Note 5: Goodwill and Intangible Assets, Net

Goodwill

In connection with the Merger in 2013, the Company recognized $10,365,805 in Goodwill, representing the excess of the fair value of the consideration for the Merger 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 September 30, 2017,March 31, 2018, the Company has not recognized any impairment to Goodwill.

Intangible Assets, Net

The Company had the following intangible assets as of September 30, 2017March 31, 2018, and December 31, 2016:

2017:

Expected future intangible asset amortization as of September 30, 2017March 31, 2018 is as follows:

Note 6: Deferred Revenue

As of September 30, 2017March 31, 2018, and December 31, 2016,2017, the Company had total short term and long term deferred revenue of $5,072,849$4,735,840 and $3,106,608,$5,085,383, 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 March 31, 2018 and December 31, 20162017 is the $2,000,000 advance against future royalty that Sony paid to the Company in the first quarter of 2016. Included in the deferred revenue balance as of September 30, 2017 is the $2,000,000 advance against future royalties that Sony paid to the Company in the first quarter of 2016 as well as the remaining portion of the $1,489,583 attributable to the expansion of distribution rights acquired by Sony through the January 2017 Sony Transactions.

Note 7: Accrued Liabilities – Current

As of September 30, 2017 and December 31, 2016, the Company had the following current accrued liabilities:

Note 7: Accrued Liabilities – Current

As of March 31, 2018, and December 31, 2017, the Company has the following current accrued liabilities:

Note 8: Production Loan Facility

On August 8, 2016, Llama Productions 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 seriesLlama Llama, (the “Series”) which is configured as fifteen half-hour episodes comprised of thirty 11-minute11 minute programs anticipated to bethat were delivered to Netflix in the fourth quarter offall 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-monthsix 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 September 30, 2017,March 31, 2018, the Company was in compliance with these covenants.

As of September 30,March 31, 2018, the Company had gross outstanding borrowing under the facility of $2,804,764 against which financing costs of $115,444 were applied resulting in net borrowings of $2,689,320. As of December 31, 2017, the Company had gross outstanding borrowing under the facility of $3,624,263$4,436,528 against which financing costs of $128,739$113,885 were applied resulting in net borrowings of $3,495,524. As of December 31, 2016, the Company had gross outstanding borrowing under the facility of $1,505,307 against which financing costs of $173,303 were applied resulting in net borrowings of $1,332,004.$4,322,643.

Note 9: Stockholders’ Equity

Common Stock

As of September 30, 2017,March 31, 2018, the total number of authorized shares of Common Stockcommon stock was 233,333,334.

On October 29, 2015, the Company entered into securities purchase agreements with certain accredited investors pursuant to which the Company sold an aggregate of 1,443,362 shares of its Common Stock,common stock, par value $0.001 per share, and warrants to purchase up to an aggregate of 1,443,362 shares of Common Stockcommon stock (the “Original Warrants”) for a purchase price of $3.00 per share and the associated warrants for gross proceeds to the Company of $4,330,000 (“2015 Private Placement”). The closing of the 2015 Private Placement occurred on November 3, 2015. Stock offering costs were $502,218. (See Note 11 for additional information about these warrants.)

On October 6, 2016, the Board of Directors of the Company authorized a reverse stock split in preparation for the Company’s anticipated uplistingup listing on the NASDAQ Capital Market.

On November 4, 2016, the Company filed a certificate of change to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada to effect a one-for-three reverse stock split of the Company’s issued and outstanding Common Stock.common stock. As a result of the 2016 Reverse Split, every three shares of the Company’s issued and outstanding Common Stockcommon stock were automatically combined and reclassified into one share of the Company’s Common Stock.common stock. The 2016 Reverse Split affected all issued and outstanding shares of Common Stock,common stock, as well as Common Stockcommon stock underlying stock options and warrants outstanding. No fractional shares were issued in connection with the 2016 Reverse Split. Stockholders who would otherwise have heldhold a fractional share of Common Stock receivedcommon stock will receive an increase to their Common Stockcommon stock as the Common Stock wascommon stock will be rounded up to a full share. The total number of authorized shares of Common Stockcommon stock was reduced from 700,000,000 to 233,333,334 in conjunction with the 2016 Reverse Split. The 2016 Reverse Split became effective on November 9, 2016. All disclosures of shares and per share data in these consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split for all periods presented.

