10-K for the year ended December 31, 2021. |
| · | As filed as exhibits to this Current Report on Form 8-K/A, the separate unaudited historical financial statements and the related notes of Wow as of and for the fiscal quarter ended March 31, 2022, prepared in accordance with IFRS as approved by the IASB, as well as separate audited historical financial statements and the related notes of Wow as of and for the fiscal year ended December 31, 2021. |
The pro forma financial statements have been prepared by management in accordance with SEC Regulation S-X Article 11, Pro Forma Financial Information. The pro forma financial statements are not necessarily indicative of what the combined company’s balance sheet or statement of operations actually would have been had the acquisition been completed as of the dates indicated, nor do they purport to project the future financial position or operating results of the combined company. The pro forma financial information is presented for illustrative purposes only and does not reflect the costs of any integration activities or cost savings or synergies that may be achieved as a result of the acquisition.
The pro forma financial statements have been prepared using the acquisition method of accounting under U.S. generally accepted accounting principles (“U.S. GAAP”) with Genius being the acquirer. The pro forma adjustments are preliminary, based upon available information and made solely for the purpose of providing these pro forma financial statements. Differences between these preliminary adjustments and the final acquisition accounting will occur and these differences could have a material impact on the future results of operations and financial position of the combined company.
| 1 |
Genius Brands International, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
| Historical | ||||||||||||||||||||||||
| Genius Brands | WOW as reclassified | |||||||||||||||||||||||
| ASSETS | March 31, 2022 | March 31, 2022 |
IFRS to US GAAP adjustments |
Notes | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 49,811 | $ | 2,663 | $ | – | $ | (43,743 | ) | 6A | $ | 8,731 | ||||||||||||
| Restricted Cash | 3,000 | – | – | – | 3,000 | |||||||||||||||||||
| Investment in Marketable Securities | 101,301 | – | – | – | 101,301 | |||||||||||||||||||
| Accounts Receivable, net | 3,463 | 34,244 | – | – | 37,707 | |||||||||||||||||||
| Note Receivable From Related Party | 1,378 | – | – | – | 1,378 | |||||||||||||||||||
| Other Receivable | 675 | – | – | – | 675 | |||||||||||||||||||
| Prepaid Expenses and Other Assets | 4,663 | 1,245 | – | – | 5,908 | |||||||||||||||||||
| Total Current Assets | 164,291 | 38,152 | – | (43,743 | ) | 158,700 | ||||||||||||||||||
| Property and Equipment, net | 472 | 1,790 | 129 | 2A | – | 2,391 | ||||||||||||||||||
| Right Of Use Assets, net | 2,699 | 9,104 | 504 | 2A, 2B | 2,175 | 6B | 14,482 | |||||||||||||||||
| Film and Television Costs, net | 4,033 | 13,648 | 955 | 2C | (4,319 | ) | 6C | 14,317 | ||||||||||||||||
| Lease Deposits | 69 | – | – | – | 69 | |||||||||||||||||||
| Other Receivables | – | 78 | – | – | 78 | |||||||||||||||||||
| Investment in Your Family Entertainment AG | 18,533 | – | – | – | 18,533 | |||||||||||||||||||
| Intangible Assets, net | 12,663 | 337 | (129 | ) | 2A | 24,290 | 6C | 37,161 | ||||||||||||||||
| Goodwill | 15,911 | 2,012 | – | 19,103 | 6D | 37,026 | ||||||||||||||||||
| Total Assets | $ | 218,671 | $ | 65,121 | $ | 1,459 | $ | (2,494 | ) | $ | 282,757 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||||||
| Accounts Payable | $ | 5,204 | $ | 3,774 | $ | – | $ | (89 | ) | 6E | $ | 8,889 | ||||||||||||
| Accrued Production Costs | 181 | – | – | – | 181 | |||||||||||||||||||
| Accrued Expenses | 761 | 63 | – | – | 824 | |||||||||||||||||||
| Participations Payable | 2,324 | 532 | – | – | 2,856 | |||||||||||||||||||
| Deferred Revenue | 369 | 18,081 | – | – | 18,450 | |||||||||||||||||||
| Bank Indebtedness | – | 1,475 | – | – | 1,475 | |||||||||||||||||||
| Other Current Liabilities | – | 851 | – | – | 851 | |||||||||||||||||||
| Margin Loan | 57,753 | – | – | – | 57,753 | |||||||||||||||||||
| Notes Payable | 29 | – | – | – | 29 | |||||||||||||||||||
| Production Facility, net | – | 16,933 | – | – | 16,933 | |||||||||||||||||||
