Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☐
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☐
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☐ No ☐
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☐ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☐
The aggregate market value of the registrant’s voting
and non-voting common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included
in such calculation is an affiliate) computed by reference to $2.25 as of the last business day of the registrant’s most
recently completed second fiscal quarter was $460,858,761.
As of March 30, 2021, the registrant had
300,321,658 shares of common stock outstanding.
This Annual Report on Form 10-K (including
the section regarding Management's Discussion and Analysis and Results of Operation) contains forward-looking statements regarding
our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
or variations thereof are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means
of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future
matters are forward-looking statements. These statements include, among other things, statements regarding:
Although forward-looking statements in
this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual
results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically
addressed under the heading “Risk Factors” in Item 1A. below, as well as those discussed elsewhere in this Annual
Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”) and
our electronic filings with the SEC (including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, and any amendments to these reports) are available free of charge on the SEC’s website at http://www.sec.gov.
We undertake no obligation to revise or
update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual
Report on Form 10-K, except as required by law. Readers are urged to carefully review and consider the various disclosures made
throughout the entirety of this Annual Report on Form 10-K, which are designed to advise interested parties of the risks and factors
that may affect our business, financial condition, results of operations and prospects.
PART I
Item 1. Business.
Overview
Genius Brands International, Inc.
(“we,” “us,” “our,” or the “Company”) is a global content and brand management
company that creates and licenses multimedia content. Led by experienced industry personnel, we distribute our content in all
formats as well as a broad range of consumer products based on our characters. In the children's media sector, our portfolio
features “content with a purpose” for toddlers to tweens, which provides enrichment as well as entertainment. New
intellectual property titles include the preschool property Rainbow Rangers, which debuted in November 2018 on Nickelodeon
and which was renewed for a second season and preschool property Llama Llama, which debuted on Netflix in January 2018
and was renewed by Netflix for a second season. Our library titles include the award-winning Baby Genius, adventure comedy
Thomas Edison's Secret Lab® and Warren Buffett’s Secret Millionaires Club, created with and starring iconic
investor Warren Buffett, which is distributed across our Genius Brands Network on Comcast’s Xfinity on Demand, AppleTV, Roku,
Amazon Fire, YouTube, Amazon Prime, Cox, Dish, Sling and Zumo, as well as Connected TV. We are also developing an all-new animated
series, Stan Lee’s Superhero Kindergarten with Stan Lee’s Pow! Entertainment, Oak Productions. Arnold
Schwarzenegger lends his voice as the lead and is also an Executive Producer on the series. The show will be broadcast in the United
States on Amazon Prime and the Company’s wholly owned distribution outlet, Kartoon Channel!. In July 2020, the Company entered
into a binding term sheet with POW, Inc. (“POW!”) in which we agreed to form an entity with POW! to exploit certain
rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee. The entity is called “Stan
Lee Universe, LLC”. POW! and the Company are finalizing the details of the venture. This agreement will enable us to assume
the worldwide rights, in perpetuity, to the name, physical likeness, physical signature, live-action and animated motion picture,
television, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee
creations, from which Genius Brands plans to develop and license approximately multiple properties each year.
In addition, we act as licensing agent
for Penguin Young Readers, a division of Penguin Random House LLC which owns or controls the underlying rights to Llama Llama,
leveraging our existing licensing infrastructure to expand this brand into new product categories, new retailers, and new territories.
Our Products
Original Content
We own and produce original content that
is meant to entertain and enrich toddlers to tweens as well as families. It is generally a three-year cycle from the inception
of an idea, through production of the content and development and distribution of a range of consumer products to retail, creating
an inevitable lag time between the creation of the intellectual property to the realization of economic benefit of those assets.
Our goal is to maintain a robust and diverse portfolio of brands, appealing to various interests and ages, featuring evergreen
topics with global appeal. Our portfolio of intellectual property can be licensed, re-licensed, and potentially exploited for years
to come, with revenue derived from multiple sources and territories. Our portfolio of original content includes:
Content in Production
Superhero Kindergarten: In conjunction
with Stan Lee’s POW! Entertainment and Arnold Schwarzenegger’s Oak Productions, we are developing an animated pre-school
series with the current title of “Stan Lee’s Superhero Kindergarten.” Stan Lee’s Superhero Kindergarten
tells the story of a classroom, led by a former superhero/teacher voiced by Mr. Schwarzenegger, filled with kids with superpowers
and how they learn to use those powers to fight against the forces of evil while still dealing with all of the issues that come
from being six years old.
Content in Development
Shaq’s Garage: Shaq’s
Garage, starring and co-produced by NBA legend, Shaquille O’Neal, is a children’s animated series about the secret
adventures of Shaquille’s extraordinary collection of cars, trucks, and other unique vehicles—the Shaq Pack.
KC! Pop Quiz is a quiz show for kids that will be
distributed Kartoon Channel! on their Kids and Family AVOD and FAST platform. The show’s mission is
to entertain, inspire, and educate. It will feature social media influencers as hosts and real kids who will win real prizes. It
will have a “game show” format and will premiere on Kartoon Channel! Q2 2021.
Already Released Content
Rainbow Rangers Season 2: From Shane
Morris, the writer of Frozen, and Rob Minkoff, the director of The Lion King, Rainbow Rangers is an animated
series about the adventures of seven magical girls from Kaleidoscopia, a fantastic land on the other side of the rainbow. The Rangers
serve as Earth’s guardians and first-responders. When there’s trouble for the people or animals of the Earth, the Rangers
ride a rainbow across the sky to save the day. Viacom’s Nick Jr. has licensed the series for broadcast in the US. Nick Jr.
ordered a second season of Rainbow Rangers and we have delivered 26 half hours. International broadcast agreements are currently
being negotiated in numerous territories.
Rainbow Rangers: We completed 26
half hour episodes in February of 2019 and the series premiered on Nick Jr. in November 2018. The series was created by Shane Morris,
the co-writer of Frozen, and Rob Minkoff, the director of The Lion King, Rainbow Rangers is an animated series
about the adventures of seven magical girls from Kaleidoscopia, a fantastic land on the other side of the rainbow. The Rangers
serve as Earth’s guardians and first-responders. When there’s trouble for the people or animals of the Earth, the Rangers
ride a rainbow across the sky to save the day.
Llama Llama: We completed production
of fifteen half-hour animated episodes in 2017 which premiered on Netflix in early 2018. Llama Llama’s creators include
Oscar-winning director Rob Minkoff (The Lion King), director Saul Blinkoff (Doc McStuffins), showrunner Joe Purdy,
art director Ruben Aquino (Frozen) and Emmy-winning producers Jane Startz and Andy Heyward. Based on the NY Times #1
best-selling children’s books of the same name, the animated series centers on young Llama Llama’s first steps in growing
up and facing childhood milestones. Each episode is structured around a childhood milestone and a life lesson learned by Llama
Llama and his friends, told with a sense of humor, vitality, and understanding.
Llama Llama Season 2: We completed
production of ten half-hour animated episodes in 2019 which were delivered to Netflix in September 2019. Back for Season 2 are Llama
Llama’s creators including Oscar-winning director Rob Minkoff (The Lion King), director Saul Blinkoff (Doc
McStuffins), showrunner Joe Purdy, art director Ruben Aquino (Frozen) and Emmy-winning producers Jane Startz and Andy
Heyward. Based on the NY Times #1 best-selling children’s books of the same name, the animated series centers
on young Llama Llama’s first steps in growing up and facing childhood milestones. Each episode is structured around a childhood
milestone and a life lesson learned by Llama Llama and his friends, told with a sense of humor, vitality, and understanding.
SpacePop: SpacePop is
a music and fashion driven animated property that has garnered over 17 million views and over 63,000 subscribers since its launch
in May 2016. With 108 three-minute webisodes produced, SpacePop had a best-in-class production team which included Steve
Banks (head writer and story editor of Sponge Bob Square Pants) as content writer; Han Lee (Pink Fizz, Bobby Jack)
for original character designs; multiple Grammy Award-winning producer and music veteran Ron Fair (Fergie, Mary J. Blige, Black
Eyed Peas, Pussycat Dolls, Christina Aguilera and more), singer-songwriter Stefanie Fair (founding member of RCA’s girl group
Wild Orchid with Fergie) for the original SpacePop theme music; and veteran music producer and composer John Loeffler (Kidz
Bop, Pokemon) for original songs. SpacePop products range from apparel and accessories, to beauty, cosmetics, candy, books
and music.
Thomas Edison’s Secret Lab: Thomas
Edison’s Secret Lab is a STEM-based comedy adventure series by Emmy-nominated writer Steve Banks (SpongeBob Square
Pants), multi-Emmy Award-winning writer Jeffrey Scott (Dragon Tales), and Emmy Award-winning producer Mark Young (All
Dogs Go To Heaven 2). The series includes 52 eleven-minute episodes as well as 52 ninety-second original music videos produced
by Grammy Award-winning producer Ron Fair. The animated series follows the adventures of Angie, a 12-year-old prodigy who, along
with her young science club, discovers Thomas Edison’s secret lab.
Warren Buffett’s Secret Millionaire’s
Club: With 26 thirty-minute episodes and 26 four-minute webisodes, this animated series features Warren Buffett who acts as
a mentor to a group of entrepreneurial kids who have international adventures that lead them to encounter neighborhood and community
problems to solve. Warren Buffett’s Secret Millionaire’s Club empowers kids by helping them learn about the
business of life and the importance of developing healthy life habits at an early age.
Licensed Content
In addition to the wholly owned or partially-owned
properties listed above, we represent Llama Llama in the licensing and merchandising space.
Kartoon Channel! Network
In June 2020, Genius Brands launched its
Kartoon Channel!, a digital family entertainment destination available across multiple advertiser supported video on demand (“AVOD”)
and over-the-top (“OTT”) platforms, including Comcast, Cox, DISH, Sling TV, Amazon Prime, Amazon Fire, Apple TV, Apple
iOs, Android TV, Android Mobile, Google Play, Xumo, Roku, Tubi, and streaming via KartoonChannel.com, as well as accessible via
Samsung Smart TVs and LG TVs.
Genius Brands International’s digital
network, Kartoon Channel!, which is available in over 100 million U.S. television households and over 300 million devices, is a
family entertainment destination that delivers enduring childhood moments of humor, adventure, and discovery. Delivering numerous
episodes of carefully curated free family-friendly content, the channel features animated classics for little kids, including “The
Wubbulous World of Dr. Seuss,” “Babar,” “Mello Dees,” “Super Simple Songs,” and “Baby
Genius,” and content for bigger kids, such as “Pac-Man,” “Angry Birds,” “Yu-Gi-Oh,” and
“Bakugan,” to original programming like “Stan Lee’s Superhero Kindergarten,” premiering in spring
2021 and starring Arnold Schwarzenegger, Kartoon Channel! also offers STEM-based content through its Kartoon Classroom!, including
“Baby Einstein,” “Lil Doc,” “Counting with Earl,” and more.
Distribution
Content
Today’s global marketplace and
the manner in which content is consumed has evolved to a point where we believe there is only one viable strategy, ubiquity.
Kids today expect to be able to watch what they want whenever they want and wherever they want. As such, content
creators now must offer direct access on multiple fronts. This includes not only linear broadcast in key territories around
the world but also across a multitude of digital platforms. We have strong relationships to and actively solicit placement
for our content via major linear broadcasters, as well as on the digital side with Netflix, Comcast’s Xfinity platform,
AppleTV, Roku, Samsung TV, Amazon Fire, Amazon Prime, Netflix, YouTube, Cox, Dish, Sling and Zumo and Connected TV. We
replicate this model of ubiquity around the world defining content distribution strategies by market that blends the best of
linear, VOD, and digital distribution.
Finally, we expanded our long-term strategic
partnership with Sony Pictures Home Entertainment from domestic to global in January 2017. On August 31, 2018, Sony Pictures Home
Entertainment assigned all of its rights and interest in our programs to Alliance Entertainment, LLC (“AEC”).
Consumer Products
A source of our revenue is our licensing
and merchandising activities from our underlying intellectual property content. We work directly in licensing properties to a variety
of manufacturers and occasionally to retailers. We currently have across all brands in excess of 50 licensees and hundreds of licensed
products either in development, in market or scheduled to enter the market. Products bearing our marks can be found in a wide variety
of retail distribution outlets reaching consumers in retailers such as Wal-Mart, Target, Barnes & Noble, Kohl’s, Amazon.com
and many more. License agreements that we enter into often include financial guarantees and commitments from the manufacturers
guaranteeing a minimum stream of revenue for us. As licensed merchandise is sold at retail, these advances and/or minimum guarantees
can earn out at which point we could earn additional revenue.
Marketing
Our marketing mission is to generate awareness
and consumer interest in our brands via a 360-degree approach to reach our audience through all touchpoints. Successful marketing
campaigns for our brands have not only included traditional marketing tactics but now include utilizing influencers (individuals
with a strong, existing social media presence who drive awareness of our brands to their followers), strategic social media marketing,
and cross-promotional consumer product campaigns. We also deploy digital and print advertising to support the brands, as well as
work with external media relations professionals to promote our efforts to both consumer and industry. We consistently initiate
grass roots marketing campaigns and strategic partnerships with brands that align and offer value to us. Our Kartoon Channel! platform,
which reaches over 100 million U.S. television households, provides reach for cross promotion of content and consumer products.
Competition
We compete against other creators of children’s
content including Disney, Nickelodeon, PBS Kids, and Sesame Street, as well as other small and large creators. In the saturated
children’s media space, we compete with these other creators for both content distribution across linear, VOD, and digital
platforms, as well as retail shelf space for our licensed products. To compete effectively, we are focused on our strategic positioning
of “content with a purpose,” which we believe is a point of differentiation embraced by the industry, as well as parents
and educators. Additionally, the Kartoon Channel! enables us to increase the awareness of our brands through an owned platform.
Customers and Licensees
For the year ended December 31, 2020, two
customers accounted for 44% of our revenue from the delivery of Rainbow Rangers Season 2 to Nick Jr. and MTV Networks Latin
America. For the year ended December 31, 2019 two customers accounted for 65% of our revenue from the delivery of Llama
Llama Season 2 to Netflix and the delivery of Rainbow Rangers Season 1 to Nick Jr. As of December 31,
2020, we had partnered with over 50 consumer products licensees. As of the same date, we licensed our content to over 50 broadcasters
in over 145 countries globally as well as a number of VOD and online platforms that have a global reach. This broad cross-section
of customers includes companies such as Comcast, Netflix, Sony, YouTube, Mattel, Target, Penguin Publishing, Manhattan Toys, Roku,
Apple TV, Amazon, Google, Bertelsmann Music Group, Discovery International, and others both domestically and internationally.
Government Regulation
The FCC requires broadcast networks to
air a required number of hours of Educational and Informational content (E/I). We are subject to online distribution regulations,
namely the FTC’s Children’s Online Privacy Protection Act (COPPA) which regulates the collection of information of
children younger than 13 years old.
We are currently subject to regulations
applicable to businesses generally, including numerous federal and state laws that impose disclosure and other requirements upon
the origination, servicing, enforcement and advertising of credit accounts, and limitations on the maximum amount of finance charges
that may be charged by a credit provider. Although credit to some of our customers is provided by third parties without recourse
to us based upon a customer’s failure to pay, any restrictive change in the regulation of credit, including the imposition
of, or changes in, interest rate ceilings, could adversely affect the cost or availability of credit to our customers and, consequently,
our results of operations or financial condition.
Licensed toy products are subject to regulation
under the Consumer Product Safety Act and regulations issued thereunder. These laws authorize the Consumer Product Safety Commission
(the “CPSC”) to protect the public from products which present a substantial risk of injury. The CPSC can require the
manufacturer of defective products to repurchase or recall such products. The CPSC may also impose fines or penalties on manufacturers
or retailers. Similar laws exist in some states and other countries in which we plan to market our products. Although we do not
manufacture and may not directly distribute toy products, a recall of any of the products may adversely affect our business, financial
condition, results of operations and prospects.
We also maintain websites which include
our corporate website located at www.gnusbrands.com, as well as www.spacepopgirls.com, www.kidgeniustv.com, www.babygenius.com,
www.smckids.com, www.slam7.com, www.edisonsecretlab.com and www.rainbowrangers.com. These websites are subject to laws and regulations
directly applicable to Internet communications and commerce, which is a currently developing area of the law. The United States
has enacted Internet laws related to children’s privacy, copyrights and taxation. However, laws governing the Internet remain
largely unsettled. The growth of the market for Internet commerce may result in more stringent consumer protection laws, both in
the United States and abroad, that place additional burdens on companies conducting business over the Internet. We cannot predict
with certainty what impact such laws will have on our business in the future. In order to comply with new or existing
laws regulating Internet commerce, we may need to modify the manner in which we conduct our website business, which may result
in additional expense.
Because our products are manufactured by
third parties and licensees, we are not significantly impacted by federal, state and local environmental laws and do not have significant
costs associated with compliance with such laws and regulations.
Human Capital
Our continued success depends on management
implementing effective human resource initiatives in order to recruit, develop and retain key employees. As of December 31, 2020,
we had 27 full-time equivalent employees and one contracted part-time employee. We employ on an outsourced, as-needed basis, contractors
in the fields of investor relations, public relations, accounting, legal, and production. We strive to foster an innovative and
team-oriented culture and view our human capital resources and initiatives as an ongoing priority. Further in 2020, we appointed
one of our employees as our first “Director of Diversity.” That individual works to both insure that diverse candidates
are considered for open positions and works to make sure our content offerings represent characters of diverse backgrounds and
are free from bias.
Intellectual Property
As of December 31, 2020, we own the following
properties and related trademarks: “SpacePop”, Secret Millionaires Club, Thomas Edison’s Secret
Lab, “Baby Genius”, “Kid Genius”, “Wee Worship”, and “Kaflooey”,
as well as several other names and trademarks on characters that had been developed for our content and brands. Additionally, we
have the United States trademark and various international trademarks applications pending for Rainbow Rangers, Kartoon
Channel, Kartoon Channel Jr., KC! Pop Quiz, Little Genius, Little Genius Jukebox.
As of December 31, 2020, we
hold thirteen (13) registered trademarks in multiple classes in the United States associated with our brands. We also have a number
of registered and pending trademarks in Europe, Australia, China, Japan and Mexico and other countries in which our products are
sold.
As of December 31, 2020, we also
held 146 motion pictures, 13 sound recordings, and two literary work copyrights related to our video, music and written work products.
We have 50/50 ownership agreements with
the following partners and their related brands: Martha Stewart’s Martha & Friends; and Gisele Bündchen’s
Gisele & the Green Team.
In addition to the wholly-owned or
partially-owned properties listed above, we represent Llama Llama in the licensing and merchandising space.
Company Information
We were incorporated in California on January
3, 2006 and reincorporated in Nevada in October 2011. We commenced operations in January 2006, assuming all of the rights and obligations
of our then Chief Executive Officer, under an Asset Purchase Agreement between us and Genius Products, Inc., in which we obtained
all rights, copyrights, and trademarks to the brands “Baby Genius,” “Kid Genius,” “123 Favorite Music”
and “Wee Worship,” and all then existing productions under those titles. In October 2011, we (i) changed our domicile
to Nevada from California, and (ii) changed our name to Genius Brands International, Inc. from Pacific Entertainment Corporation
(the “Reincorporation”). In connection with the Reincorporation, we changed our trading symbol from “PENT”
to “GNUS.”
Our principal executive offices are located
at 190 N Canon Drive, 4th Floor, Beverly Hills, California 90210. Our telephone number is 310-273-4222. We maintain
an Internet website at www.gnusbrands.com. The information contained on, connected to or that can be accessed via our website
is not part of this prospectus.
Item 1A. Risk Factors.
The following
discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement
in this Form 10-K or elsewhere. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
related notes beginning on Page F-1 of this Form 10-K.
You should consider
carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form
10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the
only ones we face. Our business, financial condition and operating results can be affected by a number of factors, whether currently
known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly
cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations
and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial
condition, results of operations and stock price.
Because of the
following factors, as well as other factors affecting our financial condition and operating results, past financial performance
should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
RISKS RELATING TO OUR BUSINESS
Our business has been and may continue to be adversely affected
by the COVID-19 pandemic.
With respect to the ongoing and evolving coronavirus
(“COVID-19”) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, COVID-19 has
caused substantial disruption in international and U.S. economies and markets. COVID-19 has had an adverse impact on the entertainment
industry and, if repercussions of COVID-19 are prolonged, could have a significant adverse impact on our business, which could be material.
The majority of our employees have been working remotely from home, with only a few individuals monitoring the office as needed. We have
not experienced any disruption in our supply chain, nor have we experienced any negative impact from our animation production partners.
With regard to content distribution, we have observed demand increases for streaming entertainment services in 2020. In terms of our consumer
products business, we are starting to see some negative impact from COVID-19 as consumer activity decelerates in the U.S. and across the
world. Global supply chain issues had a negative impact on the timing of certain toy releases. If the COVID-19 outbreak is prolonged,
we will see a negative impact on our revenues.
Our management cannot at this point estimate
the impact of COVID-19 on our business and no provision for COVID-19 is reflected in the accompanying financial statements. We
will continue to actively monitor the situation and may take further actions that alter our business operations as may be required
by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners
and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including
the effects on our customers, suppliers or vendors, or on our financial results.
We have incurred net losses since inception.
We have a history of operating losses and
incurred net losses in each fiscal quarter since our inception. For the year ended December 31, 2020, we generated net revenues
of $2,482,127 and incurred a net loss of $401,669,805, while for the previous year, we generated net revenue of $5,907,899 and
incurred a net loss of $11,481,245. These losses, among other things, have had an adverse effect on our results of operations,
financial condition, stockholders’ equity, net current assets and working capital.
We will need to generate additional revenue
and/or reduce costs to achieve profitability. We are beginning to generate revenues derived from our existing properties, properties
in production, and new brands being introduced into the marketplace. However, the ability to sustain these revenues and generate
significant additional revenues or achieve profitability will depend upon numerous factors some of which are outside of our control.
If we are not able to obtain sufficient
capital, we may not be able to continue our growth.
We expect that as our business continues
to evolve and grow, we will need additional working capital. If adequate additional debt and/or equity financing is not available
on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans
accordingly. These factors could have a material adverse effect on our future operating results and our financial condition.
Our revenues and results of operations
may fluctuate from period to period.
Cash flow and projections for any entertainment
company producing original content can be expected to fluctuate until the animated content and ancillary consumer products are
in the market and could fluctuate thereafter even when the content and products are in the marketplace. There is significant lead
time in developing and producing animated content before that content is in the marketplace. Unanticipated delays in entertainment
production can delay the release of the content into the marketplace. Structured retail windows that dictate when new products
can be introduced at retail are also out of our control. While we believe that we have mitigated this in part by creating a slate
of properties at various stages of development or production as well as representing certain established brands which contribute
immediately to cash flow, any delays in the production and release of our content and products or any changes in the preferences
of our customers could result in lower than anticipated cash flows.