On February 9, 2017, the Company entered into the Private Transactiona private transaction (the “Private Transaction”) pursuant to thea Warrant Exercise Agreement with certain holders of the Original Warrants.Company’s existing warrants (the “Original Warrants”). Pursuant to the Warrant Exercise Agreement, the holders of the Original Warrants and the Company agreed that such Original Warrant holders would exercise their Original Warrants in full, and the Company would issue to each such holder new warrants. (See Note 11 for additional information about these warrants.) In association with the Private Transaction, the Company issued 1,171,6891,171,690 shares of Common Stockcommon stock upon exercise of a portion of the Original Warrants for which it received gross proceeds of $3,866,573 and recording offering costs of $464,649$465,915 for net proceeds of $3,401,924.$3,400,658.

On January 8, 2018, the Company entered into the January 2018 Private Placement. Pursuant to a Securities Purchase Agreement, the Company issued to the Investors approximately 592,000 shares of common stock at a per share price of $3.00 and warrants to purchase approximately 592,000 shares of common stock. The warrants were immediately exercisable, will be exercisable for a period of five years from the closing date and have an exercise price of $3.00 per share. The closing of the sale of these securities under the Securities Purchase Agreement occurred on January 10, 2018.

As of September 30, 2017March 31, 2018, and December 31, 2016,2017, there were 5,938,1038,202,794 and 4,010,6497,610,794 shares of Common Stockcommon stock outstanding, respectively. Below are the changes to the Company’s Common Stockcommon stock during the ninethree months ended September 30, 2017:March 31, 2018:

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 September 30, 2017March 31, 2018, and December 31, 2016,2017, there were 3,6053,530 and 4,8953,530 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”.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,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 Stockcommon stock or Common Stockcommon 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,common stock, calculated immediately after giving effect to the issuance of shares of Common Stockcommon stock upon conversion of the Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock possess no voting rights.

On May 14, 2014, we entered into securities purchase agreements with certain accredited investors pursuant to which we sold an aggregate of 6,000 shares of our then newly designated Series A Convertible Preferred Stock at a price of $1,000 per share for gross proceeds to us of $6,000,000. Related to the sale, we incurred offering costs of $620,085 resulting in net proceeds of $5,379,915. The transaction closed on May 15, 2014.

As the conversion price of the Series A Convertible Preferred Stock on a converted basis was below the market price of the Common Stockcommon shares on the closing date, this resulted in a beneficial conversion feature recorded as an “imputed” dividend of $2,010,000. In addition, during the fourth quarter of 2015, in connection with the 2015 Private Placement in which the Company’s Common Stockcommon stock was sold at $3.00 per share, the conversion price of the Series A Convertible Preferred Stock decreased to $3.00. This decrease resulted in an additional beneficial conversion feature of $3,383,850 recognized as of the time of the 2015 Private Placement. In the future, issuance of common stock or the grant of any rights to purchase our common stock or other securities convertible into our common stock for a per share price less than the then existing conversion price of the Series A Convertible Preferred Stock would result in an adjustment to the then current conversion price of the Series A Convertible Preferred Stock. This reduction would give rise to a beneficial conversion feature recorded as an “imputed” dividend.

Note 10: Stock Options

On December 29, 2008, the Company adopted the 2008 Stock Option Plan (the “Plan”), which provides for the issuance of qualified and non-qualified stock options to officers, directors, employees and other qualified persons. The Plan is administered by the Board of Directors of the Company or a committee appointed by the Board of Directors. The number of shares of the Company’s Common Stock initially reserved for issuance under the Plan was 36,667. On September 2, 2011, the stockholders holding a majority of the Company’s outstanding Common Stock adopted an amendment to the Company’s 2008 Stock Option Plan to increase the number of shares of Common Stock issuable under the plan to 166,667.