| Warrant Derivative Liability | 814 | – | – | – | 814 | |||||||||||||||||||
| Lease Liability | 612 | 2,404 | (34 | ) | 2B | – | 2,982 | |||||||||||||||||
| Due To Related Party | 12 | – | – | – | 12 | |||||||||||||||||||
| Accrued Salaries and Wages | 848 | 1,629 | – | – | 2,478 | |||||||||||||||||||
| Total Current Liabilities | 68,907 | 45,742 | (34 | ) | (89 | ) | 114,526 | |||||||||||||||||
| Long Term Liabilities: | ||||||||||||||||||||||||
| Deferred Revenue | 3,482 | – | – | – | 3,482 | |||||||||||||||||||
| Lease Liability | 2,425 | 9,413 | – | – | 11,838 | |||||||||||||||||||
| Other Non-Current Liabilities | – | 57 | – | – | 57 | |||||||||||||||||||
| Contingent Earn Out | 1,345 | – | – | – | 1,345 | |||||||||||||||||||
| Notes Payable | 78 | – | – | – | 78 | |||||||||||||||||||
| Convertible Debt | – | 3,597 | – | (3,597 | ) | 6E | – | |||||||||||||||||
| Disputed Trade Payable | 925 | – | – | – | 925 | |||||||||||||||||||
| Total Liabilities | 77,162 | 58,809 | (34 | ) | (3,686 | ) | 132,251 | |||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||
| Preferred Stock | – | – | – | |||||||||||||||||||||
| Common Stock | 304 | 68,249 | – | (68,237 | ) | 6F | 316 | |||||||||||||||||
| Additional Paid in Capital | 744,296 | 5,458 | – | 7,297 | 6F | 757,051 | ||||||||||||||||||
| Accumulated Deficit | (600,379 | ) | (66,350 | ) | 1,493 |
2A, 2B, 2C |
61,087 | 6A, 6F | (604,149 | ) | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) | (4,605 | ) | (1,045 | ) | – | 1,045 | 6F | (4,605 | ) | |||||||||||||||
| Total Genius Brands International, Inc. Stockholders' Equity | 139,616 | 6,312 | 1,493 | 1,192 | 148,613 | |||||||||||||||||||
| Non-Controlling Interest in Consolidated Subsidiary | 1,893 | – | – | – | 1,893 | |||||||||||||||||||
| Total Stockholders' Equity | 141,509 | 6,312 | 1,493 | 1,192 | 150,506 | |||||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 218,671 | $ | 65,121 | $ | 1,459 | $ | (2,494 | ) | $ | 282,757 | |||||||||||||
| 2 |
Unaudited Pro Forma Condensed Combined Statement of Operations
Three Months Ended March 31, 2022
(in thousands, except per share data)
| Three Months Ended | ||||||||||||||||||||||||
| Genius Brands | WOW as reclassified | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2022 | IFRS to US GAAP adjustments | Notes | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Media Advisory & Advertising Services | $ | 986 | $ | – | $ | – | $ | – | $ | 986 | ||||||||||||||
| Production Services Revenue | – | 9,937 | – | – | 9,937 | |||||||||||||||||||
| Content Distribution | 414 | 8,287 | – | – | 8,701 | |||||||||||||||||||
| Licensing & Royalties | 41 | – | – | – | 41 | |||||||||||||||||||
| Total Revenues | 1,441 | 18,224 | – | – | 19,665 | |||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| Marketing and Sales | 160 | – | – | – | 160 | |||||||||||||||||||
| Direct Operating Costs | 344 | 15,519 | (244 | ) | 2C | (1,488 | ) | 7A | 14,131 | |||||||||||||||
| General and Administrative | 10,857 | 1,368 | 94 | 2B | 403 | 7B | 12,722 | |||||||||||||||||
| Total Operating Expenses | 11,361 | 16,887 | (150 | ) | (1,085 | ) | 27,013 | |||||||||||||||||
| Income/(Loss) from Operations | (9,920 | ) | 1,337 | 150 | 1,085 | (7,348 | ) | |||||||||||||||||
| Other Income/(Expense): | ||||||||||||||||||||||||
| Interest Income | 248 | 15 | – | – | 263 | |||||||||||||||||||
| Realized Loss on Marketable Securities | (79 | ) | – | – | – | (79 | ) | |||||||||||||||||
| Unrealized Gain on Investment FV | 5,395 | – | – | – | 5,395 | |||||||||||||||||||
| Gain/(Loss) on Foreign Exchange | (192 | ) | 60 | – | – | (132 | ) | |||||||||||||||||
| Warrant Revaluation Adjustment | 41 | – | – | – | 41 | |||||||||||||||||||
| Interest Expense | (55 | ) | (393 | ) | 142 | 2B | 113 | 7C | (193 | ) | ||||||||||||||
| Net Other Income/(Expense) | 5,358 | (318 | ) | 142 | 113 | 5,295 | ||||||||||||||||||
| Income/(Loss) Before Income Tax Expense | (4,562 | ) | 1,019 | 292 | 1,198 | (2,053 | ) | |||||||||||||||||
| Income Tax Expense | – | – | – | – | – | |||||||||||||||||||
| Net Income/(Loss) | (4,562 | ) | 1,019 | 292 | 1,198 | (2,053 | ) | |||||||||||||||||
| Net Loss Attributable to Non-Controlling Interests | 31 | – | – | – | 31 | |||||||||||||||||||