As with our cash flows, our revenues and
results of operations depend significantly upon the appeal of our content to our customers, the timing of releases of our products
and the commercial success of our products, none of which can be predicted with certainty. Accordingly, our revenues and results
of operations may fluctuate from period to period. The results of one period may not be indicative of the results of any future
period. Any quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors.
This could cause the price of our common stock to fluctuate.
Production cost will be amortized according
to the individual film forecasting methodology. If estimated remaining revenue is not sufficient to recover the unamortized production
costs, the unamortized production costs will be written down to fair value. In any given quarter, if we lower our previous forecast
with respect to total anticipated revenue, we would be required to adjust amortization of related production costs. These adjustments
would adversely impact our business, operating results and financial condition.
Changes in the United States, global
or regional economic conditions could adversely affect the profitability of our business.
A decrease in economic activity in the
United States or in other regions of the world in which we do business could adversely affect demand for our products, thus reducing
our revenue and earnings. A decline in economic conditions could reduce demand for and sales of our products. In addition, an increase
in price levels generally, or in price levels in a particular sector, could result in a shift in consumer demand away from the
animated content and consumer products we offer, which could also decrease our revenues, increase our costs, or both.
Inaccurately anticipating changes and
trends in popular culture, media and movies, fashion, or technology can negatively affect our sales.
While trends in the toddler to tween sector
change quickly, we respond to trends and developments by modifying, refreshing, extending, and expanding our product offerings
on an on-going basis. However, we operate in extremely competitive industries where the ultimate appeal and popularity of content
and products targeted to this sector can be difficult to predict. We believe our focus on “content with a purpose”
serves an underrepresented area of the toddler to tween market; however, if the interest of our audience trends away from our current
properties toward other offerings based on current media, movies, animated content or characters, and if we fail to accurately
anticipate trends in popular culture, movies, media, fashion, or technology, our products may not be accepted by children, parents,
or families and our revenues, profitability, and results of operations may be adversely affected.
We face competition from a variety of
retailers that sell similar merchandise and have better resources than we do.
The industries
in which we operate are competitive, and our results of operations are sensitive to, and may be adversely affected by, competitive
pricing, promotional pressures, additional competitor offerings and other factors, many of which are beyond our control. Indirectly
through our licensing arrangements, we compete for retailers as well as other outlets for the sale and promotion of our licensed
merchandise. Our primary competition comes from competitors such as The Walt Disney Company, Nickelodeon Studios, and the Cartoon
Network.
We have sought a competitive advantage
by providing “content with a purpose” which are both entertaining and enriching for children and offer differentiated
value that parents seek in making purchasing decisions for their children. While we do not believe that this value proposition
is specifically offered by our competitors, our competitors have greater financial resources and more developed marketing channels
than we do which could impact our ability, through our licensees, to secure shelf space thereby decreasing our revenues or affecting
our profitability and results of operations.
The production of our animated content
is accomplished through third-party production and animation studios around the world, and any failure of these third-parties could
negatively impact our business.
As part of our business model to manage
cash flows, we have partnered with a number of third-party production and animation studios around the world for the production
of our new content in which these partners fund the production of the content in exchange for a portion of revenues generated in
certain territories. We are reliant on our partners to produce and deliver the content on a timely basis meeting the predetermined
specifications for that product. The delivery of inferior content could result in additional expenditures by us to correct any
problems to ensure marketability. Further, delays in the delivery of the finished content to us could result in our failure to
deliver the product to broadcasters to which it has been pre-licensed. While we believe we have mitigated this risk by aligning
the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or
delays from our production partners could negatively affect our profitability.
We cannot assure you that our original
programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled
or removed from our distributors’ platforms.
Our business depends on the appeal of our
content to distributors and viewers, which is difficult to predict. Our business depends in part upon viewer preferences and audience
acceptance of our original programming content. These factors are difficult to predict and are subject to influences beyond our
control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment
activities. We may not be able to anticipate and react effectively to shifts in tastes and interests in markets. A change in viewer
preferences could cause our original programming content to decline in popularity, which could jeopardize renewal of agreements
with distributors. Low ratings or viewership for programming content produced by us may lead to the cancellation, removal
or non-renewal of a program and can negatively affect future license fees for such program. If our original programming content
does not gain the level of audience acceptance we expect, or if we are unable to maintain the popularity of our original programming,
we may have a diminished negotiating position when dealing with distributors, which could reduce our revenue. We cannot assure
you that we will be able to maintain the success of any of our current original programming content or generate sufficient demand
and market acceptance for new original programming content in the future. This could materially adversely impact our business,
financial condition, operating results, liquidity and prospects.
We may be required to pay significant penalties if we are
not able to meet our obligations under our outstanding registration rights agreements.
We have entered into registration rights
agreements in connection with certain of our securities offerings. We may be obligated to pay liquidated damages if we do not meet
our obligations under those agreements.
If we are required to pay significant amounts,
such as the liquidated damages described above, under these or future registration rights agreements, it could have a material
adverse effect on our financial condition and ability to finance our operations.
Failure to successfully market or advertise
our products could have an adverse effect on our business, financial condition and results of operations.
Our products are marketed worldwide through
a diverse spectrum of advertising and promotional programs. Our ability to sell products is dependent in part upon the success
of these programs. If we or our licensees do not successfully market our products or if media or other advertising or promotional
costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations.
The failure of others to promote our
products may adversely affect our business.
The availability of retailer programs relating
to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs,
are important with respect to promoting our properties. In addition, although we may have agreements for the advertising and promotion
of our products through our licensees, we will not be in direct control of those marketing efforts and those efforts may not be
done in a manner that will maximize sales of our products and may have a material adverse effect on our business and operations.
We may not be able to keep pace with
technological advances.
The entertainment industry in general,
and the music and motion picture industries in particular, continue to undergo significant changes, primarily due to technological
developments. Because of the rapid growth of technology, shifting consumer tastes and the popularity and availability of other
forms of entertainment, it is impossible to predict the overall effect these factors could have on potential revenue from, and
profitability of, distributing entertainment programming. As it is also impossible to predict the overall effect these factors
could have on our ability to compete effectively in a changing market, if we are not able to keep pace with these technological
advances, our revenues, profitability and results from operations may be materially adversely affected.
Failure in our information technology
and storage systems could significantly disrupt the operation of our business.
Our ability to execute our business plan
and maintain operations depends on the continued and uninterrupted performance of our information technology (“IT”)
systems. IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures,
malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our and our vendors’
servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive
problems. These events could lead to the unauthorized access, disclosure and use of non-public information. The techniques used
by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and
remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative
measures. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, and
we could lose trade secrets, the occurrence of which could harm our business. Despite precautionary measures to prevent unanticipated
problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain
data could adversely affect our ability to operate our business.
Our internal computer systems, or those
of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material
disruption and cause our business and reputation to suffer.
In the ordinary course of business, our
internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
While we do not believe that we have experienced any such material system failure, accident or security breach to date, if such
an event were to occur and cause interruptions in our operations, it could adversely affect our business operations, whether due
to a loss of our trade secrets or other proprietary information or other similar disruptions. Any such access, disclosure or other
loss of such information could result in legal claims or proceedings and damage our reputation.
Loss of key personnel may adversely affect our business.
Our success greatly depends on the performance
of our executive management team, including Andy Heyward, our Chief Executive Officer. The loss of the services of any member of
our core executive management team or other key persons could have a material adverse effect on our business, results of operations
and financial condition.
Our management team currently owns a
substantial interest in our voting stock.
As of March 30, 2021, our management team
and board of directors (“Board of Directors”) beneficially own or control (including conversions, options or warrants
exercisable or convertible within 60 days) a combined 20,656,535 shares or 6.74%, of our shares currently outstanding (including
conversions, options or warrants exercisable or convertible within 60 days). Sales of significant amounts of shares held by our
directors and executive officers, or the prospect of these sales, could adversely affect the market price of our common stock.
Additionally, management has the ability to control any proposals submitted to shareholders, including corporate actions and board
changes which may not be in accordance with the votes of other shareholders.
Litigation may harm our business or
otherwise distract management.
Substantial, complex or extended litigation
could cause us to incur large expenditures and could distract management. For example, lawsuits by licensors, consumers, employees
or stockholders could be very costly and disrupt business. We recently had a securities class action and derivative shareholder
action filed against us. While disputes from time to time are not uncommon, we may not be able to resolve such disputes on terms
favorable to us.
Our vendors and licensees may be subject
to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased
costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations.
Our vendors and licensees may operate in
a highly regulated environment in the US and international markets. Federal, state and local governmental entities and foreign
governments may regulate aspects of their businesses, including the production or distribution of our content or products. These
regulations may include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax
laws and revised tax law interpretations), product safety and other safety standards, trade restrictions, regulations regarding
financial matters, environmental regulations, advertising directed toward children, product content, and other administrative and
regulatory restrictions. While we believe our vendors and licensees take all the steps necessary to comply with these laws and
regulations, there can be no assurance that they are compliant or will be in compliance in the future. Failure to comply could
result in monetary liabilities and other sanctions which could increase our costs or decrease our revenue resulting in a negative
impact on our business, financial condition and results of operations.
Protecting and defending against intellectual
property claims may have a material adverse effect on our business.
Our ability to compete in the animated
content and entertainment industry depends, in part, upon successful protection of our proprietary and intellectual property. We
protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements
with reputable companies in specific territories and media for limited durations. Despite these precautions, existing copyright
and trademark laws afford only limited, or no, practical protection in some jurisdictions. It may be possible for unauthorized
third parties to copy and distribute our productions or portions of our productions. In addition, although we own most of the music
and intellectual property included in our products, there are some titles which the music or other elements are in the public domain
and for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights. It is an
inherent risk in our industry that people may make such claims with respect to any title already included in our products, whether
or not such claims can be substantiated. If litigation is necessary in the future to enforce our intellectual property rights,
to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims
of infringement or invalidity. Any such litigation could result in substantial costs and the resulting diversion of resources could
have an adverse effect on our business, operating results or financial condition.
RISKS RELATING TO OUR COMMON STOCK
Our stock price may be subject to substantial
volatility, and stockholders may lose all or a substantial part of their investment.
Our common stock
currently trades on the Nasdaq Capital Market. There is limited public float, and trading volume historically has been low and
sporadic. As a result, the market price for our common stock may not necessarily be a reliable indicator of our fair market value.
The price at which our common stock trades may fluctuate as a result of a number of factors, including the number of shares available
for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new releases by us
or competitors, the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions
in our industry and the economy as a whole.
Our failure
to meet the continued listing requirements of Nasdaq Capital Market could result in a delisting of our Common Stock.
On September 4, 2019, we received a notification
letter from The Nasdaq Stock Market (“Nasdaq”) informing us that for the last 30 consecutive business days, the bid
price of our Common Stock had closed below $1.00 per share, which is the minimum required closing bid price for continued listing
on The Nasdaq Capital Market pursuant to Listing Rule 5550(a)(2) (the “Rule”).
This notice had no immediate effect on
our Nasdaq listing or trading of its Common Stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days,
or until March 2, 2020, to regain compliance. To regain compliance, the closing bid price of our Common Stock must have been at
least $1.00 per share for a minimum of ten consecutive business days. If we did not regain compliance by March 2, 2020, we
were potentially eligible for additional time to regain compliance or if we were otherwise not eligible, we were able to request
a hearing before a Nasdaq Hearings Panel (“Panel”).
On March 3, 2020, we received notification
from Nasdaq that we were granted an additional 180-day compliance period, or until August 31, 2020, to regain compliance with the
minimum $1.00 bid price per share requirement of the Rule. Nasdaq’s determination to grant the additional 180-day compliance
period was based on our meeting the continued listing requirement for the market value of publicly held shares and all other applicable
requirements for initial listing on the Nasdaq Capital Market with the exception of the bid price requirement, and our provision
of written notice of our intention to cure the deficiency during the second compliance period, including effecting a reverse stock
split if necessary.
On May 28, 2020, we received notification
from Nasdaq that the closing bid of our Common Stock had been trading at $1.00 per share or greater for the required ten-day period.
Accordingly, the Company had regained compliance with Listing Rule 5550(a)(2) and the matter was closed.
This current notification from Nasdaq has
no immediate effect on the listing or trading of our Common Stock, which will continue to trade on the Nasdaq Capital Market under
the symbol “GNUS”.
If we fail to
satisfy the continued listing requirements of Nasdaq Capital Market, such as minimum financial and other continued listing requirements
and standards, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance
requirements, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price
of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of
a delisting, we would expect to take actions to restore our compliance with Nasdaq's listing requirements, but we can provide no
assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve
the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement, or prevent
future non-compliance with Nasdaq's listing requirements.
If our Common Stock becomes subject
to the penny stock rules, it may be more difficult to sell our Common Stock.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price
of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of our Common Stock
is less than $5.00 and our Common Stock is no longer listed on a national securities exchange such as Nasdaq, our stock may be
deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified
information and to obtain from the customer a signed and date acknowledgment of receipt of that document. In addition, the penny
stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the
purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions
involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements
may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may
have difficulty selling their shares.
If we fail to maintain effective internal controls over financial
reporting, the price of our common stock may be adversely affected.
Our internal control over financial reporting
may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact
on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting.
Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures
regarding our business, prospects, financial condition or results of operations.
Rules adopted by the SEC pursuant to Section
404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers
an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met
for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant
documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote
resources to Section 404 compliance on an ongoing basis. In addition, we are not subject to auditor attestation of internal controls
which may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters
that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control
over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an
adverse impact on the price of our common stock.
We are authorized
to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders
of our common stock.
Our Articles of Incorporation authorize
us to issue up to 10,000,000 shares of blank check preferred stock. Any additional preferred stock that we issue in the future
may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than
our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of
common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price,
if any, of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of our company. Although we have no present intention to issue any additional shares
of authorized preferred stock, there can be no assurance that we will not do so in the future.
We do not expect
to pay dividends in the future and any return on investment may be limited to the value of our common stock.
We do not currently anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition
and other business and economic factors affecting it at such time as our Board of Directors may consider relevant. Our current
intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing
efforts. There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our
common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. If
we do not pay dividends, our common stock may be less valuable because the return on investment will only occur if its stock price
appreciates.
Offers or availability for sale of a
substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts
of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued upon
the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang”
and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales
have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity
or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
In general, under Rule 144, a non-affiliated
person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares,
subject to us being current in our periodic reports filed with the Commission.
As of March 30, 2021, approximately 282,712,035
shares of common stock of the 300,321,658 shares of common stock issued and outstanding are free trading. Additionally, as of March 30,
2021, there are no shares of common stock underlying the Series A Convertible Preferred Stock that could be sold pursuant to Rule 144.
As of the same date, there are 5,406,465 shares of common stock underlying outstanding warrants that could be sold pursuant to Rule 144
to the extent permitted by any applicable vesting requirements as well as 40,105,500 shares of common stock underlying registered warrants.
Lastly, as of March 29, 2021, there are 9,731,176 shares of common stock underlying outstanding options granted, 9,128,796 shares of
common stock underlying outstanding restricted stock units (“RSUs”) and 13,307,695 shares reserved for issuance under our
Genius Brands International, Inc. Amended 2020 Incentive Plan, all of which are unregistered but will become eligible for sale in the
public market to the extent permitted by any applicable vesting requirements and Rule 144 under the Securities Act of 1933, as amended
(the “Securities Act”).
Concentration of ownership among our
existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions
and depress our stock price.
Based on the number of shares outstanding
as of March 30, 2021, our officers, directors and stockholders who hold at least 5% of our stock beneficially own a combined total
of approximately 6.74% of our outstanding common stock, including shares of common stock subject to preferred shares, stock options,
and warrants that are currently convertible or exercisable or will be convertible or exercisable within 60 days after March 30,
2021. If these officers, directors, and principal stockholders or a group of our principal stockholders act together, they will
be able to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval,
including the election of directors and approval of mergers, business combinations or other significant transactions. The interests
of one or more of these stockholders may not always coincide with our interests or the interests of other stockholders. For instance,
officers, directors, and principal stockholders, acting together, could cause us to enter into transactions or agreements that
we would not otherwise consider. Similarly, this concentration of ownership may have the effect of delaying or preventing a change
in control of our company otherwise favored by our other stockholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
On February 6, 2018, we entered into a
lease for 6,969 square feet of general office space at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA 90212 pursuant to a
91-month lease that commenced on May 25, 2018. We paid rent of $364,130 annually, subject to annual escalations of 3.5%.
Effective January 21, 2019, we entered
into a sublease for the 6,969 square feet of general office space located at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA
90212 pursuant to an 83-month sublease that commenced on February 4, 2019. The subtenant paid us rent of $422,321 annually, subject
to annual escalations of 3.5%.
On September 11, 2020, the Company entered
into a Surrender Agreement with the landlord, for the space at 131 South Rodeo Drive, which terminated the lease agreement. As
a result, the Company recorded decreases in the Right Of Use asset, accumulated amortization, and the lease liability of $2,142,863,
$465,124 and $1,760,302 respectively. The termination of the lease resulted in a loss of $338,856. Simultaneously, as part of the
Surrender Agreement the Sublease was terminated.
On December 28, 2018, we entered into a
lease for 5,765 square feet of general office space at 8383 Wilshire Blvd., Suite 412, Beverly Hills, CA 90211 pursuant to a 6-month
lease that commenced January 28, 2019. We paid rent of $24,501 monthly.
On January 30, 2019, we entered into a
lease for 5,838 square feet of general office space at 190 Cannon Drive, Suite 400, Beverly Hills, CA 90210 pursuant to a 96-month
lease that commenced on September 1, 2019. We pay rent of $392,316 annually, subject to annual escalations of 3.5%.
Item 3. Legal Proceedings.
As of December 31, 2020, there were no
material pending legal proceedings to which we are a party or as to which any of its property is subject other than described below.
As previously disclosed, on August 18, 2020, the Company and its Chief Executive Officer
Andy Heyward were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Central District of
California and styled Salvador Verdin v. Genius Brands International, Inc. and Andy Heyward, Case No. 2:20-cv-07457-DDP-PJW. We were
later served with a similar lawsuit Sumit Garg v. Genius Brands International, Inc. and Andy Heyward, Case No. 2:20-cv-07764. Both suits
allege generally that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false
or misleading statement regarding the Company’s business and business prospects, artificially inflating the Company’s stock
price. Plaintiff seeks unspecified damages on behalf of the alleged class. The two above-referenced securities suits have been consolidated
into a single proceeding before Judge Fischer in the U.S. District Court for the Central District of California. The proceeding will
now be known as In re Genius Brands International, Inc. Securities Litigation. The amended complaint in this action was filed on February
1, 2021. On March 17, 2021, the defendants filed a motion to dismiss the amended complaint. Briefing that motion is, by court-ordered
schedule, expected to extend into June 2021, with a hearing currently scheduled for July 5, 2021. Pending resolution of the motion to
dismiss, neither discovery nor other substantive proceedings are expected.
Related to the securities class action,
the Company’s directors, Chief Executive Officer and Chief Financial Officer have been named as defendants in a putative
shareholder derivative lawsuit filed in September 2020 in the U.S. District Court for the Central District of California and styled
Eduardo Correa, etc., v. Andy Heyward, et. al., Case No. 2:20-cv-08277-DSF (RAOx). On November 20, 2020 a second case, Son
Ly, on behalf of Genius Brands International, Inc. v. Andy Heyward; 11/20/2020 CNS Temporary No. E167721482, was filed in
a different court – specifically the Los Angeles County Superior Court. The suits make similar allegations, generally stating
that the defendants breached fiduciary duties owed to the Company by, among other things, causing the Company to issue the supposedly
false and misleading statements that underlie the Verdin securities litigation and thereby purportedly exposing the Company
to liability and damaging the Company in an unspecified amount. No recovery is sought from the Company. Instead, as a shareholder
derivative action, the Company is named as Nominal Defendant; and plaintiff, an alleged stockholder of the Company, purports to
sue on behalf and for the benefit of the Company. Pursuant to an agreement among the parties, the court has stayed proceedings
in the derivative litigations pending the outcome of anticipated motions to dismiss in the securities class action.
In all of the above-mentioned proceedings,
defendants have denied and continue to deny any wrongdoing and intend to defend the claims vigorously.
On July 7, 2020, we received a letter from a law firm alleging
that rights Genius Brands had licensed from POW!, LLC, through its the Stan Lee Universe, LLC joint venture, had already been sold
to another company, represented by that law firm. The law firm alleged that the Company is, inter alia, interfering with their
contractual rights. This matter was referred to our outside litigation counsel. We have been informed that the matter is being
adjudicated in an arbitration and that the arbitrator issued a gag order preventing further communications from Plaintiff to 3rd
parties.
As a result of COVID 19, the majority of
our employees started working remotely and we stopped paying rent in April of 2020. On November 30, 2020, the landlord filed a
lawsuit demanding that the Company pay all past due rent. On February 18, 2021 we entered into a settlement agreement with the
landlord whereby we agreed to pay $237,500 in full settlement of all claims and promised to resume paying the contractually agreed
rent in full starting March 1, 2021.
Item 4. Mine Safety Disclosures.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors,
Executive Officers, Promoters and Control Persons
The following
table sets forth information about our directors and executive officers as of March 30, 2021:
Name
|
|
Age
|
|
|
Position
|
Andy Heyward
|
|
72
|
|
|
Chief Executive Officer and Chairman of the Board of Directors
|
Robert L. Denton
|
|
61
|
|
|
Chief Financial Officer
|
Michael A. Jaffa
|
|
55
|
|
|
Chief Operating Officer and Corporate Secretary
|
Joseph “Gray” Davis *
|
|
78
|
|
|
Director
|
P. Clark Hallren *
|
|
59
|
|
|
Director
|
Michael Klein *
|
|
73
|
|
|
Director
|
Margaret Loesch
|
|
74
|
|
|
Director
|
Lynne Segall*
|
|
68
|
|
|
Director
|
Anthony Thomopoulos *
|
|
83
|
|
|
Director
|
Karen McTier *
|
|
61
|
|
|
Director
|
_______
* Denotes directors who are “independent”
under applicable SEC and Nasdaq rules.
Our directors hold office until the
earlier of their death, resignation or removal or until their successors have been elected and qualified.
Our Board of Directors has reviewed the
materiality of any relationship that each of our directors has with the Company, either directly or indirectly. Based upon this
review, our Board of Directors has determined that the following members of the Board of Directors are “independent
directors” as defined by the Nasdaq Marketplace Rules: Joseph “Gray” Davis, P. Clark Hallren, Michael Klein, Lynne
Segall, and Karen McTier and Anthony Thomopoulos.
Andy Heyward, 72, has been the
Company’s Chief Executive Officer since November 2013 and the Company’s Chairman of the Board since December 2013. Mr.