On September 18, 2015, the Company adopted the Genius Brands International, Inc. 2015 Incentive Plan (the “2015 Plan”). The 2015 Plan was approved by our stockholders in September 2015. The 2015 Plan as approved by the stockholders authorized the issuance up to an aggregate of 150,000 shares of Common Stock.common stock. On December 14, 2015, the Board of Directors voted to amend the 2015 Plan to increase the total number of shares that can be issued under the 2015 Plan by 1,293,334 from 150,000 shares to 1,443,334 shares. The increase in shares available for issuance under the 2015 Plan was approved by stockholders on February 3, 2016. On May 18, 2017, the Board of Directors voted to amend the 2015 Plan to increase the total number of shares that can be issued under the 2015 Plan by 223,333 shares from 1,443,334 shares to an aggregate of 1,666,6671,667,667 shares. The increase in shares available for issuance under the 2015 Plan was approved by the stockholders on July 25, 2017.

The following table summarizes the changes in the Company’s stock option plan during the ninethree months ended September 30, 2017:March 31, 2018:

During the year ended December 31, 2015, the Company granted options to purchase 1,407,775 shares of Common Stockcommon stock to officers, directors, employees, and consultants. These stock options generally vest between one and three years, while a portion vested upon grant. The fair value of these options was determined to be $2,402,460 using the Black-Scholes option pricing model based on the following assumptions:

During the three and nine months ended September 30, 2016,March 31, 2018, the Company recognized share-based compensation expense of $358,919 and $1,236,880, respectively. During the first quarter of 2016, the Company recognized $220,564 of true-up expenses from prior periods which reflected certain revisions meant to (i) align with the graded vesting of the majority of the options granted in 2015, (ii) make adjustments in certain accounting estimates utilized in the Black-Scholes model, and (iii) reflect the accurate number of options granted in 2015. The Company has assessed these adjustments individually and in aggregate and considers them immaterial to the current and prior periods.

During the three and nine months ended September 30, 2017, the Company recognized $108,476 and $514,108, respectively,$47,852 in share-based compensation expense. The unvested share-based compensation as of September 30, 2017March 31, 2018, was $278,819$80,417 which will be recognized through the second quarter of 2019 assuming the underlying grants are not cancelled or forfeited.

Note 11: Warrants

The Company has warrants outstanding to purchase up to 1,766,6984,099,389 and 1,651,698 at September 30, 20173,414,389 shares as of March 31, 2018 and December 31, 2016,2017, respectively.

In connection with the sale of the Company’s Series A Convertible Preferred Stock in May 2014, Chardan Capital Markets LLC (“Chardan”) acted as sole placement agent in consideration for which it received a cash fee of $535,000 and a warrant to purchase up to 100,002 shares of the Company’s Common Stock.common stock. These warrants are exercisable immediately, have an exercise price of $6.00 per share, and have a five-year term.

In connection with the 2015 Private Placement, the Company issued to accredited investors the Original Warrants to purchase up to an aggregate of 1,443,362 shares of Common Stockcommon stock for a purchase price of $3.00 per share. The Original Warrants are exercisable into shares of Common Stockcommon stock for a period of five (5) years from issuance at an initial exercise price of $3.30 per share, subject to adjustment in the event of stock splits, dividends and recapitalizations. The Original Warrants are exercisable immediately. The Company is prohibited from effecting an exercise of the warrants to the extent that as a result of such exercise, the holder would beneficially own more than 4.99% (subject to increase up to 9.99% upon 61 days’ notice) in the aggregate of the issued and outstanding shares of Common Stock,common stock, calculated immediately after giving effect to the issuance of shares of Common Stockcommon stock upon exercise of the warrant.

In connection with the 2015 Private Placement, Chardan acted as sole placement agent in consideration for which it received a cash fee of $300,000 and a warrant to purchase up to 141,668 shares of the Company’s Common Stock.common stock. These warrants are exercisable immediately, have an exercise price of $3.60 per share, and have a five-year term.

On February 9, 2017, the Company entered into the Private Transaction pursuant to the Warrant Exercise Agreement with certain holders of the Original Warrants. Pursuant to the Warrant Exercise Agreement, the holders of the Original Warrants and the Company agreed that such Original Warrant holders would exercise their Original Warrants in full, and the Company would issue to each such holder new warrants, with the new warrants being identical to the Original Warrants except that the termination date of such new warrants is February 10, 2022 (the “Reload Warrants”). In addition, depending on the number of Original Warrants exercised by all holders of the Original Warrants, the Company also agreed to issue to the holders another new warrant, identical to the Original Warrant except that the exercise price of such warrant is $5.30 and such warrant is not exercisable until August 10, 2017 (the “Market Price Warrants” and together with the Reload Warrants, the “New Warrants”).