| Net Income/(Loss) Attributable to Genius Brands International, Inc. | $ | (4,531 | ) | $ | 1,019 | $ | 292 | $ | 1,198 | $ | (2,022 | ) | ||||||||||||
| Net Loss per Common Share (Basic And Diluted) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.01 | ) | |||||||||||||||
| 3 |
Genius Brands International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Twelve Months Ended December 31, 2021
(in thousands, except per share data)
| Twelve Months Ended | ||||||||||||||||||||||||
| Genius Brands | WOW as reclassified | |||||||||||||||||||||||
| December 31, 2021 | December 31, 2021 | IFRS to US GAAP adjustments | Notes | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Media Advisory & Advertising Services | $ | 5,166 | $ | – | $ | – | $ | – | $ | 5,166 | ||||||||||||||
| Production Services Revenue | – | 26,435 | – | – | 26,435 | |||||||||||||||||||
| Content Distribution | 825 | 37,581 | – | – | 38,406 | |||||||||||||||||||
| Licensing & Royalties | 1,605 | – | – | – | 1,605 | |||||||||||||||||||
| Advertising & Subscription Sales | 277 | – | – | – | 277 | |||||||||||||||||||
| Total Revenues | 7,873 | 64,016 | – | – | 71,889 | |||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| Marketing and Sales | 5,442 | – | – | – | 5,442 | |||||||||||||||||||
| Direct Operating Costs | 21,987 | 55,253 | (2,829 | ) | 2C | (509 | ) | 7A | 73,902 | |||||||||||||||
| General and Administrative | 35,967 | 5,925 | 381 | 2B | 1,225 | 7B | 43,498 | |||||||||||||||||
| Impairment of Intangible Assets | 3,452 | – | – | – | 3,452 | |||||||||||||||||||
| Impairment of Goodwill | 4,778 | – | – | – | 4,778 | |||||||||||||||||||
| Total Operating Expenses | 71,626 | 61,178 | (2,448 | ) | 716 | 131,072 | ||||||||||||||||||
| Income/(Loss) from Operations | (63,753 | ) | 2,838 | 2,448 | (716 | ) | (59,183 | ) | ||||||||||||||||
| Other Income/(Expense): | ||||||||||||||||||||||||
| Interest Income | 559 | 63 | – | – | 622 | |||||||||||||||||||
| Realized Loss on Marketable Securities | (70 | ) | – | – | – | (70 | ) | |||||||||||||||||
| Revaluation of Contingent Earn Out | 5,846 | – | – | – | 5,846 | |||||||||||||||||||
| Unrealized Loss on Investment FV | (106 | ) | – | – | – | (106 | ) | |||||||||||||||||
| Loss on Foreign Exchange | (26 | ) | (39 | ) | – | – | (65 | ) | ||||||||||||||||
| Forgiveness of CRTC tangible benefits obligation | – | 466 | – | – | 466 | |||||||||||||||||||
| Gain on Paycheck Protection Loan Forgiveness | – | 632 | – | – | 632 | |||||||||||||||||||
| Warrant Incentive Expense | (69,139 | ) | – | – | – | (69,139 | ) | |||||||||||||||||
| Warrant Revaluation Adjustment | 342 | – | – | – | 342 | |||||||||||||||||||
| Interest Expense | (20 | ) | (1,427 | ) | 578 | 2B | 465 | 7C | (404 | ) | ||||||||||||||
| Net Other Income/(Expense) | (62,614 | ) | (305 | ) | 578 | 465 | (61,876 | ) | ||||||||||||||||
| Income/(Loss) Before Income Tax Expense | (126,367 | ) | 2,533 | 3,026 | (251 | ) | (121,059 | ) | ||||||||||||||||
| Income Tax Expense | – | – | – | – | – | |||||||||||||||||||
| Net Income/(Loss) | (126,367 | ) | 2,533 | 3,026 | (251 | ) | (121,059 | ) | ||||||||||||||||
| Net Loss Attributable to Non-Controlling Interests | – | – | – | – | – | |||||||||||||||||||
| Net Income/(Loss) Attributable to Genius Brands International, Inc. | $ | (129,630 | ) | $ | 2,533 | $ | 3,026 | $ | (251 | ) | $ | (121,059 | ) | |||||||||||
| Net Loss per Common Share (Basic And Diluted) | $ | (0.42 | ) | $ | (0.02 | ) | $ | (0.39 | ) | |||||||||||||||
| 4 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1. | Description of the Acquisition |
As previously announced, on October 26, 2021, Genius Brands International, Inc., a Nevada corporation (“Genius” or the “Company”), and Wow Exchange Co. Inc. (formerly, 1326919 B.C. Ltd.), a corporation existing under the laws of the Province of British Columbia and, then, a wholly owned subsidiary of Genius (“Purchaser” or “Exchangeco”), entered into an Arrangement Agreement (the “Arrangement Agreement”) to acquire all of the outstanding shares of Wow Unlimited Media Inc., a corporation existing under the laws of the Province of British Columbia (“Wow”) such that Exchangeco will own 100% of the shares of Wow, as described in the Current Report on Form 8-K filed by Genius on November 1, 2021 (the “Arrangement”).