Heyward co-founded DIC Animation City in 1983 and served as its Chief Executive Officer until its sale in 1993 to Capital Cities/
ABC, Inc. which was eventually bought by The Walt Disney Company in 1995. Mr. Heyward ran the company while it was owned by The Walt
Disney Company until 2000 when Mr. Heyward purchased DIC Entertainment L.P. and DIC Productions L.P, corporate successors to the DIC
Animation City business, with the assistance of Bain Capital and served as the Chairman and Chief Executive Officer of their
acquiring company DIC Entertainment Corporation, until he took the company public on the AIM. He sold the company in 2008. Mr.
Heyward co-founded A Squared Entertainment LLC in 2009 and has served as its Co-President since inception. Mr. Heyward earned a
Bachelor of Arts degree in Philosophy from UCLA and is a member of the Producers Guild of America, the National Academy of
Television Arts and the Paley Center (formerly the Museum of Television and Radio). Mr. Heyward gave the Commencement address in
2011 for the UCLA College of Humanities and was awarded the 2002 UCLA Alumni Association’s Professional Achievement Award. He
has received multiple Emmys and other awards for Children’s Entertainment. He serves on the Board of Directors of the
Cedars Sinai Medical Center. Mr. Heyward has produced over 5,000 half hour episodes of award winning entertainment, among
them Inspector Gadget; The Real Ghostbusters; Strawberry Shortcake; Care Bears; Alvin
and the Chipmunks; Hello Kitty’s Furry Tale Theater; The Super Mario Brothers Super Show; The Adventures of Sonic the
Hedgehog; Sabrina The Animated Series; Captain Planet and the Planeteers; Liberty’s Kids, and
many others. Mr. Heyward was chosen as a director because of his extensive experience in children’s entertainment and as
co-founder of A Squared Entertainment.
Robert Denton, 61, has been
our Chief Financial Officer since April 18, 2018. He served as the Chief Financial Officer of Atlys, Inc. a next-gen media technology
company from 2011 to 2018. He has over 30 years of experience as a financial executive, specifically in the entertainment industry.
He began his career in 1982 with Ernst & Young handling filings with the Securities and Exchange Commission, including initial
public offerings. He left Ernst & Young in 1990 to work as Vice President and Chief Accounting Officer for LIVE Entertainment,
Inc. In 1996, LIVE was acquired by Artisan Entertainment, Inc., and, in December 2000, Mr. Denton was promoted to Executive Vice
President of Finance and CAO. Mr. Denton also served as the COO of Artisan Home Entertainment, where he directed all financial
reporting, budgeting and forecasting, manufacturing and distribution of the Home Entertainment Division. Mr. Denton left Artisan
at the end of 2003 and joined DIC Entertainment Corporation to serve as their Chief Financial Officer. At DIC, he directed the
three-year financial audit, due diligence and preparation of the company’s Admission Documents, and he was responsible for
all monthly financial reporting to the Board of Directors as well as the semi-annual reporting to the AIM Exchange of the London
Stock Exchange. Mr. Denton left DIC in February 2009 after completing the acquisition and transition of DIC to the Cookie Jar Company.
Mr. Denton served as the Chief Financial Officer of Gold Circle Films from 2009 to 2011. From 2009 to 2014, Mr. Denton also owned
and operated three Assisted Living Facilities for the Elderly, to help better care for his mother. Mr. Denton is a Certified Public
Accountant and a member of the American Institute of Certified Public Accountants and the California Society of Certified Public
Accountants.
Michael Jaffa, 55,
has been the General Counsel and Corporate Secretary of the Company since April 2018. From January 2017 through April 2018, Mike
served as Thoughtful Media Group’s (TMG) General Counsel and Global Head of Business Affairs. TMG is a multichannel network
focused on Asian markets. At TMG, Mr. Jaffa oversaw all of TMG’s legal matters, established the framework for TMG’s
continued growth in international markets, including a franchise plan, the formation of a regional headquarters in South East Asia
and assisted with M&A transactions. From September 2013 through December 2016, Mr. Jaffa worked as the Head of Business
Affairs for DreamWorks Animation Television, and before that served in a similar role at Hasbro Studios from December 2009 through
September 2013. Mr. Jaffa has over 20 years of experience handling licensing, production, merchandising, complex international
transactions and employment issues for large and small entertainment companies and technology startups.
Joseph “Gray” Davis,
77, has been a Director of the Company since December 2013. Mr. Davis served as the 37th governor of California
from 1998 until 2003. Mr. Davis currently serves as “Of Counsel” in the Los Angeles, California office of Loeb &
Loeb LLP. Mr. Davis has served on the Board of Directors of DIC Entertainment and is a member of the bi-partisan Think Long Committee,
a Senior Fellow at the UCLA School of Public Affairs and Co-Chair of the Southern California Leadership Counsel. Mr. Davis received
his undergraduate degree from Stanford University and received his Juris Doctorate from Columbia Law School. Mr. Davis served as
lieutenant governor of California from 1995-1998, California State Controller from 1987-1995 and California State Assemblyman from
1982-1986. Mr. Davis was chosen as a director of the Company based on his knowledge of corporate governance.
P. Clark Hallren, 58, has
been a Director of the Company since May 2014. Since August 2013, Mr. Hallren has been a realtor with HK Lane/Christie’s
International Real Estate and since August 2012, Mr. Hallren has served as an outside consultant to individuals and entities investing
or operating in the entertainment industry. From August 2012 to August 2014, Mr. Hallren was a realtor with Keller Williams Realty
and from August 2009 to August 2012, Mr. Hallren founded and served as managing partner of Clear Scope Partners, an entertainment
advisory company. From 1986 to August 2009, Mr. Hallren was employed by JP Morgan Securities Inc. in various capacities, including
as Managing Director of the Entertainment Industries Group. In his roles with JP Morgan Securities, Mr. Hallren was responsible
for marketing certain products to his clients, including but not limited to, syndicated senior debt, public and private subordinated
debt, public and private equity, securitized and credit enhanced debt, interest rate derivatives, foreign currency and treasury
products. Mr. Hallren holds Finance, Accounting and Economics degrees from Oklahoma State University. He also currently holds Series
7, 24 and 63 securities licenses. Mr. Hallren was chosen as a director of the Company based on his knowledge and experience in
the entertainment industry as well as in banking and finance.
Michael Klein, 72, was
appointed as a Director of the Company since March 7, 2019. Mr. Klein is an accomplished executive, entrepreneur, and financier
with substantial experience in media and entertainment, investment banking, professional sports, venture capital funding, and real
estate. Prior to starting Camden Capital Management, LLC (CCM), Mr. Klein, since 1996, has led Klein Investment Group after assuming
100% ownership of (and renaming) Iacocca Capital Partners, L.P., where he was Managing Partner from 1994 to 1996. From 1984 to
1993, Mr. Klein was a managing director at Bear Stearns & Company, where he founded and co-directed the Media-Entertainment
Group, and Gruntal & Company, where he was Senior Managing Director and a member of the Executive Committee. From 1974 to 1982,
Mr. Klein supplied prime time and mini-series content to the major television networks through his company, Michael Klein Productions.
Also, during that time, he was an owner and a senior executive officer of the San Diego Chargers, an NFL Football franchise. Mr.
Klein has significant experience in the area of corporate financings. He has executed and participated in financing deals, both
public and private, ranging from $5 million to over $2 billion. His real estate ventures in Southern California include a 600-acre
development in North San Diego, which he sold in various stages. He also has led several real estate ventures in Southern California
including the Water Gardens phase two in Santa Monica. Mr. Klein was chosen as a director of the Company based on his knowledge
and experience in the entertainment industry as well as in banking and finance.
Margaret Loesch, 74, has been
a Director of the Company since March 2015 and the Executive Chairman of the Genius Brands Network since December 2016. Beginning
in 2009 through 2014, Ms. Loesch, served as Chief Executive Officer and President of The Hub Network, a cable channel for children
and families, including animated features. The Company has, in the past, provided The Hub Network with certain children’s
programming. From 2003 through 2009 Ms. Loesch served as Co-Chief Executive Officer of The Hatchery, a family entertainment and
consumer product company. From 1998 through 2001 Ms. Loesch served as Chief Executive Officer of the Hallmark Channel, a family
related cable channel. From 1990 through 1997 Ms. Loesch served as the Chief Executive Officer of Fox Kids Network, a children’s
programming block and from 1984 through 1990 served as the Chief Executive Officer of Marvel Productions, a television and film
studio subsidiary of Marvel Entertainment Group. Ms. Loesch obtained her Bachelor of Science from the University of Southern Mississippi.
Ms. Loesch was chosen to be a director based on her 40 years of experience at the helm of major children and family programming
and consumer product channels.
Lynne Segall, 67, has
been a Director of the Company since December 2013. Ms. Segall has served as the Senior Vice President and Publisher of The Hollywood
Reporter since June 2011. From 2010 to 2011, Ms. Segall was the Senior Vice President of Deadline Hollywood. From June 2006 to
May 2010, Ms. Segall served as the Vice President of Entertainment, Fashion & Luxury advertising at the Los Angeles Times.
In 2005, Ms. Segall received the Women of Achievement Award from The Hollywood Chamber of Commerce and the Women in Excellence
Award from the Century City Chamber of Commerce. In 2006, Ms. Segall was recognized by the National Association of Women with its
Excellence in Media Award. Ms. Segall was chosen to be a director based on her expertise in the entertainment industry.
Anthony Thomopoulos, 82, has
been a Director of the Company since February 2014. Mr. Thomopoulos served as the Chairman of United Artist Pictures from 1986
to 1989 and formed Thomopoulos Pictures, an independent production company of both motion pictures and television programs in 1989
and has served as its Chief Executive Officer since 1989. From 1991 to 1995, Mr. Thomopoulos was the President of Amblin Television,
a division of Amblin Entertainment. Mr. Thomopoulos served as the President of International Family Entertainment, Inc. from 1995
to 1997. From June 2001 to January 2004, Mr. Thomopoulos served as the Chairman and Chief Executive Officer of Media Arts Group,
a NYSE listed company. Mr. Thomopoulos served as a state commissioner of the California Service Corps. under Governor Schwarzenegger
from 2005 to 2008. Mr. Thomopoulos is also a founding partner of Morning Light Productions. Since he founded it in 2008, Mr. Thomopoulos
has operated Thomopoulos Productions and has served as a consultant to BKSems, USA, a digital signage company. Mr. Thomopoulos
is an advisor and a member of the National Hellenic Society and holds a degree in Foreign Service from Georgetown University and
sat on its Board of Directors from 1978 to 1988. Mr. Thomopoulos was chosen as a director of the Company based on his entertainment
industry experience.
Karen McTier, 61,
has been a director of the Company since September 7, 2020. Ms. McTier served as Executive VP, World-Wide Consumer
Products for Warner Bros. Pictures. Her career at Warner Bros spanned over two decades from 1988-2016. Ms. McTier managed a
vast portfolio of brands including Batman, Superman, Wonder Woman, Wizard of Oz, Friends, Looney Tunes, Scooby Doo, and Harry
Potter, to name a few. In this role, Ms. McTier managed over 300 employees (including offices in 13 countries) and had
oversight of the global licensing business including sales, promotions and partnerships, marketing, retail, creative, product
development, e-commerce, themed entertainment and live events. Ms. McTier worked closely with Warner Bros. Animation,
WBTV, DC Comics and Cartoon Network on new content development relevant to merchandising, including numerous animated and live
action television series. Ms. McTier has an in-depth of knowledge of all product categories, and broad experience working
with major retailers and licensees around the globe. Ms. McTier was also instrumental in the negotiation,
execution and launch of Universal’s Wizarding World of Harry Potter in Orlando, Hollywood and Osaka, Japan. In addition to
Universal, McTier played a key role in managing other theme park projects including the development of Warner Bros. World Abu Dhabi,
Movie World Australia and Six Flags Theme Parks. Ms. McTier has an expertise in working with producers, directors and
authors to bring their vision to life—reaching fans of all ages with targeted merchandise and experiential projects. In
2018, Ms. McTier set up a consulting practice, handling business development for a themed entertainment client,
IdeaRworks, and since 2019, McTier’s company serves as the licensing agency of record for Lionsgate Films. Ms McTier was
chosen as a director based on her licensing and consumer products experience.
Family Relationships
There are no family
relationships between any of our directors and our executive officers.
General
We believe that good corporate governance
is important to ensure that the Company is managed for the long-term benefit of our stockholders. This section describes key corporate
governance practices that we have adopted.
Board Leadership Structure and Role
in Risk Oversight
The Board of Directors has responsibility for establishing
broad corporate policies and reviewing our overall performance rather than day-to-day operations. The primary responsibility of
our Board of Directors is to oversee the management of our company and, in doing so, serve the best interests of the company and
our stockholders. The Board of Directors selects, evaluates and provides for the succession of executive officers and, subject
to stockholder election, directors. It reviews and approves corporate objectives and strategies and evaluates significant policies
and proposed major commitments of corporate resources. Our Board of Directors also participates in decisions that have a potential
major economic impact on our company. Management keeps the directors informed of company activity through regular communication,
including written reports and presentations at Board of Directors and committee meetings.
Although we have not adopted a formal policy
on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined
that it is in the best interest of the Company and its shareholders to partially combine these roles. Due to the small size of
the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officers positions combined.
The Company currently has seven directors,
including Mr. Heyward, its Chairman, who also serves as the Company’s Chief Executive Officer. The Chairman and the Board
are actively involved in the oversight of the Company’s day to day activities.
16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires
our officers, directors and any persons who own more than 10% of common stock, to file reports of ownership of, and transactions
in, our common stock with the SEV and furnish copies of such reports to us. Based solely on our reviews of the copies of such forms
and amendments thereto furnished to us and on written representations from officers, directors, and any other person whom we understand
owns more than 10% or our common stock, we found that during 2020, all Section 16(a) filings were made with the SEC on a timely
basis.
Code of Conduct and Ethics
We have adopted a Corporate Code of Conduct
and Ethics and Whistleblower Policy that applies to all of our officers, directors and employees. A copy of the Code of Conduct
and Ethics and Whistleblower Policy can be obtained, free of charge by submitting a written request to the Company or on our website
at www,gnusbrands.com. Disclosure regarding any amendments to, or waivers from, provisions of the code of conduct and ethics
that apply to our directors, principal executive and financial officers will be posted on the “Investor Relations-Corporate
Governance” section of our website at www.gnusbrands.com or included in a Current Report on Form 8-K within four business
days following the date of the amendment or waiver.
Board Committees
During 2020, our Board
of Directors held 8 meetings.
The following table sets forth the three
standing committees of our Board and the members of each committee and the number of meetings held by our Board of Directors and
the committees during 2020:
Director
|
|
Board
|
|
|
Audit
Committee
|
|
|
Compensation
Committee
|
|
|
Nominating Committee
|
|
Andy Heyward
|
|
|
Chair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph “Gray” Davis (1)
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
P. Clark Hallren
|
|
|
X
|
|
|
|
Chair
|
|
|
|
X
|
|
|
|
|
|
Margaret Loesch
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynne Segall
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
Chair
|
|
Anthony Thomopoulos
|
|
|
X
|
|
|
|
X
|
|
|
|
Chair
|
|
|
|
|
|
Michael Klein (2)
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
Karen McTier
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meetings in 2020:
|
|
|
8
|
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
|
(1)
|
Effective as of March 19, 2020, Mr. Davis
joined as a member of our nominating committee (the “Nominating Committee”)
|
|
|
|
|
(2)
|
Effective as March 19, 2020, Mr. Klein
replaced Mr. Cahill as a member of our audit committee (the “Audit Committee”), and also joined as a member of the
Nominating Committee.
|
|
|
|
|
(3)
|
Effective September 7,
2020, Ms. McTier was elected as a member of our Board of Directors.
|
The Board of Directors has adopted a policy under which each
member of the Board of Directors makes every effort, but is not required, to attend each annual meeting of our stockholders.
To assist it in carrying out its duties, the Board of Directors
has delegated certain authority to an Audit Committee, a compensation committee (the “Compensation Committee”) and
a Nominating Committee as the functions of each are described below.
Audit Committee
Messrs.
Hallren, Klein, and Thomopoulos serve on our Audit Committee. Our Audit Committee’s main function is to oversee our accounting
and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial
statements. The Audit Committee’s responsibilities include:
|
·
|
selecting, hiring, and compensating our independent auditors;
|
|
·
|
evaluating the qualifications, independence and performance of our independent auditors;
|
|
·
|
overseeing and monitoring the integrity of our financial statements and our compliance with legal
and regulatory requirements as they relate to financial statements or accounting matters;
|
|
·
|
approving the audit and non-audit services to be performed by our independent auditor;
|
|
·
|
reviewing with the independent auditor the design, implementation, adequacy and effectiveness of
our internal controls and our critical accounting policies; and
|
|
·
|
preparing the report that the SEC requires in our annual proxy statement.
|
The Board of Directors has adopted an Audit
Committee Charter and the Audit Committee reviews and reassesses the adequacy of the Charter on an annual basis. The Audit Committee
members meet Nasdaq’s financial literacy requirements and are independent under applicable SEC and Nasdaq rules, and the
board has further determined that Mr. Hallren (i) is an “audit committee financial expert” as such term is defined
in Item 407(d) of Regulation S-K promulgated by the SEC and (ii) also meets Nasdaq’s financial sophistication requirements.
A copy of the Audit Committee’s written
charter is publicly available on our website at www.gnusbrands.com.
Compensation Committee
Messrs.
Thomopoulos and Hallren serve on the Compensation Committee and are independent under the applicable SEC and Nasdaq rules. Our
Compensation Committee’s main functions are assisting our Board of Directors in discharging its responsibilities relating
to the compensation of outside directors, the Chief Executive Officer and other executive officers, as well as administering any
stock incentive plans, we may adopt. The Compensation Committee’s responsibilities include the following:
|
·
|
reviewing and recommending to our board of directors the compensation of our Chief Executive Officer
and other executive officers, and the outside directors;
|
|
·
|
conducting a performance review of our Chief Executive Officer;
|
|
·
|
reviewing our compensation policies; and
|
|
·
|
if required, preparing the report of the Compensation Committee for inclusion in our annual proxy
statement.
|
The Board of Directors has adopted a Compensation
Committee Charter and the Compensation Committee reviews and reassesses the adequacy of the Charter on an annual basis.
The Compensation Committee’s policy
is to offer our executive officers competitive compensation packages that will permit us to attract and retain highly qualified
individuals and to motivate and reward these individuals in an appropriate fashion aligned with the long-term interests of our
Company and our stockholders.
Compensation Committee Risk Assessment
We have assessed our compensation programs
and concluded that our compensation practices do not create risks that are reasonably likely to have a material adverse effect
on us.
A copy of the Compensation Committee’s
written charter is publicly available on our website at www.gnusbrands.com.
Nominating Committee
Ms. Segall
and Messrs. Davis and Klein serve on our Nominating Committee. The Nominating Committee’s responsibilities include:
|
·
|
identifying qualified individuals to serve as members of our Board of Directors;
|
|
·
|
review the qualifications and performance of incumbent directors;
|
|
·
|
review and consider candidates who may be suggested by any director or executive officer or by
an stockholder of the Company; and
|
|
·
|
review considerations relating to board composition, including size of the board, term and age
limits, and the criteria for membership of the board.
|
The Board of Directors has adopted a nominating
committee charter and the Nominating Committee reviews and reassesses the adequacy of the Charter on an annual basis. For all potential
candidates, the Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity
and sound judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate,
possible conflicts of interest, diversity, the extent to which the candidate would fill a present need on the Board of Directors,
and concern for the long-term interests of our stockholders.
The Nominating Committee considers issues
of diversity among its members in identifying and considering nominees for director, and strives, where appropriate, to achieve
a diverse balance of backgrounds, perspectives and experience on the board and its committees.
A copy of the Nominating Committee’s
written charter is publicly available on our website at www.gnusbrands.com.
Stockholder Communications to the Board
Generally, stockholders who have questions
or concerns should contact our Investor Relations department at 212-564-4700. However, any stockholders who wish to address questions
regarding our business directly with the Board of Directors, or any individual director, should direct his or her questions in
writing to Genius Brands International, Inc., at 190 N. Canon Drive, 4th Floor, Beverly Hills, California 90210, Attn: Corporate
Secretary or by using the “Contact” page of our website www.gnusbrands.com/contact-us. Communications will be distributed
to the Board, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the
communications. Items that are unrelated to the duties and responsibilities of the Board may be excluded, such as:
|
·
|
junk mail and mass mailings
|
|
·
|
resumes and other forms of job inquiries
|
|
·
|
solicitations or advertisements.
|
In addition, any material that is unduly
hostile, threatening, or illegal in nature may be excluded, provided that any communication that is filtered out will be made available
to any outside director upon request.
Item
11. EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
This section describes the material elements
of compensation awarded to, earned by or paid to each of our named executive officers. Our compensation committee will review
and approve the compensation of our executive officers and oversee our executive compensation programs and initiatives.
Summary Compensation Table
The following table provides information
regarding the total compensation for services rendered in all capacities that was earned during the fiscal year indicated by our
named officers for fiscal year 2020 and 2019.
Name and Principal Position
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock
Awards
($) (1)
|
|
|
Option
Awards
($) (1)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
Andy Heyward (2)
|
|
|
2020
|
|
|
|
311,717
|
|
|
|
73,528
|
|
|
|
10,425,000
|
|
|
|
5,750,000
|
|
|
|
880,959
|
|
|
|
17,441,204
|
|
Chief Executive Officer
|
|
|
2019
|
|
|
|
287,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
124,000
|
|
|
|
411,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert L. Denton (3)
|
|
|
2020
|
|
|
|
261,158
|
|
|
|
150,000
|
|
|
|
660,250
|
|
|
|
1,092,500
|
|
|
|
–
|
|
|
|
2,163,908
|
|
Chief Financial Officer
|
|
|
2019
|
|
|
|
215,625
|
|
|
|
25,000
|
|
|
|
–
|
|
|
|
21,814
|
|
|
|
|
|
|
|
262,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Jaffa (4)
|
|
|
2020
|
|
|
|
261,880
|
|
|
|
150,000
|
|
|
|
695,000–
|
|
|
|
1,150,000
|
|
|
|
–
|
|
|
|
2,256,880
|
|
Chief Operating Officer and General Counsel and Corporate Secretary
|
|
|
2019
|
|
|
|
215,625
|
|
|
|
25,000
|
|
|
|
–
|
|
|
|
21,814
|
|
|
|
–
|
|
|
|
262,439
|
|
(1)
|
The aggregate fair value of the stock awards and stock option awards on the date of grant was computed in accordance with FASB ASC Topic 718.
|
(2)
|
In association with the Merger, Mr. Heyward was appointed Chief Executive Officer of the Company on November 15, 2013. Per his employment agreement, Mr. Heyward is entitled to an annual salary of $200,000. Mr. Heyward entered into a new five-year employment agreement on November 16, 2018. Under his new employment agreement, Mr. Heyward is entitled to an annual salary of $300,000. Mr. Heyward entered into a new five-year employment agreement on December 7, 2020. Under his new employment agreement, Mr. Heyward is entitled to an annual salary of $430,000.
|
|
|
|
During 2020, Mr. Heyward was paid $161,200 in producers fees for the production of Rainbow Rangers Season 1 and $322,400 in producers fees for the production of Rainbow Rangers season 2. During 2020, Mr. Heyward was also paid $11,370 in interest on the Senior Convertible Notes and $3,000 in board fees for his attendance at the unscheduled board meetings and the Company paid $380,989 in security costs at his residence.
|
(3)
|
Effective April 18, 2018, the Company entered
into an employment agreement with Mr. Denton, whereby Mr. Denton agreed to serve as the Company’s Chief Financial Officer
(“CFO”) for a period of two years, with a mutual option for an additional one-year period, in consideration for an
annual salary of $225,000. Mr. Denton received $5,550 for consulting services prior to becoming the CFO. Mr. Denton also received
$49,962 in relocation expenses for his relocation from Salt Lake City, Utah to Los Angeles, California. On December 7, 2020, Mr.