The Company received gross proceeds of $3,866,573 from the exercise of the Original Warrants and issued Reload Warrants to purchase an aggregate of 799,991 shares of the Company’s Common Stockcommon stock and Market Price Warrants to purchase an aggregate of 371,699 shares of the Company’s Common Stock.common stock. In association with the Private Transaction, the Company recorded warrant exchange expense of $1,402,174 representing the difference in the fair market value of the Original Warrants and the New Warrants, as an adjustment to additional paid-inpaid - capital.

Chardan acted as financial advisor on the Private Transaction in consideration for which Chardan received $363,617 and was issuedChardan and its designees were New Warrants for 115,000 shares of the Company’s Common Stock.common stock.

On October 3, 2017, the Company sold, in a registered direct offering, 1,647,691 shares of common stock at an offering price of $3.90 per share and, in a concurrent private placement, warrants to purchase an aggregate of 1,647,691 shares of common stock for gross proceeds of approximately $6,425,995 before deducting the placement agent fee and related offering expenses.

On January 10, 2018, the Company issued warrants for 592,000 shares of the Company’s common stock in connection with the January 2018 Private Placement. The warrants were issued to the parties who purchased the Company’s common stock, as well as to Chardan and its designees who acted as placement agents of the deal. The warrants expire in five years and were exercisable immediately at an exercise price of $3.00 per share.

The following table summarizes the changes in the Company’s outstanding warrants during the ninethree months ended September 30, 2017:March 31, 2018:

Note 12: Income Taxes

The Company accounts for income taxes in accordance with ASCAccounting 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.

ASCTopic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 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.

At the adoption date of January 1, 2008, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

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 September 30, 2017March 31, 2018, and December 31, 2016,2017, the Company had no accrued interest or penalties related to uncertain tax positions.

On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (the “2017 Act”). The 2017 Act will have pervasive financial reporting implications for all companies with U.S. operations, including reduction of the U.S. federal corporate tax rate from 35 percent to 21 percent.  We reviewed and incorporated the new tax bill implications through 2017 financial statements. We remeasured the deferred taxes at new corporation rate of 21%, which reduced the net deferred tax assets, before valuation allowance, by approximately $2,809,700.  Due to full valuation allowance, the change in deferred taxes was fully offset by the change in valuation allowance.  The 2017 Act has no significant impact on the financial statements for the three months ended March 31, 2018 or for the year ended Decembert 31, 2017.

Due to the complexities of the 2017 Act, the SEC issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed. Any subsequent adjustment to these amounts will be recorded to current tax expense in 2018 when the analysis is complete.

The Company files income tax returns in the U.S. federal jurisdiction and in the state of California and Massachusetts. 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 13: Lease Commitments

Rental expenses incurred for operating leases during the three months ended March 31, 2018 and March 31, 2017 were $35,160 and $35,007, respectively.

During the first quarter of 2015, the Company entered into an agreement for new office space to which it relocated its operations upon the expiration of its prior lease. Effective May 1, 2015, the Company began leasing approximately 3,251 square feet of general office space at 301 North Canon Drive, Suite 305, Beverly Hills, California 90210 pursuant to a 35-month sub-lease that commenced on May 1, 2015. The Company will pay $136,542 annually subject to annual escalations of 3%.

On February 6, 2018, the Company entered into lease for approximately 6,969 square feet of general office space at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA 90212 pursuant to a 91-month leave that commences on May 25, 2018. The Company will pay rent of approximately $364,130 annually, subject to annual escalations of 3.5%.

The following is a schedule of future minimum lease payments required by the non-cancelable operating lease agreement:

Note 13: Commitments14: Commitment 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 is contractually committed to make certain minimum lease payments for the use of property under its operating lease. In addition, the Company has contractual commitments for employment agreements of certain employees.

During the first quarter of 2015, the Company entered into an agreement for new office space to which it relocated its operations upon the expiration of its prior lease. Effective May 1, 2015, the Company began leasing approximately 3,251 square feet of general office space at 301 North Canon Drive, Suite 305, Beverly Hills, California 90210 pursuant to a 35-month sub-lease that commenced on May 1, 2015. The Company will pay $136,542 annually subject to annual escalations of 3%.