Pursuant to the Arrangement Agreement, on April 6, 2022, Genius, through its Canadian subsidiary, Exchangeco, acquired all of the shares of Wow not already owned by Genius for an aggregate purchase price consisting of (i) approximately CDN $47.7 million (USD $38.3 million), (ii) 10,365,821 shares of the Genius’ common stock, par value $0.001 per share (the “Genius Common Shares”), and (iii) 691,262 shares of Exchangeco (the “Exchangeco Shares”) (the “Acquisition”).
In addition to consideration of CDN $1.169 per share in cash, Wow shareholders had the ability to elect to receive per share consideration of either (i) 0.271 shares of Genius Common Shares or 0.271 shares of Exchangeco Shares. Wow shareholders elected to receive Exchangeco Shares, resulting in 691,262 Exchangeco Shares being issued at the closing of the Arrangement.
The Acquisition is subject to the satisfaction of customary closing conditions.
| 2. | Basis of pro forma presentation |
The accompanying unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations” (“ASC 805”) and are based on the audited annual and unaudited interim historical financial information of Genius and Wow. The pro forma financial information is presented for illustrative purposes only. The historical consolidated financial information has been adjusted in the accompanying pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on the consolidated results.
The acquisition method of accounting uses the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could result in different assumptions resulting in a range of alternative estimates using the same facts and circumstances. The allocation of the estimated consideration is preliminary, pending finalization of various estimates and analyses. Since these pro forma financial statements have been prepared based on preliminary estimates of consideration and fair values attributable to the Acquisition, the actual amounts eventually recorded for the Acquisition, including goodwill, may differ materially from the information presented.
The preliminary allocation of the estimated consideration in these pro forma financial statements is based upon an estimated consideration of approximately $52.7 million, inclusive of approximately $11.6 million related to Wow equity-based awards. The estimated consideration has been prepared based on the consideration of CDN $1.169 per share, converted to $0.939 per share at a spot rate of 0.8032 CDN/$ on April 6, 2022.
The Company and Wow expect to incur approximately $4.5 million of transaction and financing costs in connection with the Acquisition. These costs include legal and other fees which were expensed and not included as part of the estimated purchase consideration. Because the transaction costs have no continuing impact, these costs are not included in the pro forma statement of operations but are reflected in the unaudited pro forma condensed combined balance sheet.
Further, the pro forma financial statements do not reflect the following items:
| · | Integration activities that have yet to be determined or transaction or other costs following the completion of the Acquisition; or | |
| · | The impact of possible cost or growth synergies expected to be achieved by the combined company, as there is no assurance that such cost or growth synergies will be achieved. |
| 5 |
Accounting policies
IFRS differs in certain respects from U.S. GAAP. The following adjustments have been made to align Wow’s historical accounting policies under IFRS to Genius’s accounting policies under U.S. GAAP for purposes of this pro forma presentation.
| (A) | Intangible Software License |
All leases of intangible assets are excluded from the scope of lease accounting under ASC 842. Previously, under IFRS, Wow recognized certain intangible software licenses under IFRS 16 as part of lease accounting. This did not result in an adjustment to the statement of operations.
| (B) | Lease Classification |
Previously, under IFRS, leases were accounted for as finance leases as per IFRS 16. Leases have been evaluated to determine what would qualify as a finance lease under US GAAP and included the impact by recording the interest expense from those leases with lease expense in the pro forma financial statements. For the three months ended March 31, 2022 and for the year ended December 31, 2021, this adjustment results in an increase in G&A expenses of $0.1 million and $0.4 million, respectively and a decrease in interest expense of $0.1 million and $0.6 million, respectively.
| (C) | Amortization of Content Costs |
Capitalized costs of license agreements, including titles in a film group, are amortized under ASC 926, using one of two appropriate methods of amortization based on the type of content and expected benefit to the entity. Under IFRS, content costs are accounted similar to intangible assets and amortized based on revenue expectations. The Company noted the difference in accounting models and performed an assessment to determine the impact in the pro forma financial statements. For the three months ended March 31, 2022 and for the year ended December 31, 2021, this adjustment results in a decrease in amortization expenses of $0.2 million and $2.9 million, respectively.
| 3. | Wow Historical Financial Statement Reclasses |
Wow historical balances were derived from Wow’s historical financial statements described in the introduction and are presented under IFRS and converted from the Canadian dollar to U.S. dollars based on historical exchange rates. The consolidated income statements of Wow were translated using the average exchange rate for the twelve months ended December 31, 2021 (0.7979 CDN/$) and the average exchange rate from January 1, 2022 to April 6, 2022 for the three months ended March 31, 2022 (0.7901 CDN/$), respectively. The consolidated balance sheet of Wow as of March 31, 2022, was translated using the spot rate on April 6, 2022 (0.8032 CDN/$).