Denton entered into a new one-year employment agreement, with a mutual option for two additional one-year periods. Under his new
employment agreement, Mr. Denton is entitled to an annual salary of $300,000 the first year, $325,000 the second year and $350,000
the third year and an annual signing bonus of $50,000 each year.
On September 26, 2018, Mr. Denton received
85,088 options with a strike price of $2.09.
|
|
|
|
On March 7, 2019, the Company granted 15,000
stock options to Mr. Denton with a strike price of $1.99 and a term of five years. The options vested on December 31, 2019.
On December 7, 2020, the Company granted
950,000 stock options to Mr. Denton with a strike price of $1.39 and a term of 10 years. 380,000 of the options vested on the grant
date with the remaining options vesting 190,000 each of the next three years. On December 7, 2020, the Company also granted 475,000
RSUs to Mr. Denton. The RSUs vest 155,000 on the first anniversary, 158,000 on the second anniversary and 162,000 on the third
anniversary.
|
(4)
|
Effective April 16, 2018, the Company entered
into an employment agreement with Mr. Jaffa, whereby Mr. Jaffa agreed to serve as the Company’s General Counsel and Senior
Vice President of Business Affairs for a period of year in consideration for an annual salary of $225,000. On June 7, 2018, Mr.
Jaffa was elected as the Company’s Corporate Secretary. Mr. Jaffa entered into a new three-year employment agreement on December
7, 2020. Under his new employment agreement, Mr. Jaffa is entitled to an annual salary of $325,000 the first year, $350,000 the
second year and $375,000 the third year and an annual signing bonus of $50,000 each year.
On September 26, 2018, Mr. Jaffa received
85,088 options with a strike price of $2.09.
|
|
|
|
On March 7, 2019, the Company granted 15,000 stock options to Mr. Jaffa with a strike price of $1.99 and a term of five years. The options vested on December 31, 2019.
|
|
|
|
On December 7, 2020, the Company
granted 1,000,000 stock options to Mr. Jaffa with a strike price of $1.39 and a term of 10 years. 400,000 of the options vested
on the grant date with the remaining options vesting 200,000 each of the next three years. On December 7, 2020, the Company also
granted 500,000 RSUs to Mr. Jaffa. The RSUs vest 166,666 on the first anniversary, 166,666 on the second anniversary and 166,668
on the third anniversary.
|
Narrative Disclosure to Summary Compensation
Base Salary. In 2020, the Company
paid $311,717 to Andy Heyward, $261,158 to Robert L. Denton and $261,880 to Michael A. Jaffa. In 2019, the Company paid $212,500
to Mr. Heyward, $156,871 to Mr. Denton and $159,375 to Mr. Jaffa. Base salaries are used to recognize experience, skills, knowledge
and responsibilities required of all of our employees, including our executive officers.
All Other Compensation. On
August 31, 2018, Llama Productions LLC entered into an animation production services agreement with Mr. Heyward for services as
a producer for which he received $124,000 through the course of production of the Company’s animated series Llama
Llama Season 2.
Pursuant to his employment agreement
dated November 16, 2018, Mr. Heyward is entitled to an Executive Producer fee of $12,400 per half hour episode for each episode
for which he provides services as an executive producer. The first identified series under this employment agreement is Rainbow
Rangers. As of March 31, 2019, twenty-six half hours had been delivered and, accordingly, Mr. Heyward was owed $322,400.
The second series identified was Rainbow Rangers Season 2. Thirteen half hours of Rainbow Rangers Season
2 were delivered in the fourth quarter of 2019 and, accordingly, Mr. Heyward was owed $161,200. Mr. Heyward was paid the
total amount due to him of $483,600 for his producer services on March 17, 2020.
Bonus Compensation. Our
named executive officers are expected to be eligible to receive an annual bonus award in accordance with their employment agreements
and/or management incentive program then in effect with respect to such executive officer and based on an annualized target of
base salary, as specified in their respective employment agreements, if applicable. In fiscal 2019, Mr. Denton and Mr. Jaffa were
each paid a $25,000 bonus in fiscal 2020 Mr. Heyward was paid a bonus of $73,528 and Mr. Denton and Mr. Jaffa were each paid two
bonuses totaling $150,000.
Equity Based Incentive Awards.
We believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture
and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based
vesting feature promote executive retention because this feature incentivizes our named executive officers to remain in our employment
during the vesting period. Accordingly, our compensation committee and Board periodically review the equity incentive compensation
of our named executive officers and from time to time may grant additional equity incentive awards to them in the form of stock
options or other awards. As of December 31, 2019, no options granted to our named executive officers have been modified or repriced.
On December 7, 2020, Mr. Heyward received
5,000,000 options with a value of $5,750,000 and 7.500,000 RSUs with a value of $10,425,000. Mr. Heyward also received 7,500,000
performance based RSUs with a value of $10,425,000.
On September 26, 2018, Mr. Denton
received 85,088 options with a value of $155,517. On March 7, 2019, Mr. Denton received 15,000 options with a value of $21,814.
On December 7, 2020, Mr. Denton received 950,000 options with a value of $1,092,500 and 475,000 RSUs with a value of $660,250.
On September 26, 2018, Mr. Jaffa
received 85,088 options with a value of $155,517. On March 7, 2019, Mr. Jaffa received 15,000 options with a value of $21,814.
On December 7, 2020, Mr. Jaffa received 1,000,000 options with a value of $1,150,000 and 500,000 RSUs with a value of $695,000.
Employment Agreements
On November 16, 2020, the Company
entered into an amended and restated employment agreement with Andy Heyward (the “Andy Heyward Employment Agreement”),
whereby Mr. Heyward agreed to serve as the Company’s Chief Executive Officer for a period of five years, subject to renewal,
in consideration for an annual salary of $440,000, and an award of 5,000,000 stock options and 15,000,000 RSUs. Mr. Heyward is
also eligible to be paid a producing fee equal to $12,500 per half hour episode for each series produced, controlled and distributed
by the Company, and for which he provides material production services provided as the executive producer. Additionally, under
the terms of the Andy Heyward Employment Agreement, Mr. Heyward shall be eligible for a quarterly discretionary bonus of $55,000
per fiscal quarter, if the Company meets certain criteria, as established by the Board of Directors. Mr. Heyward shall be entitled
to reimbursement of reasonable expenses incurred in connection with his employment and the Company may take out and maintain during
the term of his tenure a life insurance policy in the amount of $1,000,000. During the term of his employment and under the terms
of the Andy Heyward Employment Agreement, Mr. Heyward shall be entitled to be designated as composer on all music contained in
the programming produced by the Company and to receive composer’s royalties from applicable performing rights societies The
Options granted to Mr. Heyward were fully vested on the date of grant. One-half of the RSUs granted to Mr. Heyward vest over time
subject to Mr. Heyward’s continued employment, and one-half vest in equal installments on the first, second, third and fourth
anniversaries of the date of grant, subject to the achievement of certain performance criteria, to be determined by the Compensation
Committee, and subject to Mr. Heyward’s continued employment. In the event of Mr. Heyward’s death or resignation, all
compensation then currently due would be payable to his estate.
The CEO Employment Agreement extends and modifies Mr. Heyward’s
current employment agreement such that Mr. Heyward is eligible to receive, during the five-year term of the CEO Employment Agreement
(i) an annualized base salary of $440,000, (ii) quarterly performance bonuses of up to $55,000, and (iii) producer fees of up to
$12,500 per one-half hour episode produced by the Company for up to 52 one-half hour episodes.
The CEO Employment Agreement also entitles
Mr. Heyward to separation payments in certain circumstances. In the event Mr. Heyward’s employment terminates due to his
death or retirement, in addition to accrued amounts, he is entitled to receive (i) any unpaid quarterly bonus for the fiscal quarter
preceding the fiscal quarter in which such termination occurs and (ii) if earned, a pro-rated quarterly bonus for the fiscal quarter
in which such termination occurs. In the event Mr. Heyward’s employment terminates due to his permanent disability, in addition
to accrued amounts, he is entitled to receive (i) any unpaid quarterly bonus for the fiscal quarter preceding the fiscal quarter
in which such termination occurs, (ii) if earned, a pro-rated quarterly bonus for the fiscal quarter in which such termination
occurs and (iii) six monthly payments equal to the amount, if any, of his monthly base salary in excess of any disability benefits
being received by Mr. Heyward.
On December 7, 2020, the Company entered
into an amended and restated agreement, (The COO and General Counsel Employment Agreement) with Michael A. Jaffa in which Mr. Jaffa
would assume the role of Chief Operating Officer and General Counsel commencing on December 7, 2020. Mr. Jaffa will be entitled
to be paid a salary at the annual rate of $325,000 per year. The term of the agreement is three years. In addition, Mr. Jaffa will
be entitled to an annual discretionary bonus based on his performance. In the event of Mr. Jaffa’s death or resignation,
all compensation then currently due would be payable to his estate.
The COO and General Counsel Employment
Agreement provides Mr. Jaffa with, during the three year term of the General Counsel Employment Agreement (i) an annualized base
salary of $325,000 for the first year of the term, $350,000 for the second year of the term and $375,000 for the third year of
the term, (ii) discretionary annual bonuses determined in the sole discretion of the Compensation Committee of the Board of Directors
of the Company (the “Compensation Committee”), and (iii) eligibility to receive renewal bonuses of $50,000 beginning
within 60 days following the effective date of the General Counsel Employment Agreement and each anniversary thereafter during
the term, subject to Mr. Jaffa’s continued employment. The agreement granted Mr. Jaffa 1,000,000 stock option and 500,00
RSUs. The Options granted to Mr. Jaffa were partially vested on the date of grant, and vest with respect to the unvested amounts
in substantially equal installments on the first three anniversaries of the grant date, subject to continued employment. The RSUs
granted to Mr. Jaffa vest in three equal installments on the first three anniversaries of the date of grant, subject to continued
employment. Any unvested Options or RSUs held by Mr. Jaffa will vest upon his termination of employment without Cause or resignation
for Good Reason, each as defined in the Option Grant and RSU Grant agreement.
The COO and General Counsel Employment
Agreement also entitles Mr. Jaffa to separation payments in certain circumstances. In the event Mr. Jaffa’s employment terminates
due to his death or retirement, in addition to accrued amounts, he is entitled to receive any unpaid annual bonus for the fiscal
year preceding the fiscal year in which such termination occurs. In the event Mr. Jaffa’s employment terminates due to his
permanent disability, in addition to accrued amounts, he is entitled to receive (i) any unpaid annual bonus for the fiscal year
preceding the fiscal year in which such termination occurs, and (iii) two monthly payments equal to the amount, if any, of his
monthly base salary in excess of any disability benefits being received by Mr. Jaffa.
Additionally, the COO and General Counsel
Employment Agreement contains certain restrictive covenants regarding confidential information, intellectual property, non-competition
and non-solicitation. This summary of the COO and General Counsel Employment Agreement is qualified in its entirety by reference
to the full text of the General Counsel Employment Agreement, which is attached hereto as Exhibit 10.2 and incorporated herein
by reference.
On December 7, 2020, the Company entered
into an Employment Agreement with Robert L. Denton (the “CFO Employment Agreement”), whereby Mr. Denton agreed to serve
as the Company’s Chief Financial Officer, effective as of December 7, 2020 for a period of one year with a mutual option
for two additional one-year periods, in consideration for an annual salary of $300,000. Under the terms of the Robert Denton Employment
Agreement, Mr. Denton shall be entitled to an annual discretionary bonus based on his performance. The Robert Denton Employment
Agreement may be terminated either (i) upon the end of the term, (ii) at any time by the Company for “Cause” (as defined
in the Robert Denton Employment Agreement) or (iii) upon an event of retirement, death or disability. Upon the termination or expiration
of Mr. Denton’s employment with the Company and for a period of three years thereafter, certain amounts paid to Mr. Denton,
including any discretionary bonus and stock based compensation, but excluding his base salary and reimbursement of certain expenses,
will be subject to the Company’s clawback right upon the occurrence of certain events which are adverse to the Company, including
a restatement of financial statements. In the event of Mr. Denton’s death or resignation, all compensation then currently
due would be payable to his estate.
The CFO Employment Agreement provides Mr.
Denton with, during the one year term of the CFO Employment Agreement (i) an annualized base salary of $300,000, (ii) discretionary
annual bonuses determined in the sole discretion of the Compensation Committee, and (iii) eligibility to receive renewal bonuses
of $50,000 beginning within 60 days following the effective date of the CFO Employment Agreement and continuing on each anniversary
thereafter during the term, subject to Mr. Denton’s continued employment. The agreement granted Mr. Denton 975,000 stock
options and 475,000 RSUs. The Options granted to Mr. Denton were partially vested on the date of grant, and vest with respect to
the unvested amounts in substantially equal installments on the first three anniversaries of the grant date, subject to continued
employment. The RSUs granted to Mr. Denton vest in three equal installments on the first three anniversaries of the date of grant,
subject to continued employment. Only unvested Options or RSUs that would have otherwise vested during the then current term of
the CFO Employment Agreement will vest upon Mr. Denton’s termination of employment without Cause or resignation for Good
Reason, each as defined in the Form Option Grant and Form RSU Grant.
The CFO Employment Agreement also entitles
Mr. Denton to separation payments in certain circumstances. In the event Mr. Denton’s employment terminates due to his death
or retirement, in addition to accrued amounts, he is entitled to receive any unpaid annual bonus for the fiscal year preceding
the fiscal year in which such termination occurs. In the event Mr. Denton’s employment terminates due to his permanent disability,
in addition to accrued amounts, he is entitled to receive (i) any unpaid annual bonus for the fiscal year preceding the fiscal
year in which such termination occurs, and (ii) two monthly payments equal to the amount, if any, of his monthly base salary in
excess of any disability benefits being received by Mr. Denton.
Retirement Benefits
As of December 31, 2020, the Company
did not provide any retirement plans to its executive officers or employees.
Potential Payments upon Termination
or Change-in-Control
As of December 31, 2020, the Company
did not provide for any potential payments upon termination or change of control.
Outstanding Equity Awards at Fiscal
Year
The following table sets forth outstanding
stock option awards as of December 31, 2020 to each of the named executive officers. As of December 31, 2020, the Company has not
granted any stock awards to its executive officers other than to Mr. Heyward, Mr. Denton and Mr. Jaffa as noted below.
|
|
Option
Awards
|
|
Stock
Units Awards
|
|
Name
|
|
Number of securities
underlying unexercised options (#) exercisable
|
|
Number of securities
underlying unexercised options (#) unexercisable
|
|
|
Option exercise price
($)
|
|
|
Option expiration date
|
|
Equity incentive
plan awards: Number of securities underlying unearned Restricted Stock Units (#)
|
|
Market Value
of Shares
|
|
Andy Heyward
|
|
|
5,000,000
|
(5)
|
|
|
–
|
|
|
|
1.39
|
|
|
12/07/30
|
|
|
7,500,000
|
(6)
|
|
$
|
10,350,000
|
|
Robert L. Denton
|
|
|
56,725
|
(1)
|
|
|
28,363
|
|
|
|
2.09
|
|
|
09/25/23
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(2)
|
|
|
–
|
|
|
|
1.99
|
|
|
03/07/24
|
|
|
|
|
|
|
|
|
|
|
|
380,000
|
(3)
|
|
|
570,000
|
|
|
|
1.39
|
|
|
12/07/30
|
|
|
475,000
|
(7)
|
|
$
|
655,500
|
|
Michael A. Jaffa
|
|
|
56,725
|
(1)
|
|
|
28,363
|
|
|
|
2.09
|
|
|
09/25/23
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(2)
|
|
|
–
|
|
|
|
1.99
|
|
|
03/07/24
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
(4)
|
|
|
600,000
|
|
|
|
1.39
|
|
|
12/07/30
|
|
|
500,000
|
(8)
|
|
$
|
690,000
|
|
__________________
(1) Mr. Denton’s and Mr. Jaffa’s options vest one
third per year for three years.
(2) Mr. Denton’s and Mr. Jaffa’s options
vested as of December 31, 2020.
(3) Mr. Denton’s options vest 380,000 upon grant and 190,000
options vest annually for the next three years on the anniversary dates.
(4) Mr. Jaffa’s options vest 400,000 upon grant and 200,000
options vest annually for the next three years on the anniversary dates.
(5) Mr. Heyward’s options vest upon the grant date.
(6) Mr. Heyward was granted 7,500,000 RSUs, with 1,875,000
vesting on each of the next four anniversary dates. Mr. Heyward was also granted 7,500,000 performance based RSUs that, if awarded,
vest 1,875,000 on each of the next four anniversary dates.
(7) Mr. Denton’s RSUs vest 155,000 on the first anniversary
date, 158,000 on the second anniversary date and 162,000 on the third anniversary date.
(8) Mr. Jaffa’s RSUs vest 166,666 on the first anniversary
date, 166,666 on the second anniversary date and 166,668 on the third anniversary date.
Director Compensation
The following table sets forth with respect to
the named directors, compensation information inclusive of equity awards and payments made for the year ended December 31, 2020 in the
director's capacity as director.
Name
|
|
Year
|
|
|
Fees
Earned
($) (1)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
|
Total ($)
|
|
Andy Heyward
|
|
|
2020
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Cahill (2)
|
|
|
2020
|
|
|
|
7,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph “Gray” Davis
|
|
|
2020
|
|
|
|
23,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. Clark Hallren
|
|
|
2020
|
|
|
|
24,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen McTier (3)
|
|
|
2020
|
|
|
|
5,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margaret Loesch (4)
|
|
|
2020
|
|
|
|
79,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynne Segall
|
|
|
2020
|
|
|
|
27,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony Thomopoulos
|
|
|
2020
|
|
|
|
17,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Klein (5)
|
|
|
2020
|
|
|
|
23,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
12,500
|
|
______________________
(1)
|
Directors, other than Mr. Heyward, earn $5,000 for each meeting attended physically, $2,500 per meeting for each meeting attended telephonically, and nothing for non-attendance and $1,000 for unscheduled meetings. These cash payments are paid to the Board member at the subsequent board meeting.
|
|
|
(2)
|
Mr. Cahill resigned from the Board effective March 19, 2020.
|
|
|
(3)
|
Mrs. McTier was appointed to the Board effective September 7,
2020.
|
|
|
(4)
|
Ms. Loesch was paid $27,000 for her services on the Board and
$52,500 for her services as Executive Chairperson of the Kartoon Channel!
|
|
|
(5)
|
Mr. Klein was appointed to our Board
effective March 7, 2019.
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial
ownership of shares of our $0.001 par value common stock as of March 29, 2020, known by us through transfer agent and other records
held by: (i) each person who beneficially owns 5% or more of the shares of common stock then outstanding; (ii) each of our directors;
(iii) each of our named executive officers; and (iv) all of our current directors and executive officers as a group.
The information in this table reflects
“beneficial ownership” as defined in Rule 13d-3 of the Exchange Act. To our knowledge and unless otherwise indicated,
each stockholder has sole voting power and investment power over the shares listed as beneficially owned by such stockholder, subject
to community property laws where applicable. Percentage ownership is based on 300,273,163 shares of common stock outstanding as
of March 29, 2020. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole
voting and investment power and that person’s address is c/o 190 N. Canon Drive, Floor 4, Beverly Hills, CA 90210.
Name of Beneficial Owner
|
|
Amount and
Nature of Beneficial
Ownership (1)
|
|
|
Percent of
Class (1)
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
Andy Heyward
|
|
|
19,456,244
|
|
(2)
|
|
6.37%
|
|
Robert L. Denton
|
|
|
480,088
|
|
(3)
|
|
*
|
|
Michael Klein
|
|
|
220,000
|
|
(4)
|
|
*
|
|
Michael Jaffa
|
|
|
500,088
|
|
(5)
|
|
*
|
|
Anthony Thomopoulos
|
|
|
115
|
|
(6)
|
|
*
|
|
Joseph (Gray) Davis
|
|
|
|
|
|
|
|
|
P. Clark Hallren
|
|
|
|
|
|
|
|
|
Margaret Loesch
|
|
|
|
|
|
|
|
|
Lynne Segall
|
|
|
|
|
|
|
|
|
Karen McTier
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All current executive officers and directors as a group (consisting of 10 persons)
|
|
|
20,656,535
|
|
|
|
6.74%
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
___________________
* Indicates ownership less than 1%
(1)
|
Applicable percentage ownership is based on 300,273,163 shares of common stock outstanding as of March 29, 2020, together with securities exercisable or convertible into shares of common stock within 60 days of March 29, 2020. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that a person has the right to acquire beneficial ownership of upon the exercise or conversion of options, convertible stock, warrants or other securities that are currently exercisable or convertible or that will become exercisable or convertible within 60 days of March 29, 2020 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the number of shares beneficially owned and percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
|
(2)
|
Consists of (i) 990,728 shares of common stock held by A Squared Holdings LLC over which Andy Heyward holds sole voting and dispositive power; (ii) 13,464,282 shares of common stock held by Andy Heyward; (iii) 1,234 shares held by Heyward Living Trust; (iv) 5,000,000 options to acquire shares of common stock issuable now or within 60 days of March 29, 2020 upon the exercise of stock options.
|
|
|
(3)
|
Consists of 480,088 shares of common stock issuable now or within 60 days of March 29, 2020 upon the exercise of stock options granted to Mr. Denton.
|
|
|
(4)
|
Consists of 100,000 shares of common stock and 120,000 shares of common stock issuable upon exercise of certain warrants.
|
|
|
(5)
|
Consists of 500,088 shares of common stock issuable upon exercise of stock options granted to Mr. Jaffa.
|
|
|
(6)
|
Consists of 115 shares of common stock owned by Mr. Thomopoulos.
|
Item 13. CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Certain Relationships and Related Party Transactions
Commission regulations define the related
person transactions that require disclosure to include any transaction, arrangement or relationship in which the amount involved
exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years in
which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest.