Rental expenses incurred for operating leases during the three months ended September 30, 2017 and 2016 were $35,862 and $34,818, respectively. Rental expenses incurred for operating leases during the nine months ended September 30, 2017 and 2016 were $71,022 and $69,825, respectively.

The following is a schedule of future minimum contractual obligations as of September 30, 2017, under the Company’s operating leases and employment agreements:

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 agreementswhich call for the potential future payment of royalties or “profit” participations associated with its individual properties. These profit participations can be for either (i) the use of third party intellectual property, such as the case withStan Lee and the Mighty 7 andLlama Llama 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.

In addition, in the normal course of its business, the Company enters into agreements or (ii) services rendered bywith various service providers such as animation studios, post-production studios, writers, directors, musicians or other creative talent for whichtalent. Pursuant to these agreements, 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. 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.

Note 14:15: Related Party Transactions

On April 21, 2016, 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’sSecret Millionaires Club andStan 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. DuringNo amounts were earned during the three months ended September 30, 2017 and 2016, the Company earned $0 and $247 in royalties fromMarch 31, 2018, under this agreement, respectively. During the nine months ended September 30, 2017 and 2016, the Company earned $0 and $247 in royalties from this agreement, respectively.agreement.

On July 25, 2016, the Company entered into a consulting agreement with Foothill Entertainment, Inc. (“Foothill”), an entity whose Chairman is Gregory Payne, our corporate secretary. The Company has engaged Foothill Entertainment, Inc. for a term of six months to assist in the distribution and commercial exploitation of its audiovisual content as well as for the preparation and attendance on behalf of the Company at the MIPJR and MIPCOM markets in Cannes. The agreement continues on a month-to-month basis following the initial term. Foothill receives $12,500 per month for these services. This agreement was extended on a month to month basis through and terminated on January 31, 2018. As of March 31, 2018, Foothill owed the Company $17,784 that Foothill collected on the Company’s behalf for a content license. Greg Payne owed the Company $2,939 for expenses. These amounts were repaid on April 30, 2018.

On October 1, 2016, Llama Productions LLC entered into an animation production services agreement with Mr. Heyward for services as a producer for which he is to receive $186,000 through the course of production of the Company’s animated seriesLlama Llama.From October 1, 2016 through September 30,December 31, 2017, Mr. Heyward has been paid $120,000.$186,000. No amounts were paid during the three months ended March 31, 2018 under this agreement.

Note 15:16: Subsequent Events

Pursuant to FASB ASC 855, Management has evaluated all events and transactions that occurred from September 30, 2017March 31, 2018 through the date of issuance of these financial statements. During this period, we did not have any significant subsequent events, except as disclosed below:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed on March 31, 2017,April 2, 2018 and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-lookingforward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.

Overview

The management’s discussion and analysis is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Our 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 proven industry veterans, we distribute ourleaders, the Company distributes its content in all formats as well as a broad range of consumer products based on its characters. In the children’schildren's media sector, ourthe Company’s portfolio features “content with a purpose” for toddlers to tweens, which provides enrichment as well as entertainment, including the award-winningBaby Genius;Genius,new preschool propertyRainbow Rangers;, debuting November 5, 2018 on Nickelodeon; preschool property debuting on NetflixLlama Llama; that debuted on Netflix in December 2017 and has already been picked up by Netflix for a second season; tween music-driven brandSpacePop; adventure comedyThomas Edison's Secret Lab®, available on, public broadcast stations and our Kidthe Company’s Genius Cartoon ChannelBrands Network on Comcast'sComcast’s Xfinity on Demand, AppleTV, Roku, Amazon Fire ,You Tube and Roku;Amazon Prime; Warren Buffett'sSecret Millionaires Club, created with and starring iconic investor Warren Buffett. We areThe Company is also co-producing an all-new adult-themed animated series,Stan Lee's Cosmic Crusaders,has a partnership with Stan Lee's Pow! Entertainment which it manages for creation, production, licensing andThe Hollywood Reporter. management of original Stan Lee superhero programs.

In addition, we act as licensing agent for certain brands,Llama Llama, leveraging our existing licensing infrastructure to expand these brandsthis brand into new product categories, new retailers, and new territories. These includeLlama Llamaand Celessence Technologies.

