Quarterly report pursuant to Section 13 or 15(d)

1. Organization and Business

1. Organization and Business
9 Months Ended
Sep. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Business

Organization and Nature of Business


Genius Brands International, Inc. (“we”, “us”, “our” or the “Company”) is a global brand management company that creates and licenses multimedia content for children from toddlers to tweens. The Company creates "content with a purpose," meaning content that is as entertaining as it is enriching. The Company’s growing library of content includes the Baby Genius products, Warren Buffett's Secret Millionaires Club, Thomas Edison's Secret Lab and Stan Lee's Mighty 7, the first project from Stan Lee Comics LLC, a joint venture between A Squared Entertainment, LLC (“A Squared”), a wholly owned subsidiary of the Company; POW Entertainment Inc. (“POW”); and Archie Comic Publications, Inc. (“Archie”).


A Squared is a brand management and licensing company that represents third party properties across a broad range of categories in territories around the world including “Psycho Bunny”, a luxury apparel line; “From Frank”, a humor greeting card and product line; “Elecktro Kids” and “MIP” both from Wowee Toys; products from Celessence Technologies, the world's leading microencapsulation company; and Archie Comics.


The Company commenced operations in January 2006, assuming all of the rights and obligations of its then Chief Executive Officer, Klaus Moeller, under an Asset Purchase Agreement between the Company and Genius Products, Inc., in which the Company obtained all rights, copyrights, and trademarks to the brands “Baby Genius,” “Little Genius,” “Kid Genius,” “123 Favorite Music” and “Wee Worship,” and all then existing productions under those titles. On October 17, 2011 and October 18, 2011, the Company filed Articles of Merger with the Secretary of State of the State of Nevada and with the Secretary of State of the State of California, respectively. As previously described on the Company’s Schedule 14C Information Statement, filed with the Securities and Exchange Commission on September 21, 2011, by filing the Articles of Merger, the Company (i) changed its state of incorporation to Nevada from California, and (ii) changed its name to Genius Brands International, Inc. from Pacific Entertainment Corporation (the “Reincorporation”). In connection with the Reincorporation, on November 29, 2011, the Company’s trading symbol changed from “PENT” to “GNUS”.


On November 15, 2013, we entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with A Squared, A Squared Holdings LLC, a California limited liability company and sole member of A Squared (the “Member”) and A2E Acquisition LLC, our newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”). Upon closing of the transactions contemplated under the Merger Agreement (the “Merger”), which occurred concurrently with entering into the Merger Agreement, Acquisition Sub merged with and into A Squared, and A Squared, as the surviving entity, became our wholly-owned subsidiary. As a result of the Merger, the Company acquired the business and operations of A Squared. 


On April 2, 2014, we filed a certificate of amendment to our Articles of Incorporation to affect a reverse split of our issued and outstanding common stock on a one-for-one hundred basis. The reverse stock split was effective with FINRA on April 7, 2014. All common stock share and per share information in this Quarterly Report, including the accompanying consolidated financial statements and notes thereto, have been adjusted to reflect retrospective application of the reverse split, unless otherwise indicated.


During 2014, the Company began a series of strategic initiatives to restructure its operations in the areas of product sales, content distribution, production, and development which include:


· During the second quarter of 2014, the Company began phasing out the direct sale of physical products including DVDs and CDs and shifting to a licensing model. On July 14, 2014, the Company employed Stone Newman in the newly created position of President - Worldwide Consumer Products to manage all consumer products, licensing and merchandising sales and rights for the Company’s brands and programming.


· Prior to the third quarter of 2014, the Company utilized a sales agent to license its content to international television broadcasters. To exert greater control over the distribution of its content, during the second quarter of 2014, the Company formed a new global distribution division and appointed Andrew Berman to the newly created position of Senior Vice President - International Sales to oversee the division.


· During the third quarter of 2014 and subsequent thereto, the Company has partnered with various pre-production, production, animation service providers in which those parties provide services to the Company for the production of Thomas Edison’s Secret Lab in exchange for a certain percentage of the series’ forthcoming adjusted net revenues as well as the ability to distribute the series in certain languages in certain territories.


· In addition to distributing its content as described above, the Company seeks to distribute its content through additional multi-media platforms. During the first three quarters of 2014, the Company has partnered with various vendors in the areas of music publishing, digital music distribution, VOD, and gaming device platforms.


· In order to refresh and grow its portfolio of brands, the Company follows a disciplined approach to development in which it evaluates existing projects to ensure those chosen for production are most well-suited for the Company’s mission to create “content with a purpose.”




Historically, the Company has incurred net losses. As of September 30, 2014, the Company had an accumulated deficit of $20,267,818 and a total stockholders’ equity of $14,598,853. At September 30, 2014, the Company had current assets of $5,819,652, including cash of $5,167,606 and current liabilities of $2,242,700, including short-term debt to related parties which bears no interest and has no stated maturity of $411,642 and certain trade payables of $925,000 to which the Company disputes the claim, resulting in working capital of $3,576,952. For the three and nine months ended September 30, 2014, the Company reported a net loss of $848,970 and $2,843,763, respectively, and reported net cash used by operating activities during the nine months ended September 30, 2014 of $1,624,920.


Management believes that its funds from the issuance of common stock in the first quarter of 2014, funds from the issuance of Series A Convertible Preferred Shares during the second quarter of 2014, proceeds from a long-term, exclusive supply chain services agreement for which it received $750,000 during the first quarter of 2014, and proceeds from music advances of $500,000 received in the second and third quarters will be sufficient to fund its planned operations for the next twelve months. However, there can be no assurance that operations and operating cash flows will improve in the near future. If the Company is unable to obtain profitable operations and positive operating cash flows, it may need to (i) seek additional funding, (ii) scale back its development plans, or (iii) reduce or terminate certain operations.