A related person is: (i) an executive officer, director or director nominee of the Company, (ii) a beneficial owner of more than
5% of our common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial owner
of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which
any of the foregoing persons has a substantial ownership interest or control. Described below are certain transactions or relationships
between us and certain related persons.
On August 31, 2018, Llama entered into an animation production
services agreement with Mr. Heyward for services as a producer for which he is to receive $124,000 through the course of production
of the Company’s animated series Llama Llama Season 2. As of December 31, 2019, Mr. Heyward was paid $124,000. No
further amounts are due.
Pursuant to his employment agreements dated
November 16, 2018 and November 16, 2020, Mr. Heyward is entitled to an Executive Producer fee of $12,400 per half hour episode
for each episode he provides services as an executive producer. The first identified series under this employment agreement is
Rainbow Rangers. During the year ended December 31, 2020, 13 half hours had been delivered and accordingly Mr. Heyward was
paid $161,200, The second identified series under this employment agreement is Rainbow Rangers Season 2. During the year
ended December 31, 2020, 26 half hours had been delivered and accordingly Mr. Heyward is owed $322,400.
On July 21, 2020, the Company entered into
a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward,
the Company’s Chief Executive Officer. The Company entered into a customary merchandise license agreement with AHAA for the
use of characters and logos related to Warren Buffett’s Secret Millionaires Club and Stan Lee’s Mighty 7
in connection with certain products to be sold by AHAA. The terms and conditions of such license are customary within the industry,
and the Company earns an arm-length industry standard royalty on all sales made by AHAA utilizing the licensed content. During
the year ended December 31, 2020, the Company earned $0 in royalties from this agreement.
On September 17, 2019, Mr. Heyward purchased
$500,000 of the Secured Convertible Notes from another holder. The Company did not receive any proceeds from this transaction.
On
October 2, 2019, Mr. Heyward purchased 1,000,000 shares of the Company’s common stock for an aggregate purchase price of
$760,000, or $0.76 per share.
On March 11, 2020, Mr. Heyward purchased
$1,000,000 of the 2020 Convertible Notes with an original discount of $250,000.
On June 19, 2020, Mr. Heyward received
5,658,474 shares of Common Stock upon the cashless exercise of 6,119,048 warrants.
On June 23, 2020, Mr.
Heyward received 5,952,381 shares of Common Stock upon conversion of $1,250,000 of 2020 Convertible Notes.
On December 7, 2020, Mr. Heyward was granted
7,500,000 RSUs, which vest 1,875,000 on each of the next four anniversary dates. Mr. Heyward was also granted 7,500,000 performance
based RSUs that, if awarded, vest 1,875,000 on each of the next four anniversary dates.
On December 7, 2020, Mr. Heyward’s
was granted 5,000,000 options to purchase shares of the Company’s Common Stock at $1.39 per share. The options vest on the
grant date.
During the year ended December 31, 2020,
Mr. Heyward was paid a bonus of $73,528, $11,370 in interest on the Senior Convertible Notes, and $3,000 in board fees for his
attendance at the unscheduled board meetings.
During the year ended December 31, 2020,
the Company paid $380,989 for security at Mr. Heyward’s residence.
Review, Approval or Ratification of
Transactions with Related Persons
Pursuant to the
written charter of our Audit Committee, the Audit Committee is responsible for reviewing and approving all transactions both in
which (i) we are a participant and (ii) any parties related to us, including our executive officers, our directors, beneficial
owners of more than 5% of our securities, immediate family members of the foregoing persons and any other persons whom our Board
of Directors determines may be considered related parties under Item 404 of Regulation S-K, has or will have a direct or indirect
material interest. All the transactions described in this section occurred prior to the adoption of the Audit Committee’s
charter.
Corporate Governance
General
We believe
that good corporate governance is important to ensure that the Company is managed for the long-term benefit of our stockholders.
This section describes key corporate governance practices that we have adopted.
Independence of the Board of Directors
Our determination of the independence
of our directors is made using the definition of “independent” contained in the listing standards of the Nasdaq Capital
Market. On the basis of information solicited from each director, the board has determined that each of each of Messrs. Davis,
Hallren, Klein, Thomopoulos and McTier as well as Ms. Segall are independent directors within the meaning of such rules.
Item 14. Principal Accounting Fees and Services
Principal Accountant Fees and Services
The following table sets forth fees billed
to us by our independent registered public accounting firm for the years ended December 31, 2020 and 2019 for (i) services rendered
for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that
are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees,
and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
|
|
2020
|
|
|
2019
|
|
Audit Fees
|
|
$
|
123,000
|
|
|
$
|
107,500
|
|
Audit-Related Fees
|
|
|
38,000
|
|
|
|
–
|
|
Tax Fees
|
|
|
8,490
|
|
|
|
13,501
|
|
Other Fees
|
|
|
–
|
|
|
|
–
|
|
Total Fees
|
|
$
|
169,490
|
|
|
$
|
121,001
|
|
Our policy is to pre-approve all audit
and permissible non-audit services performed by the independent registered public accounting firm. These services may include audit
services, audit-related services, tax services and other services, as follows:
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·
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Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
|
|
·
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Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
|
|
·
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Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
|
|
·
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Other Fees are those associated with services not captured in the other categories. The Company generally does not request such services from the independent auditor.
|
Under our policy, pre-approval is generally
provided for particular services or categories of services, including planned services, project-based services and routine consultations.
In addition, the Board of Directors may also pre-approve particular services on a case-by-case basis. Our Board of Directors approved
all services that our independent registered public accounting firm provided to us in the past two fiscal years.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 2020
Note 1: Organization and Business
Organization and Nature of Business
Genius Brands International, Inc. (“we,”
“us,” “our,” or the “Company”) is a global content and brand management company that creates
and licenses multimedia content. Led by experienced industry personnel, we distribute our content in all formats as well as a broad
range of consumer products based on our characters. In the children's media sector, our portfolio features “content with
a purpose” for toddlers to tweens, which provides enrichment as well as entertainment. New intellectual property titles include
the preschool property Rainbow Rangers, which debuted in November 2018 on Nickelodeon and which was renewed for a second
season and preschool property Llama Llama, which debuted on Netflix in January 2018 and was renewed by Netflix for
a second season. Our library titles include the award-winning Baby Genius, adventure comedy Thomas Edison's Secret Lab®
and Warren Buffett's Secret Millionaires Club, created with and starring iconic investor Warren Buffett, which is distributed
across our Genius Brands Network on Comcast’s Xfinity on Demand, AppleTV, Roku, Amazon Fire, YouTube, Amazon Prime, Cox,
Dish, Sling and Zumo, as well as Connected TV. We are also developing an all-new animated series, Stan Lee’s Superhero
Kindergarten with Stan Lee’s Pow! Entertainment, Oak Productions and Alibaba. Arnold Schwarzenegger lends his voice
as the lead and is also an Executive Producer on the series. The show will be broadcast in the United States on Amazon Prime and
the Company’s wholly owned distribution outlet, Kartoon Channel!. In July 2020, the Company entered into a binding term sheet
with POW, Inc. (“POW!”) in which we agreed to form an entity with POW! to exploit certain rights in intellectual property
created by Stan Lee, as well as the name and likeness of Stan Lee. The entity is called “Stan Lee Universe, LLC”. POW!
and the Company are finalizing the details of the venture. Through this agreement we are assuming the worldwide rights, in perpetuity,
to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing,
comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations, from which Genius Brands plans
to develop and license approximately multiple properties each year.
In addition, we act as licensing agent
for Penguin Young Readers, a division of Penguin Random House LLC which owns or controls the underlying rights to Llama Llama,
leveraging our existing licensing infrastructure to expand this brand into new product categories, new retailers, and new territories.
The Company commenced operations in January
2006, assuming all the rights and obligations of its then Chief Executive Officer, 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,” “Kid Genius,” “123 Favorite Music” and “Wee Worship,” and all then existing
productions under those titles. In October 2011, the Company (i) changed its domicile 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, the Company changed its trading symbol from “PENT” to “GNUS”.
Liquidity and Going Concern
Recent Developments
With respect to the ongoing and evolving
coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak
has caused substantial disruption in international and U.S. economies and markets. The outbreak has potential to have an adverse
impact on the entertainment industry and, if repercussions of the outbreak are prolonged, could have a significant adverse impact
on our business, which could be material. The Company’s management cannot at this point estimate the impact of the outbreak
on its business and no provision for this outbreak are reflected in the accompanying financial statements
Historically, the Company has incurred
net losses. For the years ended December 31, 2020 and 2019, the Company reported net losses of $401,669,805 and $11,481,245, respectively.
The Company reported net cash used in operating activities of $7,844,715 and $6,251,150 for the years ended December 31, 2020 and
2019, respectively. As of December 31, 2020, the Company had an accumulated deficit of $469,557,324 and total stockholders’
equity of $119,196,677. As of December 31, 2020, the Company had cash and cash equivalents of $100,456,324, which we believe is
sufficient to fund the Company’s planned operations and production through one year after the date the consolidated financial
statements are issued.
During 2020, the Company completed various transactions that
enhanced cash and working capital balances (See Notes 9 and 13).
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 2020 and 2019 consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of Genius Brands International, Inc., its wholly-owned subsidiaries A Squared LLC, Llama Productions
LLC and Rainbow Rangers Productions LLC. All significant inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
Financial Statement Reclassification
Certain account balances from prior periods
have been reclassified in these consolidated financial statements to conform to current period classifications.
Cash and Cash Equivalents
The Company considers all highly liquid
debt instruments with initial maturities of three months or less to be cash equivalents. The Company had no restricted cash as
of December 31, 2020 and 2019.
Allowance for Doubtful Accounts
Accounts receivable are presented on the
balance sheets net of estimated uncollectible amounts. The Company assesses its accounts receivable balances on a quarterly basis
to determine collectability and records an allowance for estimated uncollectible accounts in an amount approximating anticipated
losses based on historical experience and future expectations. Individual uncollectible accounts are written off against the allowance
when collection of the individual accounts appears doubtful. The Company had an allowance for doubtful accounts of $43,676 and
$0 as of December 31, 2020 and 2019, respectively.
Inventory
Inventories are stated at the lower of
average cost or net realizable value and consist of finished goods such as DVDs, CDs and other products. The Company concluded
that the inventory was obsolete and has written off the balance of $9,277 as of December 31, 2020.
Property and Equipment
Property and equipment are recorded at
cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the
assets, which range from two to seven years. Maintenance, repairs, and renewals, which neither materially add to the value of the
assets nor appreciably prolong their lives, are charged to expense as incurred. Gains and losses from any dispositions of property
and equipment are reflected in the statement of operations.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the estimated
fair value of net assets acquired in business combinations accounted for by the purchase method. In accordance with FASB ASC 350
Intangibles Goodwill and Other, goodwill and certain intangible assets are presumed to have indefinite useful lives and are thus
not amortized, but subject to an impairment test annually or more frequently if indicators of impairment arise. We complete the
annual goodwill and indefinite-lived intangible asset impairment tests at the end of each fiscal year. In testing goodwill, we
initially use a qualitative approach and analyze relevant factors to determine if events and circumstances have affected the value
of the goodwill. If the result of this qualitative analysis indicates that the value has been impaired, we then apply a quantitative
approach to calculate the difference between the goodwill’s recorded value and its fair value. An impairment loss is recognized
to the extent that the recorded value exceeds its fair value. Goodwill, in addition to being tested for impairment annually, is
tested for impairment at interim periods if an event occurs or circumstances change such that it is more likely than not that the
carrying amount of goodwill may be impaired. For the year ended December 31, 2020, the Company performed a qualitative analysis
of the carrying value of goodwill. Based on the results of our analysis, we concluded that there is no impairment to the goodwill
balance and no adjustment is necessary at this time.
Other intangible assets have been acquired,
either individually or with a group of other assets, and were initially recognized and measured based on fair value. Annual amortization
of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset.
Film and Television Costs
The Company capitalizes production costs
for episodic series produced in accordance with FASB ASC 926-20 Entertainment-Films - Other Assets - Film Costs. Accordingly, production
costs are capitalized at actual cost and then charged against revenue based on the initial market revenue evidenced by a firm commitment
over the period of commitment. The Company expenses all capitalized costs that exceed the initial market firm commitment revenue
in the period of delivery of the episodes.
The Company capitalizes production costs
for films produced in accordance with FASB ASC 926-20 Entertainment-Films - Other Assets - Film Costs. Accordingly, production
costs are capitalized at actual cost and then charged against revenue quarterly as a cost of production based on the relative fair
value of the film(s) delivered and recognized as revenue. The Company evaluates its capitalized production costs annually and limits
recorded amounts by their ability to recover such costs through expected future sales.
Additionally, for both episodic series
and films, from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing
content. After the initial release of the film or episodic series, the costs of significant improvement to existing products are
capitalized while routine and periodic alterations to existing products are expensed as incurred.
Debt and Attached Equity-Linked Instruments
The Company measures issued debt on an
amortized cost basis, net of debt premium/discount and debt issuance costs amortized using the effective interest rate method or
the straight-line method when the latter does not lead to materially different results.
The Company accounts for the proceeds from
the issuance of convertible notes payable in accordance with FASB ASC 470-20 Debt with Conversion and Other Options.
Pursuant to FASB ASC 470-20, the intrinsic value of the embedded conversion feature (beneficial conversion interest), which is
in the money on the commitment date is included in the discount to debt and amortized to interest expense over the term of the
note agreement. When the conversion option is not separated, the Company accounts for the entire convertible instrument including
debt and the conversion feature as a liability.
The Company analyzes freestanding equity-linked
instruments including warrants attached to debt to conclude whether the instrument meets the definition of the derivative and whether
it is considered indexed to the Company’s own stock. If the instrument is not considered indexed to Company’s stock,
it is classified as an asset or liability recorded at fair value. If the instrument considered indexed to Company’s stock,
the Company analyzes additional equity classification requirements per ASC 815-40 Contract’s in Entity’s Own Equity.
When the requirements are met the instrument is recorded as part of the Company’s equity, initially measured based on its
relative fair value with no subsequent re-measurement. When the equity classification requirements are not met, the instrument
is recorded as an asset or liability and is measured at fair value with subsequent changes in fair value recorded in earnings.
When required, the Company also considers
the bifurcation guidance for embedded derivatives per FASB ASC 815-15 Embedded Derivatives.
Revenue Recognition
The Company accounts for revenue according
to standard ASC 606 (Topic 606). The Company has identified the following six material and distinct performance obligations:
|
·
|
License rights to exploit Functional Intellectual Property (Functional Intellectual Property or “functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability be played or aired. Functional intellectual property derives a substantial portion of its utility from its significant standalone functionality.)
|
|
·
|
License rights to exploit Symbolic Intellectual Property (Symbolic Intellectual Property or “symbolic IP” is intellectual property that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is derived from its association with the entity’s past or ongoing activities, including its ordinary business activities, such as the Company’s licensing and merchandising programs associated with its animated content.)
|
|
·
|
Options to renew or extend a contract at fixed terms. (While this performance obligation is not significant for the Company’s current contracts, it could become significant in the future.)
|
|
·
|
Options on future seasons of content at fixed terms. (While this performance obligation is not significant for the Company’s current contracts, it could become significant in the future.)
|
|
·
|
Fixed fee advertising revenue generated from the Genius Brands Network
|
|
·
|
Variable fee advertising revenue generated from the Genius Brands Network
|
As a result of the change, beginning January
1, 2018, the Company began recognizing revenue related to licensed rights to exploit functional IP in two ways. For minimum guarantees,
the Company recognizes fixed revenue upon delivery of content and the start of the license period. For functional IP contracts
with a variable component, the Company estimates revenue such that it is probable there will not be a material reversal of revenue
in future periods. Revenue under these types of contracts was previously recognized when royalty statements were received. The
Company began recognizing revenue related to licensed rights to exploit symbolic IP substantially similarly to functional IP. Although
it has a different recognition pattern from functional IP, the valuation method is substantially the same, depending on the nature
of the license.
The Company sells advertising on its Kid
Genius channel in the form of either flat rate promotions or impressions served. For flat rate promotions with a fixed term, the
Company recognizes revenue when all five revenue recognition criteria under FASB ASC 606 are met. For impressions served, the Company
delivers a certain minimum number of impressions on the channel to the advertiser for which the advertiser pays a contractual costs
per thousand (CPM) per impression. Impressions served are reported to the Company on a monthly basis, and revenue is reported in
the month the impressions are served.
The Company recognizes revenue related
to product sales when we complete our performance obligation, which is when the goods are transferred to the buyer.
Direct Operating Costs
Direct operating costs include costs of
our product sales, non-capitalizable film costs, film and television cost amortization expense, and participation expense related
to agreements with various animation studios, post-production studios, writers, directors, musicians or other creative talent with
which we are obligated to share net profits of the properties on which they have rendered services.
Share-Based Compensation
As required by FASB ASC 718 - Stock Compensation,
the Company recognizes an expense related to the fair value of our share-based compensation awards, including stock options, using
the Black-Scholes calculation as of the date of grant. The Company has elected to use the graded attribution method for awards
which are in-substance, multiple awards based on the vesting schedule. The Company’s accounting policy elected for forfeitures
is not to estimate the number of awards that are expected to vest. Instead, the Company accounts for forfeitures when they occur. The
Company issues authorized shares available for the issuance under 2015 Plan upon employees’ exercise of their stock options.
Earnings Per Share
Basic earnings (loss) per common share
(“EPS”) is calculated by dividing net income (loss) applicable to common shareholders by the weighted average number
of shares of common stock outstanding for the period. Diluted EPS is calculated by dividing net income (loss) applicable to common
shareholders by the weighted average number of shares of common stock outstanding, plus the assumed exercise of all dilutive securities
using the treasury stock or “as converted” method, as appropriate. During periods of net loss, all common stock equivalents
are excluded from the diluted EPS calculation because they are antidilutive.
Income Taxes
Deferred income tax assets and liabilities
are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted
tax rates. At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible
sources of realization of deferred tax assets and records a valuation allowance that reduces the deferred tax assets to an amount
that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.
Concentration of Risk
The Company’s cash is maintained
at two financial institutions and from time to time the balances for this account exceed the Federal Deposit Insurance Corporation’s
(“FDIC”) insured amount. Balances on interest bearing deposits at banks in the United States are insured by the FDIC
up to $250,000 per account. As of December 31, 2020, the Company had four accounts with a combined uninsured balance of $99,260,006.
As of December 31, 2019, the Company had no accounts with a combined uninsured balance.
For fiscal year 2020, the Company had two
customers whose total revenue exceeded 10% of the total consolidated revenue. These customers accounted for 44% of total revenue
and represented 22% of accounts receivable. For fiscal year 2019, the Company had two customers whose total revenue exceeded 10%
of the total consolidated revenue. These customers accounted for 65% of total revenue and represented 95% of accounts receivable.
The major customers for the year ended
December 31, 2020 are the same as the major customers at December 31, 2019. There is significant financial risk associated with
a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and
establishes allowances for any anticipated bad debt. At December 31, 2020 and 2019, the Company recorded an allowance for bad debt
of $43,676 and $0, respectively.
Fair value of financial instruments
The carrying amounts of cash, receivables,
accounts payable, and accrued liabilities approximate fair value due to the short-term maturity of the instruments. The carrying
amount of long-term receivables approximate fair value due to the contractual nature of the obligation, payment schedule, and the
current interest and inflation rate environments. The carrying amount of the Production Loan Facility approximates fair value since
the debt carries a variable interest rate that is tied to either the current Prime or LIBOR rates plus an applicable spread.
We previously adopted FASB ASC 820 for
financial instruments measured at fair value on a recurring basis. FASB ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with U.S. GAAP and expands disclosures about fair value measurements.
Fair value is defined 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. FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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·
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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|
|
|
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
|
|
|
·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
Recent Accounting Pronouncements
In March 2019, the FASB issued ASU No.
2019-02, Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters Intangibles-Goodwill and
Other (Subtopic 920-350). The update aligns the accounting for production costs of an episodic television series with the accounting
for production costs of films by removing the content distinction for capitalization. The amendments also require that an entity
reassess estimates of the use of a film in a film group and account for any changes prospectively. The amendments in this update
require that an entity test a film or license agreement for program material within the scope of Subtopic 920-350 for impairment
at a film group level when the film or license agreement is predominantly monetized with other films and/or license agreements.
For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years. The Company has prospectively adopted ASU 2016-18. The impact to our consolidated financial
position, results of operations and cash flows was not material.
In August 2020, the FASB issued
ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update simplifies the
accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt—Debt with Conversion
and Other Options, for convertible instruments. As part of the amendment, the embedded conversion features are no longer separated
from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives
under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. The FASB
has eliminated the cash conversion and beneficial conversion feature models. The FASB has also modified accounting rules relating
to application of the scope exception from derivative accounting. The amendments revise the guidance in ASC 815-40-25-10, to remove
three out of seven conditions from the settlement guidance, referred to as additional equity classification requirements. Following
the above amendments, more convertible debt instruments will be accounted for as a single liability measured at its amortized cost
and more convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long
as no features require bifurcation and recognition as derivatives. The amendments are effective for public business entities, excluding
smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal
years. For all other entities, including smaller reporting companies the amendments are effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is in the process of
assessing the impact of the amendments to Company’s consolidated financial statements.
Various other accounting pronouncements
have been recently issued, most of which represented technical corrections to the accounting literature or were applicable to specific
industries/transactions or special circumstances and are not expected to have a material effect on our financial position, results
of operations, or cash flows.
Note 3: Property and Equipment, Net
The Company has property and equipment
as follows as of December 31, 2020 and 2019:
Property and Equipment, Net
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Furniture and Equipment
|
|
$
|
19,419
|
|
|
$
|
19,419
|
|
Computer Equipment
|
|
|
168,122
|
|
|
|
144,643
|
|
Leasehold Improvements
|
|
|
14,182
|
|
|
|
14,182
|
|
Software
|
|
|
68,152
|
|
|
|
15,737
|
|
Property and Equipment, Gross
|
|
|
269,875
|
|
|
|
193,981
|
|
Less Accumulated Depreciation
|
|
|
(174,047
|
)
|
|
|
(129,105
|
)
|
Property and Equipment, Net
|
|
$
|
95,828
|
|
|
$
|
64,876
|
|
During the years ended December 31, 2020
and December 31, 2019, the Company recorded depreciation expense of $44,942 and $37,734.
Note 4: Right Of Use Leased Asset
In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842), Targeted Improvements, which allows for an additional optional transition method where comparative periods
presented in the financial statements in the period of adoption will not be restated and instead those periods will be presented
under existing guidance in accordance with ASC 840, Leases. Management used this optional transition method. As of January 1,
2019, the Company adopted ASU 2018-11.