Recent Developments

In April 2015, we partnered with Comcast to launch the new Kid Genius Cartoon Channel on Xfinity on Demand. With Xfinity, Kid Genius Cartoon Channel is currently in over 22 million homes. In November 2016, we partnered with a leading kids’ app distributor adding Over-The-Top (“OTT”) distribution expanding the channel onto platforms such as Roku, Apple TV, Amazon Fire and Google thus reaching an additional 40 million homes. Our plans are to continue this roll-out through the end of 2017 by adding additional reach with the goal of being in over 80 million homes.

In September 2017,

Recent Developments

January 2018 Private Placement

On January 8, 2018, we announced thatentered into a Securities Purchase Agreement with certain accredited investors pursuant to which we had partnered with Amazon Primesold approximately $1,800,000 of common stock and warrants to launch Kid Genius Cartoon Channel Plus, a subscription video on demand channel availablesuch investors (the “January 2018 Private Placement”). We issued and sold to the approximately 80 million subscriberssuch investors warrants to Amazon Prime for $3.99purchase 592,000 shares of common stock at an exercise price of $3.00 per month.share.

Results of Operations

Three Months Ended September 30, 2017 and 2016

Our summary results for the three months ended September 30,March 31, 2018, and March 31, 2017 and 2016 are below.

Revenues

Licensing and royalty revenue includes items for which we license the rights to our copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent. During the three months ended September 30, 2017 compared to September 30, 2016, this category increased $8,770 or 10% primarily due to increases in revenues from ourSpacePop property.

Television & Home Entertainment revenue is generated from distribution of our properties for broadcast on television, VOD, or SVOD in domestic and international markets and the sale of DVDs for home entertainment through our partners. Fluctuations in Television & Home Entertainment revenue occur period over period based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content to the customer. During the three months ended September 30, 2017March 31, 2018, compared to September 30, 2016,March 31, 2017, Television & Home Entertainment revenue increased $120,177decreased $39,619 or 345%91% primarily due to licensing activity relatedthe cumulative effect adjustment made as a result of adopting new accounting standard ASC 606. The impact of the adoption reduced revenues for the three months ended March 31, 2018 by $68,184.

Licensing and royalty revenue includes items for which we license the rights to ourThomas Edison’s Secret Lab copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent. During the three months ended March 31, 2018, compared to March 31, 2017, this licensing and royalty revenue decreased $86,401 or 56% primarily due to decreases in revenues from ourSpacePop properties.property that was launched in June of 2016. There was no comparable title released during 2017.

Advertising sales are generated on the Kid Genius Cartoon Channel in the form of either flat rate promotions or advertising impressions served. Advertising sales increased by $7,008$20,504 during the three months ended September 30, 2017 due to advertising impressions served, campaigns, and promotions with no similar activity in the prior period as we had not yet begun to monetize our growing base of homes served.

Product sales represent physical products in which we hold intellectual property rights such as trademarks and copyrights to the characters and which are manufactured and sold by us directly. During the three months ended September 30, 2017, product sales associated with Warren Buffett’sSecret Millionaire Clubincreased by $60March 31, 2018 compared to the three months ended September 30, 2016March 31, 2017 due to a lackincreased advertising impressions served and additional ad campaigns in 2018 as we continue to grow this area of similar product offerings in the prior period.business.

Total Expenses

Marketing and sales expenses decreased $28,524 for the three months ended March 31, 2018 compared to March 31,2017 primarily due to fewer new releases in 2018.

Marketing and sales expenses decreased $133,912 for the three months ended September 30, 2017 compared to the prior year period primarily due to increased promotional spending in the prior period related to the launch ofSpacePop.

Direct operating costs include costs of our product sales, non-capitalizable filmunamortizable post-production 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. During the three months ended September 30, 2017,March 31, 2018, we recorded film and television cost amortization expense of $29,848$26,738 and participation expense of $11,996$3,472 compared to prior periodMarch 31, 2017 expenses of $23,011$4,604 and $0,$12,667, respectively. These increases areThis increase in amortization expense is related to adjustments made to certain film ultimates which increased the amortization rate. The decrease in participation expense is directly related to decreased Television & Home Entertainment and Licensing and Merchandising revenue related toThomas Edison’s Secret Lab andSpacePop in the current period compared to the prior period.The balanceperiod. In March of 2018, we negotiated a $120,000 reduction in the dubbing costs for the Llama Llama series which were accrued during the fourth quarter of 2017 when the series was delivered to Netflix. This reduction resulted in a partial reversal of the direct operating costs includes certain post production costs and content delivery expenses without comparable activity inaccrual during the prior period.