Certain reclassification adjustments have been made to the historical presentation of Wow financial information in order to conform to a combined Genius balance sheet and statement of operations.
| 6 |
The tables below summarize certain reclassifications made to the Wow historical balance sheet and statement of operations to conform to Genius’s presentation:
WOW Unaudited Reclassified Condensed Balance Sheet (as of March 31, 2022)
(in thousands)
| WOW before reclassification | WOW before reclassification | Reclassifications | WOW as reclassified | |||||||||||||
| (CAD) | (USD) | (USD) | (USD) | |||||||||||||
| ASSETS | ||||||||||||||||
| Current | ||||||||||||||||
| Cash and Cash Equivalents | $ | 3,316 | $ | 2,663 | $ | – | $ | 2,663 | ||||||||
| Trade and Other Accounts Receivable | 42,634 | 34,244 | – | 34,244 | ||||||||||||
| Prepaid Expenses, Deposits and Other | 1,444 | 1,160 | 85 | 1,245 | ||||||||||||
| Total Current Assets | 47,394 | 38,067 | 85 | 38,152 | ||||||||||||
| Property, Plant and Equipment | 13,563 | 10,894 | (9,104 | ) | 1,790 | |||||||||||
| Right Of Use Assets, net | – | – | 9,104 | 9,104 | ||||||||||||
| Investment in Film and Television Programming | 16,992 | 13,648 | – | 13,648 | ||||||||||||
| Other Intangible Assets | 420 | 337 | – | 337 | ||||||||||||
| Goodwill | 2,505 | 2,012 | – | 2,012 | ||||||||||||
| Long-Term Accounts Receivable | 97 | 78 | – | 78 | ||||||||||||
| Deposits | 106 | 85 | (85 | ) | – | |||||||||||
| Total Non-Current Assets | 33,682 | 27,054 | (85 | ) | 26,969 | |||||||||||
| TOTAL ASSETS | $ | 81,076 | $ | 65,121 | $ | – | $ | 65,121 | ||||||||
| LIABILITIES | ||||||||||||||||
| Current | ||||||||||||||||
| Bank Indebtedness | $ | 1,837 | $ | 1,475 | $ | – | $ | 1,475 | ||||||||
| Accounts Payable and Accrued Liabilities | 7,469 | 5,998 | (2,224 | ) | 3,774 | |||||||||||
| Accrued Expenses | – | – | 63 | 63 | ||||||||||||
| Participations Payable | – | – | 532 | 532 | ||||||||||||
| Accrued Salaries and Wages | – | – | 1,629 | 1,629 | ||||||||||||
| Interim Production Financing | 21,081 | 16,933 | – | 16,933 | ||||||||||||
| Deferred Revenue | 22,511 | 18,081 | – | 18,081 | ||||||||||||
| Current Portion of Lease Obligations | 2,994 | 2,404 | – | 2,404 | ||||||||||||
| Other Current Liabilities | 1,057 | 851 | – | 851 | ||||||||||||
| Total Current Liabilities | 56,949 | 45,742 | – | 45,742 | ||||||||||||
| Lease Obligations | 11,719 | 9,413 | – | 9,413 | ||||||||||||
| Convertible Debt | 4,478 | 3,597 | – | 3,597 | ||||||||||||
| Other Non-Current Liabilities | 72 | 57 | – | 57 | ||||||||||||
| Total Non-current Liabilities | 16,269 | 13,067 | – | 13,067 | ||||||||||||
| TOTAL LIABILITIES | $ | 73,218 | $ | 58,809 | $ | – | $ | 58,809 | ||||||||
| SHAREHOLDERS' EQUITY | ||||||||||||||||
| Share Capital | 84,970 | 68,249 | – | 68,249 | ||||||||||||
| Additional Paid-in Capital | – | – | 5,458 | 5,458 | ||||||||||||
| Accumulated Other Comprehensive Income (Loss) | – | – | (1,045 | ) | (1,045 | ) | ||||||||||
| Reserves | 5,494 | 4,413 | (4,413 | ) | – | |||||||||||
| Accumulated Deficit | (82,606 | ) | (66,350 | ) | – | (66,350 | ) | |||||||||
| TOTAL SHAREHOLDERS' EQUITY | $ | 7,858 | $ | 6,312 | $ | – | $ | 6,312 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 81,076 | $ | 65,121 | $ | – | $ | 65,121 | ||||||||
| 7 |
Wow Unaudited Reclassified Condensed Statement of Operations (for the three months ended March 31, 2022)
(in thousands)
| WOW before reclassification | WOW before reclassification | Reclassifications | WOW as reclassified | |||||||||||||
| (CAD) | (USD) | (USD) | (USD) | |||||||||||||
| Revenues: | ||||||||||||||||
| Production Services Revenue | $ | 23,066 | $ | 18,224 | $ | (8,287 | ) | $ | 9,937 | |||||||
| Content Distribution | – | – | 8,287 | 8,287 | ||||||||||||
| Net Revenues | 23,066 | 18,224 | – | 18,224 | ||||||||||||