Right Of Use Leased Asset
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Office Lease Asset
|
|
$
|
2,245,093
|
|
|
$
|
4,387,956
|
|
Printer Lease Asset
|
|
|
12,374
|
|
|
|
12,374
|
|
Right Of Use Asset, Gross
|
|
|
2,257,467
|
|
|
|
4,400,330
|
|
|
|
|
|
|
|
|
|
|
Office Lease Accumulated Amortization
|
|
|
(274,980
|
)
|
|
|
(383,118
|
)
|
Printer Lease Accumulated Amortization
|
|
|
(10,123
|
)
|
|
|
(7,375
|
)
|
Right Of Use Asset, Net
|
|
$
|
1,972,364
|
|
|
$
|
4,009,837
|
|
During the year ended December 31, 2020
and 2019, the Company recorded amortization expense of $285,103 and 390,493.
Note 5: Film and Television Costs, Net
As of December 31, 2020, the Company had
net Film and Television Costs of $11,828,494 compared to $9,906,885 at December 31, 2019. The increase relates primarily to the
production and development of Rainbow Rangers Season 2 and Stan Lee’s Superhero Kindergarten Season 1 offset
by the amortization of film costs associated with the revenue recognized Rainbow Rangers Season 1 and Season 2.
During the years ended December 31, 2020
and December 31, 2019, the Company recorded Film and Television Cost amortization expense of $979,598 and $2,230,024, respectively.
The following table highlights the activity
in Film and Television Costs as of December 31, 2020 and 2019:
Film and Television Costs, Net
|
|
Total
|
|
Film and Television Costs, Net as of December 31, 2018
|
|
$
|
8,166,131
|
|
Additions to Film and Television Costs
|
|
|
3,920,013
|
|
Capitalized Interest
|
|
|
50,765
|
|
Film Amortization Expense
|
|
|
(2,230,024
|
)
|
Film and Television Costs, Net as of December 31, 2019
|
|
|
9,906,885
|
|
Additions to Film and Television Costs
|
|
|
2,901,207
|
|
Capitalized Interest
|
|
|
–
|
|
Film Amortization Expense
|
|
|
(979,598
|
)
|
Film and Television Costs, Net as of September 30, 2020
|
|
$
|
11,828,494
|
|
Note 6: Goodwill and Intangible Assets, Net
Goodwill
In 2013, the Company recognized $10,365,805
in Goodwill, representing the excess of the fair value of the consideration over net identifiable assets acquired. Pursuant to
FASB ASC 350-20, Goodwill is not subject to amortization but is subject to annual review to determine if certain events warrant
impairment to the Goodwill asset. Through December 31, 2019, the Company has not recognized any impairment to Goodwill.
Intangible Assets, Net
The Company had the following intangible
assets as of December 31, 2020 and 2019:
Intangible Assets, Net
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Trademarks (a)
|
|
$
|
129,831
|
|
|
$
|
129,831
|
|
Other Intangible Assets (a)
|
|
|
299,028
|
|
|
|
272,528
|
|
Intangible Assets, Gross
|
|
|
428,859
|
|
|
|
402,359
|
|
Less Accumulated Amortization (b)
|
|
|
(400,165
|
)
|
|
|
(350,776
|
)
|
|
|
|
|
|
|
|
|
|
Intangible Assets, Net
|
|
$
|
28,694
|
|
|
$
|
51,583
|
|
|
(a)
|
Pursuant to FASB ASC 350-30-35,
the Company reviews these intangible assets periodically to determine if the value should be retired or impaired due to recent
events. At December 31, 2019, the Company determined that the Product Masters inventory had no further useful life and the asset
value and accumulated amortization were written off.
|
|
(b)
|
During the years ended December
31, 2020 and December 31, 2019, the Company recognized, $49,388 and $38,405, respectively, in amortization expense related to the
Trademarks, Product Masters, and Other Intangible Assets.
|
Expected future intangible asset amortization as of December
31, 2020 is as follows:
Fiscal Year:
|
|
|
|
|
2021
|
|
|
|
11,246
|
|
2022
|
|
|
|
10,528
|
|
2023
|
|
|
|
6,187
|
|
2024
|
|
|
|
733
|
|
Total
|
|
|
$
|
28,694
|
|
Note 7: Deferred Revenue
As of December 31, 2020, and 2019, the
Company had total short term and long term deferred revenue of $4,432,377 and $5,108,953, respectively. Deferred revenue includes
both (i) variable fee contracts with licensees and customers in which the Company had collected advances and minimum guarantees
against future royalties and (ii) fixed fee contracts. The Company recognizes revenue related to these contracts when all revenue
recognition criteria have been met. Included in the deferred revenue balance as of December 31, 2020 is $3,367,086 which is the
remaining balance from the total $3,489,583 advance against future royalty that Sony paid to the Company for both the foreign and
domestic distribution rights.
Note 8: Accrued Liabilities –
Current
As of December 31, 2020, and 2019, the
Company had the following current accrued liabilities:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Other Accrued Expenses (a)
|
|
$
|
408,459
|
|
|
$
|
124,940
|
|
Accrued Salaries and Wages (b)
|
|
|
428,922
|
|
|
|
231,481
|
|
Total Accrued Liabilities – Current
|
|
$
|
837,381
|
|
|
$
|
356,421
|
|
|
(a)
|
Other Accrued Expenses include the sub lease security deposit liability on the Rodeo Drive location as well as estimates of expenses incurred but not yet recorded.
|
|
(b)
|
Accrued Salaries and Wages include accrued Salaries and vacation payable to employees
|
Note 9: Secured Convertible Notes
On August 17, 2018, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”),
pursuant to which the Company agreed to sell (i) an aggregate principal amount of $4.50 million in secured convertible notes, convertible
into shares of our common stock, at a conversion price of $2.50 per share (the “Secured Convertible Notes”) and (ii)
warrants to purchase 1,800,000 shares of our common stock at an exercise price of $3.00 per share (the “Warrants,”
and, together with the Secured Convertible Notes, the “Securities”). We received approximately $4,500,000 in gross
proceeds from the Offering.
The Secured Convertible Notes were our
senior secured obligations and are secured by certain tangible and intangible property of the Company as described in the Purchase
Agreement. Unless earlier converted or redeemed, the Secured Convertible Notes will mature on August 20, 2019. The Secured Convertible
Notes bear interest at a rate of 10% per annum and are convertible at any time until a Secured Convertible Note is no longer outstanding,
in whole or in part, at the option of the holders into shares of common stock at a conversion price of $2.50 per share. The Secured
Convertible Notes have a beneficial ownership limitation such that none of the Investors have the right to convert any portion
of their Secured Convertible Notes if the Investor (together with its affiliates or any other persons acting together as a group
with the Investor) would beneficially own in excess of 9.99% of the number of shares of our common stock outstanding immediately
after giving effect to the issuance of our common stock issuable upon conversion of such Secured Convertible Notes. In addition,
the Secured Convertible Notes provide for a conversion cap such that we may not issue any shares of our common stock upon conversion
of Secured Convertible Notes which would exceed the aggregate number of shares of our common stock we could issue upon conversion
of the Secured Convertible Notes without breaching our obligations, if any, under Nasdaq Stock Market LLC rules and regulations.
Interest under the Secured Convertible
Notes were payable in arrears beginning on September 1, 2018 and thereafter on each of December 1, 2018, March 1, 2019, June 1,
2019 and at maturity when all amounts outstanding under the Secured Convertible Notes become due and payable. Subject to certain
equity conditions, we may force a conversion of the debt into equity. We may redeem the Secured Convertible Notes at any time prior
to maturity. If we do not meet such equity conditions at maturity, we are obligated to repay in cash one-sixth of the then outstanding
principal amount of the Secured Convertible Notes each month for the six months following the date of maturity, with the first
such payment due on the date of maturity, followed by payments each month thereafter.
The Secured Convertible Notes contained
certain negative covenants, including prohibitions on the incurrence of indebtedness or liens. The Secured Convertible Notes also
contain standard and customary events of default including, but not limited to, failure to make payments when due, failure to observe
or perform covenants or agreements contained in the Secured Convertible Notes or the bankruptcy or insolvency of the Company or
any of our subsidiaries. The Company was in compliance with these covenants as of December 31, 2019.
On the date of issuance, the Secured Convertible
Notes were convertible into common stock at $2.50 per share, or at a conversion price below the closing market price of $2.55.
This “discount” is considered a beneficial conversion feature for accounting purposes. The allocation of carrying basis
between the Warrants issued and the Secured Convertible Notes was determined based on relative fair value. The discount of the
initial conversion price from market related to the beneficial conversion feature of the debt was $1,561,111, and such amount was
recorded as a reduction of debt and increase in additional paid-in capital. The discount will be amortized as additional interest
over the term of the loan.
The Warrants entitle the holders to purchase
1,800,000 shares of common stock. The Warrants were not exercisable until after six months from the date of issuance and expire
five and half years from the date of issuance. The Warrants have an exercise price of $3.00 per share. In the event of a “Fundamental
Transaction” (as defined in the Warrants), the Investors have the right to receive the value of the Warrants as determined
in accordance with the Black Scholes option pricing model. The Warrants are considered indexes to the Company’s own stock
pursuant to ASC 815-40. The Warrants also met the additional equity classification requirements and accordingly are accounted for
as part of the Company’s equity.
In conjunction with the February 2019 Offering
and concurrent private placement, the Company entered into an amendment, waiver and consent agreement, or the “Amendment,
Waiver and Consent Agreement,” with certain holders of its 10% Secured Convertible Notes due August 20, 2019, which were
issued pursuant to a securities purchase agreement, dated August 17, 2018, by and among the Company and the purchasers identified
on the signature pages thereto, or the notes purchase agreement. Pursuant to the Amendment, Waiver and Consent Agreement, such
holders agreed to amend the notes purchase agreement, waive any applicable rights and remedies under the notes purchase agreement,
and consent to the February 2019 Offering and concurrent private placement. In consideration for such Amendment, Waiver and Consent
Agreement, the Company agreed to issue such holders warrants to purchase up to an aggregate amount of 1,800,000 shares of Common
Stock. Such warrants have an exercise price of $2.55 per share, will become exercisable commencing six months and one day from
the date of issuance and will expire five (5) years from the date of issuance. The issuance of the warrants resulted in a modification
of debt in accordance with ASC 470 and is characterized as an extinguishment of debt in accordance with ASC-470-50-40. In accordance
with ASC-470-50-40-2 the Company derecognized the existing debt as if it was extinguished and recorded the new debt, with the difference
between the reacquisition price of the new debt and the net carrying amount of the extinguished debt, $2,109,818 being recorded
as a loss on the extinguishment of debt.
In addition, the warrants were accounted
for as equity instruments in accordance with ASC 815-40 and valued using the Black Scholes option pricing model. The fair value
of $1,287,962 was recorded as part of the loss on extinguishment of debt.
On July 22, 2019, in connection with a
proposed public offering of shares of Common Stock (the “August 2019 Offering”), the Company entered into an amendment,
waiver and consent agreement (the “July Amendment, Waiver and Consent”) with certain holders constituting (i) a majority-in-interest
of the holders of its Secured Convertible Notes and (ii) 51% in interest of the shares of Common Stock issued pursuant to a securities
purchase agreement, dated as of January 8, 2018, by and among the Company and the purchasers identified on the signature pages
thereto (the “January 2018 Purchase Agreement”). Pursuant to the July Amendment, Waiver and Consent, such holders agreed
to amend the August 2018 Purchase Agreement, the January 2018 Purchase Agreement and the Secured Convertible Notes, waive any applicable
rights and remedies under each of the August 2018 Purchase Agreement and the January 2018 Purchase Agreement, and consent to the
August 2019 Offering in consideration for (i) a reduction in the conversion price of the Secured Convertible Notes from $2.50 per
share to an amount equal to $1.515 and (ii) the issuance to the August 2018 Purchasers of new warrants to purchase the same number
of shares of Common Stock that were issued to each August 2018 Purchaser pursuant to the August 2018 Purchase Agreement (for an
aggregate of 1,800,000 shares of Common Stock to all August 2018 Purchasers) at an exercise price per share equal to $1.14 and
will become exercisable commencing six (6) months and one day from the date of issuance and will expire five (5) years from the
date of issuance.
The issuance of the new warrants resulted
in a modification of debt in accordance with ASC 470 and is characterized as an extinguishment of debt in accordance with ASC-470-50-40.
In accordance with ASC-470-50-40-2, the Company derecognized the existing debt as if it was extinguished and recorded the new debt.
The difference between the reacquisition price of the debt including the fair value of the warrants issued and the net carrying
amount of the extinguished debt amounted to $957,867. This amount was recorded as a loss on debt extinguishment.
In addition, the conversion option was
accounted for as part of the debt’s carrying value in accordance with the bifurcation guidance per ASC 815 as it applies
to the debt’s conversion feature. The conversion option was valued using the Black Scholes option pricing model. The fair
value of $77,172 was recorded as part of the loss on extinguishment of debt. The conversion option will be amortized using the
straight-line method over the remaining terms.
On August 20, 2019, pursuant to the Secured
Convertible Notes, the Company elected to make six equal monthly principal payments of $750,000. The first payment with interest
was paid on August 23, 2019.
On September 17, 2019, the Company’s
CEO, Andy Heyward, purchased $500,000 of the Secured Convertible Notes from another holder. The Company did not receive any proceeds
from this transaction.
On September 20, 2019, the Company and
the holders of $1,958,334 of the Secured Convertible Notes, extended the maturity date of those Secured Convertible Notes until
January 31, 2020. The Company also agreed to pay the 10% interest to the holders monthly instead of quarterly.
On September 20, 2019, the Company and
the holders of $687,500 of the Secured Convertible Notes, extended the maturity date of those Secured Convertible Notes until August
20, 2021. The Company also agreed to pay the 10% interest to the holders monthly instead of quarterly.
The remaining balance of $883,332 under
the Secured Convertible Notes that were not extended were to be paid in four monthly installments of $220,883. The September through
December payments, including interest, have been paid.
On March 17, 2020, the Secured Convertible
Notes were paid in full including interest.
March 2020 Secured Convertible Note and Warrant Private Placement
On March 11, 2020, we entered into a Securities
Purchase Agreement (the “SPA”) with certain accredited investors (each an “Investor” and collectively,
the “Investors”) pursuant to which we agreed to sell and issue (1) Senior Secured Convertible Notes to the Investors
in the aggregate principal amount of $13,750,000 (each, a “Note” and collectively, the “2020 Convertible Notes”)
and $11,000,000 funding amount (reflecting an original issue discount of $2,750,000) and (2) warrants to purchase 65,476,190 shares
of the Company’s common stock, par value $0.001 per share (the “Common Stock”), exercisable for a period of five
years at an initial exercise price of $0.26 per share (each a “Warrant” and collectively, the “Warrants”),
for consideration consisting of (i) a cash payment of $7,000,000, and (ii) full recourse cash secured promissory notes payable
by the Investors to the Company (each, an “Investor Note” and collectively, the “Investor Notes”) in the
principal amount of $4,000,000 (the “Investor Notes Principal”) (collectively, the “Financing”). Andy Heyward,
our Chairman and Chief Executive Officer, participated as an Investor and invested $1,000,000 in connection with the Financing,
all of which was paid at the closing and not pursuant to an Investor Note. The Special Equities Group, LLC, a division of Bradley
Woods & Co. LTD, acted as placement agent and received warrants to purchase 6,547,619 shares at an exercise price of $0.26
per share (the “Placement Agent Warrants”).
The closing of the sale and issuance of
the 2020 Convertible Notes, the Warrants and the Placement Agent Warrants occurred on March 17, 2020 (the “Closing Date”).
The maturity date of the 2020 Convertible Notes was September 30, 2021 and the maturity date of the Investor Notes was March 11,
2060.
The Company held a stockholder meeting
(the “Stockholder Meeting”) to approve the issuance of shares of Common Stock issuable under the 2020 Convertible Notes
and pursuant to the terms of the SPA for the purposes of compliance with the stockholder approval rules of The Nasdaq Stock Market
(“Stockholder Approval”).
In addition, pursuant to the terms of the
SPA, the 2020 Convertible Notes and the Warrants, the Company agreed that the following will apply or become effective only following
Stockholder Approval: (1) the conversion price of the 2020 Convertible Notes shall be reduced to $0.21 per share and may be further
reduced to any amount and for any period of time deemed appropriate by the board of directors of the Company (the “Board
of Directors”), (2) the exercise price of the Warrants shall be immediately reduced to $0.21 per share and may be further
reduced to any amount and for any period of time deemed appropriate by the Board of Directors, (3) the 2020 Convertible Notes and
Warrants shall each have full ratchet anti-dilution protection for subsequent financings (subject to certain exceptions), (4) existing
warrant holders that are participating in the Financing (representing warrants to purchase an aggregate of 8,715,229 shares of
Company Common Stock) will have their existing warrants’ exercise prices reduced to $0.21 and (5) the investors shall have
a most favored nations right which provides that if the Company enters into a subsequent financing, then the Investors (together
with their affiliates) at their sole discretion shall have the ability to exchange their 2020 Convertible Notes on a $1 for $1
basis into securities issued in the new transaction. Additionally, in the event that any warrants or options (or any similar security
or right) issued in a subsequent financing include any terms more favorable to the holders thereof (less favorable to the Company)
than the terms of the Warrants, the Warrants shall be automatically amended to include such more favorable terms. On March
16, 2020, the holders of the August 2018 Secured Convertible Notes were repaid in full including any outstanding interest.
On May 15, 2020, the Company received the
necessary Stockholder Approval in connection with the Nasdaq proposals described above. As a result, the Conversion Price of the
2020 Convertible Notes and the exercise price of the Warrants were each reduced to $0.21. In addition, existing warrant holders
that participated in the Financing (representing warrants to purchase an aggregate of 9,172,463 shares of Common Stock) also had
their existing warrants’ exercise prices reduced to $0.21.
As a result of the reduction in the Conversion
Price of the 2020 Convertible Notes to $0.21, the conversion feature was revalued. This revaluation resulted in a conversion option
revaluation expense of $171,835,729.
Note 10: Production Loan Facility
On August 8, 2016, Llama Productions, LLC
closed a $5,275,000 multiple draw-down, secured, non-recourse, non-revolving credit facility (the “Facility”) with
Bank Leumi USA to produce its animated series Llama Llama, (the “Series”) which is configured as fifteen half-hour
episodes comprised of thirty 11-minute programs that were delivered to Netflix in fall 2017. The Facility is secured by the license
fees the Company will receive from Netflix for the delivery of the Series as well as the Company’s copyright in the Series.
The Facility has a term of 40 months and has an interest rate of either Prime plus 1% or one, three, or six-month LIBOR plus 3.25%.
As a condition of the loan agreement with Bank Leumi, the Company deposited $1,000,000 into a cash account to be used solely to
produce the Series. Additionally, the Facility contains certain standard affirmative and negative non-financial covenants such
as maintaining certain levels of production insurance and providing standard financial reports. As of December 31, 2019, the Company
was in compliance with these covenants.
On September 28, 2018, Llama Productions
LLC entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bank Leumi USA (the “Lender”),
pursuant to which the Lender agreed to make a secured loan in an aggregate amount not to exceed $4,231,989 to Llama (the “Loan”).
The proceeds of the Loan will be used to pay the majority of the expenses of producing, completing and delivering two 22-minute
episodes and sixteen 11- minute episodes of the second season of the animated series Llama Llama to be initially exhibited
on Netflix.
To secure payment of the Loan, Llama has
granted to the Lender a continuing security interest in and against, generally, all of its tangible and intangible assets, which
includes all seasons of the Llama Llama animated series.
Under the Loan and Security Agreement,
Llama can request revolving loan advances under (a) the Prime Rate Loan facility and (b) the LIBOR Loan facility, each as further
described in the Loan and Security Agreement attached as an exhibit hereto. Prime Rate Loan advances shall bear interest, on the
outstanding balance thereof, at a fluctuating per annum rate equal to 1.0% plus the Prime Rate (as such term is defined in the
Loan and Security Agreement), provided that in no event shall the interest rate applicable to Prime Rate Loans be less than 4.0%
per annum. LIBOR Loan advances shall bear interest, on the outstanding balance thereof, for the period commencing on the funding
date and ending on the date which is one (1), three (3) or six (6) months thereafter, at a per annum rate equal to 3.25% plus the
LIBOR determined for the applicable Interest Period (as such terms are defined in the Loan and Security Agreement), provided that
in no event shall the interest rate applicable to LIBOR Loans be less than 3.25% per annum. The Maturity Date of the Prime Rate
Loan facility and LIBOR Loan facility is March 31, 2021. Interest rates on advances under the Loan and Security Agreement were
between 5.53% and 6.14% as of December 31, 2019.
In addition, on September 28, 2018, Llama
and Lender entered into Amendment No. 2 to Loan and Security Agreement, effective as of August 27, 2018, by and between Llama and
the Lender (the “Amendment”). Pursuant to the Amendment, the original Loan and Security Agreement, dated as of August
8, 2016 and amended as of November 7, 2017 (the “Original Loan and Security Agreement”), was amended to (i) reduce
the loan commitment thereunder to $1,768,010, and (ii) include the Llama Llama season two obligations under the Loan and Security
Agreement as obligations under the Original Loan and Security Agreement.
As of December 31, 2020, the Company had
outstanding borrowing under the facility of $1,099,713. As of December 31, 2019, the Company had outstanding borrowings under the
facility of $3,091,739.
Note 11: Disputed Trade Payable
As part of the merger in 2013, the Company
assumed certain liabilities from a previous member of A Squared which has claimed certain liabilities totaling $925,000. The Company
disputes the basis for this liability. As of December 31, 2020, the Company believes that the statute of limitations applicable
to the assertion of any legal claim relating to the collection of these liabilities has expired and therefore believes this liability
is not owed.
Note 12: Payroll Protection Program
Loan
On April 30, 2020, the Company received loan proceeds in the
amount of $366,267 under the Paycheck Protection Program (“PPP”) which was established as part of the Coronavirus Aid,
Relief and Economic Security (“CARES”) Act and is administered through the Small Business Administration (“SBA”).
The PPP provides loans to qualifying businesses in amounts up to 2.5 times their average monthly payroll expenses and was designed
to provide a direct financial incentive for qualifying businesses to keep their workforce employed during the Coronavirus crisis.
PPP loans are uncollateralized and guaranteed by the SBA and are forgivable after a “covered period” (eight or twenty-four
weeks) as long as the borrower maintains its payroll levels and uses the loan proceeds for eligible expenses, including payroll,
benefits, mortgage interest, rent, and utilities. The forgiveness amount will be reduced if the borrower terminates employees or
reduces salaries and wages more than 25% during the covered period. Any unforgiven portion is payable over 2 years if issued before,
or 5 years if issued after, June 5, 2020 at an interest rate of 1% with payments deferred until the SBA remits the borrower’s
loan forgiveness amount to the lender, or, if the borrower does not apply for forgiveness, ten months after the end of the covered
period. PPP loan terms provide for customary events of default, including payment defaults, breaches of representations and warranties,
and insolvency events and may be accelerated upon the occurrence of one or more of these events of default. Additionally, PPP loan
terms do not include prepayment penalties. The Company is in the process of repaying the loan.