General and administrative expenses consist primarily of salaries, employee benefits, share-based compensation related to stock options, insurance, rent, depreciation and amortization as well as other professional fees related to finance, accounting, legal and investor relations. General and administrative costs for three months ended September 30, 2017 decreased $239,213 compared to the same period in 2016. This change resulted primarily from decreases in share-based compensation expense of $250,443 offset by modest increases of $34,023 in salaries and wages.March 31, 2018.

Nine months Ended September 30, 2017 and 2016

Our summary results for the nine months ended September 30, 2017 and 2016 are below.

Revenues

Licensing and royalty revenue includes items for which we license the rights to our copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent. During the nine months ended September 30, 2017 compared to September 30, 2016, this category increased $18,865 or 5% primarily due to increases in revenues from ourSpacePop property.

Television & Home Entertainment revenue is generated from distribution of our properties for broadcast on television, VOD, or SVOD in domestic and international markets and the sale of DVDs for home entertainment through our partners. Fluctuations in Television & Home Entertainment revenue occur period over period based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content to the customer. During the nine months ended September 30, 2017 compared to September 30, 2016, Television & Home Entertainment revenue decreased $22,291 or 8%. During the nine months ended September 30, 2016, we recognized revenue from numerous licenses of ourThomas Edison’s Secret Lab Property. In the current period, there were fewer licenses ofThomas Edison’s Secret Lab offset by increased licensing activity related to ourSpacePop property.

Advertising sales are generated on the Kid Genius Cartoon Channel in the form of either flat rate promotions or advertising impressions served. Advertising sales increased by $13,027 during the nine months ended September 30, 2017 due to advertising impressions served campaigns, and promotions with no similar activity in the prior period as we had not yet begun to monetize our growing base of homes served.

Product sales represent physical products in which we hold intellectual property rights such as trademarks and copyrights to the characters and which are manufactured and sold by us directly. During the nine months ended September 30, 2017, product sales associated with Warren Buffett’sSecret Millionaire Clubdecreased by $7,589 (47%) compared to the nine months ended September 30, 2016 due to a different product offering and price point as compared to that period in the prior year.

Expenses

Marketing and sales expenses decreased $324,816 for the nine months ended September 30, 2017 compared to the prior year period primarily due to modest decreases in spending related to sponsorships and promotions during the quarter pursuant to ourSpacePop marketing plan as well as fees paid to a consultant for execution of a distribution contract in the prior period without similar activity in the current period.

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. The de minimus increases in direct operating costs in the nine months ended September 30, 2017 compared to the prior period reflect the related increases in total revenue over the same period.

General and administrative expenses consist primarily of salaries, employee benefits, share-based compensation related to stock options, insurances, rent, depreciation and amortization as well as other professional fees related to finance, accounting, legal and investor relations. General and administrative costs for ninethree months ended September 30, 2017,March 31, 2018 decreased $553,060$78,473 compared to the same period in 2016.2017. This change resulted fromdecrease includes: (i) decreases in share-based compensation expense of $722,772 offset by increases$174,140 related to the grant of options to officers, directors, employees and consultants in the fourth quarter of 2015 and in 2016; and (ii) decreases in professional fees of $117,449, salaries and wages of $40,375, and bad debt expense of $16,730. Fluctuations$61,069. These decreases were partially offset by increases in other general and administrative expenses comprise the balance of the variance.$150,136.

Liquidity and Capital Resources

Working Capital

As of September 30, 2017,March 31, 2018, we had current assets of $3,989,900,$8,854,964, including cash, cash equivalents, and restricted cash of $3,247,402,$6,223,310, and current liabilities of $2,126,844,$4,258,470, including certain trade payables of $925,000 ofto which we dispute the claim, resulting in working capital of $1,863,056,$4,596,494, compared to a working capital deficit of $479,404$7,116,279 as of December 31, 2016.2017.