| Expenses: | ||||||||||||||||
| Direct Operating Costs | 17,423 | 13,766 | 1,753 | 15,519 | ||||||||||||
| Depreciation and Amortization | 3,171 | 2,505 | (2,505 | ) | – | |||||||||||
| General and Administration | 649 | 513 | 855 | 1,368 | ||||||||||||
| Share-based compensation expense | 35 | 28 | (28 | ) | – | |||||||||||
| Total Operating Expenses | 21,278 | 16,812 | 75 | 16,887 | ||||||||||||
| Income/(Loss) from Operations | 1,788 | 1,412 | (75 | ) | 1,337 | |||||||||||
| Other Income/(Expense): | ||||||||||||||||
| Interest Income | – | – | 15 | 15 | ||||||||||||
| Interest Expense | (498 | ) | (393 | ) | – | (393 | ) | |||||||||
| Gain on Foreign Exchange | – | – | 60 | 60 | ||||||||||||
| Net Other Income/(Expense) | (498 | ) | (393 | ) | 75 | (318 | ) | |||||||||
| Income Before Income Tax Expense | 1,290 | 1,019 | – | 1,019 | ||||||||||||
| Income Tax Expense | – | – | – | – | ||||||||||||
| Net Income | $ | 1,290 | $ | 1,019 | $ | – | $ | 1,019 | ||||||||
| 8 |
Wow Unaudited Reclassified Condensed Statement of Operations (for the twelve months ended December 31, 2021)
(in thousands)
| WOW before reclassification | WOW before reclassification | Reclassifications | WOW as reclassified | |||||||||||||
| (CAD) | (USD) | (USD) | (USD) | |||||||||||||
| Revenues: | ||||||||||||||||
| Production Services Revenue | $ | 80,233 | $ | 64,016 | $ | (37,581 | ) | $ | 26,435 | |||||||
| Content Distribution | – | – | 37,581 | 37,581 | ||||||||||||
| Net Revenues | 80,233 | 64,016 | – | 64,016 | ||||||||||||
| Expenses: | ||||||||||||||||
| Direct Operating Costs | 55,890 | 44,592 | 10,661 | 55,253 | ||||||||||||
| Depreciation and Amortization | 16,488 | 13,155 | (13,155 | ) | – | |||||||||||
| General and Administration | 3,243 | 2,587 | 3,338 | 5,925 | ||||||||||||
| Share-based compensation expense | 233 | 186 | (186 | ) | – | |||||||||||
| Gain on Forgiveness of CRTC tangible benefits obligation | (585 | ) | (464 | ) | 464 | – | ||||||||||
| Total Operating Expenses | 75,269 | 60,056 | 1,122 | 61,178 | ||||||||||||
| Income/(Loss) from Operations | 4,964 | 3,960 | (1,122 | ) | 2,838 | |||||||||||
| Other Income (Expense): | ||||||||||||||||
| Gain on Forgiveness of CRTC tangible benefits obligation | – | – | 466 | 466 | ||||||||||||
| Gain on Paycheck Protection Loan Forgiveness | – | – | 632 | 632 | ||||||||||||
| Interest Income | – | – | 63 | 63 | ||||||||||||
| Interest Expense | (1,788 | ) | (1,427 | ) | – | (1,427 | ) | |||||||||
| Loss on Foreign Exchange | – | – | (39 | ) | (39 | ) | ||||||||||
| Net Other Income/(Expense) | (1,788 | ) | (1,427 | ) | 1,122 | (305 | ) | |||||||||
| Income Before Income Tax Expense | 3,176 | 2,533 | – | 2,533 | ||||||||||||
| Income Tax Expense | – | – | – | – | ||||||||||||
| Net Income | $ | 3,176 | $ | 2,533 | $ | – | $ | 2,533 | ||||||||
| 9 |
| 4. | Preliminary Consideration |
The preliminary consideration is calculated as follows (in thousands):
| Amount | ||||
| Cash Consideration for Wow Shares Outstanding | $ | 38,310 | ||
| Cash Consideration Paid for Bonus, Severance & Other | 1,663 | |||
| Total cash consideration | 39,973 | |||
| 11,057,083 Shares of Genius Common Stock at Fair Market Value | 11,554 | |||
| Value of Replacement Options Awarded to Employees | 1,545 | |||
| Less: Employee awards to be recorded as future stock compensation expense | (332 | ) | ||
| Total consideration transferred | $ | 52,740 | ||
| 5. | Fair Value Estimate of Assets to be Acquired and Liabilities to be Assumed |
The table below represents an initial allocation of the preliminary consideration to Wow’s tangible and intangible assets acquired and liabilities assumed based on management’s preliminary estimate of their respective fair values as of March 31, 2022. The preliminary values presented below are subject to change.