Note 13: Stockholders’ Equity
Common Stock
As of December 31, 2020, the total number
of authorized shares of common stock was 400,000,000.
As of December 31, 2020, and 2019, there
were 258,438,514 and 21,877,724 shares of common stock outstanding, respectively. Below are the changes to the Company’s
common stock during the year ended December 31, 2020:
Year Ended December
31, 2020
|
·
|
On January 8, 2020, the Company issued 43,077 shares of Common Stock valued at $0.65 per share
to a provider for investor relations services.
|
|
·
|
On January 15, 2020, the Company issued 3,171,428 shares of Common Stock in exchange for 667 shares
of Preferred Stock at a conversion price of $0.21 per share.
|
|
·
|
On January 22, 2020, the Company entered into a private transaction (the “Private Transaction”)
pursuant to a Warrant Exercise Agreement (the “Agreement”) with the holder of the Company’s existing warrants
(the “Original Warrants”). The Original Warrants were originally issued on October 3, 2017, to purchase an aggregate
of 500,000 shares of Common Stock (as defined below) at an exercise price of $3.90 per share and were to expire in October 2022.Pursuant
to the Agreement, the holder of the Original Warrants and the Company agreed that such Original Warrant holder would exercise its
Original Warrants in full and the Company would amend the Original Warrants to reduce the exercise price thereof to $0.34 (the
average closing price (as reflected on Nasdaq.com) of the Common Stock (as defined below) for the five trading days immediately
preceding the signing of the Agreement) (the “Amended Exercise Price”). The Company received $170,000 from the exercise
of the Original Warrants.
|
|
·
|
On March 22, 2020, the Company entered into the Purchase Agreement with the Investors, pursuant
to which the Company agreed to issue and sell, in the Registered Offering, an aggregate of 4,000,000 shares Common Stock at an
offering price of $0.2568 per share for gross proceeds of approximately $1.0 million before deducting offering expenses. The Registered
Offering closed on March 25, 2020.
|
|
·
|
On May 7, 2020, we entered into a Securities Purchase Agreement with the May 7th Investors,
pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the May 7th Investors,
an aggregate of 8,000,000 shares of our Common Stock, at an offering price of $0.35 per share for gross proceeds of approximately
$2.8 million before deducting offering expenses.
|
|
·
|
On May 8, 2020, we entered into a Securities Purchase Agreement with the May 8th Investors,
pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the May 8th Investors,
an aggregate of 12,000,000 shares of our Common Stock, at an offering price of $0.454 per share for gross proceeds of approximately
$5.448 million before deducting offering expenses.
|
|
·
|
On May 18, 2020, we entered into a Securities Purchase Agreement with the May 18th Investors,
pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the May 18th Investors,
an aggregate of 7,500,000 shares of our Common Stock, at an offering price of $1.20 per share for gross proceeds of approximately
$9.0 million before deducting offering expenses.
|
|
·
|
On May 28, 2020, we entered into a Securities Purchase Agreement with the May 28th Investors,
pursuant to which we agreed to issue and sell, in a registered direct offering by the Company directly to the May 28th Investors,
an aggregate of 20,000,000 shares of our Common Stock, at an offering price of $1.50 per share for gross proceeds of approximately
$30.0 million before deducting offering expenses.
|
|
·
|
Between May 15 and June 19, 2020 certain warrant holders exercised 50,014,895 warrants in cashless
transactions resulting in the issuance of 45,000,428 shares of Common Stock.
|
|
·
|
Between May 15 and June 19, 2020, the Company received $5,649,319, net of expenses, from the exercise
of 29,666,283 warrants at an exercise price of $0.21 per share
|
|
·
|
Between May 18 and June 24, 2020, the Company issued 1,571,430 shares of Common Stock in exchange
for 330 shares of Preferred Stock at a conversion price of $0.21 per share.
|
|
·
|
On June 22, 2020, the Company issued 49,610 shares of Common Stock valued at $3.85 per share to
a provider for investor relations services.
|
|
·
|
Between June 10 and June 23, 2020, the 2020 Convertible Notes were converted and repaid through
the issuance of 65,476,190 shares of Common Stock.
|
|
·
|
On July 15, 2020, the Company issued 32,609 shares of Common Stock valued at $2.30 per share to
a provider for marketing services.
|
|
·
|
On July 21, 2020, the Company received $55,011, net of expenses, from the exercise of 16,670 warrants
at an exercise price of $0.454 per share.
|
|
·
|
On July 22, 2020, the Company issued 124,451 shares of Common Stock valued at $2.30 per share to
a provider for marketing services.
|
|
·
|
On October 25, 2020, the Company entered into an Agreement that granted 1,000,000 shares of our
Common Sock at an offering price of $1.39 per share in exchange for production serviceOn October 28, 2020, the Company entered
into the Purchase Agreement with the Investors pursuant to which the Company agreed to issue and sell, in a registered director
offering by the Company directly to the Investors, an aggregate of 37,400,000 shares of our Common Stock and warrants to purchase
up to 37,400,000 shares of our Common Stock, at an offering price of $1.55 per fixed combination of one share of Common Stock and
a warrant to purchase one share of Common Stock for gross proceeds of approximately $57.9 million before deducting offering expenses.
|
|
·
|
On November 17, 2020, the Company issued 476,190 shares of Common Stock in exchange for 100 shares
of Series A Convertible Preferred Stock at a conversion price of $0.21 per share.
|
|
·
|
On December 14, 2020 a warrant holder exercised 595,238 warrants on a cashless basis, resulting
in the issuance of 532,424 shares of Common Stock.
|
Year Ended December 31, 2019
|
·
|
On January 10, 2019, the Company issued 17,200 shares of the Company’s common stock valued at $2.44 per share for investor relations services.
|
|
·
|
On January 17, 2019, the Company issued 11,765 shares of the Company’s common stock valued at $2.55 per share for investor relations services.
|
|
·
|
On February 14, 2019, the Company sold, to a certain investor, pursuant to a Securities Purchase Agreement 945,894 shares of Common Stock at a purchase price of $2.12 per share.
|
|
·
|
On April 11, 2019, the Company issued 6,012 shares of common stock valued at $1.92 per share to a vendor for consulting services rendered.
|
|
·
|
On May 2, 2019, the Company issued 10,923 shares of common stock valued at $1.95 per share to a vendor for production services rendered.
|
|
·
|
On May 27, 2019, the Company issued 1,087 shares of common stock valued at $1.84 per share to a vendor for production services rendered.
|
|
·
|
On May 28, 2019, the Company issued 25,000 shares of common stock valued at $1.84 per share to a vendor for consulting services rendered.
|
|
·
|
On July 14, 2019, the Company issued 5,250 shares of Common Stock valued at $1.14 per share to a vendor for consulting services rendered.
|
|
·
|
On July 16, 2019, the Company issued 25,000 shares of Common Stock valued at $1.13 per share to a vendor for consulting services rendered.
|
|
·
|
On August 2, 2019, the Company issued 481,481 shares of Common Stock valued at $0.81 per share to a vendor for production services rendered.
|
|
·
|
On September 18, 2019, the Company issued 945,894 shares of Common Stock pursuant to a Warrant Exercise Agreement at $0.76 per share.
|
|
·
|
On October 2, 2019, Mr. Heyward purchased 1,000,000 shares of the Company’s common stock for an aggregate purchase price of $760,000, or $0.76 per share.
|
|
·
|
Between October 4th and 22nd, 2020, the Company issued 296,053 shares of Common Stock in exchange for 225 shares of Preferred Stock at a conversion price of $0.76 per share
|
|
·
|
On October 18, 2019, the Company issued 534,247 shares of Common Stock valued at $0.73 per share to a vendor for production services rendered.
|
|
·
|
On October 28, 2019, the Company entered into a Securities Purchase Agreement with a certain investor pursuant to which the Company agreed to issue and sell, 663,158 shares of Common Stock, at an offering price of $0.76 per share.
|
|
·
|
Between November 21st and December 10th, 2019, the Company issued 3,804,766 shares of the Common Stock in exchange for 798 shares of preferred Stock at a conversion price of $0.21 per share.
|
|
·
|
On December 17, 2019, the Company issued 3,646,135 shares of Common Stock pursuant to a Warrant Exercise Agreement at $0.21 per share.
|
Preferred Stock
The Company has 10,000,000 shares of preferred
stock authorized with a par value of $0.001 per share. The Board of Directors is authorized, subject to any limitations prescribed
by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more
series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications
and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others,
dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.
As of December 31, 2020, and 2019, there
were 0 and 1,097 shares of Series A Convertible Preferred Stock outstanding, respectively.
On May 12, 2014, the Board of Directors
authorized the designation of a class of preferred stock as “Series A Convertible Preferred Stock”. On May 14, 2014,
the Company filed the Certificate of Designation, Preferences and Rights of the 0% Series A Convertible Preferred Stock with the
Secretary of State of the State of Nevada.
Each share of the Series A Convertible
Preferred Stock is convertible into shares of the Company’s common stock, par value $0.001 per share, based on a conversion
calculation equal to the Base Amount divided by the conversion price. The Base Amount is defined as the sum of (i) the aggregate
stated value of the Series A Convertible Preferred Stock to be converted and (ii) all unpaid dividends thereon. The stated value
of each share of the Series A Convertible Preferred Stock is $1,000 and the initial conversion price is $6.00 per share, subject
to adjustment in the event of stock splits, dividends and recapitalizations. Additionally, in the event the Company issues shares
of its common stock or common stock equivalents at a per share price that is lower than the conversion price then in effect, the
conversion price shall be adjusted to such lower price, subject to certain exceptions. The Company is prohibited from effecting
a conversion of the Series A Convertible Preferred Stock to the extent that as a result of such conversion, the investor would
beneficially own more than 9.99% in the aggregate of the issued and outstanding shares of the Company’s common stock, calculated
immediately after giving effect to the issuance of shares of common stock upon conversion of the Series A Convertible Preferred
Stock. The shares of Series A Convertible Preferred Stock possess no voting rights.
Between
October 4, 2019 and October 22, 2019, the Company issued 296,053 shares of Common Stock in exchange for 225 shares of Preferred
Stock at a conversion price of $0.76 per share.
Between November 21, 2019 and December
10, 2019, the Company issued 3,804,766 shares of the Common Stock in exchange for 798 shares of preferred Stock at a conversion
price of $0.21 per share.
On January 9, 2020, the Company issued
3,171,428 shares of the Common stock in exchange for 667 shares of Series A Convertible Preferred Stock at a conversion price of
$0.21 per share.
Between May 18 and June 24, 2020,
the Company issued 1,571,428 shares of Common Stock in exchange for 330 shares of Series A Convertible Preferred Stock at a conversion
price of $0.21 per share.
On November 17, 2020, the Company issued
476,190 shares of Common Stock in exchange for 100 shares of Series A Convertible Preferred Stock at a conversion price of $0.21
per share.
Note 14: Stock Options
On September 18, 2015, the Company adopted
the Genius Brands International, Inc. 2015 Incentive Plan (the “2015 Plan”). The total number of shares that can be
issued under the 2015 Plan is 2,167,667 shares.
On September 1, 2020, the Company adopted
the Genius Brands International, Inc. 2020 Incentive Plan (the “2020 Plan”). On August 4, 2020, the Board of Directors
voted to adopt the 2020 Plan. The shares available for issuance under the 2020 Plan was approved by stockholders on August 27,
2020. The 2020 Plan as approved by the stockholders increased the maximum number of shares available for issuance up to an aggregate
of 32,167,667 shares of Common Stock.
During the year ended December 31, 2019,
the Company granted options to purchase 81,000 shares of common stock to officers. These stock options generally vest between one
and three years. The fair value of these options was determined to be $117,797 using the Black-Scholes option pricing model based
on the following assumptions:
Exercise Price
|
$1.99
|
Dividend Yield
|
0%
|
Volatility
|
125%
|
Risk-free interest rate
|
2.44%
|
Expected life of options
|
3.0 years
|
During the year ended December 31, 2020, the Company granted
options to purchase 8,880,000 shares of common stock to officers. These stock options generally vest between one and three years.
The fair value of these options was determined to be $12,231,185 using the Black-Scholes option pricing model based on the following
assumptions:
Exercise Price
|
$1.39 - $10.00
|
Dividend Yield
|
0%
|
Volatility
|
121% - 122%
|
Risk-free interest rate
|
0.31% -0.39%
|
Expected life of options
|
5.0 years
|
The following table summarizes the changes in the Company’s
stock option plan during the year ended December 31, 2019 and December 31, 2020:
|
|
Options Outstanding Number Of Shares
|
|
Exercise Prices Per Share
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price Per Share
|
|
Balance at December 31, 2018
|
|
|
1,259,415
|
|
|
$
|
2.09 - 12.00
|
|
|
|
2.50 years
|
|
|
$
|
7.39
|
|
Options Granted
|
|
|
81,000
|
|
|
$
|
1.99
|
|
|
|
3 years
|
|
|
$
|
1.99
|
|
Options Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
Options Cancelled
|
|
|
50,549
|
|
|
$
|
1.99 - 2.70
|
|
|
|
4.51 years
|
|
|
$
|
6.34
|
|
Options Expired
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
1,289,866
|
|
|
$
|
1.99 - 12.00
|
|
|
|
6.49 years
|
|
|
$
|
7.18
|
|
Options Granted
|
|
|
8,880,000
|
|
|
$
|
1.39 - 10.00
|
|
|
|
4.91 years
|
|
|
$
|
1.66
|
|
Options Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
Options Cancelled
|
|
|
2,000
|
|
|
$
|
1.99
|
|
|
|
3.18 years
|
|
|
$
|
1.99
|
|
Options Expired
|
|
|
1,051,690
|
|
|
$
|
2.70 - 2.82
|
|
|
|
–
|
|
|
$
|
2.71
|
|
Balance at December 31, 2020
|
|
|
9,116,176
|
|
|
$
|
1.39 - 10.00
|
|
|
|
4.84 years
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2019
|
|
|
1,176,416
|
|
|
$
|
1.99 - 9.00
|
|
|
|
6.25 years
|
|
|
$
|
7.67
|
|
Exercisable December 31, 2020
|
|
|
6,449,452
|
|
|
$
|
1.39 - 3.17
|
|
|
|
4.87 years
|
|
|
$
|
1.44
|
|
During the years ended December 31, 2020
and 2019, the Company recognized $8,365,745 and $184,259 in share-based compensation expense, respectively. The unvested share-based
compensation as of December 31, 2020 is $4,008,320 which will be recognized through the fourth quarter of 2023 assuming the underlying
grants are not cancelled or forfeited.
Note 15: Restricted Stock Units
On December 7, 2020, the Company granted
9,075,000 shares of Restricted Stock Units (RSU’s) with a fair market value of $12,614,250 to certain employees and officers.
The following table summarizes the Company’s
restricted stock issuance during the year ended December 31, 2020:
|
|
RSUs Outstanding Number Of Shares
|
|
|
Exercise Prices Per Share
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Aggregate Intrinsic Value
|
|
Balance at December 31, 2019
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
RSUs Granted
|
|
|
9,075,000
|
|
|
$
|
1.39
|
|
|
|
4.94 years
|
|
|
$
|
1.39
|
|
|
|
–
|
|
RSUs Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
RSUs Cancelled
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
RSUs Expired
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
Balance at December 31, 2020
|
|
|
9,075,000
|
|
|
$
|
1.39
|
|
|
|
4.94 years
|
|
|
$
|
1.39
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2019
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
Exercisable December 31, 2020
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
During the year ended December 31, 2020,
the Company recognized $563,700 in share-based compensation expense. The unvested share-based compensation as of December 31, 2020
is $12,050,550 which will be recognized through the fourth quarter of 2024 assuming the underlying grants are not cancelled or
forfeited.
Note 16: Warrants
The Company has warrants outstanding to
purchase up to 45,511,965 shares and 11,124,405 shares at December 31, 2020 and 2019, respectively.
On February 19, 2019, the Company entered
into a securities purchase agreement with a certain accredited investor pursuant to which we sold 945,894 shares of Common Stock
and warrants to purchase up to 945,894 shares of our Common Stock, or the registered warrants, to such investor (the “February
2019 Offering”). The Company received $1,757,552 in net proceeds from this offering. Each share of Common Stock was accompanied
by a registered warrant to purchase one share of Common Stock at an exercise price of $2.12. Each share of Common Stock and accompanying
registered warrant were sold at a combined purchase price of $2.12. The shares of Common Stock and registered warrants were purchased
together and were issued separately and were immediately separable upon issuance. In a concurrent private placement, the Company
also sold to the purchaser in the February 2019 Offering, warrants to purchase up to 945,894 shares of our Common Stock, or the
private warrants.
In connection with the February 2019 Offering
and concurrent private placement, we entered into an amendment, waiver and consent agreement, or the “Amendment, Waiver and
Consent Agreement,” with certain holders of our 10% Secured Convertible Notes, which were issued pursuant to a securities
purchase agreement, dated August 17, 2018, by and among the Company and the purchasers identified on the signature pages thereto,
or the notes purchase agreement. Pursuant to the Amendment, Waiver and Consent Agreement, such holders agreed to amend the notes
purchase agreement, waive any applicable rights and remedies under the notes purchase agreement, and consent to the February 2019
Offering and concurrent private placement. In consideration for such Amendment, Waiver and Consent Agreement, we agreed to issue
such holders warrants to purchase up to an aggregate amount of 1,800,000 shares of our Common Stock. Such warrants have an exercise
price of $2.55 per share, will become exercisable commencing six months and one day from the date of issuance and will expire five
(5) years from the date of issuance.
The allocation of carrying basis between
the Warrants issued and the Secured Convertible Notes was determined based on relative valuation. The carrying basis attributable
to the Warrants to acquire Common Stock was $1,287,962 and was calculated using the Black-Scholes option pricing model.
On July 22, 2019, the Company entered into
an amendment, waiver and consent agreement (the “Amendment, Waiver and Consent”) with certain holders constituting
(i) a majority-in-interest of the holders of our 10% Secured Convertible Notes due August 20, 2019 (the “Notes”), which
were issued pursuant to a securities purchase agreement, dated as of August 17, 2018 and as amended on February 14, 2019, by and
among the Company and the purchasers identified on the signature pages thereto (the “August 2018 Purchase Agreement”)
and (ii) 51% in interest of the shares of Common Stock issued pursuant to a securities purchase agreement, dated as of January
8, 2018, by and among the Company and the purchasers identified on the signature pages thereto (the “January 2018 Purchase
Agreement”). Pursuant to the Amendment, Waiver and Consent, such holders have agreed to (i) amend the definition of “Exempt
Issuance” in each of the August 2018 Purchase Agreement and January 2018 Purchase Agreement to include an agreement to issue
or announce the issuance or proposed issuance of Common Stock or Common Stock Equivalents (as that term is defined in each of the
August 2018 Purchase Agreement and January 2018 Purchase Agreement) in a public offering for an effective per share purchase price
of Common Stock of less than $2.50 (the “Offering”), (ii) waive any applicable rights and remedies under the August
2018 Purchase Agreement and January 2018 Purchase Agreement, and (iii) consent to the Offering. In consideration for the Amendment,
Waiver and Consent, the Company agreed to reduce the conversion price of the Notes from $2.50 per share of Common Stock to $1.515
(the “Note Amendment”) and issue all of the purchasers under the August 2018 Purchase Agreement warrants to purchase
up to an aggregate of 1,800,000 shares of our Common Stock (the “Waiver Warrants”). The Waiver Warrants will have an
exercise price of $1.14 per share, will become exercisable commencing six months and one day from the date of issuance and will
expire five (5) years from the date of issuance.
On September 18, 2019, the Company entered
into a private transaction (the “Private Transaction”) pursuant to a Warrant Exercise Agreement (the “Agreement”)
with the holder of the Company’s existing warrants (the “Original Warrants”). The Original Warrants were originally
issued on February 19, 2019, to purchase an aggregate of 945,894 shares of Common Stock at an exercise price of $2.12 per share
and were to expire on February 19, 2020.
Pursuant to the Agreement, the holder of
the Original Warrants and the Company agreed that such Original Warrant holder would exercise its Original Warrants in full and
the Company would amend the Original Warrants to reduce the exercise price thereof to $0.76. The Company received $718,879 from
the exercise of the Original Warrants before paying the placement agent fee of $50,321. The induced exercise resulted in the Company
recognizing and recording an “imputed dividend” of $181,884.
On October 29, 2019, in a connection
with a Private Placement, the Company issued to the Investor warrants exercisable for one share of Common Stock for an
aggregate of 477,474 shares of Common Stock at an exercise price of $0.76 per share. Each Warrant became immediately
exercisable on the date of its issuance and will expire five years from the date it becomes exercisable. Subject to limited
exceptions, a holder of a Warrant will not have the right to exercise any portion of its warrants if the holder, together
with its affiliates, would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise. The Special Equities Group, LLC, a division of Bradley Woods & Co. LTD,
acted as placement agent and will receive a cash fee of $35,280 and warrants to purchase 46,421 shares at an exercise price
of $0.836 per share.
On December 16, 2019, the Company entered
into Warrant Exercise Agreements (the “Exercise Agreements”) with certain of the holders of the Existing Warrants to
purchase an aggregate of 3,646,135 shares of Common Stock (the “Exercising Holders”). Pursuant to the Exercise Agreements,
the Exercising Holders and the Company agreed that, subject to any applicable beneficial ownership limitations, the Exercising
Holders exercised their Existing Warrants (the “Investor Warrants”) for shares of Common Stock underlying such Existing
Warrants (the “Exercised Shares”) at a reduced exercise price of $0.21 per share of Common Stock. In order to induce
the Exercising Holders to cash exercise the Investor Warrants, the Exercise Agreements provide for the issuance of new warrants
to purchase up to an aggregate of approximately 3,646,135 shares of Common Stock (the “New Warrants”), with such New
Warrants to be issued in an amount equal to the number of the Exercised Shares underlying any Investor Warrants. The New Warrants
are exercisable six months and one day after issuance and terminate on the date that is five years following the initial exercise
date. The New Warrants have an exercise price per share of $0.3004, which was the Nasdaq Official Closing Price on December 13,
2019.
On January 22, 2020, the Company entered
into the Private Transaction pursuant to the Agreement with the holder of the Company’s Original Warrants. The Original Warrants
were originally issued on October 3, 2017, to purchase an aggregate of 500,000 shares of Common Stock, at an exercise price of
$3.90 per share and were to expire in October 2022. Pursuant to the Agreement, the holder of the Original Warrants and the Company
agreed that such Original Warrant holder would exercise its Original Warrants in full and the Company would amend the Original
Warrants to reduce the exercise price thereof to $0.34 (the average closing price of the Common Stock (as reflected on Nasdaq.com)
for the five trading days immediately preceding the signing of the Agreement). The Company received approximately $170,000 from
the exercise of the Original Warrants.