Increases inNet working capital were thedecreased $2,519,785. Working capital increased as a result of two transactions:the $1,800,000 of proceeds received for the sale of common stock and warrants to accredited investors in connection with the January 2018 Private Placement. We issued and sold warrants to purchase 592,000 shares of common stock at an exercise price of $3.00 per share. The increase was more than offset by production costs of Rainbow Rangers and general overhead incurred during the three months ended March 31, 2018 including the lease deposits of $358,103.

Credit Facility

On August 8, 2016, Llama Productions LLC, our wholly-owned subsidiary, closed a $5,275,000 multiple draw-down, secured, non-recourse, non-revolving credit facility (the “Facility”) with Bank Leumi USA to produce our animated seriesLlama Llama (the “Series”). The Series is configured as fifteen half-hour episodes comprised of thirty 11-minute11 minute programs anticipated to be delivered to Netflix in the fourth quarter ofFall 2017. The Facility is secured by the license fees we will receive from Netflix for the delivery of the Series as well as our 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-monthsix month LIBOR plus 3.25%. As a condition of the loan agreement with Bank Leumi, we deposited $1,000,000 into a cash account to be used solely for the production of the series.

During the fourth quarter of 2017, the facility was reduced from $5,295,000 to $4,843,416 and a portion of the collateral was released to use, leaving $583,673 in restricted cash as of December 31, 2017. During the three months ended March 31, 2018 the facility was repaid $1,125,000 and the remaining collateral was released and used to further pay down the loan. The facility net balance as of March 31, 2018 is $2,689,320.

Comparison of Cash Flows for the NineThree Months EndedSeptember30, 2017 March 31, 2018, and 2016March 31, 2017

Our total cash, cash equivalents, and restricted cash were $3,247,402was $6,223,310 and $3,642,667$5,227,097 at September 30,March 31, 2018, and 2017, and 2016, respectively.

During the ninethree months ended September 30,March 31, 2018, our primary sources of cash were the $1,596,340 in net proceeds from the sale of securities under a Securities Purchase Agreement and collections of $1,125,000 from the Llama Llama broadcast agreement. During the three months ended March 31, 2017, our primary sources of cash were the gross proceeds of $3,866,573 from the Private Placement Transaction coupled with $1,284,728 in gross proceeds from the Private Transaction coupled with the $2,034,728 in proceeds from theLlama Llama production facility. During the comparable period in 2016, our primary source of cash was the $2,000,000 advance from the Sony Distribution Agreement. During both periods, these funds were primarily used to fund operations including the continued investment in our film and television assets as well as marketing support for our brands.

Operating Activities

Cash used in operating activities for the ninethree months ended September 30, 2017March 31, 2018 was $5,029,810$1,214,107 as compared to cash used in operating activities of $1,885,328$2,346,210 during the prior period. The use of cashdecrease in the current period is based on the operating results discussed above as well as increases in film and television costs of $1,880,811 related to the development and production ofSpacePop, Llama Llama, andRainbow Rangers. The cash used in operating activities is primarily the result of decreases in accounts receivable due to collections associated with the prior period resulted primarily from the $2,000,000 advance from the Sony Distribution Agreement offset by our operating results and increases in film and television costsdelivery of $754,770 related to the production ofSpacePop andLlama Llama. in December of 2017.

Investing Activities

Cash used in investing activities for the ninethree months ended September 30, 2017March 31, 2018 was $47,361 for the enhancement of our information technology infrastructure$23,672 as compared to a use of $7,192 during the comparable period$0 for the development of certain intangible assets.assets during the comparable period in 2017.

Financing Activities

Cash generated fromused in financing activities for the ninethree months ended September 30, 2017March 31, 2018 was $5,436,652$36,983 as compared to $347,567$4,685,386 generated in the comparable period in 2016.2017. During the ninethree months ended September 30,March 31, 2018, the sources of cash generated from financing activities were the $1,596,340 in net proceeds from the sale of securities under a Securities Purchase Agreement offset with payments made on the Llama Llama production loan of $1,633,323. During the three months ended March 31, 2017, the sources of cash generated from financing activities were the $3,866,573$3,400,658 in grossnet proceeds from the Private Transaction coupled with the $2,034,728 in proceeds from theLlama Llama production facility. During the nine months ended September 30, 2016, cash generated from financing activities included $100,000 from the exercise of certain warrants outstanding as well as $237,567$1,284,728 in proceeds from theLlama Llama production facility.