| (in thousands) | Wow as reclassified and adjusted to U.S. GAAP | Fair Value Adjustment | Fair Value | Goodwill Calculation | ||||||||||||
| Estimated consideration transferred | $ | 52,740 | ||||||||||||||
| Total value to allocate | – | – | – | $ | 52,740 | |||||||||||
| Cash and cash equivalents | $ | 2,663 | $ | – | $ | 2,663 | ||||||||||
| Accounts receivable, net | 34,244 | – | 34,244 | |||||||||||||
| Prepaid expenses and other current assets | 1,245 | – | 1,245 | |||||||||||||
| Property, plant and equipment, net | 1,919 | – | 1,919 | |||||||||||||
| Right of Use Assets, net | 9,608 | 2,175 | 11,783 | |||||||||||||
| Film and Television Costs, net | 14,603 | (4,319 | ) | 10,284 | ||||||||||||
| Other intangibles, net | 208 | 24,290 | 24,498 | |||||||||||||
| Other assets | 78 | – | 78 | |||||||||||||
| Total assets (excluding goodwill) | $ | 64,568 | $ | 22,146 | $ | 86,714 | ||||||||||
| Bank Debt | $ | 1,475 | $ | – | $ | 1,475 | ||||||||||
| Accounts Payable | 3,685 | – | 3,685 | |||||||||||||
| Interim Production Financing | 16,933 | – | 16,933 | |||||||||||||
| Deferred Revenue | 18,081 | – | 18,081 | |||||||||||||
| Leases | 11,783 | – | 11,783 | |||||||||||||
| Other Liabilities | 907 | – | 907 | |||||||||||||
| Parts Payable | 532 | – | 532 | |||||||||||||
| Accrued | 1,693 | – | 1,693 | |||||||||||||
| Total liabilities | $ | 55,089 | $ | – | $ | 55,089 | ||||||||||
| Fair value of net assets (excluding goodwill) | 31,625 | |||||||||||||||
| Genius goodwill attributable to Wow | $ | 21,115 | ||||||||||||||
| 10 |
| 6. | Adjustments to Pro Forma Condensed Combined Balance Sheet |
Explanations of the adjustments to the pro forma balance sheet are as follows:
| (A) | Represents adjustments to cash due to the following outflows as a result of the Acquisition (in thousands): |
| Purchase cash consideration for Wow shares | $ | (38,310 | ) | |
| Purchase cash consideration for bonus, severance & other | (1,663 | ) | ||
| Transaction costs - Wow | (2,987 | ) | ||
| Transaction costs - Genius | (783 | ) | ||
| Total | $ | (43,743 | ) |
| (B) | Represents the adjustment to remeasure the acquired leases of Wow. |
| (C) | Represents the preliminary fair value and resulting adjustment to intangible assets (other than Goodwill) and film and television content. Note that the fair values are preliminary and subject to further adjustments which could be material as additional information becomes available and as additional analyses are performed. The preliminary amounts assigned to intangible assets and film and television content with estimated weighted average useful lives are as follows: |
| (in thousands) | Preliminary fair value | Estimated weighted average useful life (in years) | ||||||
| Customer Relationships | $ | 16,064 | 10 | |||||
| Tradename | 7,631 | Indefinite | ||||||
| Networks and Platforms | 803 | 16 | ||||||
| Total fair value of Wow’s intangible assets (other than Goodwill) | 24,498 | |||||||
| Less: Wow historical intangible assets recorded in other intangible assets, including adjustment from transition to U.S. GAAP | (208 | ) | ||||||
| Adjustment to other intangibles, net | $ | 24,290 | ||||||
| Fair value of IP (Completed Proprietary Productions) | $ | 5,684 | Revenue Forecast Model | |||||
| Wow historical film and television costs (Completed Proprietary Productions), including adjustment from transition to U.S. GAAP | 10,003 | |||||||
| Adjustment to Wow’s film and television costs | $ | (4,319 | ) | |||||
| (D) | Represents the adjustment to Wow’s historical goodwill to equal the excess of the preliminary consideration over the preliminary fair value of the assets acquired and liabilities assumed. Goodwill will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. Goodwill is not expected to be deductible for income tax purposes. | |
| (E) | Represents adjustments to Wow’s March 31, 2022 long-term debt, convertible into Wow’s common stock, converted on April 6, 2022 upon consummation of the Acquisition into 2,315,806 shares of Wow’s common stock, included in the outstanding shares of Wow purchased by Genius in the Acquisition. |
| 11 |
| (F) | The following table summarizes the pro forma adjustments impacting equity: |
| (in thousands) | Adjustments to historical equity | New Equity | Other Items | Total Pro forma adjustments | ||||||||||||
| Common Stock | $ | (68,249 | ) | $ | 12 | $ | – | (68,237 | ) | |||||||