The placement agent received warrants to
purchase 50,000 shares at an exercise price of $0.34 per share.
Pursuant to the SPA described in Note 9,
the Company issued to the note holders warrants to purchase 65,476,191 shares of Common Stock, exercisable for a period of five
years at an initial exercise price of $0.26 per share.
The placement agent received warrants to
purchase 6,547,619 shares at an exercise price of $0.26 per share.
The warrants were accounted for as a derivative
liability upon issuance. The warrants were revalued as of March 31, 2020. which resulted in a warrant revaluation expense in the amount
of $3,467,961.
On May 15, 2020 stockholders of the Company
approved the reduction in warrants exercise price for the 2020 Convertible Notes holders to $0.21. As a result of the exercise
price reduction, certain warrant holders exercised warrants for 29,000,526 shares of Common Stock at $0.21 per share in cash. Certain
other warrant holders exercised 41,508,189, warrants on a cashless basis, resulting in the issuance of 37,449,140 shares of Common
Stock.
The warrants were revalued prior to their
exercise. The estimated fair value of the exercised warrants immediately before the exercise was $219,034,621, This revaluation
resulted in a warrant revaluation expense of $205,130,151 which was recorded prior to the warrant exercise. Upon exercise the $219,034,621
was reclassified form the warrant derivative liability to additional paid in capital.
Certain other warrant holders did not exercise
their warrants. Accordingly, these warrants were revalued quarterly throughout the year, resulting in an additional warrant revaluation
expense of $1,552,923.
The fair values of derivative warrants attached
to the 2020 Convertible Notes were determined based on Level 3 inputs, using the Black-Scholes-Merton model with standard valuation
inputs. The valuation inputs used to value the warrants at March 31, 2020 included expected volatility of 89.91%, and annual interest
rate of 0.37%. The valuation inputs for the warrants outstanding at December 31, 2020 included expected volatility of 169.99%, and annual
risk-free interest rate of .33%.
On May 15, 2020 stockholders of the Company
approved the reduction of all previously issued warrants held by the 2020 Convertible Notes holders exercise price to $0.21. The
repricing of the warrants resulted in a deemed dividend of $1,840,384, which was charged to additional paid in capital for warrants
issued in connection with prior equity instruments and a warrant repricing loss of $744,321 recorded in Company’s consolidated
statements of operations, if the warrants were issued in connection with prior debt transaction. All warrants were repriced using
standard Black-Scholes-Merton valuation model. The valuation inputs for warrant repricing exercise included expected volatility
varying between 98.56% and 203.81% and annual risk-free interest rate of approximately 0.2%.
During the three months ended September
30, 2020, certain warrant holders exercised 16,670 warrants for shares of Common Stock at $3.30 per share in cash.
On May 25, 2020, the Company issued to
an individual and his management company 2,284,172 warrants to purchase shares of Common Stock at $1.39 per share for his involvement
with the production and distribution of a television series being developed by the Company. The warrants have a 10-year term and
are fully vested upon issuance. The warrants become immediately exercisable in whole upon the earlier of May 21, 2021 or the first
date the series is exhibited on television or is otherwise available for viewing through a streaming service or otherwise on the
internet. The Company anticipates the warrants will become exercisable by April 23, 2021. The warrants were valued at $3,174,806
using the Black-Scholes option pricing model. The warrants were issued as an advance payment against participation amounts that
will become due to the individual upon the performance of the series. The warrants are being accounted as non-employee compensation
expense which has been recorded as prepaid participation expense over the expected exercise period. During the year ended December
31, 2020, the Company recorded $1,327,646 and $1,847,160 as prepaid participation expense. The valuation inputs for the warrants
included expected volatility of 253.01%, and annual risk-free interest rate of 0.7%.
On October 15, 2020, the Company issued
to an individual and his management company 1,000,000 warrants to purchase shares of Common Stock at $1.39 per share for his involvement
with the production and distribution of a television series being developed by the Company. The shares become freely tradable,
50% upon the six-month anniversary of issuance and 50% upon one year of issuance.
On October 28, 2020, the “Company,
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”),
pursuant to which the Company agreed to issue and sell, in a registered direct offering by the Company directly to the Investors
(the “Offering”), an aggregate of 37,400,000 shares (the “Shares”) of our Common Stock and warrants (“Investor
Warrants”) to purchase up to 37,400,000 shares of our Common Stock (“Investor Warrant Shares”), available to
the Company through an increase in authorized shares, as approved by the shareholders on August 27, 2020. The purchase price was
$1.55 per fixed combination of one share of common stock and a warrant to purchase one share of common stock, for gross proceeds
of approximately $57.9 million before deducting the placement agent fees and offering expenses.
The Investor Warrants have an exercise
price of $1.55 per share and are exercisable immediately on the date of issuance, and at any time thereafter up to five years from
the initial issuance date. A holder will not have the right to exercise any portion of the Investor Warrant if the holder would
beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the outstanding Common Stock immediately after
exercise, except that upon notice from the holder to the Company, the holder may increase or decrease the beneficial ownership
limitation up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the terms of the Investor Warrants, provided that any increase in such
beneficial ownership limitation shall not be effective until 61 days following notice from the holder to the Company.
The Offering closed on October 30,
2020. The Special Equities Group, a division of Bradley Woods & Co. Ltd., acted as placement agent and received (i) a cash
fee of approximately $4.1 million and (ii) warrants (“Placement Agent Warrants” and together with Investor Warrants,
the “Warrants”) to purchase 2,618,000 shares of Common Stock (“Placement Agent Warrant Shares” and together
with Investor Warrant Shares, the “Warrant Shares”). The Placement Agent Warrants have the same form and terms as the
Investor Warrants. In addition, the Company will pay the placement agent a cash fee equal to 7% of the aggregate gross proceeds
from the exercise of any Warrants. The Partnership has also agreed to reimburse the lead Investor for $25,000 of its legal fees
and expenses incurred in connection with the Offering.
The following table summarizes the changes
in the Company’s outstanding warrants during the year ended December 31, 2019 and December 31, 2020:
|
|
Warrants Outstanding Number Of Shares
|
|
Exercise Prices Per Share
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price Per Share
|
|
Balance at December 31, 2018
|
|
|
5,899,389
|
|
|
$
|
3.30 - 6.00
|
|
|
|
3.74 years
|
|
|
$
|
3.53
|
|
Warrants Granted
|
|
|
9,917,047
|
|
|
$
|
2.55 - 2.12
|
|
|
|
5.39 years
|
|
|
$
|
0.35
|
|
Warrants Exercised
|
|
|
4,592,029
|
|
|
$
|
2.12 - 3.90
|
|
|
|
2.77 years
|
|
|
$
|
2.77
|
|
Warrants Expired
|
|
|
100,002
|
|
|
$
|
6.00
|
|
|
|
–
|
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
11,124,405
|
|
|
$
|
0.21 - 5.30
|
|
|
|
4.37 years
|
|
|
$
|
0.84
|
|
Warrants Granted
|
|
|
115,375,982
|
|
|
$
|
0.21 - 1.55
|
|
|
|
4.61 years
|
|
|
$
|
0.71
|
|
Warrants Exercised
|
|
|
80,820,087
|
|
|
$
|
0.21 - 5.30
|
|
|
|
4.62 years
|
|
|
$
|
0.25
|
|
Warrants Expired
|
|
|
168,335
|
|
|
$
|
3.30 - 3.60
|
|
|
|
–
|
|
|
$
|
3.50
|
|
Balance at June 30, 2020
|
|
|
45,511,965
|
|
|
$
|
0.21 - 5.30
|
|
|
|
5.19 years
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2019
|
|
|
7,176,620
|
|
|
$
|
0.76 - 6.00
|
|
|
|
3.77 years
|
|
|
$
|
2.52
|
|
Exercisable December 31, 2020
|
|
|
42,227,793
|
|
|
$
|
0.21 - 5.30
|
|
|
|
4.75 years
|
|
|
$
|
1.56
|
|
Note 17: Income Taxes
Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry
forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax liabilities consist of
the following components as of December 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL Carryover
|
|
$
|
11,945,900
|
|
|
$
|
10,068,800
|
|
Lease Liability
|
|
|
615,300
|
|
|
|
1,166,400
|
|
Stock Compensation
|
|
|
722,200
|
|
|
|
–
|
|
Warrants
|
|
|
335,000
|
|
|
|
–
|
|
Deferred Revenue
|
|
|
456,900
|
|
|
|
–
|
|
Other
|
|
|
81,300
|
|
|
|
36,700
|
|
Subtotal
|
|
|
14,156,600
|
|
|
|
11,271,900
|
|
Valuation Allowance
|
|
|
(13,603,100
|
)
|
|
|
(10,068,700
|
)
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Right of Use Assets
|
|
|
(551,900
|
)
|
|
|
(1,122,100
|
)
|
Other
|
|
|
(1,600
|
)
|
|
|
(81,100
|
)
|
Net Deferred Tax Asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The income tax provision differs from the
amount of income tax determined by applying the U.S. federal tax rate to pretax income from continuing operations for the years
ended December 31, 2020 and 2019 due to the following:
|
|
2020
|
|
|
2019
|
|
Income Tax Expense Computed at the Statutory Federal Rate
|
|
$
|
(84,350,700
|
)
|
|
$
|
(2,411,100
|
)
|
State Income Taxes, Net of Federal Tax Effect
|
|
|
(871,900
|
)
|
|
|
(613,300
|
)
|
Stock Compensation
|
|
|
1,333,300
|
|
|
|
38,700
|
|
Conversion Option Revaluation
|
|
|
36,085,500
|
|
|
|
–
|
|
Secured Convertible Notes
|
|
|
216,700
|
|
|
|
483,100
|
|
Warrants
|
|
|
44,036,600
|
|
|
|
38,200
|
|
Other
|
|
|
16,200
|
|
|
|
15,000
|
|
Valuation Allowance
|
|
|
3,534,300
|
|
|
|
2,449,400
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
At December 31, 2020, the Company had Federal
net operating loss carry forwards of approximately $43,112,000 and state net operating loss carry forwards of approximately $41,416,000
that may be offset against future taxable income will begin to expire in 2028, if not utilized. No tax benefit has been reported
in the December 31, 2020 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
The Company accounts for income taxes in
accordance with Accounting Standards Codification Topic 740, Income Taxes (“Topic 740”), which requires the recognition
of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset
to an amount that is more likely than not to be realized.
Topic 740 provides guidance on the accounting
for uncertainty in income taxes recognized in a company’s financial statements. Topic 740 requires a company to determine
whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the
position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize
in the financial statements.
The Company includes interest and penalties
arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of December
31, 2020, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in
the U.S. federal jurisdiction and in the State of California. The Company is currently subject to U.S. federal, state and local,
or non-U.S. income tax examinations by tax authorities since inception of the Company.
Note 18: Commitments and Contingencies
The Company has various contractual
obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase
commitments and other executory contracts are not recognized as liabilities in our consolidated financial statements but are required
to be disclosed in the footnotes to the financial statements. For example, the Company enters into various agreements associated
with its individual properties. Some of these agreements call for the potential future payment of royalties or “profit”
participations. In addition, the Company has contractual commitments for employment agreements of certain employees.
Effective February 6, 2018, the Company
entered into an operating lease for 6,969 square feet of general office space at 131 South Rodeo Drive, Suite 250, Beverly Hills,
CA 90212 pursuant to a 91-month lease that commenced on May 25, 2018. We pay rent of $364,130 annually, subject to annual escalations
of 3.5%.
Effective December 28, 2018, the Company
entered into a lease for 5,765 square feet of general office space at 8383 Wilshire Blvd., Suite 412, Beverly Hills, CA 90211 pursuant
to a 6-month lease that commenced January 28, 2019. We paid rent of $24,501 monthly through August 31, 2019.
Effective January 21, 2019, the Company
entered into a sublease for the 6,969 square feet of general office space located at 131 South Rodeo Drive, Suite 250, Beverly
Hills, CA 90212 pursuant to an 83-month sublease that commenced on February 4, 2019. The subtenant paid us rent of $422,321 annually,
subject to annual escalations of 3.5%.
On September 11, 2020, the Company entered
into a Surrender Agreement with the landlord which terminated the 131 South Rodeo Dr lease agreement. As a result, the Company
recorded decreases in the Right Of Use asset, accumulated amortization, and the lease liability of $2,142,863, $465,124 and $1,760,302
respectively. The termination of the lease resulted in a loss of $338,586. Simultaneously, as part of the Surrender Agreement the
Sublease was terminated.
Effective January 30, 2019, the Company
entered into an operating lease for 5,838 square feet of general office space at 190 N. Canon Drive, 4th FL, Beverly Hills, CA
90210 pursuant to a 96-month lease that commenced on September 1, 2019. We pay rent of $392,316 annually, subject to annual escalations
of 3.5%.
In addition, the Company has contractual
commitments for employment agreements of certain employees.
Rental expenses incurred for operating
leases during the twelve months ended December 31, 2020 and December 31, 2019 were $665,188 and $740,135, respectively. During
the twelve months ended December 31, 2020 and December 31, 2019, the Company received sub-lease income of $316,762 and $432,285,
respectively.
The following is a schedule of future minimum
contractual obligations as of December 31, 2020, under the Company’s operative leases and employment agreements:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Operating Leases
|
|
$
|
347,785
|
|
|
$
|
429,984
|
|
|
$
|
447,183
|
|
|
$
|
465,071
|
|
|
$
|
483,674
|
|
|
$
|
847,192
|
|
|
$
|
3,020,889
|
|
Employment Contracts
|
|
|
1,175,628
|
|
|
|
906,503
|
|
|
|
843,707
|
|
|
|
473,660
|
|
|
|
453,924
|
|
|
|
–
|
|
|
|
3,853,422
|
|
Consulting Contracts
|
|
|
300,000
|
|
|
|
187,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
487,500
|
|
|
|
$
|
1,823,413
|
|
|
$
|
1,523,987
|
|
|
$
|
1,290,890
|
|
|
$
|
938,731
|
|
|
$
|
937,598
|
|
|
$
|
847,192
|
|
|
$
|
7,361,811
|
|
In addition to employment agreements and
operating leases, in the normal course of its business, the Company enters into various agreements associated with its individual
properties. Some of these agreements call for the potential future payment of royalties or “profit” participations
for either (i) the use of third party intellectual property, such as the case with Stan Lee and the Mighty 7, Llama Llama
and Rainbow Rangers among others, in which the Company is obligated to share net profits with the underlying rights holders
on a certain basis as defined in the respective agreements or (ii) services rendered by animation studios, post-production studios,
writers, directors, musicians or other creative talent for which the Company is obligated to share with these service providers
a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement.
Additionally, other agreements contain
options to acquire rights to intellectual property and would require payment to the rights holders contingent upon the Company
securing minimum production, broadcast, or other financing commitments from third parties.
Lastly, for its Cartoon Channel!, the Company
licenses content for exhibition for which the Company is obligated to pay between 35% and 100% of revenues from the channel allocated
to the aforementioned content after the deduction of certain direct operating expenses.
Note 19: Related Party Transactions
On August 31, 2018, Llama entered into an animation production
services agreement with Mr. Heyward for services as a producer for which he is to receive $124,000 through the course of production
of the Company’s animated series Llama Llama Season 2. During the year ended December 31, 2019, Mr. Heyward was paid
$124,000. No further amounts are due.
Pursuant to his employment agreements dated
November 16, 2018 and November 16, 2020, Mr. Heyward is entitled to an Executive Producer fee of $12,400 per half hour episode
for each episode he provides services as an executive producer. The first identified series under this employment agreement is
Rainbow Rangers. During the year ended December 31, 2020, 13 half hours had been delivered and accordingly Mr. Heyward was
paid $161,200, The second identified series under this employment agreement is Rainbow Rangers Season 2. During the year
ended December 31, 2020, 26 half hours had been delivered and accordingly Mr. Heyward was paid $322,400.
On July 21, 2020, the Company entered into
a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward,
the Company’s Chief Executive Officer. The Company entered into a customary merchandise license agreement with AHAA for the
use of characters and logos related to Warren Buffett’s Secret Millionaires Club and Stan Lee’s Mighty 7
in connection with certain products to be sold by AHAA. The terms and conditions of such license are customary within the industry,
and the Company earns an arm-length industry standard royalty on all sales made by AHAA utilizing the licensed content. During
the year ended December 31, 2020, the Company earned $0 in royalties from this agreement.
On September 17, 2019, Mr. Heyward purchased
$500,000 of the Secured Convertible Notes from another holder. The Company did not receive any proceeds from this transaction.
On
October 2, 2019, Mr. Heyward purchased 1,000,000 shares of the Company’s common stock for an aggregate purchase price of
$760,000, or $0.76 per share.
On March 11, 2020, Mr. Heyward purchased
$1,000,000 of the 2020 Convertible Notes with an original discount of $250,000.
On June 19, 2020, Mr. Heyward received
5,658,474 shares of Common Stock upon the cashless exercise of 6,119,048 warrants.
On June 23, 2020, Mr.
Heyward received 5,952,381 shares of Common Stock upon conversion of $1,250,000 of 2020 Convertible Notes.
On December 7, 2020, Mr. Heyward’s
was granted 7,500,000 Restricted Stock Units vest 1,875,000 on each of the next four anniversary dates. Mr. Heyward was also granted
7,500,000 Performance Based Restricted Stock Units that, if awarded, vest 1,875,000 on each of the next four anniversary dates.
On December 7, 2020, Mr. Heyward’s
was granted 5,000,000 options to purchase shares of the Company’s Common Stock at $1.39 per share. The options vest on the
grant date.
During the year ended December 31, 2020,
Mr. Heyward was paid a bonus of $73,528, $11,370 in interest on the Senior Convertible Notes and $3,000 in board fees for his attendance
at the unscheduled board meetings.
During the year ended December 31, 2020,
the Company paid $380,989 for security at Mr. Heyward’s residence.
As of December 31, 2020, Andy Heyward is
owed $2,420 for reimbursable expenses which are included in the “Due To Related Parties” line item on our condensed
consolidated balance sheet
Note 20: Subsequent Events
On January 6, 2021, the Company issued
25,000 shares of the Company’s Common Stock for consulting services at $1.40 per share. The total amount of $35,000 was included
in accrued expenses as of December 31, 2020.
On January 25, 2021, the Company issued
136,986 shares of the Company’s Common Stock for marketing services at $1.46 per share.
On January 27, 2021, the Company issued
to certain employees 520,000 options to purchase shares of the Company’s Common Stock with an option price of $3.06 per share.
The options vest on January 27, 2022 and have a five year term.
On January 27, 2021, the Company issued
to each of the members of the Board of Directors 20,000 options to purchase shares of the Company’s Common Stock with an
option price of $3.06 per share. The options vest on December 31, 2022 and have a five year term.
On January 28, 2021, the Company
entered into letter agreements (the “Letter Agreements”) with certain existing institutional and accredited investors
to exercise certain outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 39,740,500 shares
of the Company’s common stock at their original exercise price of $1.55 per share (the “Exercise”). The Company
received approximately $61.6 million in gross proceeds. The Special Equities Group, a division of Bradley Woods & Co. Ltd.,
acted as warrant solicitation agent and received a cash fee of approximately $4.3 million. In consideration for the exercise of
the Existing Warrants for cash, the exercising holders will receive new unregistered warrants to purchase up to an aggregate of
39,740,500 shares of common stock (the “New Warrants”) at an exercise price of $2.37 per share and with an exercise
period of five years from the initial issuance date. Pursuant to the Letter Agreements, the New Warrants are substantially in the
form of the Existing Warrants (except for customary legends and other language typical for an unregistered warrant, including the
ability for the holder of the New Warrant to make a cashless exercise if no resale registration statement covering the common stock
underlying the New Warrants is effective after six months), will be exercisable immediately, and will have a term of exercise of
five years, and the Company will be required to register for resale the shares of common stock underlying the New Warrants.
On February 1, 2021, the Company through GBI Acquisition LLC,
a New Jersey limited liability company, and 2811210 Ontario Inc., a company organized under the laws of the Province of Ontario, two
wholly owned subsidiaries of the Company, closed its previously announced acquisition pursuant to a Purchase and Sale Agreement
(the “Purchase Agreement”) with (i) Harold Aaron Chizick, (ii) Jennifer Mara Chizick, (iii) Wishing Thumbelina
Inc. (“Wishing Thumbelina”), and (iv) Harold Aaron Chizick and Jennifer Mara Chizick, the trustees of The Chizsix
(2019) Family Trust for and on behalf of Harold Aaron Chizick, Jennifer Mara Chizick and Jay Mark Sonshine, trustees of The Chizsix
(2019) Family Trust, (the “Trustees”) (each a “Seller” and, collectively, “Sellers”),
pursuant to which the Company acquired from the Sellers all of the issued and outstanding
equity interests of ChizComm Ltd., a corporation organized in Canada (“ChizComm Canada”),
and ChizComm USA Corp., a New Jersey corporation (“ChizComm USA”
and, together with ChizComm Canada, “ChizComm”) (the “Acquisition”).
Total consideration paid by the Company in the transaction at
closing consisted of $8.5 million in cash and 1,977,658 shares (the “Closing
Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”)
with a value of approximately $3.5 million, both as subject to certain purchase price adjustments. Of the Closing Shares, 674,157
shares of Common Stock, with a value of approximately $1.2 million, were deposited into an escrow account to cover potential post-closing
indemnification obligations of Sellers under the Purchase Agreement. Additionally, the Purchase Agreement also provides for the
issuance of additional shares of Common Stock with an aggregate value of up to $8.0 million that may be issued to the Sellers if
certain EBITDA and performance levels are achieved within a four-year period commencing on the date of the Purchase Agreement.
On February 1, 2021,
the Company issued 53,763 Restricted Stock Units to an employee. The Restricted Stock Units vest over three years with one third
vesting each anniversary date.
As a result of COVID 19, the majority
of our employees started working remotely and we stopped paying rent in April of 2020. On November 30, 2020, the landlord filed
a lawsuit demanding that the Company pay all past due rent. On February 18, 2021 we entered into a settlement agreement with the
landlord whereby we agreed to pay $237,500 in full settlement of all claims and promised to resume paying the contractually agreed
rent in full starting March 1, 2021.
On September 21, 2020, the Company entered
into an employment agreement with a senior executive. The agreement provided for a two-year term and an equity grant among other
benefits. In or about January of 2021 the Company and the Executive mutually elected to terminate the agreement. As part of the
separation agreement, the Company agreed to pay the executive $343,750 as well as $11,250 as reimbursement for health insurance
premiums for 15 months. The executive was granted 750,000 fully vested options to purchase shares of the Company’s Common
Stock., with a strike price of $3.06 and 1 year in which to exercise said options, to and including February 2, 2022.