| Additional paid-in capital | (5,458 | ) | 12,755 | – | 7,297 | |||||||||||
| Accumulated Deficit | 64,857 | – | (3,770 | ) | 61,087 | |||||||||||
| Accumulated other comprehensive loss | 1,045 | – | – | 1,045 | ||||||||||||
| Stockholders’ Equity | $ | (7,805 | ) | $ | 12,768 | $ | (3,770 | ) | $ | 1,192 | ||||||
Adjustments to historical equity: Represents the elimination of Wow’s historical equity. The adjustment to accumulated deficit includes Wow’s historical accumulated deficit of $66.4 million and adjustments to accumulated deficit of $1.5 million due to IFRS to U.S. GAAP conversion.
New Equity: The adjustments to common stock and additional paid-in capital represents the fair value of Genius common stock issued and replacement stock options issued to employees as part of consideration for the Acquisition.
Other items: The adjustments to accumulated deficit represent the impact of the nonrecurring transaction costs incurred by the Company and Wow of $0.8 million and $3.0 million, respectively, for Acquisition related transactions not yet recorded in the historical balance sheets.
| 12 |
| 7. | Adjustments to Pro Forma Condensed Combined Statements of Operations |
Explanations of the adjustments to the pro forma statement of operations are as follows:
| (A) | Represents estimated differences in amortization expense resulting from the allocation of purchase consideration to production costs subject to amortization. The pro forma condensed combined balance sheet has been adjusted to report the estimated fair value of Wow’s content library (see footnote 6(B)). The pro forma condensed combined statements of operations have been adjusted to reflect the impact of production cost amortization as a result of adjusting the content library to preliminary fair value. The estimated fair value was derived on an individual title basis and based on Genius’s accounting policy the pro forma adjustment to direct operating costs reflects the amortization expense resulting from the fair value adjustments to the film and television library. As the pro forma financial statements do not contemplate any new content spend after the transaction date, the pro forma condensed combined statements of operations do not reflect the amortization associated with any new content. |
| (in thousands) | Three months ended | Year ended | ||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Amortization of updated film and television cost | $ | 154 | $ | 7,199 | ||||
| Elimination of historical amortization of film and television costs, including adjustment from transition to U.S. GAAP | (1,642 | ) | (7,708 | ) | ||||
| Total adjustment | $ | (1,488 | ) | $ | (509 | ) | ||
| (B) | Represents estimated differences in amortization expense resulting from the allocation of purchase consideration to definite-lived intangible assets subject to amortization. |
| (in thousands) | Three months ended | Year ended | ||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Amortization of new intangible assets | $ | 414 | $ | 1,657 | ||||
| Elimination of historical amortization of intangible assets | (11 | ) | (432 | ) | ||||
| Total adjustment | $ | 403 | $ | 1,225 | ||||
| (C) | Represents a decrease in interest expense as a result of the conversion of historical Wow convertible debt into Wow common stock of $0.1 million and $0.5 million during the three months ended March 31, 2022 and the year ended December 31, 2021, respectively. | |
| (D) | Represents the adjustment to arrive at pro forma combined earnings per share (EPS). Refer to the calculation of EPS in Note 8 for additional details. |
| 8. | Genius Earnings Per Share Information |
The following table shows our calculation of pro forma combined basic and diluted earnings per share for the three months ended March 31, 2022 and the year ended December 31, 2021:
| (in thousands, except per share data) | Three Months Ended March 31, 2022 | Year Ended December 31, 2021 | ||||||
| Pro forma net loss attributable to Genius | $ | (2,022 | ) | $ | (121,059 | ) | ||
| Genius weighted-average shares outstanding | 303,779 | 297,513 | ||||||
| Shares issued in Acquisition (weighted for year ended December 31, 2021) | 11,057 | 11,027 | ||||||
| Pro forma basic weighted average shares outstanding | 314,836 | 308,540 | ||||||
| Pro forma basic earnings per share | $ | (0.01 | ) | $ | (0.39 | ) | ||
| 13 |